UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36730

SYNEOS HEALTH, INC.

(Exact name of registrant as specified in its charter)



Delaware		27-3403111
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~3201 Beechleaf Court, Suite 600, Raleigh,~~1030 Sync Street, Morrisville, North Carolina ~~27604-1547~~27560-5468

(Address of principal executive offices and Zip Code)

(919) 876-9300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	SYNH	The Nasdaq Stock Market LLC

As of ~~July 26, 2018,~~April 30, 2019, there were approximately ~~102,882,326~~103,755,391 shares of the registrant’s common stock outstanding.

Table of Contents

SYNEOS HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS




	PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	4
	Condensed Consolidated Balance Sheets as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	6
	Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	78
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3428
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5339
Item 4.	Controls and Procedures	5440

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	5541
Item 1A.	Risk Factors	5542
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	5542
Item 5.	Other Information	5643
Item 6.	Exhibits	5744
	~~Signatures~~Signature	58
	~~Exhibit Index~~	5945

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
	(In thousands, except per share data)												(In thousands, except per share data)
Service revenue	$	1,072,530		$	258,087		$	2,129,726		$	510,165
Reimbursable out-of-pocket expenses	—			133,048			—			262,888
Total revenue	1,072,530			391,135			2,129,726			773,053
Revenue													$	1,119,006		$	1,057,196

Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)	547,993			162,010			1,080,050			316,845			886,802			840,823
Reimbursable out-of-pocket expenses	299,472			133,048			608,238			262,888
Selling, general, and administrative	100,218			42,531			199,477			87,465
Selling, general, and administrative expenses													113,117			99,259
Restructuring and other costs	8,591			4,029			22,298			5,956			14,413			13,707
Transaction and integration-related expenses	18,032			23,739			43,243			23,741			16,658			25,211
Depreciation	17,557			6,066			35,585			12,230			19,571			18,028
Amortization	49,945			9,462			99,938			18,926			41,629			49,993
Total operating expenses	1,041,808			380,885			2,088,829			728,051			1,092,190			1,047,021
Income from operations	30,722			10,250			40,897			45,002			26,816			10,175

Other (expense) income, net:
Other expense, net:
Interest income	1,655			152			2,494			264			1,502			839
Interest expense	(32,894		)	(3,286		)	(64,630		)	(6,386		)	(34,630		)	(31,736		)
Loss on extinguishment of debt	(1,877		)	—			(2,125		)	—			(4,355		)	(248		)
Other income (expense), net	32,001			(6,754		)	19,447			(10,211		)
Other expense, net													(8,921		)	(12,554		)
Total other expense, net	(1,115		)	(9,888		)	(44,814		)	(16,333		)	(46,404		)	(43,699		)
Income (loss) before provision for income taxes	29,607			362			(3,917		)	28,669
Loss before provision for income taxes													(19,588		)	(33,524		)
Income tax (expense) benefit	(16,047		)	3,027			(7,075		)	(4,093		)	(10,416		)	8,972
Net income (loss)	$	13,560		$	3,389		$	(10,992	)	$	24,576
Net loss													$	(30,004	)	$	(24,552	)

Earnings (loss) per share:
Loss per share:
Basic	$	0.13		$	0.06		$	(0.11	)	$	0.45		$	(0.29	)	$	(0.24	)
Diluted	$	0.13		$	0.06		$	(0.11	)	$	0.45		$	(0.29	)	$	(0.24	)
Weighted average common shares outstanding:
Basic	102,899			54,123			103,674			54,069			103,365			104,449
Diluted	104,005			55,307			103,674			55,215			103,365			104,449

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
(In thousands)
Net income (loss) $ 13,560
$ 3,389
$ (10,992 ) $ 24,576
Unrealized loss on derivative instruments, net of income tax benefit of $0, $178, $0, and $91, respectively (1,717 ) (283 ) (1,283 ) (133 )
Foreign currency translation adjustments, net of income tax (expense) of $0, $0, ($2,868) and $0, respectively (69,169 ) 7,486
(35,246 ) 12,332
Comprehensive (loss) income $ (57,326 ) $ 10,592
$ (47,521 ) $ 36,775



	Three Months Ended March 31,
	2019			2018
	(In thousands)
Net loss	$	(30,004	)	$	(24,552	)
Unrealized gain (loss) on derivative instruments, net of income tax benefit (expense) of $95 and $0, respectively	(4,216		)	434
Foreign currency translation adjustments, net of income tax benefit (expense) of $0 and $(2,868), respectively	20,604			33,923
Comprehensive income (loss)	$	(13,616	)	$	9,805

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(In thousands, except share data)						(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	171,528		$	321,262
Restricted cash	2,191			714
Accounts receivable billed, net	682,415			642,985
Accounts receivable unbilled	346,608			373,003
Contract assets	131,367			—
Cash, cash equivalents, and restricted cash							$	107,921		$	155,932
Accounts receivable and unbilled services, net							1,221,660			1,256,731
Prepaid expenses and other current assets	82,964			84,215			78,179			79,299
Total current assets	1,417,073			1,422,179			1,407,760			1,491,962
Property and equipment, net	163,500			180,412			175,990			183,486
Operating lease right-of-use assets							239,391			—
Goodwill	4,275,485			4,292,571			4,344,744			4,333,159
Intangible assets, net	1,182,571			1,286,050			1,096,619			1,133,612
Deferred income tax assets	32,813			20,159			9,153			9,317
Other long-term assets	101,758			84,496			113,873			103,373
Total assets	$	7,173,200		$	7,285,867		$	7,387,530		$	7,254,909

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	85,810		$	58,575		$	94,278		$	98,624
Accrued liabilities	502,646			500,303
Contract liabilities	719,932			559,270
Current portion of capital lease obligations	15,201			16,414
Accrued expenses							535,521			563,527
Deferred revenue							713,313			777,141
Current portion of operating lease obligations							28,792			—
Current portion of finance lease obligations							11,808			13,806
Current portion of long-term debt	37,500			25,000			—			50,100
Total current liabilities	1,361,089			1,159,562			1,383,712			1,503,198
Capital lease obligations, non-current	13,241			20,376
Long-term debt, non-current	2,835,321			2,945,934
Long-term debt							2,785,658			2,737,019
Operating lease long-term obligations							236,905			—
Finance lease long-term obligations							27,144			26,759
Deferred income tax liabilities	32,557			37,807			26,823			25,120
Other long-term liabilities	108,320			99,609			88,918			106,669
Total liabilities	4,350,528			4,263,288			4,549,160			4,398,765

Commitments and contingencies (Note 17)
Commitments and contingencies (Note 18)

Shareholders' equity:
Preferred stock, $0.01 par value; 30,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	—			—
Common stock, $0.01 par value; 600,000,000 shares authorized, 102,871,399 and 104,435,501 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	1,029			1,044
Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding at March 31, 2019 and December 31, 2018							—			—
Common stock, $0.01 par value; 600,000 shares authorized, 103,753 and 103,372 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively							1,038			1,034
Additional paid-in capital	3,371,316			3,414,389			3,402,953			3,402,638
Accumulated other comprehensive loss, net of tax	(55,064		)	(22,385		)	(71,807		)	(88,195		)
Accumulated deficit	(494,609		)	(370,469		)	(493,814		)	(459,333		)
Total shareholders' equity	2,822,672			3,022,579			2,838,370			2,856,144
Total liabilities and shareholders' equity	$	7,173,200		$	7,285,867		$	7,387,530		$	7,254,909

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2019			2018
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net (loss) income	$	(10,992	)	$	24,576
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net loss							$	(30,004	)	$	(24,552	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	135,523			31,156			61,200			68,021
Amortization of capitalized loan fees and original issue discount, net of Senior Notes premium	(32		)	402
Amortization of Senior Notes premium, net of capitalized loan fees and original issue discount							(169		)	(34		)
Share-based compensation	16,254			12,048			14,267			7,879
(Recovery of) provision for doubtful accounts	(1,734		)	158
Benefit from deferred income taxes	(7,682		)	(9,081		)
Provision for doubtful accounts							1,302			171
Provision for (benefit from) deferred income taxes							1,544			(10,735		)
Foreign currency transaction adjustments	(19,633		)	5,882			(77		)	6,364
Fair value adjustment of contingent tax-sharing obligation	2,388			—
Fair value adjustment of contingent obligations							724			1,194
Loss on extinguishment of debt	2,125			—			4,355			248
Other non-cash items	4,056			700			(474		)	1,796
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable, unbilled services, and advanced billings	(68,629		)	31,868
Accounts receivable, unbilled services, and deferred revenue							(25,471		)	(90,617		)
Accounts payable and accrued expenses	(3,269		)	8,694			(26,682		)	(14,241		)
Other assets and liabilities	16,799			(7,977		)	(13,821		)	7,521
Net cash provided by operating activities	65,174			98,426
Net cash used in operating activities							(13,306		)	(46,985		)
Cash flows from investing activities:
Purchases of property and equipment	(32,586		)	(15,974		)	(11,445		)	(21,286		)
Net cash used in investing activities	(32,586		)	(15,974		)	(11,445		)	(21,286		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of discount							183,195			—
Payments of debt financing costs	(3,421		)	—			(184		)	—
Repayments of long-term debt	(97,500		)	—			(216,136		)	(31,250		)
Proceeds from revolving line of credit	—			15,000
Repayments of revolving line of credit	—			(40,000		)
Payments of capital leases	(8,863		)	—
Proceeds from accounts receivable financing agreement							26,500			—
Payments of contingent consideration related to business combinations							(8		)	—
Payments of finance leases							(1,274		)	(4,479		)
Payments for repurchase of common stock	(74,985		)	—			(26,616		)	(37,493		)
Proceeds from exercise of stock options	7,458			6,251			19,724			5,668
Payments related to tax withholding for share-based compensation	(2,383		)	(1,179		)	(11,539		)	(2,323		)
Net cash used in financing activities	(179,694		)	(19,928		)	(26,338		)	(69,877		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,151		)	4,688			3,078			5,127
Net change in cash, cash equivalents, and restricted cash	(148,257		)	67,212			(48,011		)	(133,021		)
Cash, cash equivalents, and restricted cash - beginning of period	321,976			103,078			155,932			321,976
Cash, cash equivalents, and restricted cash - end of period	$	173,719		$	170,290		$	107,921		$	188,955

Supplemental disclosures of non-cash investing activities:
Purchases of property and equipment included in liabilities	$	5,876		$	3,110
Vehicles acquired through capital lease agreements	$	4,589		$	—

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

Table of Contents

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)



	Three Months Ended March 31, 2019
	(in thousands)
	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Shareholders' Equity
	Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Shareholders' Equity
Balance at December 31, 2018	103,372		$	1,034		$	3,402,638		$	(88,195	)	$	(459,333	)	$	2,856,144
Stock repurchase	(673	)	(7		)	(22,132		)	—			(4,477		)	(26,616		)
RSU distributions net of shares for tax withholding	380		4			(11,537		)	—			—			(11,533		)
Stock option exercises	674		7			19,717			—			—			19,724
Share-based compensation	—		—			14,267			—			—			14,267
Net loss	—		—			—			—			(30,004		)	(30,004		)
Unrealized loss on derivative instruments, net of taxes	—		—			—			(4,216		)	—			(4,216		)
Foreign currency translation adjustment, net of taxes	—		—			—			20,604			—			20,604
Balance at March 31, 2019	103,753		$	1,038		$	3,402,953		$	(71,807	)	$	(493,814	)	$	2,838,370



	Three Months Ended March 31, 2018
	(in thousands)
	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Shareholders' Equity
	Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Shareholders' Equity
Balance at December 31, 2017	104,436		$	1,044		$	3,414,389		$	(22,385	)	$	(370,469	)	$	3,022,579
Impact from adoption of ASU 2014-09	—		—			—			—			(98,815		)	(98,815		)
Impact from adoption of ASU 2018-02	—		—			—			3,850			(3,850		)	—
Balance at January 1, 2018	104,436		1,044			3,414,389			(18,535		)	(473,134		)	2,923,764
Stock repurchase	(948	)	(9		)	(30,982		)	—			(6,501		)	(37,492		)
RSU distributions net of shares for tax withholding	100		1			(2,324		)	—			—			(2,323		)
Stock option exercises	216		2			5,624			—			—			5,626
Share-based compensation	—		—			7,879			—			—			7,879
Net loss	—		—			—			—			(24,552		)	(24,552		)
Unrealized gain on derivative instruments, net of taxes	—		—			—			434			—			434
Foreign currency translation adjustment, net of taxes	—		—			—			33,923			—			33,923
Balance at March 31, 2018	103,804		$	1,038		$	3,394,586		$	15,822		$	(504,187	)	$	2,907,259

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Changes in Significant Accounting Policies

Nature of Operations

Syneos Health, Inc. (the “Company”) is a global provider of end-to-end biopharmaceutical outsourcing solutions. The Company operates under two reportable segments, Clinical Solutions and Commercial Solutions, and derives its revenue through a suite of services designed to enhance its customers’ ability to successfully develop, launch, and market their products. The Company offers its solutions on both a standalone and integrated basis with biopharmaceutical development and commercialization services ranging from Phase I-IV clinical trial services to services associated with the commercialization of biopharmaceutical products. The Company’s customers include small, mid-sized, and large companies in the pharmaceutical, biotechnology, and medical device industries.

~~Merger~~

On August 1, 2017, the Company completed the merger (the “Merger”) with Double Eagle Parent, Inc. (“inVentiv”), the parent company of inVentiv Health, Inc. Upon closing, inVentiv was merged with and into the Company, with the Company continuing as the surviving corporation. Beginning August 1, 2017, inVentiv’s results of operations are included in the accompanying unaudited condensed consolidated financial statements. For additional information related to the Merger, refer to “Note 3 - Business Combinations.”

Unaudited Interim Financial Information

The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting.

The unaudited condensed consolidated financial statements, in management’s opinion, include all adjustments of a normal recurring nature necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed with the Securities and Exchange Commission on ~~February 28, 2018.~~March 18, 2019. The results of operations for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2018~~2019 or any other future period. The unaudited condensed consolidated balance sheet at December 31, ~~2017~~2018 is derived from the amounts in the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Recently Adopted Accounting Standards

~~Revenue from Contracts with Customers.~~ Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), as further amended, to increase transparency and comparability among organizations by requiring the recognition of, at the lease commencement date, a lease liability for the obligation to make lease payments, and a right-of-use ("ROU") asset for the right to use the underlying asset, on the balance sheet. The Company adopted ~~Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”) on~~ASU 2016-02, and all related amendments, collectively “ASC 842”, as of January 1, ~~2018~~2019, using the modified retrospective ~~method~~approach. Results for reporting periods beginning on January 1, 2019 are presented under ASC 842, while prior period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under Accounting Standards Codification 840, Leases (“ASC 840”). In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, does not require the Company to reassess if a contract is or contains a lease and allows the Company to carry forward the historical lease classifications and historical initial direct costs. The Company made an accounting policy election under ASC 842 not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. Lease payments for these leases are recognized as lease costs on a straight-line basis over the lease term. The Company also elected to account for lease components and the associated non-lease components in the contracts as a single lease component for all ~~contracts not completed as~~classes of the date of adoption. The reported results for the three and six months ended June 30, 2018 reflect the application of ASC 606, while the reported results for the three and six months ended June 30, 2017 were prepared under ASC 605, ~~Revenue Recognition~~ ~~(“ASC 605”). For additional information related to the impact of adopting this standard, refer to “Note 12 - Revenue from Contracts with Customers.”~~underlying assets.

Table of Contents

~~Statement~~Adoption of ~~Cash Flows - Restricted Cash.~~ ~~Effective January 1, 2018, the Company adopted ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ~~using the retrospective transition method, as required by~~ the new standard. The adoption of this ASU had an immaterial impact to the Company’s unaudited condensed consolidated statements of cash flows. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets at June 30, 2018 and December 31, 2017, which sum to the total of such amountsstandard resulted in the ~~consolidated statements~~recording of ~~cash flows (in thousands):~~

June 30, 2018 December 31, 2017
Cash and cash equivalents $ 171,528
$ 321,262
Restricted cash 2,191
714
Total cash and cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 173,719
$ 321,976

~~Comprehensive Income - Reclassifications of Certain Tax Effects.~~ ~~Effective January 1, 2018, the Company elected to early adopt ASU No. 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~. Under the updated accounting guidance, the Company is allowed to reclassify the stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Act”) is recorded. Upon adoption, the Company recorded an increase to other comprehensive income of $3.9 million and a reduction in retained earnings of $3.9 million. There was no impact on prior periods.

~~Recently Issued Accounting Standards Not Yet Adopted~~

~~Leases.~~ ~~In February 2016, the Financial Accounting Standards board (“FASB”) issued ASU No. 2016-02,~~ ~~Leases. ASU 2016-02 requires organizations to recognize~~additional net lease assets and lease liabilities, ~~on the balance sheet, including~~mainly related to operating leases, ~~that were previously~~of approximately $214.0 million, as of January 1, 2019. The Company’s accounting for finance leases (previously classified as operating leases. The ASU also requires additional disclosures about leasing arrangements related to the amount, timing, and uncertainty of cash flows arising from leases. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments is permitted and the new guidance will be applied using a modified retrospective approach. The Company continues to evaluate the impact of adopting this standard on its accounting policies, financial statements, business processes, systems and internal controls. Additionally, the Company has established a project management and implementation team consisting of internal resources and external advisors. These evaluation and implementation processes are expected to continue through 2018. The Company expects to recognizecapital leases under ASC 840) remained substantially ~~all of its leases on the balance sheet by recording a right-to-use asset and a corresponding lease liability. The Company plans to adopt the standard on January 1, 2019.~~unchanged.

2. Financial Statement Details

Cash and Cash Equivalents

Certain of the Company’s subsidiaries participate in a notional cash pooling arrangement to manage global liquidity requirements. The participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. The net cash balance related to this pooling arrangement is included in ~~the “Cash~~Cash, cash equivalents, and restricted cash ~~equivalents” line item~~ in the unaudited condensed consolidated balance ~~sheet. The Company’s net cash pool position consisted of the following (in thousands):~~

sheets.

June 30, 2018 December 31, 2017
Gross cash position $ 131,577
$ 195,376
Less: cash borrowings (97,508 ) (88,226 )
Net cash position $ 34,069
$ 107,150

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~~Billed~~ Accounts Receivable ~~Net~~and Unbilled Services, net

~~Billed~~Accounts receivable and unbilled services, net of allowance for doubtful accounts, ~~receivable, net~~ consisted of the following (in thousands):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Accounts receivable billed	$	689,797		$	652,061		$	729,727		$	733,142
Allowance for doubtful accounts	(7,382		)	(9,076		)
Less allowance for doubtful accounts							(5,882		)	(4,587		)
Accounts receivable billed, net	$	682,415		$	642,985		723,845			728,555
Accounts receivable unbilled							392,810			422,860
Contract assets							105,005			105,316
Accounts receivable billed and unbilled services, net							$	1,221,660		$	1,256,731

Accounts Receivable Factoring Arrangement

In May 2017, the Company entered into an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, without recourse, to an unrelated third-party financial institution for cash. For the ~~six~~three months ended ~~June 30,~~March 31, 2019 and March 31, 2018, the Company factored ~~$100.9~~$73.8 million and $45.4 million, respectively, of trade accounts receivable on a non-recourse basis and received ~~$100.5~~$73.2 million and $45.2 million, respectively, in cash proceeds from the sale. The fees associated with ~~this transaction~~these transactions were ~~immaterial. The Company did not sell any trade accounts receivables under this agreement during the year ended December 31, 2017.~~

~~Accounts Receivable Financing Agreement~~

On June 29, 2018, the Company entered into, and on August 1, 2018 amended,an accounts receivable financing agreement with a termination date of June 29, 2020, unless terminated earlier pursuant to its terms. Under this agreement, certain of the Company’s consolidated subsidiaries will sell accounts receivable and unbilled services (including contract assets) balances to a wholly-owned, bankruptcy-remote special purpose entity (“SPE”). The SPE can borrow up to $250.0 million from a third-party lender which is secured by liens on certain receivables and other assets of the SPE. The Company has guaranteed the performance of the obligations of existing and future subsidiaries that sell and service the accounts receivable under this agreement. At June 30, 2018, there were no sales of accounts receivable under the accounts receivable financing agreement and the remaining maximum capacity available was $250.0 million, which is limited by a periodic calculation of the Company’s available borrowing base. As of the date of the amendment, the borrowing capacity is determined to be approximately $218.0 million.

~~For additional information related to the accounts receivable financing agreement, refer to “Note 4 - Long-Term Debt Obligations.”~~insignificant.

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Goodwill

~~Changes~~The changes in the carrying amount of goodwill by segment for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 were as follows (in thousands):

Total Clinical
Solutions Commercial
Solutions
Balance at December 31, 2017:
Gross carrying amount $ 4,308,737
$ 2,808,975
$ 1,499,762
Accumulated impairment losses ^(a)
(16,166 ) (8,142 ) (8,024 )
Goodwill net of accumulated impairment losses 4,292,571
2,800,833
1,491,738
2018 Activity:
Business combinations^(b)
(6,339 ) (3,808 ) (2,531 )
Impact of foreign currency translation (10,747 ) (10,263 ) (484 )
Balance at June 30, 2018:
Gross carrying amount 4,291,651
2,794,904
1,496,747
Accumulated impairment losses ^(a)
(16,166 ) (8,142 ) (8,024 )
Goodwill net of accumulated impairment losses $ 4,275,485
$ 2,786,762
$ 1,488,723



	Total			Clinical Solutions			��	Commercial Solutions
Balance at December 31, 2018:
Gross carrying amount	$	4,349,325		$	2,780,945			$	1,568,380
Accumulated impairment losses ^(a)	(16,166		)	(8,142		)		(8,024		)
Goodwill, net of accumulated impairment losses	4,333,159			2,772,803				1,560,356
2019 Activity:
Impact of foreign currency translation	11,585			8,616				2,969
Balance at March 31, 2019:
Gross carrying amount	4,360,910			2,789,561				1,571,349
Accumulated impairment losses ^(a)	(16,166		)	(8,142		)		(8,024		)
Goodwill, net of accumulated impairment losses	$	4,344,744		$	2,781,419			$	1,563,325

^(a)Accumulated impairment losses associated with the Clinical Solutions segment were recorded prior to ~~2018~~2019 and related to the former Phase I Services segment, now a component of the Clinical Solutions segment. Accumulated impairment losses associated with the Commercial Solutions segment were recorded prior to ~~2018~~2019 and related to the former Global Consulting segment, now a component of the Commercial Solutions segment. No impairment of goodwill was recorded for the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019.

^(b) ~~Amount represents measurement period adjustments to goodwill recognized in connection with~~Transaction and Integration-Related Expenses

Transaction and integration-related expenses consisted of the ~~Merger. Goodwill associated with the Merger is not deductible for income tax purposes. Refer to “Note 3 - Business Combinations” for further information.~~following (in thousands):



	Three Months Ended March 31,
	2019		2018
Professional fees	$	12,846	$	14,700
Debt modification and related expenses	2,241		—
Integration and personnel retention-related costs	847		9,293
Fair value adjustments to contingent obligations	724		1,194
Other	—		24
Total transaction and integration-related expenses	$	16,658	$	25,211

Accumulated Other Comprehensive Loss, Net of Tax

Accumulated other comprehensive loss, net of tax, consisted of the following (in thousands):

June 30, 2018 December 31, 2017
Foreign currency translation adjustments, net of tax $ (55,166 ) $ (23,514 )
Unrealized gains on derivative instruments, net of tax 102
1,129
Accumulated other comprehensive loss, net of tax $ (55,064 ) $ (22,385 )



	March 31, 2019			December 31, 2018
Foreign currency translation adjustments	$	(60,351	)	$	(80,955	)
Unrealized gain (loss) on derivative instruments	(11,456		)	(7,240		)
Accumulated other comprehensive loss	$	(71,807	)	$	(88,195	)

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Changes in accumulated other comprehensive ~~gain (loss),~~loss, net of tax, for the three months ended ~~June 30, 2018~~March 31, 2019 were as follows (in thousands):

Unrealized gain (loss) on derivative instruments, net of tax Foreign currency translation adjustments, net of tax Total
Balance at March 31, 2018 $ 1,819
$ 14,003
$ 15,822
Other comprehensive loss before reclassifications (1,396 ) (69,169 ) (70,565 )
Amount of gain reclassified from accumulated other comprehensive loss into statement of operations (321 ) —
(321 )
Net current period other comprehensive loss, net of tax (1,717 ) (69,169 ) (70,886 )
Balance at June 30, 2018 $ 102
$ (55,166 ) $ (55,064 )

~~Changes in accumulated other comprehensive gain (loss), net of tax for the six months ended June 30, 2018 were as follows (in thousands):~~

Unrealized gain (loss) on derivative instruments, net of tax Foreign currency translation adjustments, net of tax Total
Balance at December 31, 2017 $ 1,129
$ (23,514 ) $ (22,385 )
Reclassification of income tax benefit due to adoption of ASU 2018-02 256
3,594
3,850
Balance at January 1, 2018 1,385
(19,920 ) (18,535 )
Other comprehensive loss before reclassifications (685 ) (35,246 ) (35,931 )
Amount of gain reclassified from accumulated other comprehensive loss into the statements of operations (598 ) —
(598 )
Net current period other comprehensive loss, net of tax (1,283 ) (35,246 ) (36,529 )
Balance at June 30, 2018 $ 102
$ (55,166 ) $ (55,064 )

Unrealized gains on derivative instruments represent the effective portion of gains associated with interest rate swaps. Designated as cash flow hedges, the interest rate swaps limit the variable interest rate exposure associated with the Company’s term loans. The Company reclassifies these gains into net income as it makes interest payments on its term loan. Amounts to be reclassified to net income in the next 12 months are expected to be immaterial.

For the three months ended June 30, 2018, income tax provision related to the components of other comprehensive loss was fully offset by the increase in the valuation allowance resulting in no tax impact for the period.

~~The tax effects allocated to each component of other comprehensive loss for the six months ended June 30, 2018 were as follows (in thousands):~~

Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount
Foreign currency translation adjustments $ (32,378 ) $ (2,868 ) $ (35,246 )
Unrealized loss on derivative instruments:
Unrealized loss arising during period (685 ) —
(685 )
Reclassification adjustment of realized gains to net income (598 ) —
(598 )
Net unrealized loss on derivative instruments (1,283 ) —
(1,283 )
Other comprehensive loss $ (33,661 ) $ (2,868 ) $ (36,529 )

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	Unrealized gain (loss) on derivative instruments			Foreign currency translation adjustments			Total
Balance at December 31, 2018	$	(7,240	)	$	(80,955	)	$	(88,195	)
Other comprehensive gain (loss) before reclassifications	(3,729		)	20,604			16,875
Amount of gain reclassified from accumulated other comprehensive loss into the statement of operations	(487		)	—			(487		)
Net current period other comprehensive gain (loss), net of tax	(4,216		)	20,604			16,388
Balance at March 31, 2019	$	(11,456	)	$	(60,351	)	$	(71,807	)

The tax effects allocated to each component of other comprehensive income (loss) for the three months ended ~~June 30, 2017~~March 31, 2019 were as follows (in thousands):

Before-Tax Amount Tax (Expense) or Benefit Net-of-Tax Amount
Foreign currency translation adjustments $ 7,486
$ —
$ 7,486
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) arising during period (271 ) 105
(166 )
Reclassification adjustment for gains realized in net income (190 ) 73
(117 )
Net unrealized gain (loss) on derivative instruments (461 ) 178
(283 )
Other comprehensive income $ 7,025
$ 178
$ 7,203



	Before-Tax Amount			Tax Benefit		Net-of-Tax Amount
Foreign currency translation adjustments	$	20,604		$	—	$	20,604
Unrealized loss on derivative instruments:
Unrealized loss arising during period	(3,805		)	76		(3,729		)
Reclassification adjustment of realized gains to net income (loss)	(506		)	19		(487		)
Net unrealized loss on derivative instruments	(4,311		)	95		(4,216		)
Other comprehensive income (loss)	$	16,293		$	95	$	16,388

The tax effects allocated to each component of other comprehensive income (loss) for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 were as follows (in thousands):

Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount
Foreign currency translation adjustments $ 12,332
$ —
$ 12,332
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) arising during the period 34
(7 ) 27
Reclassification adjustment of realized gains to net income (258 ) 98
(160 )
Net unrealized gain (loss) on derivative instruments (224 ) 91
(133 )
Other comprehensive income $ 12,108
$ 91
$ 12,199



	Before-Tax Amount			Tax Benefit			Net-of-Tax Amount
Foreign currency translation adjustments	$	36,791		$	(2,868	)	$	33,923
Unrealized gain on derivative instruments:
Unrealized gain arising during the period	711			—			711
Reclassification adjustment of realized gains to net loss	(277		)	—			(277		)
Net unrealized gain on derivative instruments	434			—			434
Other comprehensive income (loss)	$	37,225		$	(2,868	)	$	34,357

Other ~~Income (Expense),~~Expense, Net

Other ~~income (expense),~~expense, net consisted of the following (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
	2018		2017			2018			2017			2019			2018
Net realized foreign currency gain (loss)	$	5,685	$	(3,482	)	$	168		$	(4,152	)	$	(8,406	)	$	(5,517	)
Net unrealized foreign currency gain (loss)	25,997		(3,175		)	19,633			(5,882		)	77			(6,364		)
Other, net	319		(97		)	(354		)	(177		)	(592		)	(673		)
Total other income (expense), net	$	32,001	$	(6,754	)	$	19,447		$	(10,211	)
Total other expense, net												$	(8,921	)	$	(12,554	)

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3. Business Combinations

~~Transaction Overview~~inVentiv Health Merger

On August 1, 2017 (the “Merger Date”), the Company completed a merger (the “Merger”) with Double Eagle Parent, Inc. (“inVentiv”), the ~~Merger with~~parent company of inVentiv Health, Inc., with the Company surviving as the accounting and legal entity acquirer. The Merger was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The purchase price has been ~~preliminarily~~ allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their fair values. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. The goodwill in connection with the Merger is primarily attributable to the assembled workforce of inVentiv and the expected synergies of the Merger.

In connection with the Merger, the Company assumed certain contingent tax-sharing obligations of inVentiv. The fair value of the contingent tax-sharing liability is remeasured at the end of each reporting period, with changes in the estimated fair value reflected in earnings until the liability is fully settled. The estimated fair value of the contingent tax-sharing ~~obligation~~obligations liability was ~~$52.9~~$16.4 million and ~~$50.5~~$15.7 million as

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~~of June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The liability is included in ~~the “Accrued liabilities”~~accrued expenses and ~~“Other~~other long-term ~~liabilities” line items of~~liabilities on the accompanying unaudited condensed consolidated balance sheets.

Kinapse Limited Acquisition

In August 2018, the Company completed its acquisition of Kinapse Topco Limited (“Kinapse”), a provider of advisory and operational solutions to the global life sciences industry. The ~~results~~total purchase consideration was $100.1 million plus assumed debt, and included cash acquired of ~~inVentiv’s operations have been included in the Company’s statements~~$4.9 million. The Company recognized $74.8 million of ~~operations since the Merger Date. Computing separate measures~~goodwill and $57.3 million of ~~inVentiv’s stand-alone revenue and profitability for the period after the Merger Date is impracticable.~~

~~Allocation of Consideration Transferred~~

~~The fair value~~intangible assets, principally customer relationships, as a result of the ~~consideration transferred on the Merger Date was $4.51 billion.~~acquisition. The following table summarizes the preliminary allocation of the consideration transferred based on management’s estimates of Merger Date fair values of assets acquired and liabilities assumed, with the excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill ~~(in thousands):~~

June 30, 2018
Assets acquired:
Cash and cash equivalents $ 57,338
Restricted cash 433
Accounts receivable 367,595
Unbilled accounts receivable 261,585
Other current assets 95,506
Property and equipment 113,674
Intangible assets 1,334,200
Other assets 50,052
Total assets acquired 2,280,383
Liabilities assumed:
Accounts payable 38,072
Accrued liabilities 304,341
Contract liabilities 247,474
Capital leases 40,928
Long-term debt, current and non-current 737,872
Deferred income taxes, net 11,988
Other liabilities 121,241
Total liabilities assumed 1,501,916
Total identifiable assets acquired, net 778,467
Goodwill $ 3,727,156

The goodwill recognized in connection with the Merger was $3.73 billion, with $2.24 billion of the goodwill assigned to the Clinical Solutions segment and $1.49 billion assigned to the Commercial Solutions segment. Goodwill generated in the Merger is not deductible for income tax purposes. The Company’s assessment of fair value and the purchase price allocation ~~are~~related to this acquisition is preliminary and subject to change upon completion of the measurement period. During the six months ended June 30, 2018, the Company made adjustments to the preliminary fair value of acquired assets and assumed liabilities to reflect additional information obtained in connection with the Merger. The net effect of the adjustments resulted in a decrease to goodwill of $6.3 million. Furtherfurther adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the ~~Merger Date)~~acquisition date).

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~~Unaudited Pro Forma Financial Information~~

The ~~following unaudited pro forma financial information was derived~~operating results from the ~~historical financial statements of~~Kinapse acquisition have been included in the Company and inVentiv and presents the combined results of operations as if the Merger had occurred on January 1, 2016. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results that would have actually occurred had the Merger been completed on January 1, 2016. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may resultCompany’s Commercial Solutions segment from the ~~Merger, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations~~date of ~~inVentiv. Consequently, actual future results of the Company will differ from the unaudited pro forma financial information presented.~~

Three Months Ended June 30, 2017 Six Months Ended June 30, 2017
(In thousands, except per share data)
Pro forma total revenue $ 1,054,348
$ 2,119,311
Pro forma net income 4,180
7,299
Pro forma income per share:
Basic $ 0.04
$ 0.07
Diluted $ 0.04
$ 0.07

The unaudited pro forma adjustments primarily relate to the depreciation of acquired property and equipment, amortization of acquired intangible assets and interest expense and amortization of deferred financing costs related to the new financing arrangements. In addition, the unaudited pro forma net income for the three and six months ended June 30, 2017 was adjusted to exclude $22.7 million, net of tax effects, of nonrecurring merger-related transaction costs.acquisition.

4. Long-Term Debt Obligations

The Company’s debt obligations consisted of the following (in thousands):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Secured Debt
Term Loan A due August 2022	$	987,500		$	1,000,000
Term Loan A due March 2024							$	1,150,000		$	975,000
Term Loan B due August 2024	1,465,000			1,550,000			1,017,364			1,221,000
Revolving credit facility due August 2022	—			—
Accounts receivable financing agreement due June 2020	—			—			195,900			169,400
Total secured debt	2,452,500			2,550,000			2,363,264			2,365,400
Unsecured Debt
7.5% Senior Unsecured Notes due 2024	403,000			403,000			403,000			403,000
Total debt obligations	2,855,500			2,953,000			2,766,264			2,768,400
Add: unamortized Senior Notes premium, net of original issue debt discount	34,181			38,656
Add: unamortized Senior Notes premium, net of term loan original issuance discount							29,305			32,303
Less: unamortized deferred issuance costs	(16,860		)	(20,722		)	(9,911		)	(13,584		)
Less: current portion of debt	(37,500		)	(25,000		)	—			(50,100		)
Total debt obligations, non-current portion	$	2,835,321		$	2,945,934		$	2,785,658		$	2,737,019

~~During~~

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Concurrent with the ~~six months ended June 30,~~completion of the Merger on August 1, 2017, the Company entered into a credit agreement (as amended, the "Credit Agreement") for: (i) a $1.0 billion Term Loan A facility that would mature on August 1, 2022 (the “Term Loan A”); (ii) a $1.6 billion Term Loan B facility that would mature on August 1, 2024 (the “Term Loan B”); and (iii) a five-year $500.0 million revolving credit facility (the “Revolver”) that would mature on August 1, 2022.

On May 4, 2018, the Company ~~made voluntary prepayments~~entered into Amendment No. 1 to the Credit Agreement, which, among other things, modified the terms of ~~$85.0~~the Credit Agreement to reduce by 0.25% overall the applicable margins for alternate base rate loans and Adjusted Eurocurrency Rate loans with respect to both the Term Loan A and Term Loan B facilities.

In February 2019, the Company voluntarily prepaid $25.0 million towards reducing its outstanding Term Loan B balance, which ~~were~~was applied against the regularly-scheduled quarterly principal ~~payments of the Term Loan B.~~payments. As a result of these and previous voluntary prepayments, the Company is not required to make a mandatory principal payment against the Term Loan B principal balance until maturity in August 2024. Additionally, during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company made mandatory principal ~~payments~~repayments of $12.5 million towards its Term Loan A.

Amendment No. 2 to the Credit Agreement

On March 26, 2019, the Company entered into Amendment No. 2 to the Credit Agreement (“the Second Amendment”). The Second Amendment, among other things, modifies the terms of the Credit Agreement to refinance the existing Term Loan A facility and the Revolver as follows:

(a) to increase the existing Term Loan A facility by $587.5 million to $1.55 billion. $187.5 million of such increase was applied at closing to repay a portion of the Company’s existing Term Loan B facility and the fees and expenses incurred in connection with the Second Amendment, and the remaining $400.0 million will be available to be funded in multiple draws within 9 months of closing and applied to further prepay loans under the Term Loan B facility and/or redeem, repay, defease or discharge all or a portion of the Company’s Senior Unsecured Notes due 2024;

(b) to increase the existing Revolver commitments available by $100.0 million to $600.0 million, and reduce the margin spread by 0.25% overall, resulting in (i) for Adjusted Eurocurrency Rate loans, a margin spread of 1.50% and (ii) for alternate base rate loans, a margin spread of 0.50%, with a single 0.25% step-down based on the achievement of certain leverage ratios; and

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

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

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

The Company recorded debt issuance costs and related fees in connection with the Revolver and the unfunded amount of the Term Loan A facility of approximately $3.5 million, which are included in other assets in the unaudited condensed consolidated balance sheet. These costs are amortized as a component of interest expense on a straight-line basis over the related terms.

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~~Repricing Amendment to Credit~~Covenant Restrictions under our Lease Agreement

~~On May 4, 2018,~~The lease agreement for the Company’s new corporate headquarters in Morrisville, North Carolina includes a provision that requires the Company ~~entered into Amendment No. 1 (the “Repricing Amendment”)~~to issue a letter of credit in certain amounts to the ~~Credit Agreement dated August 1, 2017 (the “2017 Credit Agreement”), which, among~~landlord based on the Company’s debt rating issued by Moody’s Investors Service (or other ~~things, modified~~nationally-recognized debt rating agency). As of March 31, 2019 (and through the terms of the 2017 Credit Agreement to: (i) reduce by 0.25% overall the applicable margins for alternate base rate (“Base Rate”) loans and Adjusted Eurocurrency Rate (“Eurocurrency Rate”) loans with respect to both Term Loan A and Term Loan B; and (ii) reset the period in which a prepayment premium with respect to Term Loan B is required for a “Repricing Transaction” (as defined in the Credit Agreement) to six months after the closing date of this filing), the ~~Repricing Amendment.~~Company’s credit rating was Ba3. As such, no letter of credit was required through the date of this filing. Any letters of credit issued in accordance with the aforementioned requirements would be issued under the Revolver, and would reduce its available borrowing capacity by the same amount.

~~The applicable margins with respect to Base Rate~~As of March 31, 2019, the Company had $580.5 million (net of $19.5 million in outstanding letters of credit) of available borrowings for working capital and ~~Eurocurrency Rate borrowings are determined depending on~~other purposes under the ~~“First Lien Leverage Ratio” or~~Revolver and $0.8 million of letters of credit that were not secured by the ~~"Secured Net Leverage Ratio" (as defined in the Repricing Amendment) and range as follows:~~Revolver.

Base Rate Eurocurrency Rate
Term Loan A 0.25 % - 0.50% 1.25 % - 1.50%
Term Loan B 0.75 % - 1.00% 1.75 % - 2.00%

Accounts Receivable Financing Agreement

On June 29, 2018, the Company entered into ~~and on August 1, 2018 amended,~~ an accounts receivable financing agreement (as amended) with a termination date of June 29, 2020, unless terminated earlier pursuant to its terms. Under this agreement, certain of the Company’s consolidated subsidiaries will sell accounts receivable and unbilled services (including contract assets) balances to a wholly-owned, bankruptcy-remote special purpose entity (“SPE”). The SPE can borrow up to $250.0 million from a third-party lender, secured by liens on certain receivables and other assets of the SPE. The Company has guaranteed the performance of the obligations of existing and future subsidiaries that sell and service the accounts receivable under this agreement. The available borrowing capacity varies monthly according to the levels of the Company’s eligible accounts receivable and unbilled receivables. Loans under this agreement will accrue interest at a reserve-adjusted LIBOR rate or a base rate equal to the ~~highest~~higher of (i) the applicable lender’s prime rate, and (ii) the federal funds rate plus 0.50%. The Company may prepay loans upon one business ~~day~~day’s prior notice and may terminate or reduce the facility limit of the accounts receivable financing agreement with 15 days’ prior notice.

~~At June 30, 2018,~~As of March 31, 2019, the ~~remaining maximum capacity available~~Company had $195.9 million of outstanding borrowings under the accounts receivable financing agreement, ~~was $250.0 million,~~ which is ~~limited by a periodic calculation~~recorded in long term debt on the accompanying unaudited condensed consolidated balance sheet. The remaining maximum capacity available for borrowing under this agreement was $54.1 million as of March 31, 2019.

Maturities of Debt Obligations

As of March 31, 2019, the contractual maturities of the Company’s ~~available~~debt obligations were as follows (in thousands):



	Principal			Interest
2019	$	—		$	100,123
2020	239,024			128,807
2021	79,063			122,189
2022	107,813			118,252
2023	115,000			112,726
2024 and thereafter	2,225,364			57,441
Less: deferred issuance costs	(9,911		)
Unamortized Senior Notes premium, net of term loan original issuance discount	29,305
Total	$	2,785,658		$	639,538

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5. Leases

The Company’s operating leases are primarily related to its office facilities. The Company’s finance leases are related to vehicles that the Company leases for certain sales representatives in its Commercial Solutions segment. These leases have remaining lease terms of less than 1 year to 13 years, some of which include options to extend the term or terminate the lease. These options to extend or terminate a lease are included in the lease terms when it is reasonably certain that the Company will exercise that option.

ROU assets and lease liabilities are recognized based on the present value of the fixed lease payments over the lease term at the commencement date. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date, and are reduced by lease incentives. The Company uses its incremental borrowing ~~base.~~ rate as the discount rate to determine the present value of the lease payments for leases that do not have a readily determinable implicit discount rate. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term and amount in a similar economic environment. The Company determines the incremental borrowing rates for its leases by adjusting the local risk free interest rate with a credit risk premium corresponding to the Company’s credit rating.

The Company records rent expense for its operating leases on a straight-line basis from the lease commencement date until the end of the lease term. The Company records finance lease cost as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. Variable lease payments for operating leases are related to the office facilities and include but are not limited to common area maintenance, parking, electricity and management fees. The variable lease payments for finance leases are related to maintenance programs for leased vehicles. Variable lease payments are based on occurrence or based on usage; therefore, they are not included as part of the initial ROU assets and liabilities’ calculation.

The components of lease cost were as follows (in thousands):



		Three Months Ended
	Classification	March 31, 2019
Operating leases:
Fixed lease costs	Selling, general, and administrative expenses	$	17,140
Short-term lease costs	Selling, general, and administrative expenses	379
Variable lease costs	Selling, general, and administrative expenses	7,790
Total operating lease costs		$	25,309
Finance leases:
Amortization of right-of-use assets	Depreciation	$	4,319
Interest on lease liabilities	Interest expense	394
Variable lease costs	Selling, general, and administrative expenses	1,827
Total finance lease costs		$	6,540

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



Finance leases:	March 31, 2019
Property and equipment, gross	$	53,545
Accumulated depreciation	(19,932		)
Property and equipment, net	$	33,613

Current portion of finance lease obligations	$	11,808
Finance lease long-term obligations	27,144
Total finance lease liabilities	$	38,952

Supplemental cash flow information related to leases was as follows (in thousands):



	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	(16,238	)
Operating cash flows for finance leases	(394		)
Financing cash flows for finance leases	(1,274		)

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	39,002
Finance leases	1,171



Weighted average remaining lease term	March 31, 2019
Operating leases	8 years
Finance leases	3 years



Weighted average discount rate	March 31, 2019
Operating leases	4.9	%
Finance leases	3.2	%

As of March 31, 2019, maturities of lease liabilities were as follows (in thousands):



	Operating Leases			Finance Leases			Total
2019 (remaining 9 months)	$	27,533		$	12,853		$	40,386
2020	50,350			13,447			63,797
2021	44,824			9,922			54,746
2022	39,255			5,476			44,731
2023	35,678			37			35,715
2024 and thereafter	131,452			—			131,452
Total lease payments	329,092			41,735			$	370,827
Less: management fee				(559		)
Less: imputed interest	(63,395		)	(2,224		)
Total lease liabilities	$	265,697		$	38,952

Under ASC 840, as of December 31, 2018, the ~~date~~Company had total capital lease assets of $55.3 million and accumulated depreciation of $17.6 million, which are included within property and equipment, net, on

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the ~~amendment,~~unaudited condensed consolidated balance sheet. The related capital lease obligations totaled $40.6 million as of December 31, 2018. For the ~~borrowing capacity is determined to be approximately $218.0 million.~~ three months ended March 31, 2018, the Company recorded rent expense of $16.7 million for operating leases.

~~5. Derivative Financial Instruments~~6. Derivatives

In May 2016, the Company entered into interest rate swaps with a combined notional value of $300.0 million in an effort to limit its exposure to variable interest rates on its ~~Term Loans. Interest began accruing on the~~term loans. The swaps became effective on June 30, 2016 and a portion of the interest rate swaps expired on June 30, 2018, with the remainder expiring on May 14, 2020. As of ~~June 30, 2018,~~March 31, 2019, the remaining notional value of these interest rate swaps was $100.0 million.

In June 2018, the Company entered into ~~two new interest rate swaps with multiple counterparties in~~ an ~~effort to limit its exposure to variable interest rates on its Term Loans. The first~~ interest rate swap ~~has an aggregate notional value of $1.22 billion, began accruing interest on June 29, 2018, and will expire on December 31, 2018. The second interest rate swap has~~with an aggregate notional value of $1.01 billion, anthat became effective ~~date of~~on December 31, 2018, and that will expire on June 30, 2021.

The ~~material~~significant terms of these derivatives are substantially the same as those contained within the ~~2017~~ Credit Agreement, including monthly settlements with the swap ~~counterparty.~~counterparties. Interest rate swaps are designated as hedging instruments. During the three months ended March 31, 2019, the amount of loss recognized in other income (expense), net with respect to these contracts was inconsequential.

As a result of an acquisition, the Company became a party to certain foreign currency exchange rate forward contracts that have expiration dates through April 2019. During the three months ended March 31, 2019, the amount of loss recognized in other expense, net with respect to these contracts was inconsequential.

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The fair values of the Company’s ~~interest rate swaps designated as cash flow hedging~~derivative financial instruments and the line items on the accompanying unaudited condensed consolidated balance sheets to which they were recorded are as follows (in thousands):

Balance Sheet Classification June 30, 2018 December 31, 2017
Interest rate swaps - current Prepaid expenses and other current assets $ 1,293
$ 916
Interest rate swaps - non-current Other long-term assets $ 1,307
$ 1,263
Interest rate swaps - current Accrued liabilities $ (1,590 ) $ —
Interest rate swaps - non-current Other long-term liabilities $ (343 ) $ —

The amounts of hedge ineffectiveness recorded in net income during the three and six months ended June 30, 2018 and June 30, 2017 were immaterial and were attributable to inconsistencies in certain terms between the interest rate swaps and the 2017 Credit Agreement.



	Balance Sheet Classification	March 31, 2019			December 31, 2018
Interest rate swaps - current	Prepaid expenses and other current assets	$	1,132		$	1,355
Interest rate swaps - non-current	Other long-term assets	111			441
Foreign currency exchange rate swaps - current	Accrued expenses	—			(138		)
Interest rate swaps - current	Accrued expenses	(4,328		)	(3,031		)
Interest rate swaps - non-current	Other long-term liabilities	(8,832		)	(6,201		)

6.7. Fair Value Measurements

Assets and Liabilities Carried at Fair Value

As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company’s financial assets and liabilities carried at fair value included cash and cash equivalents, restricted cash, trading securities, billed and unbilled accounts receivable (including contract ~~assets,~~assets), accounts payable, accrued ~~liabilities, contract liabilities,~~expenses, deferred revenue, assumed contingent ~~tax-sharing~~ obligations, ~~capital~~finance leases, liabilities under the accounts receivable financing agreement, and ~~interest rate~~ derivative instruments.

The fair ~~value~~values of cash and cash equivalents, restricted cash, billed and unbilled accounts receivable (including contract ~~assets,~~assets), accounts payable, accrued expenses, deferred revenue, and the liabilities ~~and contract liabilities approximates~~under the accounts receivable financing agreement approximate their respective carrying amounts because of the liquidity and short-term nature of these financial instruments.

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Financial Instruments Subject to Recurring Fair Value Measurements

As of ~~June 30,~~March 31, 2019, the fair values of the major classes of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):



	Level 1		Level 2		Level 3		Total
Assets:
Trading securities^(a)	$	20,674	$	—	$	—	$	20,674
Derivative instruments^(b)	—		1,243		—		1,243
Total assets	$	20,674	$	1,243	$	—	$	21,917

Liabilities:
Derivative instruments^(b)	$	—	$	13,160	$	—	$	13,160
Contingent obligations related to business combinations^(c)	—		—		20,966		20,966
Total liabilities	$	—	$	13,160	$	20,966	$	34,126

As of December 31, 2018, the fair values of the major classes of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Trading securities(a)	$	16,578	$	—	$	—	$	16,578	$	14,945	$	—	$	—	$	14,945
Derivative instruments	—		2,600		—		2,600
Derivative instruments^(b)									—		1,796		—		1,796
Total assets	$	16,578	$	2,600	$	—	$	19,178	$	14,945	$	1,796	$	—	$	16,741

Liabilities:
Derivative instruments	$	—	$	1,933	$	—	$	1,933
Contingent tax-sharing obligations assumed through business combinations	—		—		52,868		52,868
Derivative instruments^(b)									$	—	$	9,370	$	—	$	9,370
Contingent consideration obligations related to business combinations^(c)									—		—		20,127		20,127
Total liabilities	$	—	$	1,933	$	52,868	$	54,801	$	—	$	9,370	$	20,127	$	29,497

~~Table~~^(a)Represents fair value of ~~Contents~~

investments in mutual funds based on quoted market prices which are used to fund the liability associated with the deferred compensation plan.

As^(b)Represents fair value of ~~December 31, 2017,~~interest rate swap and foreign currency exchange rate forward contract arrangements (see "Note 6 - Derivatives" for further information).

^(c)Represents fair value of contingent obligations related to business combinations (see "Note 3 - Business Combinations" for further information). The fair value of these liabilities are determined based on the ~~fair values~~Company’s best estimate of the ~~major classes~~probable timing and amount of ~~the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):~~settlement.

Level 1 Level 2 Level 3 Total
Assets:
Trading securities $ 16,318
$ —
$ —
$ 16,318
Derivative instruments —
2,179
—
2,179
Total assets $ 16,318
$ 2,179
$ —
$ 18,497

Liabilities:
Contingent tax-sharing obligations assumed through business combinations $ —
$ —
$ 50,480
$ 50,480
Total liabilities $ —
$ —
$ 50,480
$ 50,480

The following table presents changes in the carrying amount of ~~contingent tax-sharing~~ obligations classified as Level 3 category within the fair value hierarchy for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 (in thousands):

Balance at December 31, 2017 $ 50,480
Changes in fair value recognized in earnings 2,388
Payments —
Balance at June 30, 2018 $ 52,868



Balance at December 31, 2018	$	20,127
Additions	—
Accretion recognized in earnings	839
Balance at March 31, 2019	$	20,966

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, there were no transfers of assets or liabilities between Level 1, Level 2 or Level 3 fair value measurements.

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Financial Instruments Subject to Non-Recurring Fair Value Measurements

Certain assets, including goodwill and identifiable intangible assets, are carried on the balance sheets at cost and, subsequent to initial recognition, are measured at fair value on a non-recurring basis when certain identified events or changes in circumstances that may have a significant adverse effect on the carrying values of these assets occur. These assets are classified as Level 3 fair value measurements within the fair value hierarchy. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate a triggering event has occurred. Intangible assets are tested for impairment upon the occurrence of certain triggering events. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, assets subject to non-recurring fair value measurements totaled ~~$5.46~~$5.44 billion and ~~$5.58~~$5.47 billion, respectively.

Fair Value Disclosures for ~~Debt~~Financial Instruments Not Carried at Fair Value

The estimated fair value of the outstanding term loans and Senior Unsecured Notes is determined based on the price that the Company would have to pay to settle the liabilities. As these liabilities are not actively traded, they are classified as Level 2 fair value measurements. The estimated fair values of the Company’s outstanding term loans and Senior Unsecured Notes were as follows (in thousands):


	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Carrying Value (a)		Estimated Fair Value		Carrying Value (a)		Estimated Fair Value		Carrying Value ^(a)		Estimated Fair Value		Carrying Value ^(a)		Estimated Fair Value
Term Loan A due August 2022	$	985,441	$	987,500	$	1,000,000	$	1,000,000
Term Loan A due March 2024									$	1,146,253	$	1,150,000	$	973,218	$	975,000
Term Loan B due August 2024	1,463,386		1,465,000		1,548,149		1,550,000		1,016,371		1,017,364		1,219,755		1,221,000
7.5% Senior Unsecured Notes due 2024	440,854		430,203		443,507		433,729		437,045		426,173		438,330		423,150

^(a)The carrying value of the term loan debt is shown net of original issue debt discounts. The carrying value of the ~~7.5%~~ Senior ~~Unsecured~~ Notes is inclusive of unamortized premiums.

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7.8. Restructuring and Other Costs

Merger-Related Restructuring

In connection with the Merger, the Company established a restructuring plan to eliminate redundant positions and reduce its facility footprint worldwide. The Company expects to continue the ongoing evaluations of its workforce and facilities infrastructure needs through 2020 in an effort to optimize its resources. Additionally, in conjunction with the Merger, the Company assumed certain liabilities related to employee severance and facility closure costs as a result of actions taken by inVentiv prior to the Merger. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company recognized approximately: (i) ~~$11.3~~$6.3 million of employee severance and benefits related costs; and (ii) ~~$4.8~~$2.0 million of facility closure and lease termination ~~costs; and (iii) $0.5 million of other costs related to the Merger.~~costs. Over the next several years, the Company expects to incur significant costs related to the restructuring of its operations in order to achieve targeted synergies ~~from~~as a result of the Merger. ~~The~~However, the timing and the amount of these costs ~~and related benefits may differ significantly from current management’s estimates and depends~~depend on various factors, including, but not limited to, identifying and realizing synergy opportunities and executing the integration of the Company’s operations.

Non-Merger Restructuring and Other ~~Restructuring~~Costs

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company incurred ~~$1.4~~$0.2 million of facility closure and lease termination costs related to the Company’s pre-Merger activities aimed at optimizing its resources worldwide. Additionally, during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company ~~recognized: (i)~~recognized approximately ~~$2.5 million of consulting costs related to the restructuring of its contract management processes to meet the requirements of the newly adopted revenue recognition accounting standard; (ii) $1.0~~$6.0 million of employee severance and benefits related ~~costs; and (iii) $0.8 million~~costs.

Table of ~~other restructuring costs.~~Contents

Accrued Restructuring Liabilities

The following table summarizes activity related to the liabilities associated with restructuring and other costs during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 (in thousands):

Employee Severance Costs, Including Executive Transition Costs Facility Closure and Lease Termination Costs Other Costs Total
Balance at December 31, 2017 $ 8,858
$ 7,411
$ 524
$ 16,793
Expenses incurred^(a)
12,180
3,108
3,276
18,564
Cash payments made (13,429 ) (4,607 ) (3,665 ) (21,701 )
Balance at June 30, 2018 $ 7,609
$ 5,912
$ 135
$ 13,656



	Employee Severance Costs, Including Executive Transition Costs			Facility Closure and Lease Termination Costs			Other Costs			Total
Balance at December 31, 2018	$	7,474		$	16,761		$	52		$	24,287
Adoption of ASC 842 ^(a)	—			(16,761		)	—			(16,761		)
Expenses incurred ^(b)	12,232			—			8			12,240
Cash payments made	(4,071		)	—			(38		)	(4,109		)
Balance at March 31, 2019	$	15,635		$	—		$	22		$	15,657

^(a)As a result of the adoption of ASC 842, accrued expenses related to facility closure and lease termination costs are now reflected within the current portion of operating lease obligations and operating lease long-term obligations on the unaudited condensed consolidated balance sheet as of March 31, 2019. These facility costs will be paid over the remaining terms of exited facilities, which range from 2019 through 2027.

^(b)The amount of expenses incurred ~~presented in~~for the ~~reconciliation of accrued restructuring liabilities~~three months ended March 31, 2019 excludes ~~$3.7~~$2.2 million of ~~non-cash restructuring~~facility lease closure and ~~other expenses incurred for~~lease termination costs. Under ASC 842, these costs are reflected as a reduction of operating lease right-of-use assets on the ~~six months ended June 30, 2018 because these expenses were not subject to accrual prior to the period in which they were incurred.~~unaudited condensed consolidated balance sheet.

The Company expects that substantially all of the employee severance costs accrued as of ~~June 30, 2018~~March 31, 2019 will be paid within the next twelve months. ~~Certain facility costs will be paid over the remaining terms of exited facility leases, which range from 2018 through 2027.~~ Liabilities associated with these costs are included in ~~the “Accrued liabilities” and “Other long-term liabilities” line items in~~accrued expenses on the accompanying unaudited condensed consolidated balance sheets. Restructuring and other costs included in net ~~income (loss)~~loss for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 are presented in the ~~“Restructuring~~restructuring and other ~~costs” line item~~costs in the unaudited condensed consolidated statements of operations.

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8.9. Shareholders' Equity

2018 Stock Repurchase Program

On February 26, 2018, the Company’s Board of Directors authorized the repurchase of up to an aggregate of $250.0 million of the Company’s common stock, ~~par value $0.01 per share,~~ to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades or through privately negotiated transactions (“2018 stock repurchase program”). The 2018 stock repurchase program commenced on March 1, 2018 and will end no later than December 31, 2019. The Company intends to use cash on hand and future operating cash flow to fund the stock repurchase program.

The 2018 stock repurchase program does not obligate the Company to repurchase any particular amount of the Company’s common stock and may be modified, extended, suspended, or discontinued at any time. The timing and amount of repurchases will be determined by the Company’s management based on a variety of factors such as the market price of the Company’s common stock, the Company’s corporate requirements for cash, and overall market conditions. The stock repurchase program will be subject to applicable legal requirements, including federal and state securities ~~laws.~~laws and the applicable Nasdaq rules. The Company may also repurchase shares of its common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of the Company’s common stock to be repurchased when the Company might otherwise be precluded from doing so by law.

In March 2018, the Company repurchased 948,100 shares of its common stock in open market transactions at an average price of $39.55 per share, resulting in a total purchase price of approximately $37.5 million. In April 2018, the Company repurchased 1,024,400 shares of its common stock in open market transactions at an average price of $36.60 per share, resulting in a total purchase price of approximately $37.5 million. The Company immediately retired all of the repurchased common stock and charged the par value of the shares to common stock. The excess of the repurchase price over par was applied on a pro rata basis against additional paid-in-capital, with the remainder applied to accumulated deficit.

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In January 2019, the Company repurchased 552,100 shares of its common stock in open market transactions at an average price of $39.16 per share, resulting in a total purchase price of approximately $21.6 million. In February 2019, the Company repurchased 120,600shares of its common stock in open market transactions at an average price of $41.40 per share, resulting in a total purchase price of approximately $5.0 million. The Company immediately retired all of the repurchased common stock and charged the par value of the shares to common stock. The excess of the repurchase price over the par value was applied on a pro rata basis against additional paid-in-capital, with the remainder applied to accumulated deficit.

As of ~~June 30, 2018,~~March 31, 2019, the Company has remaining authorization to repurchase up to approximately ~~$175.0~~$148.4 million of shares of its common stock under the 2018 stock repurchase program.

9.10. Share-Based Compensation

~~Restricted Stock Unit Award Activity~~

~~The following table summarizes the RSU activity during the six months ended June 30, 2018:~~

Number of Shares Weighted Average
Grant Date Fair Value
Non-vested at December 31, 2017 907,580
$ 49.30
Granted 1,858,183
$ 38.32
Vested (187,400 ) $ 49.64
Forfeited (203,310 ) $ 47.38
Non-vested at June 30, 2018 2,375,053
$ 40.85

~~At June 30, 2018, total unrecognized compensation expense related to unvested RSUs was $77.1 million, which is expected to be recognized over a weighted average period of 2.4 years.~~

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~~2018~~2019 Performance-Based RSU Awards

During ~~2018,~~2019, the Compensation Committee of the Company’s Board of Directors granted performance-based RSU awards (“PRSUs”) to certain executive officers. The total target number of PRSUs granted was ~~198,382~~159,490, which will vest in a percentage ranging from 0% to 150% depending on the level of achievement of the performance targets. Each award is scheduled to cliff-vest approximately three years from the grant date and ~~consists of three equal tranches with each tranche being conditional~~is conditioned upon: (i) the attainment of performance targets related to the Company’s ~~revenue growth~~adjusted earnings per share (“adjusted EPS”) for each of the fiscal years ~~2018,~~ 2019, 2020, and ~~2020;~~2021; (ii) the three-year return on invested capital (“ROIC”) (tax-adjusted earnings before interest and ~~(ii)~~taxes divided by average invested capital); and (iii) the continued employment and service of the employee from the grant date through the date when determination of the target attainment level for the last performance period is made. The vesting eligibility of the PRSUs granted will be split evenly between the adjusted EPS performance goals, which have three equal tranches, and the ROIC performance goal. The Company recognizes share-based compensation expense for PRSUs when attainment of each performance target becomes probable.

~~Share-based Compensation Expense~~

~~The total amount of share-based compensation expense recognized in the unaudited condensed consolidated statements of operations was as follows (in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
Statement of Operations Classification 2018 2017 2018 2017
Direct costs $ 5,572
$ 2,954
$ 9,324
$ 5,667
Selling, general, and administrative expenses 2,803
3,275
6,839
6,381
Restructuring and other costs —
—
91
—
Total share-based compensation expense $ 8,375
$ 6,229
$ 16,254
$ 12,048

~~10.~~11. Earnings (Loss) Per Share

Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period. AThe following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations ~~of weighted average common shares outstanding based on the Company’s consolidated net income (loss) is as follows~~ (in thousands, except per share ~~amounts)~~data):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Numerator:
Net income (loss) $ 13,560
$ 3,389
$ (10,992 ) $ 24,576
Denominator:
Basic weighted average common shares outstanding 102,899
54,123
103,674
54,069
Effect of dilutive securities:
Stock options and other awards under deferred share-based compensation programs 1,106
1,184
—
1,146
Diluted weighted average common shares outstanding 104,005
55,307
103,674
55,215
Earnings (loss) per share:
Basic $ 0.13
$ 0.06
$ (0.11 ) $ 0.45
Diluted $ 0.13
$ 0.06
$ (0.11 ) $ 0.45

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	Three Months Ended March 31,
	2019			2018
Numerator:
Net loss	$	(30,004	)	$	(24,552	)
Denominator:
Basic weighted average common shares outstanding	103,365			104,449
Effect of dilutive securities:
Stock options and other awards under deferred share-based compensation programs	—			—
Diluted weighted average common shares outstanding	103,365			104,449
Loss per share:
Basic	$	(0.29	)	$	(0.24	)
Diluted	$	(0.29	)	$	(0.24	)

Potential common shares outstanding that are considered ~~antidilutive~~anti-dilutive are excluded from the computation of diluted earnings (loss) per share. Potential common shares related to stock options and other awards under deferred share-based compensation programs may be determined to be ~~antidilutive~~anti-dilutive based on the application of the treasury stock method. Potential common shares are also considered ~~antidilutive~~anti-dilutive in the event of a net ~~loss from operations.~~loss.

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The number of potential shares outstanding that were considered ~~antidilutive~~anti-dilutive using the treasury stock method and therefore excluded from the computation of diluted earnings (loss) per share, weighted for the portion of the period they were outstanding are as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Anti-dilutive stock options and other awards 1,017
431
1,057
670
Anti-dilutive stock options and other awards under deferred share-based compensation programs excluded based on reporting of net loss for the period —
—
1,002
—
Total common stock equivalents excluded from diluted earnings per share computation 1,017
431
2,059
670



	Three Months Ended March 31,
	2019	2018
Anti-dilutive stock options and other awards	294	1,097
Anti-dilutive stock options and other awards under share-based compensation programs excluded based on reporting a net loss for the period	1,438	898
Total common stock equivalents excluded from diluted loss per share	1,732	1,995

~~11.~~12. Income Taxes

Income Tax ~~(Expense) Benefit~~Expense

For the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, the Company recorded income tax expense of ~~$16.0 million and $7.1~~$10.4 million, compared to pre-tax ~~income of $29.6 million and pre-tax~~ loss of ~~$3.9 million, respectively.~~$19.6 million. The effective tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 varied from the U.S. federal statutory income tax rate of 21.0% primarily due to: (i) base erosion anti-abuse minimum tax, (ii) foreign income inclusions such as the Global Intangible Low-Taxed Income provisions (“GILTI”), and (iii) a valuation allowance change on domestic deferred tax assets.

For the three months ended March 31, 2018, the Company recorded an income tax benefit of $9.0 million, compared to pre-tax loss of $33.5 million. The Company’s effective tax rate for the three months ended March 31, 2018 varied from the U.S. federal statutory income tax rate of 21.0% primarily due to: (i) research tax credits in foreign jurisdictions; (ii) a decrease in unrecognized tax benefits; and (iii) a valuation allowance change on domestic deferred tax ~~assets; and (iii) the geographical split of pre-tax income.~~assets.

For the three and six months ended June 30, 2017, the Company recorded an income tax benefit of $3.0 million and an income tax expense of $4.1 million, compared to pre-tax income of $0.4 million and $28.7 million, respectively. BEAT

The Company’s effective tax rate for the three and six months ended June 30, 2017 was lower than the U.S. federal statutory income tax rate of 35.0% primarily due to: (i) the relative amount of income from operations earned in international jurisdictions with lower statutory income tax rates compared to the United States; (ii) research tax credits; and (iii) discrete tax adjustments related to excess tax benefits on share-based compensation payments.

Tax Cuts and Jobs Act of 2017 introduced a new tax on U.S. corporations that derive tax benefits from deductible payments to non-US affiliates called the base erosion and anti-abuse tax (“BEAT”). BEAT applies when base eroding payments are in excess of three percent of the Company’s total deductible payments and also where BEAT exceeds regular US taxable income, similar to an alternate minimum tax. Changes to the Company’s contractual arrangements, operating structure, and/or final regulations that modify the application of this provision could have a material impact on the Company’s tax provision.

Unrecognized Tax Benefits

The ~~Company’s accounting for the effects~~Company's gross unrecognized tax benefits, exclusive of ~~the Tax Act is incomplete~~associated interest and penalties, were $19.6 million and $19.2 million as of ~~June 30, 2018. However, as discussed in “Note 12 - Income Taxes” included in our Annual Report on Form 10-K for the fiscal year ended~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The increase of $0.4 million was primarily due to an unrecognized tax benefit in a foreign jurisdiction.

Tax Returns Under Audit

During the quarter ended March 31, 2019, the Company was ~~able to reasonably estimate certain effects~~notified by the Internal Revenue Service that the legacy inVentiv tax return was under audit for the tax year beginning November 10, 2016 and therefore, recorded provisional adjustments associated with the deemed repatriation transition tax and remeasurement of net deferred tax assets. The Company did not make any additional measurement-period adjustments related to these items during the three and six months ended June 30, 2018, because the Company has not completed its analysis of the computation’s components, including: (i) the amount of foreign earnings subject to the U.S. income tax; (ii) the portion of foreign earnings held in cash or other specified assets; and (iii) the state tax treatment of the provisions of the Tax Act. The Company is continuing to gather additional information for these items and expects to complete its accounting within the prescribed measurement period.ending December 31, 2016.

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~~12.~~13. Revenue from Contracts with Customers

~~Service Revenue~~Unsatisfied Performance Obligations

~~The Company adopted ASC 606 - Revenue from Contracts with Customers and all related amendments (“new revenue standard” or “ASC 606”) on January 1, 2018 using~~As of March 31, 2019, the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for the three and six months ended June 30, 2018 reflect the application of ASC 606, while the reported results for the three and six months ended June 30, 2017 were prepared under ASC 605 - Revenue Recognition and other authoritative guidance in effect for those periods. In accordance with ASC 606, revenue is now recognized when, or as, a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.

A performance obligation is a promise (or a combination of promises) in a contract to transfer distinct goods or services to a customer and is the unit of accounting under ASC 606 for the purposes of revenue recognition. A contract’stotal aggregate transaction price is allocated to ~~each separate~~the unsatisfied performance obligation based upon the standalone selling price and is recognized as revenue, when, or as, the performance obligation is satisfied. The majority of the Company’s contracts have a single performance obligation because the promise to transfer individual services is not separately identifiable from other promises in the contracts, and therefore, is not distinct. Forobligations under contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.

~~The majority of the Company's revenue arrangements are service contracts that range in duration from a few months to several years. Substantially all of the Company’s performance obligations,~~contract terms greater than one year and associated revenue, are transferred to the customer over time. The Company generally receives compensation based on measuring progress toward completion using anticipated project budgets for direct labor and prices for each service offering. The Company is also reimbursed for certain third party pass-through and out-of-pocket costs. In addition, in certain instances a customer contract may include forms of variable consideration such as incentive fees, volume rebates or other provisions that can increase or decrease the transaction price. This variable consideration is generally awarded upon achievement of certain performance metrics, program milestones or cost targets. For the purposes of revenue recognition, variable consideration is assessed on a contract-by-contract basis and the amount to be recorded is estimated based on the assessment of the Company’s anticipated performance and consideration of all information that is reasonably available. Variable consideration is recognized as revenue if and when it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved in the future.

Most of the Company's contracts can be terminated by the customer without cause with a 30-day notice. In the event of termination, the Company's contracts generally provide that the customer pay the Company for: (i) fees earned through the termination date; (ii) fees and expenses for winding down the project, which include both fees incurred and actual expenses; (iii) non-cancellable expenditures; and (iv) in some cases, a fee to cover a portion of the remaining professional fees on the project. The Company’s long term clinical trial contracts contain implied substantive termination penalties because of the significant wind-down cost of terminating a clinical trial. These provisions for termination penalties result in these types of contracts being treated as long-term for revenue recognition purposes.

Changes in the scope of work are common, especially under long-term contracts, and generally result in a renegotiation of future contract pricing terms and change in contract transaction price. If the customer does not agree to a contract modification, the Company could bear the risk of cost overruns. Most of the Company’s contract modifications are for services that are not distinct from the services under the existing contract due to the significant integration service provided in the context of the contract and therefore result in a cumulative catch-up adjustment to revenue at the date of contract modification.accounted for as

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~~Contract Assets and Liabilities~~

Contract assets include unbilled amounts typically resulting from revenue recognized in excess of the amounts billed to the customer for which the right to payment is subject to factors other than the passage of time. These amounts may not exceed their net realizable value. Contract assets are generally classified as current. Contract liabilities consist of customer payments received in advance of performance and billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period. Contract assets and liabilities are presented on the balance sheet on a net contract-by-contract basis at the end of each reporting period.

~~Capitalized Costs~~

The Company capitalizes certain costs associated with commissions and bonuses paid to its employees in the Clinical Solutions segment because these costs are incurred in obtaining contracts that have a term greater than one year. Capitalized costs are included in the “Prepaid expenses and other current assets” and “Other long-term assets” line items of the accompanying unaudited condensed consolidated balance sheets. The Company amortizes these costs in a manner that is consistent with the pattern of revenue recognition described below. The Company expenses obtainment costs for contracts that have a term of one year or less.

Additionally, certain recruiting and training costs within the selling solutions services offering are incurred prior to deployment of the contract field promotion teams that are reimbursed by the customer. These costs are capitalized and amortized ratably from the deployment date through the end of the accounting contract term. Capitalized costs and the related amortization are as follows (in thousands):

June 30, 2018
Capitalized costs incurred to obtain or fulfill contracts with customers $ 20,389

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Amortization of capitalized costs $ 4,568
$ 7,702

~~Clinical Solutions~~

The Company’s Clinical Solutions segment provides solutions to address the clinical development needs of customers. The Company provides biopharmaceutical program development services through the Full Service Clinical Development (“Full Service”) platform, discrete services for any part of a customer clinical trial through a Functional Service Provider (“FSP”) offering, Early Stage services, and Real World and Late Phase services. The services provided via the Full Service platform generally span several years and a significant benefit to the customer is provided by integrating those services provided by the Company’s employees as well as those performed by third parties.

Because the Company provides a significant benefit to the customer of integrating the services provided by the Full Service offering, there is one performance obligation for revenue recognition purposes. Revenue is recognized over time using an input measure of progress. The input measure reflects costs (including investigator payments and pass-through costs) incurred to date relative to total estimated costs to complete (“cost-to-cost measure of progress”). Under the cost-to-cost measure of progress methodology, revenue is recorded proportionally to costs incurred. Contract costs principally include direct labor, investigator payments, and pass-through costs.

The remaining service offerings within the Clinical Solutions segment are generally short-term, month-to-month contracts, time and materials basis contracts, or provide a series of distinct services that are substantially the same and have the same pattern of transfer to the customer (“series”). As such, revenue for these service offerings is generally recognized as services are performed for the amount the Company estimates it is entitled to for the period, similar to the pattern of recognition under ASC 605. For

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~~contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of labor costs expended to total labor costs expected to complete the contract performance obligation.~~

The estimate of total revenue and costs at completion requires significant judgment. Contract estimates are based on various assumptions to project future outcomes of events that often span several years. These estimates are reviewed periodically and any adjustments are recognized on a cumulative catch up basis in the period they become known.

~~Unsatisfied Performance Obligations~~

As of June 30, 2018, the total aggregate transaction price allocated to the unsatisfied performance obligations under contracts with a contract term greater than one year and which are not accounted for as a series pursuant to ASU No. 2014-09, Revenue from Contracts with Customers (“ASC ~~606~~606”) was ~~$5.10~~$5.94 billion. This amount includes revenue associated with reimbursable out-of-pocket expenses. The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one to five years. The amount of unsatisfied performance obligations is presented net of any constraints and as a result, is lower than the potential contractual revenue. Specifically, contracts that do not commence within a certain period of time require the Company to undertake numerous activities to fulfill these performance obligations, including various activities that are outside of the Company’s control. Accordingly, such contracts have been excluded from the unsatisfied performance obligations balance presented above.

~~Commercial Solutions~~

The Company’s Commercial Solutions segment provides a broad suite of complementary commercialization services including selling solutions, communications (advertising and public relations), and consulting services. The largest of the service offerings within the Commercial Solutions segment relates to selling solutions. Selling solutions contracts are comprised of a single performance obligation that represents a series of daily outsourced detailing services to promote and sell commercial products on behalf of a customer.

The remaining Commercial Solutions contracts are generally short-term, month-to-month contracts or time and materials contracts. As such, Commercial Solutions revenue is generally recognized as services are performed for the amount the Company estimates it is entitled to for the period, similar to the pattern of recognition under ASC 605. For contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of labor costs expended to total labor costs expected to complete the contract performance obligation.

Pass-through and out-of-pocket costs are recognized in service revenue in the unaudited condensed consolidated income statement as incurred. Certain media purchases and the related reimbursements are recorded on a net basis in the unaudited condensed consolidated income statement as such activities are controlled by the customer.

The Commercial Solutions segment does not have material unsatisfied performance obligations that are required to be disclosed under ASC 606 because the contracts are short-term in nature or represent a series pursuant to ASC 606.

Timing of Billing and Performance

Differences in the timing of revenue recognition and associated billings and cash collections result in recording of billed accounts receivable, unbilled accounts receivable, contract assets and contract liabilities on the unaudited condensed consolidated balance sheet. Amounts are billed as work progresses in accordance with agreed-upon contractual terms either at periodic intervals or upon achievement of contractual milestones. Billings generally occur subsequent to revenue recognition, resulting in recording of: (i) unbilled accounts receivable in instances where the right to bill is contingent solely on the passage of time (e.g., in the following month); and (ii) contract assets in instances where the right to bill is associated with a contingency (e.g., achievement of a milestone). Cash payments received

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~~in advance of the Company’s performance result in recording of contract liabilities, which are liquidated as revenue is recognized.~~

~~Contract assets and liabilities are recorded net on a contract-by-contract basis at the end of each reporting period.~~

During the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, the Company recognized approximately ~~$207.3~~$364.7 million ~~and $382.5 million, respectively,~~ of revenue that was included in the ~~contract liabilities~~deferred revenue balance at the beginning of the period. During the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, approximately ~~$12.6 million and $27.5~~$13.2 million of the Company’s revenue recognized was allocated to performance obligations partially satisfied in previous periods and predominately related to ~~revenue from approved change orders (contract modifications).~~changes in scope and estimates in full service clinical studies. Changes in the contract assets and ~~liabilities~~deferred revenue balances during the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 were not materially impacted by any other factors.

~~Impact of Adopting ASC 606~~

The Company adopted ASC 606 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date, with the impact primarily related to the performance obligations related to the Full Service customer clinical trials in the Clinical Solutions segment.

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As a result of applying the modified retrospective method to adopt the new accounting guidance, the following adjustments were made to the unaudited condensed consolidated balance sheet as of January 1, 2018 (in thousands):

As Reported Adjustments Adjusted
December 31, 2017 ASC 606 Adoption January 1, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 321,262
$ —
$ 321,262
Restricted cash 714
—
714
Accounts receivable billed, net 642,985
—
642,985
Accounts receivable unbilled 373,003
(152,644 ) 220,359
Contract assets —
94,567
94,567
Prepaid expenses and other current assets 84,215
19,452
103,667
Total current assets 1,422,179
(38,625 ) 1,383,554
Property and equipment, net 180,412
—
180,412
Goodwill 4,292,571
—
4,292,571
Intangible assets, net 1,286,050
—
1,286,050
Deferred income tax assets 20,159
5,857
26,016
Other long-term assets 84,496
12,601
97,097
Total assets $ 7,285,867
$ (20,167 ) $ 7,265,700

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 58,575
$ —
$ 58,575
Accrued liabilities 500,303
49,611
549,914
Contract liabilities 559,270
34,075
593,345
Current portion of capital lease obligations 16,414
—
16,414
Current portion of long-term debt 25,000
—
25,000
Total current liabilities 1,159,562
83,686
1,243,248
Capital lease obligations, non-current 20,376
—
20,376
Long-term debt, non-current 2,945,934
—
2,945,934
Deferred income tax liabilities 37,807
(8,355 ) 29,452
Other long-term liabilities 99,609
3,317
102,926
Total liabilities 4,263,288
78,648
4,341,936
Shareholders' equity:
Preferred stock —
—
—
Common stock 1,044
—
1,044
Additional paid-in capital 3,414,389
—
3,414,389
Accumulated other comprehensive loss, net of tax (22,385 ) —
(22,385 )
Accumulated deficit (370,469 ) (98,815 ) (469,284 )
Total shareholders' equity 3,022,579
(98,815 ) 2,923,764
Total liabilities and shareholders' equity $ 7,285,867
$ (20,167 ) $ 7,265,700

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14. Segment Information

The following table compares the reported unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2018 to the amounts as if the previous revenue recognition guidance remained in effect for the three and six months ended June 30, 2018 (in thousands, except per share amounts):

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
ASC 606
As Reported ASC 605
As Adjusted ASC 606
As Reported ASC 605
As Adjusted
Service revenue $ 1,072,530
$ 796,461
$ 2,129,726
$ 1,556,519
Reimbursable out-of-pocket expenses —
299,445
—
609,543
Total revenue 1,072,530
1,095,906
2,129,726
2,166,062
Direct costs (exclusive of depreciation and amortization) 547,993
548,122
1,080,050
1,085,010
Reimbursable out-of-pocket expenses 299,472
299,445
608,238
609,543
Selling, general, and administrative 100,218
100,813
199,477
200,529
Restructuring and other costs 8,591
8,591
22,298
22,298
Transaction and integration-related expenses 18,032
18,032
43,243
43,243
Depreciation 17,557
17,557
35,585
35,585
Amortization 49,945
49,945
99,938
99,938
Total operating expenses 1,041,808
1,042,505
2,088,829
2,096,146
Income from operations 30,722
53,401
40,897
69,916
Other expense, net:

Interest income 1,655
1,655
2,494
2,494
Interest expense (32,894 ) (32,894 ) (64,630 ) (64,630 )
Loss on extinguishment of debt (1,877 ) (1,877 ) (2,125 ) (2,125 )
Other income, net 32,001
32,001
19,447
19,447
Total other expense, net (1,115 ) (1,115 ) (44,814 ) (44,814 )
Income (loss) before provision for income taxes 29,607
52,286
(3,917 ) 25,102
Income tax expense (16,047 ) (21,553 ) (7,075 ) (13,376 )
Net income (loss) $ 13,560
$ 30,733
$ (10,992 ) $ 11,726
Earnings (loss) per share attributable to common shareholders:
Basic $ 0.13
$ 0.30
$ (0.11 ) $ 0.11
Diluted $ 0.13
$ 0.30
$ (0.11 ) $ 0.11
Weighted average common shares outstanding:
Basic 102,899
102,899
103,674
103,674
Diluted 104,005
104,005
103,674
104,676

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The following is a summary of the significant changes in the Company’s unaudited condensed consolidated statement of operations as a result of adopting ASC 606 on January 1, 2018, compared to the amounts as if the Company ~~had continued to report its results under ASC 605:~~

ASC 606 delayed the recognition of revenue principally related to Full Service customer clinical trials in the Company’s Clinical Solutions segment for the three and six months ended June 30, 2018 as revenue was previously recognized when contractual items (i.e. “units”) were delivered or on a proportional performance basis, generally using output measures of progress specific to the services provided, such as site or investigator recruitment, patient enrollment and data management. These measures excluded reimbursed investigator payments, other pass-through costs, and out-of-pocket expenses, which were recognized as incurred and presented separately as a component of total revenue in the unaudited condensed consolidated statement of operations. Pursuant to the adoption of ASC 606, the majority of revenue recognized related to Full Service customer clinical trials is accounted for using project costs as an input measure of progress, and includes reimbursable pass-through costs and out-of-pocket expenses.

ASC 606 delayed the recognition of revenue in the Company’s Commercial Solutions segment for the six months ended June 30, 2018 as certain costs to recruit and train the contract field promotion teams, and revenue for the related reimbursements, are deferred and amortized over the contract term under ASC 606. These amounts were previously recognized as each separate service was delivered to the customer. These delays were partially offset by the acceleration of revenue recognition on certain incentive fee programs that were previously recognized upon customer approval. For the three months ended June 30, 2018 ASC 606 accelerated the recognition of revenue as revenue recognition on certain incentive fee programs exceeded the costs deferred for the period.

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The following table compares the reported unaudited condensed consolidated balance sheets as of June 30, 2018 to the amounts as if the previous revenue recognition guidance remained in effect as of June 30, 2018 (in thousands):

June 30, 2018
ASC 606
As Reported ASC 605
As Adjusted
ASSETS
Current assets:
Cash and cash equivalents $ 171,528
$ 171,528
Restricted cash 2,191
2,191
Accounts receivable billed, net 682,415
682,415
Accounts receivable unbilled 346,608
467,295
Contract assets 131,367
—
Prepaid expenses and other current assets 82,964
62,306
Total current assets 1,417,073
1,385,735
Property and equipment, net 163,500
163,500
Goodwill 4,275,485
4,275,485
Intangible assets, net 1,182,571
1,182,571
Deferred income tax assets 32,813
27,103
Other long-term assets 101,758
90,613
Total assets $ 7,173,200
$ 7,125,007

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 85,810
$ 85,810
Accrued liabilities 502,646
453,437
Contract liabilities 719,932
591,912
Current portion of capital lease obligations 15,201
15,201
Current portion of long-term debt 37,500
37,500
Total current liabilities 1,361,089
1,183,860
Capital lease obligations, non-current 13,241
13,241
Long-term debt, non-current 2,835,321
2,835,321
Deferred income tax liabilities 32,557
45,237
Other long-term liabilities 108,320
104,513
Total liabilities 4,350,528
4,182,172
Shareholders' equity:
Preferred stock —
—
Common stock 1,029
1,029
Additional paid-in capital 3,371,316
3,371,316
Accumulated other comprehensive loss, net of tax (55,064 ) (56,433 )
Accumulated deficit (494,609 ) (373,077 )
Total shareholders' equity 2,822,672
2,942,835
Total liabilities and shareholders' equity $ 7,173,200
$ 7,125,007

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The following is a summary of the significant changes in the Company’s unaudited condensed consolidated balance sheets as a result of adopting ASC 606 on January 1, 2018, compared to the amounts as if the Company had continued to report its results under ASC 605:

The reported assets were greater than the total assets that would have been reported had the prior revenue recognition guidance remained in effect. This was largely due to the deferral of certain recruiting and training costs in Commercial Solutions contracts and capitalized sales commissions. The reported liabilities were greater than the total liabilities that would have been reported had the prior revenue recognition guidance remained in effect. This was largely due to advances and deferred revenue in excess of contract assets that are required to be presented net on a contract-by-contract basis.

The adoption of ASC 606 primarily resulted in a revenue recognition delay as of January 1, 2018, which resulted in an increase of the Company’s deferred tax asset position. As the Company records full reserves for its net federal deferred tax assets in the United States, a portion of the impact was offset by a corresponding increase to the valuation allowance against the deferred tax asset position.

~~The adoption of ASC 606 had no net impact on the Company’s cash flows from operations.~~

~~13. Segment Information~~

During the third quarter of 2017, the Company realigned its operating segments as a result of the Merger to reflect the current structure under which performance is evaluated, strategic decisions are made and resources are allocated. As a result of this realignment, effective August 1, 2017, the Company began evaluating its financial performance based onhas two reportable segments: Clinical Solutions and Commercial Solutions. ~~Historical segment reporting has been revised to reflect these changes to the Company’s segment structure.~~

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

The Company’s Chief Operating Decision Maker (“CODM”) reviews segment performance and allocates resources based upon segment revenue and income from operations. Beginning in 2018, as a result of the Company’s adoption of ASC 606, revenue and costs for reimbursed out-of-pocket expenses are allocated to the Company’s segments. Prior to 2018, revenue and costs for reimbursed out-of-pocket expenses were not allocated to the Company’s segments. Inter-segment revenue is eliminated from the segment reporting presented to the CODM and is not included in the segment revenue presented in the table below. Certain costs are not allocated to the Company’s reportable segments and are reported as general corporate expenses. These costs primarily consist of share-based compensation and general operating expenses associated with the Company’s senior leadership, finance, Board of Directors, investor relations, and internal audit functions. The Company does not allocate depreciation, amortization, restructuring, or transaction and integration-related costs to its segments. Additionally, the CODM reviews the Company’s assets on a consolidated basis and the Company does not allocate assets to its reportable segments as they are not included in the review performed by the CODM for purposes of assessing segment performance or allocating resources.

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Information about reportable segment operating results is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Revenue:
Clinical Solutions service revenue	$	783,913	$	255,504	$	1,570,752	$	505,001
Commercial Solutions service revenue	288,617		2,583		558,974		5,164
Total segment service revenue	1,072,530		258,087		2,129,726		510,165
Reimbursable out-of-pocket expenses not allocated to segments	—		133,048		—		262,888
Clinical Solutions revenue									$	804,958	$	786,839
Commercial Solutions revenue									314,048		270,357
Total consolidated revenue	$	1,072,530	$	391,135	$	2,129,726	$	773,053	1,119,006		1,057,196
Segment direct costs:
Clinical Solutions	$	357,077	$	156,623	$	710,970	$	306,510	625,767		615,371
Commercial Solutions	185,344		2,433		359,756		4,668		252,873		221,700
Total segment direct costs	$	542,421	$	159,056	$	1,070,726	$	311,178	878,640		837,071
Reimbursable out-of-pocket expenses:
Clinical Solutions	$	251,917	$	—	$	513,395	$	—
Commercial Solutions	47,555		—		94,843		—
Total segment reimbursable out-of-pocket expenses	$	299,472	$	—	$	608,238	$	—
Segment selling, general, and administrative expenses:
Clinical Solutions	$	68,110	$	35,278	$	134,056	$	72,068	69,702		65,946
Commercial Solutions	21,667		—		41,185		—		26,053		19,518
Total segment selling, general, and administrative expenses	$	89,777	$	35,278	$	175,241	$	72,068	95,755		85,464
Segment operating income:
Clinical Solutions	$	106,809	$	63,603	$	212,331	$	126,423	109,489		105,522
Commercial Solutions	34,051		150		63,190		496		35,122		29,139
Total segment operating income	$	140,860	$	63,753	$	275,521	$	126,919	144,611		134,661
Operating expenses not allocated to segments:
Reimbursable out-of-pocket expenses not allocated to segments	$	—	$	133,048	$	—	$	262,888
Corporate selling, general, and administrative expenses not allocated to segments	7,638		3,978		17,397		9,016
Share-based compensation included in direct costs not allocated to segments	5,572		2,954		9,324		5,667
Share-based compensation included in selling, general, and administrative expenses not allocated to segments	2,803		3,275		6,839		6,381
Direct costs and operating expenses not allocated to segments:
Corporate selling, general, and administrative expenses									11,257		9,759
Share-based compensation included in direct costs									8,162		3,752
Share-based compensation included in selling, general, and administrative expenses									6,105		4,036
Restructuring and other costs	8,591		4,029		22,298		5,956		14,413		13,707
Transaction and integration-related expenses	18,032		23,739		43,243		23,741		16,658		25,211
Depreciation and amortization	67,502		15,528		135,523		31,156		61,200		68,021
Total consolidated income from operations	$	30,722	$	10,250	$	40,897	$	45,002	$	26,816	$	10,175

~~14.~~15. Operations by Geographic Location

The Company conducts its global operations through wholly-owned subsidiaries and representative sales offices. Prior to the Merger, service revenue was attributed to geographical locations based upon the location to which the Company invoiced the end customer. Following the Merger, the Company began to attribute service revenues to geographical locations based upon the location of where the work is performed to reflect its expanded geographic presence and increased scale of operations. All prior periods have been recast to reflect the effect of this change.

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The following table summarizes information about revenue by geographic area (in thousands and with all intercompany transactions eliminated):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Revenue:
North America ^(a)	$	726,546	$	147,534	$	1,458,311	$	290,293	$	727,698	$	731,766
Europe, Middle East, and Africa	232,120		80,093		460,958		160,105		258,347		228,837
Asia-Pacific	93,647		22,232		171,627		42,441		111,566		77,980
Latin America	20,217		8,228		38,830		17,326		21,395		18,613
Total service revenue	1,072,530		258,087		2,129,726		510,165
Reimbursable-out-of-pocket expenses	—		133,048		—		262,888
Total revenue	$	1,072,530	$	391,135	$	2,129,726	$	773,053	$	1,119,006	$	1,057,196

(a)~~Service revenue~~Revenue for the North America region includes revenue attributable to the United States of ~~$690.3~~$704.1 million and ~~$140.0~~$696.4 million, or ~~64.4%~~62.9% and ~~54.2%~~65.9% of total ~~service~~ revenue, for the three months ended ~~June 30,~~March 31, 2019 and March 31, 2018, and June 30, 2017, respectively. Service revenue for the North America region includes revenue attributable to the United States of $1,386.8 million and $276.3 million, or 65.1% and 54.2% of total service revenue, for the six months ended June 30, 2018 and June 30, 2017, respectively. No other country represented more than 10% of ~~service~~ revenue for any period.

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Long-lived assets by geographic area for each period were as follows (in thousands and all intercompany transactions have been eliminated):


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Property and equipment, net:
North America ^(a)	$	120,402	$	136,101	$	128,432	$	133,593
Europe, Middle East and Africa	26,964		25,517		31,497		33,053
Asia-Pacific	12,330		14,700		12,701		13,328
Latin America	3,804		4,094		3,360		3,512
Total property and equipment, net	$	163,500	$	180,412	$	175,990	$	183,486

^(a) Long-lived assets for the North America region include property and equipment, net attributable to the United States of ~~$113.9~~$123.0 million and ~~$128.5~~$128.3 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

~~15.~~16. Concentration of Credit Risk

The Company maintains cash depository accounts with several financial institutions worldwide and is exposed to credit risk related to the potential inability to access liquidity in financial institutions where its cash and cash equivalents are concentrated. The Company has not historically incurred any losses with respect to these balances and believes that they bear minimal credit risk.

As of ~~June 30,~~December 31, 2018, the amount of cash and cash equivalents held outside the United States by the Company’s foreign subsidiaries was ~~$94.5~~$43.6 million, or approximately ~~55%~~28% of the total consolidated cash and cash equivalents balance. As of ~~December~~March 31, ~~2017,~~2019, substantially all of the ~~amount of~~Company’s cash and cash equivalents were held ~~outside~~within the United ~~States by~~States.

During the three months ended March 31, 2019, one customer accounted for approximately 10% of the Company’s ~~foreign subsidiaries was $192.0 million, or approximately 60%~~revenue. During the three months ended March 31, 2018, one customer accounted for 11% of the ~~total consolidated cash~~Company’s revenue.

As of March 31, 2019 and ~~cash equivalents balance.~~

~~During both the three and six months ended June 30,~~December 31, 2018, one customer accounted for approximately 11% of the Company’s total consolidated service revenue (including reimbursable out-of-pocket expenses as a result of the adoption of ASC 606 described in “Note 12 - Revenue from Contracts with Customers”). No single customer accounted for greater than 10% of the Company’s total consolidated service revenue for the three and six months ended~~June 30, 2017.~~

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~~As of June 30, 2018 and December 31, 2017, one customer accounted for approximately 15%~~12% and 13%, respectively, of the Company’s billed accounts receivable, unbilled accounts receivable, and contract assets balances.

~~16.~~17. Related-Party Transactions

For the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, the Company incurred reimbursable out-of-pocket expenses of ~~$1.0~~$1.1 million ~~and $1.2 million, respectively,~~ for professional services obtained from ~~two providers, one whose significant shareholder was also~~ a ~~significant shareholder of the Company and the other~~provider whose member of the Board of Directors was also a member of the Company’s Board of Directors. Additionally, at March 31, 2019, the Company had liabilities of $0.8 million included in accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets associated with this related party. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2018, the Company ~~recorded service revenue~~incurred reimbursable out-of-pocket expenses of ~~$0.1 million and~~ $0.2 million ~~respectively,~~for professional services obtained from a ~~customer who had a~~provider whose significant shareholder ~~who is~~was also a significant shareholder of the Company.

~~There were no related party transactions~~No material related-party revenue was recorded for the three ~~and six~~ months ended ~~June 30, 2017.~~March 31, 2019 or 2018.

~~17.~~18. Commitments and Contingencies

Legal Proceedings

~~Through~~The Company is involved in various claims and legal actions arising in the ~~Merger,~~ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company ~~became~~does

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not record a ~~party~~liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a ~~lawsuit initiated~~material adverse effect on the Company's business, financial condition, results of operations, or cash flows.

On December 1, 2017, the first of two virtually identical actions alleging federal securities law claims was filed against the Company and ~~outstanding against inVentiv~~certain of its officers on behalf of a putative class of its shareholders. The first action, captioned Bermudez v. INC Research, Inc., et al, No. 17-09457 (S.D.N.Y.), names as defendants the Company, Michael Bell, Alistair MacDonald, Michael Gilbertini, and Gregory S. Rush (the "Bermudez action"), and the second action, Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.), filed on January 25, 2018, names as defendants the Company, Alistair MacDonald, and Gregory S. Rush (the "Vaitkuvienë action"). Both complaints allege similar claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of purchasers of the Company's common stock between May 10, 2017 and November 8, 2017 and November 9, 2017. The complaints allege that the Company published inaccurate or incomplete information regarding, among other things, the financial performance and business outlook for inVentiv’s business prior to the Merger and with respect to the combined company following the Merger. On ~~October 31, 2013, Cel-Sci Corporation (“Claimant”) made~~January 30, 2018, two alleged shareholders separately filed motions seeking to be appointed lead plaintiff and approving the selection of lead counsel. These motions remain pending. On March 30, 2018, Plaintiff Bermudez filed a ~~demand for arbitration under a Master Services Agreement (the “MSA”), dated as~~notice of ~~April 6, 2010 between Claimant and two~~voluntary dismissal of the ~~Company’s subsidiaries,~~Bermudez action, without prejudice, and as to all defendants. On May 29, 2018, the Court in the Vaitkuvienë action appointed the San Antonio Fire & Police Pension Fund and El Paso Firemen & Policemen’s Pension Fund as Lead Plaintiffs and, on June 7, 2018, the Court entered a schedule providing for, among other things, Lead Plaintiffs to file an amended complaint by July 23, 2018 (later extended to July 30, 2018). Lead Plaintiffs filed their amended complaint on July 30, 2018, which also includes a claim against the same defendants listed above, as well as each member of the board of directors at the time of the INC Research - inVentiv Health ~~Clinical, LLC (formerly known as PharmaNet, LLC)~~merger vote in July 2017, contending that the inVentiv merger proxy was misleading under Section 14(a) of the Act. Lead Plaintiffs seek, among other things, orders (i) declaring that the lawsuit is a proper class action and ~~PharmaNet GmbH (currently known as~~(ii) awarding compensatory damages in an amount to be proven at trial, including interest thereon, and reasonable costs and expenses incurred in this action, including attorneys’ fees and expert fees, to Lead Plaintiffs and other class members. Defendants filed a Motion to Dismiss Plaintiffs’ Amended Complaint on September 20, 2018. Lead Plaintiffs filed a Response in Opposition to such motion on November 21, 2018, and Defendants filed a Reply to such response on December 5, 2018. The Company and the other defendants deny the allegations in these complaints and intend to defend vigorously against these claims. In the Company's opinion, the ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial position, results of operations, or cash flows.

On September 24, 2018, the Court unsealed a civil complaint captioned United States, et. al vs. AstraZeneca PLC, et. al, No. 2:17-cv-01328-RSL (W.D. Wa.) against inVentiv Health, ~~Switzerland GmbH~~Inc. and ~~formerly known~~other co-defendants. The complaint alleges that the Company and co-defendants violated the Federal False Claims Act (and various state analogues) and Anti-Kickback Statute through the provision of clinical education services. On December 17, 2018, the United States moved to dismiss this lawsuit, as ~~PharmaNet AG) (collectively, “PharmaNet”). Under~~well as other similar lawsuits supported by the ~~MSA and related project agreement, which were terminated by Claimant~~relator in ~~April 2013, Claimant engaged PharmaNet in connection with a Phase III Clinical Trial of its investigational drug.~~this action. The ~~arbitration claim alleged (i) breach of contract, (ii) fraud~~Company denies the allegations in the ~~inducement, and (iii) common law fraud on the part of PharmaNet, and sought damages of at least $50.0 million.~~complaint intends to defend vigorously against these claims. In December 2013, inVentiv Health Clinical, LLC filed a counterclaim against Claimant that alleged breach of contract and sought at least $2.0 million in damages. The matter proceeded to the discovery phase. In January 2015, inVentiv Health Clinical, LLC filed additional counterclaims against Claimant that alleged (i) breach of contract, (ii) opportunistic breach, restitution and unjust enrichment, and (iii) defamation, and sought at least $2.0 million in damages and $20.0 million in other equitable remedies. The arbitrator issued a Final Award on June 25, 2018, denying all of the Claimant’s fraud claims, finding for the Claimant on only one of its breach of contract claims, and finding for inVentiv Health, Clinical, LLC on its breach of contract counterclaim for unpaid fees. Claimant was awarded a net amount of $2.7 million. The Company has satisfied all obligations to Claimant under the Final Award which, in the Company’s opinion, ~~has~~the ultimate outcome of this matter is not ~~had~~expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

On February 21, 2019, the SEC notified the Company that it has commenced an investigation into its revenue accounting policies, internal controls and related matters, and requested that the Company retain certain documents for the periods beginning with January 1, 2017. On March 22, 2019, the SEC subpoenaed certain documents in connection with its investigation.

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On March 1, 2019, a complaint was filed in the United States District Court for the District of New Jersey on behalf of a putative class of shareholders who purchased the Company's common stock during the period between May 10, 2017 and February 27, 2019. The complaint names the Company and certain of its executive officers as defendants and allege violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements about its business, operations, and prospects. The plaintiffs seek awards of compensatory damages, among other relief, and their costs and attorneys’ and experts’ fees.

The Company is presently unable to predict the duration, scope or result of the SEC’s investigation, the related putative class action, or any other related lawsuit or investigation. As such, the Company is presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, related to these matters. The SEC has a broad range of civil sanctions available should it commence an enforcement action, including injunctive relief, disgorgement, fines, penalties, or an order to take remedial action. The Company could incur additional expenses related to fines or to remedial measures. Furthermore, while the Company intends to defend the putative class action litigation vigorously, the outcome of such litigation or any other litigation is necessarily uncertain. The Company could be forced to expend significant resources in the defense of this lawsuit or future ones, and it may not prevail. As such, these matters could have a material adverse effect on the Company's business, annual or interim results of operations, cash flows, or its financial condition.

Self-Insurance Reserves

The Company is self-insured for certain losses relating to health insurance claims for the majority of its employees located within the United States. Additionally, the Company maintains certain self-insurance retention limits related to automobile and workers’ compensation insurance.~~As of June 30, 2018 and December 31, 2017, the total accrual for self-insurance reserves was $17.0 million and $16.6 million, respectively.~~

Assumed Contingent Tax-Sharing Obligations

As a result of the Merger, the Company assumed contingent tax-sharing obligations arising from inVentiv’s 2016 merger with Double Eagle Parent, Inc. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the estimated fair value of the assumed contingent tax-sharing obligations was ~~$52.9~~$16.4 million and ~~$50.5~~$15.7 million, respectively. ~~For additional information, refer~~

Contingent Earn-out Liability

In connection with the Kinapse acquisition, the Company recorded a contingent earn out liability to ~~“Note 3 - Business Combinations.”~~be paid based on Kinapse meeting revenue targets as of March 31, 2021. The fair value of the earn out liability is remeasured at the end of each reporting period, with changes in the estimated fair value reflected in earnings until the liability is settled. The estimated fair value of the contingent earn out liability was $4.5 million and $4.4 million as of March 31, 2019 and December 31, 2018, respectively, and is included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof, and similar words and expressions are intended to identify forward-looking statements. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following: ~~risks associated with the integration of our business with the business of inVentiv and our operation of the combined business following the closing of the Merger;~~ the need to hire, develop, and retain key personnel; the impact of unfavorable economic conditions, including the uncertain international economic environment, changes in exchange rates, and effective income tax rate fluctuations; the impact of potentially underpricing our contracts, overrunning our cost estimates, or failing to receive approval for or experiencing delays with documentation of change orders; any adverse effects from customer or therapeutic area concentration; our potential failure to generate a large number of new business awards and the risk of delay, termination, reduction in scope, or failure to go to contract of our business awards; our potential failure to convert backlog to revenue; fluctuations in our operating results and effective income tax rate; the cyber-security and other risks associated with our information systems infrastructure; ~~any adverse effects from customer or therapeutic area concentration;~~risks associated with the integration of our business with the business of inVentiv and our operation of the combined business following the closing of the Merger; the risks associated with doing business internationally; risks related to the ~~impact of adoption of~~U.K.’s planned withdrawal from the ~~new accounting standard of recognizing revenue from customers;~~European Union; impact of the Tax Act; challenges by tax authorities of our intercompany transfer pricing policies; our potential failure to successfully increase our market share, grow our business, and execute our growth strategies; our ability to effectively upgrade our information systems; our failure to perform our services in accordance with contractual requirements, regulatory standards, and ethical considerations; the risk of litigation and personal injury claims; risks related to the management of clinical trials; failure of our insurance to cover our indemnification obligations and other liabilities; risks related to marketing drugs for biopharmaceutical companies; our ability to protect our intellectual property; the risks associated with potential future acquisitions or investments in our customers’ businesses or drugs; our relationships with customers who are in competition with each other; any failure to realize the full value of our goodwill and intangible assets; risks related to restructuring; our compliance with anti-corruption and anti-bribery laws; our dependence on third parties; potential employment liability; downgrades of our credit ratings; outsourcing trends and changes in aggregate spending and research and development budgets; the impact of, including changes in, government regulations and healthcare reform; ~~and~~our ability to keep pace with rapid technological change; the cost of and our ability to service our substantial ~~indebtedness.~~indebtedness; and other risks related to ownership of our common stock. For a further discussion of the risks relating to our business, refer to “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

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Overview of Our Business and Services

Syneos Health, Inc. (the “Company,” “we,” “us,” and “our”) is a leading global biopharmaceutical solutions organization providing a full suite of clinical and commercial services ~~organization comprised of an end-to-end clinical contract research organization (“CRO”)~~to customers in the biopharmaceutical, biotechnology, and ~~contract commercial organization (“CCO”).~~medical device industries. We offer both standalone and integrated biopharmaceutical product development solutions through our Contract Research Organization (“CRO”) and ~~commercialization services~~Contract Commercial Organization (“CCO”), ranging from Early Phase I(Phase I) clinical trials to ~~Phase IV clinical trial services to services associated with~~ the full commercialization of biopharmaceutical ~~products. Our customers include small, mid-sized,~~products, with the goal of increasing the likelihood of regulatory approval and ~~large companies in the pharmaceutical, biotechnology, and medical device industries, and~~commercial launch success for our ~~revenue is derived through a broad suite of services designed to enhance our customers’ ability to successfully develop, launch, and market their products. We consistently and~~

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customers.

~~predictably deliver our services in a complex environment and offer a proprietary, operational approach to the delivery of our projects through our Trusted Process~~^® ~~methodology.~~

On August 1, 2017, we completed a merger (the “Merger”) with Double Eagle Parent, Inc. (“inVentiv”), the parent company of inVentiv Health, Inc. under the terms of the merger agreement, dated May 10, 2017 (the “Merger Agreement”). Upon closing, inVentiv was merged with andOur operations are divided into us, and the separate corporate existence of inVentiv ceased. Refer to further discussion in “Note 3 - Business Combinations” to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the Merger.

Following the Merger, we realigned our operating segments to reflect the current structure under which we evaluate our performance, make strategic decisions, and allocate resources. As a result of this realignment, effective August 1, 2017, we began managing our business through two reportable ~~segments:~~segments, Clinical Solutions and Commercial Solutions.

Our Clinical Solutions segment offers a variety of services spanning Phase I to Phase IV of clinical development, including full-service global studies, as well as individual service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data management, and study startup to assist customers with their drug development process. Our Commercial Solutions segment provides the pharmaceutical, biotechnology, and healthcare industries with commercialization services, including ~~outsourced~~ selling solutions, communication solutions (public relations and advertising), and consulting services. ~~Our~~ management reviews segment performance and allocates resources based upon segment revenue and segment operating income. Historical segment reporting has been revised to reflect these changes to our segment ~~structure. Prior to the Merger, our Commercial Solutions segment consisted solely of a consulting offering. Refer to~~For further discussion, inrefer to “Note 1314 - Segment Information” to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For financial information regarding revenue and long-lived assets by geographic area, refer to “Note 14 - Operations by Geographic Location” to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

New Business Awards and Backlog

We add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as a service provider, provided that:

the customer has received appropriate internal funding approval and collection of the award value is probable;

the project or projects are not contingent upon completion of another clinical trial or ~~event;~~event that would place the project or projects at material risk of not commencing in accordance with the expected timeline;

the project or projects are expected to commence within a certain period of time from the end of the quarter in which the award was granted;

the customer has entered or intends to enter into a comprehensive contract as soon as practicable; and

for awards related to our ~~FSP~~Functional Service Provider ("FSP") offering, ~~only~~ a maximum of twelve months of services are ~~included.~~included in the award value.

In addition, we continually evaluate our backlog to determine if any of the previously awarded work is no longer expected to be performed, regardless of whether we have received formal cancellation notice from the customer. If we determine that any previously awarded work is no longer probable of being performed, we remove the value from our backlog based on the risk of cancellation. We recognize revenue from these awards as services are performed, provided we have entered into a contractual commitment with the customer.

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~~We currently~~Beginning in 2019, we now report new business awards for our Clinical Solutions and Commercial Solutions segments ~~and~~on a trailing twelve months (“TTM”) basis. Our total backlog represents backlog for our Clinical Solutions segment and the selling solutions service offering within our Commercial Solutions segment. We do not ~~currently~~ report backlog ~~data~~ for the remaining service offerings in the Commercial Solutions segment.

~~Beginning on January 1, 2018 we adopted the ASC 606 revenue recognition standard~~ New business awards and ~~as a result, we no longer present service revenue and revenue associated with~~backlog include reimbursable out-of-pocket expenses separately in the statements of operations as, under ASC 606, they represent a single performance obligation and separate presentation is no longer permitted. However, revenue associated with reimbursable out-of-pocket expenses represents expenses which are passed through and reimbursed by our customers at actual cost. These expenses fluctuate significantly from period to period based on the timing of program initiation or closeout and the mix of program complexity, and therefore anticipated timing associated with this type of revenue is not predictable. As a result, we have not adjusted our backlog or net new business awards information included below to incorporate revenue associated with reimbursable out-of-pocket expenses and have instead presented these metrics as if the previous accounting guidance (ASC 605) had been in effect.for all periods presented.

Backlog

Our backlog consists of anticipated future ~~fee~~ revenue from business awards that either have not started, ~~but are anticipated to begin in the future (as noted above),~~ or that are in process and have not been completed. Our backlog also reflects any cancellation or

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adjustment activity related to these ~~contracts.~~awards. The average duration of our contracts will fluctuate from period to period in the future based on the contracts comprising our backlog at any given time. The majority of our contracts can be terminated by the customer with a 30-day notice.

~~The following table sets forth~~Our backlog was as follows as of March 31, (in millions):



	2019		2018		Change
Clinical Solutions	$	7,612.9	$	6,728.9	$	884.0	13.1	%
Commercial Solutions - selling solutions	690.2		604.6		85.6		14.2	%
Total backlog	$	8,303.1	$	7,333.5	$	969.6	13.2	%

We expect that approximately $2.94 billion of our backlog as of March 31, 2019 will be recognized as revenue during the ~~following dates under ASC 605 (in millions):~~

Balance at June 30,
2018 2017 Change
Clinical Solutions $ 4,090.6
$ 2,038.8
$ 2,051.8
100.6 %
Commercial Solutions - Selling Solutions ^(a)
424.7
—
424.7
n/m
Total Backlog $ 4,515.3
$ 2,038.8
$ 2,476.5
121.5 %

^(a) Following our Merger with inVentiv and beginning January 1, 2018, we began reporting information related to backlog associated with the selling solutions service offering within our Commercial Solutions segment. This information is not presented for periods prior to 2018.

~~Included in backlog at June 30, 2018 is approximately $1.30 billion that we expect to recognize as service revenue in 2018.~~remainder of 2019. We adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency exchange rates.

Net new business awards

New business awards, net of cancellations, were as follows for the TTM period ended March 31 (in millions):



	2019
Clinical Solutions	$	4,193.5
Commercial Solutions	1,324.6
Total net new business awards	$	5,518.1

New business awards have varied and may continue to vary significantly from quarter to quarter. Fluctuations in our net new business award levels often result from the fact that we may receive a small number of relatively large orders in any given reporting period. Because of these large orders, our backlog and net new business awards in a reporting period may reach levels that are not sustainable in subsequent reporting periods.

We believe that our backlog and net new business awards might not be consistent indicators of future revenue because they have been, and likely will continue to be, affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, and cancellations and changes to the scope of work during the course of projects. Additionally, projects may be canceled or delayed by the customer or regulatory authorities. We generally do not have a contractual right to the full amount of the awards reflected in our backlog. If a customer cancels an award, we ~~generally have the right to~~might be reimbursed for the costs we have incurred. As we increasingly compete for and enter into large contracts that are more global in nature, we expect that the ~~duration of projects and the period over which related revenue is recognized to lengthen, and therefore expect that the~~ rate at which our backlog and net new business awards convert into revenue is likely to ~~decrease. In addition, our adoption~~decrease, and the duration of projects and the ~~new~~period over which related revenue ~~recognition standard in 2018 may result in delays in revenue recognition.~~is recognized to lengthen. For more information about risks related to our backlog ~~refer to~~see Part I, Item 1A "Risk ~~Factors—~~Factors - Risks Related to Our ~~Business—~~Business - Our backlog might not be indicative of our future revenues, and we might not realize all of the anticipated future revenue reflected in our backlog" included in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

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~~Net new business awards~~

~~The following table sets forth new business awards, net of cancellations of prior awards under ASC 605 (in millions):~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Clinical Solutions $ 849.9
$ 386.5
$ 1,399.6
$ 635.1
Commercial Solutions 205.8
—
528.1
—
Total net new business awards $ 1,055.7
$ 386.5
$ 1,927.7
$ 635.1

Net new business awards for our Clinical Solutions segment were higher during the three and six months ended June 30, 2018, primarily due to the Merger. Effective January 1, 2018, we began reporting information related to net new business awards associated with our Commercial Solutions segment. This information is not presented for periods prior to 2018.

Results of Operations

The following table sets forth amounts from our unaudited condensed consolidated financial statements along with the percentage changes (in thousands, except percentages):


	Three Months Ended June 30,											Three Months Ended March 31,
	2018			2017			Change					2019			2018			Change
Service revenue	$	1,072,530		$	258,087		$	814,443		315.6	%
Reimbursable out-of-pocket expenses	—			133,048			(133,048		)	(100.0	)%
Total revenue	1,072,530			391,135			681,395			174.2	%
Revenue												$	1,119,006		$	1,057,196		$	61,810		5.8	%
Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)	547,993			162,010			385,983			238.2	%	886,802			840,823			45,979			5.5	%
Reimbursable out-of-pocket expenses	299,472			133,048			166,424			125.1	%
Selling, general, and administrative	100,218			42,531			57,687			135.6	%
Selling, general, and administrative expenses												113,117			99,259			13,858			14.0	%
Restructuring and other costs	8,591			4,029			4,562			113.2	%	14,413			13,707			706			5.2	%
Transaction and integration-related expenses	18,032			23,739			(5,707		)	(24.0	)%	16,658			25,211			(8,553		)	(33.9	)%
Depreciation and amortization	67,502			15,528			51,974			334.7	%	61,200			68,021			(6,821		)	(10.0	)%
Total operating expenses	1,041,808			380,885			660,923			173.5	%	1,092,190			1,047,021			45,169			4.3	%
Income from operations	30,722			10,250			20,472			199.7	%	26,816			10,175			16,641			(163.5	)%
Total other expense, net	(1,115		)	(9,888		)	8,773			88.7	%	(46,404		)	(43,699		)	(2,705		)	(6.2	)%
Income before provision for income taxes	29,607			362			29,245			8,078.7	%
Loss before provision for income taxes												(19,588		)	(33,524		)	13,936			41.6	%
Income tax (expense) benefit	(16,047		)	3,027			(19,074		)	(630.1	)%	(10,416		)	8,972			(19,388		)	216.1	%
Net income	$	13,560		$	3,389		$	10,171		300.1	%
Net loss												$	(30,004	)	$	(24,552	)	$	(5,452	)	(22.2	)%

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Six Months Ended June 30,
2018 2017 Change
Service revenue $ 2,129,726
$ 510,165
$ 1,619,561
317.5 %
Reimbursable out-of-pocket expenses —
262,888
(262,888 ) (100.0 )%
Total revenue 2,129,726
773,053
1,356,673
175.5 %
Costs and operating expenses:

Direct costs (exclusive of depreciation and amortization) 1,080,050
316,845
763,205
240.9 %
Reimbursable out-of-pocket expenses 608,238
262,888
345,350
131.4 %
Selling, general, and administrative 199,477
87,465
112,012
128.1 %
Restructuring and other costs 22,298
5,956
16,342
274.4 %
Transaction and integration-related expenses 43,243
23,741
19,502
82.1 %
Depreciation and amortization 135,523
31,156
104,367
335.0 %
Total operating expenses 2,088,829
728,051
1,360,778
186.9 %
Income from operations 40,897
45,002
(4,105 ) (9.1 )%
Total other expense, net (44,814 ) (16,333 ) (28,481 ) (174.4 )%
(Loss) income before provision for income taxes (3,917 ) 28,669
(32,586 ) (113.7 )%
Income tax expense (7,075 ) (4,093 ) (2,982 ) (72.9 )%
Net (loss) income $ (10,992 ) $ 24,576
$ (35,568 ) (144.7 )%

~~Service~~ Revenue

~~For the three months ended June 30, 2018, our service~~Our revenue increased by ~~$814.4~~$61.8 million, or ~~315.6%~~5.8%, to ~~$1.07~~$1.12 billion ~~from $258.1 million~~ for the three months ended ~~June 30, 2017. For the six months ended June 30, 2018, our service revenue increased by $1.62~~March 31, 2019, from $1.06 billion ~~or 317.5%, to $2.13 billion from $510.2 million for the six months ended June 30, 2017.~~

As a result of adopting the new revenue recognition standard on January 1, 2018, we no longer present service revenue and revenue associated with reimbursable out-of-pocket expenses separately in the statements of operations as, under the new revenue recognition standard, they represent a single performance obligation and separate presentation is no longer permitted. The inclusion of revenue associated with out-of-pocket expenses in service revenue in 2018 contributed to approximately 116.1% and 119.3%, respectively, of the increases to service revenue for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018. ~~Service~~The increase was primarily driven by revenue ~~for~~growth in both our Commercial Solutions and Clinical Solutions segments as discussed below.

During the three ~~and six~~ months ended ~~June 30, 2018 was comprised~~March 31, 2019, one customer accounted for approximately 10% of fee revenue of $773.1 million and $1.52 billion and revenue associated with reimbursable out-of-pocket expenses of $299.5 million and $608.2 million, respectively. Comparatively, service revenue, which represents fee revenue only, forour revenue. During the three ~~and six~~ months ended June 30, 2017 was $258.1 million and $510.2 million, respectively. Revenue associated with reimbursable out-of-pocket expenses for the three and six months ended June 30, 2017 was $133.0 million and $262.9 million, respectively.

For the three and six months ended June 30, 2018, our service revenue increased compared to the same period in the prior year primarily as a result of: (i) the Merger with inVentiv in August 2017; and (ii) inclusion of revenue associated with reimbursable out-of-pocket expenses as a component of service revenue in 2018, as discussed above. These increases were partially offset by: (i) unfavorable impacts from adoption of ASC 606 of $23.4 million and $35.0 million, respectively; and (ii) reductions in revenue of approximately $3.8 million and $7.6 million, respectively, due to the fair value adjustments required by purchase accounting.

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~~During both the three and six months ended June 30,~~March 31, 2018, one customer accounted for ~~approximately~~ 11% of our total consolidated service revenue (which includes revenue associated with reimbursable out-of-pocket expenses as a result of our adoption of ASC 606). No single customer accounted for greater than 10% of our total consolidated service revenue for the three and six months ended June 30, 2017. Service revenuerevenue. Revenue from our top five customers accounted for approximately ~~26%~~22% and ~~29%~~24% of total ~~consolidated service~~ revenue for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively. Service revenue from our top five customers accounted for approximately 25% and 30% of total consolidated service revenue for the six months ended June 30, 2018 and 2017,~~ respectively.

~~Service revenue~~Revenue for each of our segments was as follows ~~(in thousands, except percentages)~~(dollars in thousands):

Three Months Ended June 30,
2018 % of total 2017 % of total Change
Clinical Solutions $ 783,913
73.1 % $ 255,504
99.0 % $ 528,409
206.8 %
Commercial Solutions 288,617
26.9 % 2,583
1.0 % 286,034
n/m
Total service revenue $ 1,072,530
$ 258,087
$ 814,443
315.6 %


	Six Months Ended June 30,												Three Months Ended March 31,
	2018		% of total		2017		% of total		Change				2019		% of total		2018		% of total		Change
Clinical Solutions	$	1,570,752	73.8	%	$	505,001	99.0	%	$	1,065,751	211.0	%	$	804,958	71.9	%	$	786,839	74.4	%	$	18,119	2.3	%
Commercial Solutions	558,974		26.2	%	5,164		1.0	%	553,810		n/m		314,048		28.1	%	270,357		25.6	%	43,691		16.2	%
Total service revenue	$	2,129,726			$	510,165			$	1,619,561	317.5	%
Total revenue													$	1,119,006			$	1,057,196			$	61,810	5.8	%

Clinical Solutions

Our Clinical Solutions segment is a leading global CRO that is therapeutically-focused and offers a variety of clinical development services spanning Phase I to Phase IV, including full-service global studies, as well as unbundled service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data management, and study startup to assist customers with their drug development process. For the three and six months ended June 30, 2018, our Clinical Solutions segment generated service revenue of $783.9 million and $1.57 billion, representing approximately 73.1% and 73.8%, respectively, of service revenue for the period. For the three and six months ended June 30, 2017, our Clinical Solutions segment generated service revenue of $255.5 million and $505.0 million, respectively, representing approximately 99.0% of service revenue for each period.

For the three ~~and six~~ months ended ~~June 30, 2018, our service~~March 31, 2019, revenue attributable to the Clinical Solutions segment increased compared to the same period in the prior year primarily due ~~to: (i)~~to net new business growth resulting in higher backlog as we entered the ~~Merger~~period, partially offset by fluctuations in foreign exchange rates and contractual currency adjustment provisions of $14.1 million. Revenue growth was also partially offset by an unfavorable revenue mix and delays in the startup of projects, particularly from awards under certain new strategic relationships with inVentiv in August 2017; and (ii) the inclusion of revenue associated with reimbursable out-of-pocket expenses as a component of service revenue in 2018 according to the requirements of new revenue recognition standard, as discussed above.

~~Commercial Solutions~~

Our Commercial Solutions segment is a leading provider of a full suite of complementary commercialization services, including outsourced field selling solutions, medication adherence, communications (public relations and advertising), and consulting services. For the three and six months ended June 30, 2018, our Commercial Solutions segment generated service revenue of $288.6 million and $559.0 million, representing approximately 26.9% and 26.2%, respectively, of service revenue for the period. For the three and six months ended June 30, 2017, our Commercial Solutions segment generated service revenue of $2.6 million and $5.2 million, respectively, representing approximately 1.0% of service revenue for each period.large pharmaceutical customers.

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Commercial Solutions

For the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, our ~~service revenue attributable to the~~ Commercial Solutions ~~segment~~revenue increased compared to the same ~~periods~~period in the prior year due to the Merger with inVentiv in August 2017. While our Commercial Solutions service revenue increased on a comparative basis due to the Merger, service revenue associated with this segment declined compared to the amounts reported by inVentiv in periods prior to the Merger, primarily as a result of project cancellations, and customer downsizing within our selling solutions and communications service offerings, along with lowernet new business ~~awards~~growth which resulted in ~~2017 that reduced 2018 revenue.~~

~~Direct Costs and Reimbursable Out-of-Pocket Expenses~~

~~Direct costs and reimbursable out-of-pocket expenses~~higher backlog as we entered the period, a favorable revenue mix, as well as revenue from the Company’ acquisition of Kinapse Topco Limited (“Kinapse”), which was acquired during the third quarter of 2018. These increases were ~~comprised~~partially offset by foreign exchange fluctuations of ~~the following (in thousands, except percentages):~~

Three Months Ended June 30,

2018^(a)

2017^(b)
Change
Direct costs (exclusive of depreciation and amortization) $ 547,993
$ 162,010
$ 385,983
238.2 %
Reimbursable out-of-pocket expenses 299,472
133,048
166,424
125.1 %
Total direct costs and reimbursable out-of-pocket expenses $ 847,465
$ 295,058
$ 552,407
187.2 %
Percentage of service revenue 79.0 % 62.8 %
Gross margin percentage 21.0 % 37.2 %

Six Months Ended June 30,

2018^(a)

2017^(b)
Change
Direct costs (exclusive of depreciation and amortization) $ 1,080,050
$ 316,845
$ 763,205
240.9 %
Reimbursable out-of-pocket expenses 608,238
262,888
345,350
131.4 %
Total direct costs and reimbursable out-of-pocket expenses $ 1,688,288
$ 579,733
$ 1,108,555
191.2 %
Percentage of service revenue 79.3 % 62.1 %
Gross margin percentage 20.7 % 37.9 %

^(a) ~~As a result of the adoption of the new revenue recognition standard on January 1, 2018, we allocate reimbursable out-of-pocket expenses to our gross margin and the related percentage.~~

^(b) ~~Prior to the adoption of the new revenue standard on January 1, 2018, reimbursable out-of-pocket expenses were not included in our calculation of gross margin and the related percentage.~~$2.1 million.

Direct Costs

Direct costs consist principally of compensation expense and benefits ~~expenses~~ associated with our employees and other employee-related ~~costs.~~costs, and reimbursable out-of-pocket expenses directly related to delivering on our projects. While we ~~can~~have some ability to manage the majority of these costs relative to the amount of contracted services we have during any given period, direct costs as a percentage of ~~service~~ revenue ~~may~~can vary from period to period. Such fluctuations are due to a variety of factors, including, among ~~others,~~others: (i) the level of staff utilization ~~created by~~on our ~~ability to effectively manage our workforce,~~projects; (ii) adjustments to the timing of work on specific customer ~~contracts,~~contracts; (iii) the experience mix of personnel assigned to ~~projects, and~~projects; (iv) the service mix and pricing of our ~~contracts.~~contracts and (v) the timing of the incurrence of reimbursable out-of-pocket expenses, particularly on our Clinical Solutions projects. In addition, as global projects wind down or as delays and cancellations occur, staffing levels in certain countries or functional areas can become misaligned with the current business volume.

Direct costs consisted of the following (dollars in thousands):



	Three Months Ended March 31,
	2019			2018			Change
Direct costs (exclusive of depreciation and amortization)	$	886,802		$	840,823		$	45,979	5.5	%
% of revenue	79.2		%	79.5		%
Gross margin %	20.8		%	20.5		%

For the three months ended ~~June 30, 2018,~~March 31, 2019, our direct costs increased by ~~$386.0~~$46.0 million, or ~~238.2%~~5.5%, to ~~$548.0~~$886.8 million from ~~$162.0~~$840.8 million for the three months ended ~~June 30, 2017.~~ March 31, 2018. The increase was primarily driven by an increase in compensation and related costs (including shared-based compensation), reimbursed out-of-pocket expenses, as well as direct costs from Kinapse, which was acquired in the third quarter of 2018.

Clinical Solutions

Direct costs for our Clinical Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):



	Three Months Ended March 31,
	2019			2018			Change
Direct costs	$	625,767		$	615,371		$	10,396	1.7	%
% of segment revenue	77.7		%	78.2		%
Segment gross margin %	22.3		%	21.8		%

For the ~~six~~three months ended ~~June 30, 2018, our~~March 31, 2019, Clinical Solutions segment direct costs increased by ~~$763.2~~$10.4 million, or ~~240.9%~~1.7%, as compared to ~~$1.08 billion from $316.8 million~~the three months ended March 31, 2018. The increase was primarily due to an increase in compensation and related costs related to higher billable headcount to support revenue growth.

Gross margin for the ~~six~~Clinical Solutions segment was 22.3% for the three months ended ~~June 30, 2017. These increases were primarily driven by~~March 31, 2019 compared to 21.8% for the ~~Merger with inVentiv which increased our worldwide employee base by approximately 15,000 employees in August~~three months ended March 31, 2018. Segment gross margin as a percentage

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~~2017, resulting in an overall increase in direct costs compared to the prior year, primarily related to salaries, benefits, and incentive compensation expense.~~

~~The following is a summary~~ of ~~the year-over-year fluctuation in components of direct costs (in thousands):~~

Three Months Ended June 30, 2018 to 2017 Six Months Ended June 30, 2018 to 2017
Change in:
Salaries, benefits, and incentive compensation $ 329,321
$ 658,300
Facilities and IT related costs 28,661
49,722
Other 28,001
55,183
Total $ 385,983
$ 763,205

~~Reimbursable Out-of-Pocket Expenses~~

Reimbursable out-of-pocket expenses represent expenses typically not associated with our services which are passed through and reimbursed by our customers at actual cost. Such expenses are incurred within both our clinical and commercial businesses and are generally comprised of: (i) physician and investigator fees, project management, data management and other site-facing study costs; (ii) travel-related expenses; (iii) certain compensation and bonuses of sales representatives and other project team personnel; and (iv) various vendor and third-party fees related to meetings, transportation, sales, marketing, communication, training, storage and other miscellaneous project expenses. These expenses fluctuate significantly from period to period based on the timing of program initiation or closeout and the mix of program complexity, and do not necessarily change in direct correlation to fee revenue.

~~For the three months endedJune 30, 2018, reimbursable out-of-pocket expenses increased by $166.4 million, or 125.1%, as compared to~~revenue was higher during the three months ended ~~June 30, 2017. For the six months endedJune 30, 2018, reimbursable out-of-pocket expenses increased by $345.4 million, or 131.4%, as~~March 31, 2019 compared to the ~~six months ended June 30, 2017. These increases were~~same period in 2018 primarily due to ~~the Merger with inVentiv, which resulted in the increase in the number of studies in which these expenses are incurred.~~

~~Table of Contents~~

~~Clinical Solutions~~

~~Direct costs~~cost synergies and ~~reimbursable out-of-pocket expenses for our Clinical Solutions segment, excluding share-based compensation expense, were as follows (in thousands, except percentages):~~

Three Months Ended June 30,

2018^(a)

2017^(b)
Change
Direct costs $ 357,077
$ 156,623
$ 200,454
128.0 %
Reimbursable out-of-pocket expenses 251,917
—
251,917
n/m
Total segment direct costs and reimbursable out-of-pocket expenses $ 608,994
$ 156,623
$ 452,371
288.8 %
Percentage of segment service revenue 77.7 % 61.3 %
Segment gross margin percentage 22.3 % 38.7 %

Six Months Ended June 30,

2018^(a)

2017^(b)
Change
Direct costs $ 710,970
$ 306,510
$ 404,460
132.0 %
Reimbursable out-of-pocket expenses 513,395
—
513,395
n/m
Total segment direct costs and reimbursable out-of-pocket expenses $ 1,224,365
$ 306,510
$ 917,855
299.5 %
Percentage of segment service revenue 77.9 % 60.7 %
Segment gross margin percentage 22.1 % 39.3 %

^(a) As a ~~result of the adoption of the new revenue recognition standard on January 1, 2018, we allocate reimbursable out-of-pocket expenses to our operating segments.~~

^(b) Prior to the adoption of the new revenue standard on January 1, 2018, reimbursable out-of-pocket expenses were not allocated to operating segments and therefore are not presented in segment disclosures for periods prior to 2018.

~~For the three months ended June 30, 2018 and 2017, direct~~favorable impact from foreign currency fluctuations, partially offset by costs associated with our Clinical Solutions segment were $357.1 million and $156.6 million, or 65.8% and 98.5%, respectively, of segment direct costs. For the three months ended June 30, 2018, Clinical Solutions direct costs increased by $200.5 million, or 128.0%, as compared to the three months ended June 30, 2017. For the six months ended June 30, 2018 and 2017, direct costs associatedcertain new strategic relationships with our Clinical Solutions segment were $711.0 million and $306.5 million, or 66.4% and 98.5%, respectively, of segment direct costs. For the six months ended June 30, 2018, Clinical Solutions direct costs increased by $404.5 million, or 132.0%, as compared to the six months ended June 30, 2017. The increases in direct costs associated with our Clinical Solutions segment during 2018 compared to the prior year were primarily due to the overall increase in personnel costs as a result of the Merger.

~~For the three and six months ended~~June 30, 2018, reimbursable out-of-pocket expenses associated with our Clinical Solutions segment were $251.9 million and $513.4 million, representing approximately 84.1% and 84.4%, respectively, of the total reimbursable out-of-pocket expenses for the period.

Clinical Solutions gross margin was 22.3% and 22.1% for the three and six months ended June 30, 2018, respectively, compared to 38.7% and 39.3% for the three and six months ended June 30, 2017, respectively. Gross margin declined in the first half of 2018 compared to the first half of 2017 primarily due to: (i) inclusion of revenue associated with reimbursable out-of-pocket expenses as a component of service revenue in 2018, which accounted for approximately 10.6% and 10.7%, respectively, of the decrease; (ii) the elimination, due to purchase accounting requirements, of $3.4 million and $6.8 million, respectively, of revenue from 2018 results that otherwise would have been recognized by inVentiv; and (iii) the mix of customers and service offerings added as a result of the Merger having lower gross margin profile compared to our historical mix of customers and services. Specifically, inVentiv’s Clinical Solutions business has historically had a higher proportion of contracts from the top 20 biopharmaceutical companies and a higher proportion of FSP services revenue, both of which typically have a lower margin profile than our historical mix of customers and services.

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large pharmaceutical customers.

Commercial Solutions

Direct costs ~~and reimbursable out-of-pocket expenses~~ for our Commercial Solutions segment, excluding share-based compensation expense, were as follows ~~(in thousands, except percentages)~~(dollars in thousands):

Three Months Ended June 30,

2018^(a)

2017^(b)
Change
Direct costs $ 185,344
$ 2,433
$ 182,911
n/m
Reimbursable out-of-pocket expenses 47,555
—
47,555
n/m
Total segment direct costs and reimbursable out-of-pocket expenses $ 232,899
$ 2,433
$ 230,466
n/m
Percentage of segment service revenue 80.7 % 94.2 %
Segment gross margin percentage 19.3 % 5.8 %



	Three Months Ended March 31,
	2019			2018			Change
Direct costs	$	252,873		$	221,700		$	31,173	14.1	%
% of segment revenue	80.5		%	82.0		%
Segment gross margin %	19.5		%	18.0		%

Six Months Ended June 30,

2018^(a)

2017^(b)
Change
Direct costs $ 359,756
$ 4,668
$ 355,088
n/m
Reimbursable out-of-pocket expenses 94,843
—
94,843
n/m
Total segment direct costs and reimbursable out-of-pocket expenses $ 454,599
$ 4,668
$ 449,931
n/m
Percentage of segment service revenue 81.3 % 90.4 %
Segment gross margin percentage 18.7 % 9.6 %

^(a) ~~As a result of the adoption of the new revenue recognition standard on January 1, 2018, we allocate reimbursable out-of-pocket expenses to our operating segments.~~

For the three months ended ~~June 30, 2018 and 2017, direct costs associated with our~~March 31, 2019, Commercial Solutions segment ~~were $185.3 million and $2.4 million, representing approximately 34.2%and 1.5%, respectively, of segment~~ direct costs ~~for~~increased by $31.2 million, or 14.1%, as compared to the ~~period. For the six~~three months ended ~~June 30, 2018~~March 31, 2018. The increase was primarily due to an increase in compensation and ~~2017,~~related costs related to higher billable headcount to support revenue growth, an increase in reimbursed out-of-pocket expenses, as well as direct costs ~~associated with our~~from Kinapse, which was acquired in the third quarter of 2018.

Gross margin for the Commercial Solutions segment were $359.8 million and $4.7 million, representing approximately 33.6% and 1.5%, respectively, of segment direct costs for the period. The increases in direct costs associated with our Commercial Solutions segment during 2018 compared to the prior year were primarily due to the 2017 Merger with inVentiv.

For the three and six months ended June 30, 2018, reimbursable out-of-pocket expenses associated with our Commercial Solutions segment were $47.6 million and $94.8 million, representing approximately 15.9% and 15.6%,respectively, of total reimbursable out-of-pocket expenses for the period.

~~The Commercial Solutions gross margin~~ was ~~19.3%~~19.5% for the three months ended ~~June 30, 2018,~~March 31, 2019 compared to ~~5.8%~~18.0% for the three months ended ~~June 30, 2017. The Commercial Solutions~~March 31, 2018. Segment gross margin as a percentage of revenue was ~~18.7% for~~higher during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019 compared to ~~9.6% for~~ the ~~six months ended June 30, 2017.~~

same period in 2018 primarily due to a favorable revenue mix.

~~Table of Contents~~

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were as follows ~~(in thousands, except percentages)~~(dollars in thousands):

Three Months Ended June 30,
2018 2017 Change
Selling, general, and administrative $ 100,218
$ 42,531
$ 57,687
135.6 %
Percentage of service revenue 9.3 % 16.5 %

Six Months Ended June 30,
2018 2017 Change
Selling, general, and administrative $ 199,477
$ 87,465
$ 112,012
128.1 %
Percentage of service revenue 9.4 % 17.1 %

~~Selling,~~



	Three Months Ended March 31,
	2019			2018			Change
Selling, general, and administrative expenses	$	113,117		$	99,259		$	13,858	14.0	%
% of total revenue	10.1		%	9.4		%

The increase in selling, general, and administrative expenses ~~increased in absolute terms by $57.7 million, or 135.6%, to $100.2 million~~ for the three months ended ~~June 30, 2018~~March 31, 2019 was primarily caused by incremental costs from ~~$42.5 million for~~Kinapse, which was acquired during the three months ended June 30, 2017. Selling, general, and administrative expenses increased in absolute terms by $112.0 million, or 128.1%, to $199.5 million for the six months ended June 30, 2018 from $87.5 million for the six months ended June 30, 2017. These increases were primarily due to the Merger with inVentiv in August 2017 which increased our overall expenses, including an increase to our employee base by approximately 15,000 employees.

~~The following is a summary~~third quarter of ~~the year-over-year fluctuation in components of selling, general, and administrative expenses (in thousands):~~

Three Months Ended June 30, 2018 to 2017 Six Months Ended June 30, 2018 to 2017
Change in:
Salaries, benefits, and incentive compensation $ 33,608
$ 69,225
Professional services fees 13,434
24,947
Other expenses 10,645
17,840
Total $ 57,687
$ 112,012

Selling, general, and administrative expenses as a percentage of service revenue were 9.3% for the three months ended June 30, 2018, compared to 16.5% for the three months ended June 30, 2017. Selling, general, and administrative expenses as a percentage of service revenue were 9.4% for the six months ended June 30, 2018, compared to 17.1% for the six months ended June 30, 2017. Of the decrease from the comparable periods in the prior year, approximately 3.7% related to the inclusion of reimbursable out-of-pocket expenses as a component of service revenue in 2018, as ~~required by the new revenue recognition standard, while the primary driver was economies of scale resulting from the Merger and our cost containment efforts.~~well as higher compensation related expenses (including share-based compensation).

Restructuring and Other Costs

Restructuring and other costs were ~~$8.6~~$14.4 million and ~~$22.3~~$13.7 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and March 31, 2018, respectively. InDuring 2017, in connection with the Merger, we established a restructuring plan to eliminate redundant positions and reduce our facility footprint worldwide. We expect to continue ~~our~~the ongoing evaluations of our workforce and facilities infrastructure needs through 2020 in an effort to optimize our ~~resources worldwide. During~~resources. Additionally, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and March 31, 2018, we ~~recognized (i)~~incurred employee severance ~~and benefit~~ costs ~~of $2.8 million~~ and ~~$11.3 million, respectively; (ii)~~ facility closure ~~and lease termination~~ costs for non-Merger related restructuring activities.

Table of ~~$2.7 million~~Contents

Restructuring and ~~$4.8 million, respectively; and (iii)~~ other costs ~~related to~~consisted of the ~~Merger of $0.3 million and $0.5 million, respectively.~~ following (in thousands):



	Three Months Ended March 31,
	2019		2018
Merger-related restructuring and other costs:
Employee severance and benefit costs	$	6,272	$	8,400
Facility and lease termination costs	1,954		2,213
Other merger-related costs	—		300
Non-merger related restructuring and other costs:
Employee severance and benefit costs	5,960		200
Facility and lease termination costs	219		800
Consulting fees	—		1,694
Other costs	8		100
Total restructuring and other costs	$	14,413	$	13,707

We expect to incur significant costs related to the restructuring of our operations in order to achieve the targeted synergies as a result of the Merger over the next several years. However, the timing and the ~~estimate of the~~ amount of these costs depends on

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various factors, including, but not limited to, ~~the identification of~~identifying and realizing synergy opportunities and ~~the execution of~~executing the integration of our combined operations.

Additionally, during the three and six months ended June 30, 2018, we recognized the following restructuring and other costs unrelated to the Merger: (i) employee severance costs of $0.8 million and $1.0 million, respectively; (ii) facility closure and lease termination costs related to the our pre-Merger restructuring activities of $0.6 million and $1.4 million, respectively; (iii) consulting costs of $0.7 million and $2.5 million, respectively, related to the continued consolidation of our legal entities and restructuring of our contract management process to meet the requirements of the new revenue recognition accounting standard adopted on January 1, 2018; and (iv) other costs of $0.7 million and $0.8 million, respectively.

Restructuring, CEO transition, and other costs were $4.0 million and $6.0 million for the three and six months ended June 30, 2017. In July 2016, we entered into a transition agreement with our former Chief Executive Officer (“CEO”) related to his transition from the position of CEO effective October 1, 2016, and subsequent services to be rendered through his separation date of February 28, 2017. Payments under this agreement are expected to be made through August 2018. In addition, in September 2016, we entered into retention agreements with certain key employees coinciding with the CEO transition for retention periods of up to one year. For the three and six months ended June 30, 2017, we recognized $0.4 million and $0.8 million, respectively, of costs associated with the retention agreements. All payments related to these agreements were made in September 2017. In addition, during the three and six months ended June 30, 2017, we recognized approximately $2.4 million of employee severance costs in an effort to optimize our workforce worldwide.

During the three and six months ended June 30, 2017, we also incurred (i) facility closure and lease costs related to our focus on optimizing our resources worldwide of $0.3 million and $1.0 million, respectively, (ii) consulting costs related to the continued consolidation of our legal entities and restructuring of our contract management process to meet the requirements of upcoming accounting regulation changes of $0.5 million and $0.8 million, respectively, and (iii) other costs of $0.4 million and $1.0 million, respectively.

Transaction and Integration-Related Expenses

Transaction and integration-related expenses decreased to $18.0 million for the three months ended June 30, 2018 from $23.7 million for the three months ended June 30, 2017. Transaction and integration-related expenses increased to $43.2 million for the six months ended June 30, 2018 from $23.7 million for the six months ended June 30, 2017. Transaction and integration-related expenses consisted of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Professional fees $ 11,073
$ 18,566
$ 25,773
$ 18,568
Debt modification and related expenses 1,317
—
1,317
—
Integration and personnel retention-related costs ^(a)
4,448
5,173
13,741
5,173
Contingent tax-sharing obligations fair value adjustment 1,194
—
2,389
—
Other —
—
23
—
Total transaction and integration-related expenses $ 18,032
$ 23,739
$ 43,243
$ 23,741

^(a)In connection with the Merger, we entered into retention agreements with certain key employees. During the three and six months ended June 30, 2018, we recognized $2.2 million and $8.9 million, respectively, of expenses related to these retention agreements compared to $5.1 million during the three and six months ended June 30, 2017. Payments under these agreements were made to employees in May 2018.

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	Three Months Ended March 31,
	2019		2018
Professional fees	$	12,846	$	14,700
Debt modification and related expenses	2,241		—
Integration and personnel retention-related costs	847		9,293
Fair value adjustments to contingent obligations	724		1,194
Other	—		24
Total transaction and integration-related expenses	$	16,658	$	25,211

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

Depreciation and Amortization Expense

Total depreciation and amortization expense ~~increased to $67.5~~was $61.2 million and $68.0 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, from $15.5 million for the three months ended June 30, 2017. Total depreciation and amortization expense increased to $135.5 million for the six months ended June 30, 2018 from $31.2 million for the six months ended June 30, 2017. These increases wererespectively. The decline was primarily due ~~to: (i) an increase~~to a decrease in amortization expense ~~related to the recognition of~~from intangible assets ~~as part of the Merger; and (ii)~~resulting from business combinations completed in prior periods, partially offset by an increase in depreciation ~~expense due to assets obtained in the Merger and our~~from continued investment in information technology and facilities to support growth in our operational capabilities and optimization of our infrastructure.

~~Other Expense, Net~~

~~Other expense, net consisted of the following (in thousands, except percentages):~~

Three Months Ended June 30,
2018 2017 Change
Interest income $ 1,655
$ 152
$ 1,503
988.8 %
Interest expense (32,894 ) (3,286 ) (29,608 ) (901.0 )%
Loss on extinguishment of debt (1,877 ) —
(1,877 ) n/m
Other income (expense), net 32,001
(6,754 ) 38,755
573.8 %
Total other expense, net $ (1,115 ) $ (9,888 ) $ 8,773
88.7 %

Six Months Ended June 30,
2018 2017 Change
Interest income $ 2,494
$ 264
$ 2,230
844.7 %
Interest expense (64,630 ) (6,386 ) (58,244 ) (912.1 )%
Loss on extinguishment of debt (2,125 ) —
(2,125 ) n/m
Other income (expense), net 19,447
(10,211 ) 29,658
290.5 %
Total other expense, net $ (44,814 ) $ (16,333 ) $ (28,481 ) (174.4 )%

Total other expense, net decreased to net expense of $1.1 million for the three months ended June 30, 2018 from net expense of $9.9 million for the three months ended June 30, 2017. Total other expense, net increased to net expense of $44.8 million for the six months ended June 30, 2018 from net expense of $16.3 million for the six months ended June 30, 2017. These changes were predominantly related to: (i) an increase in interest expense due to higher debt balances as a result of the Merger; and (ii) foreign currency gains incurred during the second quarter of 2018 compared to losses in the first half of 2017. Changes related to foreign currency adjustments were a result of exchange rate fluctuations related to monetary asset balances denominated in currencies other than functional currency. We may continue to incur large fluctuations in foreign currency adjustments during future periods as changes in foreign currencies against the U.S. dollar may create gains or losses to the extent that our subsidiaries who use local currency as their functional currency maintain net assets and liabilities balances not denominated in their functional currency.

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Other Expense, Net

Other expense, net consisted of the following (dollars in thousands):



	Three Months Ended March 31,
	2019			2018			Change
Interest income	$	1,502		$	839		$	663		79.0	%
Interest expense	(34,630		)	(31,736		)	(2,894		)	(9.1	)%
Loss on extinguishment of debt	(4,355		)	(248		)	(4,107		)	n/m
Other expense, net	(8,921		)	(12,554		)	3,633			28.9	%
Total other expense, net	$	(46,404	)	$	(43,699	)	$	(2,705	)	(6.2	)%

Total other expense, net was $46.4 million and $43.7 million for the three months ended March 31, 2019 and 2018, respectively. The increase was primarily due to the increase in interest expense as a result of higher average interest rates on our variable rate debt and the higher loss on extinguishment of debt associated with the debt refinancing transaction completed during the first quarter of 2019. Partially offsetting these increases was lower other expense, net, which primarily consists of foreign currency gains and losses that result from exchange rate fluctuations on our monetary asset balances denominated in currencies other than the functional currency.

Income Tax ~~(Expense) Benefit~~Expense

For the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, we recorded income tax expense of ~~$16.0~~$10.4 million ~~and $7.1 million, compared to~~on a pre-tax ~~income~~loss of ~~$29.6 million and pre-tax expense of $3.9 million, respectively.~~$19.6 million. Variances between the effective income tax rate and the statutory income tax rate of 21.0% for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 were primarily due to: (i) base erosion anti-abuse minimum tax, (ii) foreign income inclusions such as GILTI, and (iii) a valuation allowance change on domestic deferred tax assets.

For the three months ended March 31, 2018, we recorded income tax benefit of $9.0 million on a pre-tax loss of $33.5 million. Variances between our effective income tax rate and the statutory income tax rate of 21.0% for the three months ended March 31, 2018 were primarily due to: (i) research tax credits in foreign jurisdictions; (ii) a decrease in unrecognized tax benefits; and (iii) a valuation allowance change on ~~certain~~ domestic deferred tax ~~assets; and (iii) the geographical split of pre-tax income.~~

For the three and six months ended June 30, 2017, income tax benefit (expense) was a benefit of $3.0 million and an expense of $4.1 million, compared to pre-tax income of $0.4 million and $28.7 million, respectively. Variances between our effective income tax rate and the statutory income tax rate of 35.0% for the three and six months ended June 30, 2017 were primarily due to: (i) the relative amount of income from operations earned in international jurisdictions with lower statutory income tax rates compared to the United States; (ii) research tax credits; and (iii) discrete tax adjustments related to excess tax benefits on share-based payments.assets.

~~Net Income (Loss)~~

For the three months ended June 30, 2018, net income increased by $10.2 million to $13.6 million from $3.4 million for the three months ended June 30, 2017. This increase was primarily due to an increase in income from operations due to the Merger with inVentiv in August 2017. Also contributing to the increase in net income for three months ended June 30, 2018 were foreign currency exchange gains driven by strengthening of the U.S. dollar in 2018 as compared to 2017. These favorable items were partially offset by an increase in interest expense due to higher debt balances in 2018.

For the six months ended June 30, 2018, we incurred a net loss of $11.0 million compared to net income of $24.6 million for the six months ended June 30, 2017. Our net loss for the six months ended June 30, 2018 was primarily due to an increase in other expense, net, due to increased interest expense as a result of higher debt balances during the six months ended June 30, 2018 compared to the six months ended June 30, 2017, partially offset by foreign currency exchange gains during 2018 compared to losses in 2017.

Liquidity and Capital Resources

Key measures of our liquidity are as follows (in thousands):

June 30, 2018 December 31, 2017
Balance sheet statistics:
Cash and cash equivalents ^(a)
$ 171,528
$ 321,262
Working capital (excluding restricted cash) 53,793
261,903

^(a) As of June 30, 2018 and December 31, 2017, cash and cash equivalents held by our foreign subsidiaries were $94.5 million and $192.0 million, respectively. A portion of these cash and cash equivalent balances may be subject to foreign withholding and U.S. taxation, if repatriated.



	March 31, 2019		December 31, 2018
Balance sheet statistics:
Cash and cash equivalents	$	105,859	$	153,863
Restricted cash	2,062		2,069
Working capital (excluding restricted cash)	21,986		(13,305		)

As of ~~June 30, 2018,~~March 31, 2019, we had ~~$171.5~~$107.9 million of cash, cash equivalents and restricted cash. As of March 31, 2019, substantially all of our cash, ~~equivalents.~~cash equivalents and restricted cash are held within the United States. In addition, we had ~~$485.6~~$580.5 million (net of ~~$14.4~~$19.5 million in outstanding letters of credit) available for borrowing under our ~~$500.0~~$600.0 million ~~revolving credit~~Revolver facility.

We have historically funded our operations and growth, including acquisitions, primarily with our working capital, cash flow from operations and funds available through various borrowing arrangements. Our principal liquidity requirements are to fund our debt service obligations, capital expenditures, expansion of service offerings, possible acquisitions, integration and restructuring costs, geographic expansion, stock

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repurchases, working capital and other general corporate expenses. Based on ~~the~~ past performance and current expectations, we believe our cash and cash equivalents, cash generated from operations, and funds

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available under our revolving credit facility ~~and accounts receivable financing agreement~~ will be sufficient to meet our working capital needs, capital expenditures, scheduled debt and interest payments, income tax obligations and other currently anticipated liquidity requirements for at least the next 12 months.

Indebtedness

At ~~June 30, 2018,~~March 31, 2019, we had approximately ~~$2.88~~$2.8 billion of total principal indebtedness, ~~(including $28.4 million of capital leases),~~ comprised of ~~$2.45 billion~~$2,167.4 million in term loan debt, ~~and~~ $403.0 million in 7.5% Senior ~~Notes.~~Notes due 2024, and $195.9 million in borrowings against the accounts receivable financing agreement. In addition, as of ~~June 30, 2018~~March 31, 2019 we had ~~$485.6~~$580.5 million (net of ~~$14.4~~$19.5 million in outstanding letters of credit) of available borrowings for working capital and other purposes under the Revolver and ~~$1.1~~$0.8 million of letters of credit that were not secured by the Revolver. ~~During the six months ended June 30, 2018,~~In February 2019, we made voluntary prepayments of ~~$85.0~~$25.0 million, which ~~was~~were applied against the regularly-scheduled quarterly principal payments of the Term Loan B. As a result of these and previous voluntary prepayments, we are not required to make a mandatory payment against the Term Loan B principal balance until maturity in August 2024. Additionally, during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we made mandatory principal payments of $12.5 million towards our Term Loan A.

~~Interest Rates~~Amendment No. 2 to the Credit Agreement

~~In May 2018,~~On March 26, 2019, we entered into Amendment No. ~~1 (the “Repricing Amendment”)~~2 to the Credit Agreement ~~dated August 1, 2017.~~(“the Second Amendment”). The ~~Repricing~~Second Amendment, ~~reduced~~among other things, modifies the ~~overall applicable margins with respect~~terms of the Credit Agreement to ~~both~~refinance the existing Term Loan A facility and the Revolver as follows:

(a) to increase the existing Term Loan A facility by $587.5 million to $1.55 billion. $187.5 million of such increase was applied at closing to repay a portion of our existing Term Loan B facility and the fees and expenses incurred in connection with the Second Amendment, and the remaining $400.0 million will be available to be funded in multiple draws within 9 months of closing and applied to further prepay loans under the Term Loan B facility and/or redeem, repay, defease or discharge all or a portion of our Senior Unsecured Notes due 2024;

(b) to increase the existing Revolver commitments available by $100.0 million to $600.0 million, and reduce the margin spread by 0.25%. overall, resulting in (i) for Adjusted Eurocurrency Rate loans, a margin spread of 1.50% and (ii) for alternate base rate loans, a margin spread of 0.50%, with a single 0.25% step-down based on the achievement of certain leverage ratios; and

~~Additionally,~~(c) to extend the maturity such that the Term Loan A facility and the Revolver will mature five years from March 26, 2019.

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

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

We recorded debt issuance costs and related fees in connection with the Revolver and the unfunded amount of the Term Loan A facility of approximately $3.5 million, which are included in other assets in the unaudited condensed consolidated balance sheet. These costs are amortized as a component of interest expense on a straight-line basis over the related terms.

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Interest Rates

In June 2018, we entered into ~~two new interest rate swaps with multiple counterparties in~~ an ~~effort to limit our exposure to variable interest rates on our Term Loans. The first~~ interest rate swap ~~has an aggregate notional value of $1.22 billion, began accruing interest on June 29, 2018, and will expire on December 31, 2018. The second interest rate swap~~that has an aggregate notional value of $1.01 billion, an effective date of December 31, 2018, and ~~will expire~~that expires on June 30, 2021. As a result, the percentage of ~~the~~ our total principal debt (excluding leases) that is subject to fixed interest rates was approximately ~~60%~~54.5% at ~~June 30, 2018.~~March 31, 2019. Each quarter-point increase or decrease in the applicable interest rate at ~~June 30, 2018~~March 31, 2019 would change our annual interest expense by approximately ~~$2.9~~$3.1 million.

Covenant ~~restrictions~~Restrictions under our Lease Agreement

The lease agreement for our new corporate headquarters in Morrisville, North Carolina includes a provision that requires us to issue a letter of credit in certain amounts to the landlord based on our debt rating issued by Moody’s Investors Service (or other nationally-recognized debt rating agency). As of ~~June 30, 2018~~March 31, 2019 (and through the date of this filing), our credit rating was Ba3. As such, no letter of credit iswas required through the date of this filing. Any letters of credit issued in accordance with the aforementioned requirements would be issued under our Revolver, and would reduce its available borrowing capacity by the same amount.

Our ability to make payments on our indebtedness and to fund planned capital expenditures and necessary working capital will depend on our ability to generate cash in the future. Our ability to meet our cash needs through cash flows from operations will depend on the demand for our services, as well as general economic, financial, competitive, and other factors, many of which are beyond our control. Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness, or to fund our other liquidity needs, including working capital, capital expenditures, acquisitions, investments, and other general corporate requirements. If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures, acquisitions or investments, selling assets, restructuring or refinancing our debt, reducing the scope of our operations and growth plans, or seeking additional capital. We cannot assure you that any of these remedies could, if necessary, be affected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. Our ~~2017~~ Credit Agreement contains covenant restrictions that limit our ability to direct the use of proceeds from any disposition of assets and, as a result, we may not be allowed to use the proceeds from any such dispositions to satisfy all current debt service obligations.

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Accounts Receivable Financing Agreement

On June 29, 2018 we entered into ~~and on August 1, 2018 amended,~~ an accounts receivable financing agreement (as amended) with a termination date of June 29, 2020, unless terminated earlier pursuant to its terms. Under this agreement, we can borrow up to $250.0 million from a third-party lender, ~~which is~~ secured by liens on certain receivables and other assets. ~~At June 30, 2018, the~~As of March 31, 2019, we had $195.9 million of outstanding borrowings under this agreement with a maximum remaining borrowing capacity available ~~under the accounts receivable financing agreement was $250.0~~of $54.1 million, which is limited by a periodic calculation of our available borrowing base. ~~As of the date of the amendment, the borrowing capacity was determined to be approximately $218.0 million.~~

2018 Stock Repurchase Program

On February 26, 2018, our Board of Directors authorized the repurchase of up to an aggregate of $250.0 million of our common stock, par value $0.01 per share, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or privately negotiated transactions. The stock repurchase program commenced on March 1, 2018 and will end no later than December 31, 2019. We intend to use cash on hand and future free cash flow to fund the stock repurchase program.

In ~~March 2018,~~January 2019, we repurchased ~~948,100~~552,100 shares of our common stock in open market transactions at an average price of ~~$39.55~~$39.16 per share, resulting in a total purchase price of approximately ~~$37.5~~$21.6 million. In ~~April 2018,~~February 2019, we repurchased ~~1,024,400~~ 120,600shares of our common stock in open market transactions at an average price of ~~$36.60~~$41.40 per share, resulting in a total purchase price of approximately ~~$37.5~~$5.0 million. We immediately retired all of the repurchased common stock and charged the par value of the shares to

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common stock. The excess of the repurchase price over the par value was applied on a pro rata basis against additional paid-in-capital, with the remainder applied to accumulated deficit. As of ~~June 30, 2018,~~March 31, 2019, we had remaining authorization to repurchase up to approximately ~~$175.0~~$148.4 million of shares of our common stock under the 2018 stock repurchase program.

We are not obligated to repurchase any particular amount of our common stock, and the stock repurchase program may be modified, extended, suspended or discontinued at any time. The timing and amount of repurchases is determined by our management based on a variety of factors such as our corporate requirements for cash, overall market conditions, and the market price of our common stock. The stock repurchase program will be subject to applicable legal requirements, including federal and state securities ~~laws.~~laws and applicable Nasdaq rules.

Cash and Cash Equivalents

Our cash flows from operating, investing, and financing activities were as follows (in thousands):


	Six Months Ended									Three Months Ended
	June 30, 2018			June 30, 2017			Change			March 31, 2019			March 31, 2018			Change
Net cash provided by operating activities	$	65,174		$	98,426		$	(33,252	)
Net cash used in operating activities										$	(13,306	)	$	(46,985	)	$	33,679
Net cash used in investing activities	(32,586		)	(15,974		)	(16,612		)	(11,445		)	(21,286		)	9,841
Net cash used in financing activities	(179,694		)	(19,928		)	(159,766		)	(26,338		)	(69,877		)	43,539

Cash Flows from Operating Activities

~~For~~Cash flows used in operations decreased by $33.7 million during the ~~six~~three months ended ~~June 30,~~March 31, 2019, compared to the three months ended March 31, 2018, ~~our operating activities provided $65.2 million~~due to the year-over-year decrease in ~~cash, consisting of~~ net loss of ~~$11.0~~$5.5 million ~~adjusted for net~~and an increase in non-cash items of ~~$131.3~~$7.8 million ~~primarily related~~largely due to deferred income taxes and share based compensation, partially offset by lower depreciation and ~~amortization expense, share-based compensation expense, foreign currency adjustments, and changes~~amortization. Also contributing was a decrease in ~~deferred income taxes. Cash~~cash used ~~for changes~~ in operating assets and liabilities ~~was $55.1~~of $31.4 million ~~consisting primarily of cash outflows as a result of a net increase in accounts receivable, unbilled services, and advanced billings, partially offset by a decrease in other assets and liabilities.~~

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~~For~~compared to the six months ended June 30, 2017, our operating activities provided $98.4 million in cash, consisting of net income of $24.6 million, adjusted for net non-cash items of $41.3 million primarily related to depreciation and amortization, share-based compensation, and foreign currency adjustments. Additionally, cash provided by changes in operating assets and liabilities was $32.6 million, consisting primarily of cash inflow as a result of (i) a decrease in billed and unbilled accounts receivable, (ii) an increase in deferred revenue, and (iii) an increase in accounts payable and accrued liabilities.

prior year period. The changes in operating assets and liabilities result primarily from the net change in billed and unbilled accounts receivable, contract assets and ~~contract liabilities,~~deferred revenue, coupled with changes in accounts payable, accrued expenses, and other long-term assets and liabilities. Fluctuations in billed and unbilled receivables, contract assets and ~~contract liabilities~~deferred revenue occur on a regular basis as we perform services, achieve milestones or other billing criteria, send invoices to customers and collect outstanding accounts receivable. This activity varies by individual customer and contract. We attempt to negotiate payment terms that provide for payment of services prior to or soon after the provision of services, but the levels of unbilled services, contract assets and ~~contract liabilities~~deferred revenue can vary significantly from period to period.

Cash flows from operations decreased by $33.3 million during the six months ended June 30, 2018, compared to the six months ended June 30, 2017, due to a decrease in working capital of $87.7 million and the year-over-year decrease in net income of $35.6 million, partially offset by an increase in non-cash items of $90.0 million largely due to the increase in depreciation and amortization expenses associated with the Merger. The decrease in working capital for the first six months ended June 30, 2018 compared to the same period in the prior year was largely driven by a temporary delay during the first quarter of 2018 in billing and collections associated with our integration activities, primarily the consolidation of our financial and billing platforms, the off-shoring of certain functions, and the transition to ASC 606. The system integration that was one of the drivers of the temporary delay during the first quarter of 2018 in our billing and collections was completed in the second quarter of 2018.

As a result of our integration activities associated with the Merger and our acquisition activity, we incurred substantial expenses ~~related to our integration activities which~~that negatively impacted our cash flow from operations. For example, during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we incurred ~~$39.5~~$15.9 million of ~~integration-related~~ expenses ~~related to the Merger which~~that impacted our operating cash flows in the current period or will impact operating cash flows in the future. We anticipate that we will continue to incur similar costs related to our integration efforts for the next 12 ~~to 18~~to18 months.

In addition, as a result of the Merger, our total indebtedness increased to $2.88 billion as of June 30, 2018, approximately 60% of which was subject to fixed interest rates, as compared to total indebtedness of $445.0 million as of June 30, 2017. As a result, we anticipate that our interest expense and corresponding operating cash outflows will be higher in future periods on a comparative basis. This additional expense will place further demand on and may significantly reduce our cash flows from operations in future periods. Our business may not continue to generate cash flows from operations in the future that is sufficient to service and repay our increased debt obligations.

Cash Flows from Investing Activities

For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we used ~~$32.6~~$11.4 million in cash for investing activities, primarily ~~due to capital expenditures related to purchases~~for the purchase of property and equipment. For the ~~full year~~three months ended March 31, 2018, we ~~expect our total capital expenditures to be between $75.0~~used $21.3 million and $85.0 million. This estimate includes expenditures associated with planned consolidation of our corporate headquarters facility in Morrisville, North Carolina, as well as expenditures related to a new site in Farnborough, United Kingdom which will replace our Camberley, United Kingdom location. These moves will coincide with the near-term expiration of our existing leases.

~~For the six months ended June 30, 2017, we used $16.0 million in cash~~ for investing activities, primarily for the ~~purchases~~purchase of property and equipment.

Cash Flows from Financing Activities

For the three months ended March 31, 2019, our financing activities used $26.3 million in cash, consisting primarily of: (i) repayments of long-term debt of $216.1 million, including voluntary prepayments of $25.0 million through February 2019 against the principal balance of our Term Loan B, (ii) payments of $26.6

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~~Cash Flows from Financing Activities~~

~~For the six months ended June 30, 2018, our financing activities used $179.7 million in cash, consisting primarily of: (i) payments of $75.0~~ million for the repurchase of our common stock under the 2018 repurchase program; ~~(ii) repayments of long-term debt of $97.5 million, including voluntary prepayments of $85.0 million against the principal balance of our Term Loan B;~~and (iii) ~~repayments of capital lease obligations of $8.9 million; and (iv)~~ payments ~~of $3.4 million~~ related to ~~fees incurred in conjunction with our debt repricing.~~tax withholding for share-based compensation of $11.5 million. These payments were partially offset by proceeds from: (i) issuance of ~~$7.5~~long-term debt, net of discount, of $183.2 million; (ii) $26.5 million from our accounts receivable financing agreement; and (iii) $19.7 million received from the exercise of stock options.

For the ~~six~~three months ended ~~June 30, 2017, we~~March 31, 2018, our financing activities used ~~$19.9~~$69.9 million in cash, consisting primarily of: (i) payments of $37.5 million for ~~financing activities, consisting~~the repurchase of ~~net~~our common stock under the 2018 repurchase program; and (ii) repayments of ~~$25.0 million under the revolving line~~long-term debt of credit and payments of $1.2 million related to tax withholdings for share-based compensation. These payments were partially offset by proceeds of $6.3 million received from the exercise of stock options.$31.3 million.

Contractual Obligations and Commitments

~~We do not have any off-balance sheet arrangements except for operating leases entered into in the normal course of business.~~ There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018, except as described below.

In March 2019, we entered into Amendment No. 2 to the Credit Agreement, which, among other things, modified the terms of the Credit Agreement to refinance the existing Term Loan A facility and the Revolver. Please refer to “Note 4 - Long-Term Debt Obligations” for information regarding changes in the maturities of our contractual obligation related to principal balances and interest on our long-term debt.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, revenues, and expenses during the period, as well as disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, share-based compensation, valuation of goodwill and identifiable intangibles, tax-related contingencies and valuation allowances, allowance for doubtful accounts, and litigation contingencies, among others. These estimates are based on the information available to management at the time these estimates, judgments and assumptions are made. Actual results may differ materially from these estimates. ~~The following policies~~There have been ~~updated as a result of the adoption Accounting Standards Update No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”).~~no significant changes to our critical accounting policies and estimates. For additional information on all of our critical accounting policies and estimates, refer to Part II - Item 7 - Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~

~~Revenue Recognition~~

~~We adopted the ASC 606 -~~ ~~Revenue from Contracts with Customers~~ and all the related amendments (“new revenue standard” or “ASC 606”) on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Our reported results for the three and six months ended June 30, 2018 reflect the application of ASC 606, while the reported results for the three and six months ended June 30, 2017 were prepared under ASC 605 - Revenue Recognition and other authoritative guidance in effect for this period. In accordance with ASC 606, revenue is now recognized when, or as, a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these services.

~~Table of Contents~~

A performance obligation is a promise (or a combination of promises) in a contract to transfer distinct goods or services to a customer and is the unit of accounting under ASC 606 for the purposes of revenue recognition. A contract’s transaction price is allocated to each separate performance obligation based upon the standalone selling price and is recognized as revenue, when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation because the promise to transfer individual services is not separately identifiable from other promises in the contracts, and therefore, is not distinct. For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.

The majority of our revenue arrangements are service contracts that range in duration from a few months to several years. Substantially all of our performance obligations, and associated revenue, are transferred to the customer over time. We generally receive compensation based on measuring progress toward completion using anticipated project budgets for direct labor and prices for each service offering. We are also reimbursed for certain third-party pass-through and out-of-pocket costs. In addition, in certain instances a customer contract may include forms of variable consideration such as incentive fees, volume rebates or other provisions that can increase or decrease the transaction price. This variable consideration is generally awarded upon achievement of certain performance metrics, program milestones or cost targets. For the purposes of revenue recognition, variable consideration is assessed on a contract-by-contract basis and the amount to be recorded is estimated based on the assessment of our anticipated performance and consideration of all information that is reasonably available. Variable consideration is recognized as revenue if and when it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved in the future.

Most of our contracts can be terminated by the customer without cause with a 30-day notice. In the event of termination, our contracts generally provide that the customer pay us for fees earned through the termination date; fees and expenses for winding down the project, which include both fees incurred and actual expenses; non-cancellable expenditures; and in some cases, a fee to cover a portion of the remaining professional fees on the project. Our long term clinical trial contracts contain implied substantive termination penalties because of the significant wind-down cost of terminating a clinical trial. These provisions for termination penalties result in these types of contracts being treated as long term for revenue recognition purposes.

Changes in the scope of work are common, especially under long-term contracts, and generally result in a renegotiation of future contract pricing terms and change in contract transaction price. If the customer does not agree to a contract modification, we could bear the risk of cost overruns. Most of our contract modifications are for services that are not distinct from the services under the existing contract due to the significant integration service provided in the context of the contract and therefore result in a cumulative catch-up adjustment to revenue at the date of contract modification.

~~Contract Assets and Liabilities~~

Contract assets include unbilled amounts typically resulting from revenue recognized in excess of the amounts billed to the customer for which the right to payment is subject to factors other than the passage of time. These amounts may not exceed their net realizable value. Contract assets are generally classified as current. Contract liabilities consist of customer payments received in advance of performance and billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period. Non-current portion of contract liabilities is included in the “Other long-term liabilities” line item in the accompanying unaudited condensed consolidated balance sheet. Contract assets and liabilities are presented on the balance sheet net on a contract-by-contract basis at the end of each reporting period.

~~Table of Contents~~

~~Recently Issued Accounting Standards~~

For a description of recently issued accounting pronouncements, including the expected dates of adoption and the estimated effects, if any, on our unaudited condensed consolidated financial statements, refer to “Note 1 - ~~Basis of Presentation and Changes in Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were ~~effective.~~not effective at the reasonable assurance level.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Controls

~~As previously noted, we completed~~Other than the Merger with inVentiv during the third quarter of 2017. Management considers this transaction to be material to our consolidated financial statements and believes that the internal controls and procedures of inVentivremediation efforts described below, there have a material effect on our internal control over financial reporting. We are currently in the process of incorporating the internal controls and procedures of inVentiv into our internal controls over financial reporting and extending our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include inVentiv. We will report on our assessment of the consolidated operations within the time period provided by the Act and the applicable SEC rules and regulations concerning business combinations, which is the annual management report for the fiscal year ending December 31, 2018.

~~There were~~been no changes ~~other than described above,~~ in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In connection with management’s assessment of the Company’s internal control over financial reporting as of December 31, 2018, management concluded that material weaknesses existed in the design and operating effectiveness of internal controls within the Clinical Solutions segment in connection with the revenue recognition process under ASU 2014-09 “Revenue from Contracts with Customers” (ASC 606), which the Company adopted on January 1, 2018. These material weaknesses were not fully remediated as of March 31, 2019.

The following components of internal control over financial reporting were impacted: (i) control environment - the training process associated with ASC 606 was not sufficient in all cases to support the development of estimates of the costs necessary to complete the performance of contracts and related supporting documentation; (ii) risk assessment - the Company’s risk assessment process did not effectively evaluate risks resulting from changes in the external environment or business operations at a sufficient level of precision to identify errors; (iii) control activities - the Company did not have effective control activities related to the operation of process-level controls over revenue recognition; and (iv) monitoring - the Company did not have effective monitoring activities to assess the operation of internal controls, including the continued appropriateness of internal controls.

Remediation of the Material Weaknesses in Internal Control over Financial Reporting

Management is actively engaged in the implementation of remediation efforts to address the material weaknesses. The remediation plan includes: (i) the modification of certain internal controls designed to evaluate the appropriateness of revenue recognition in our Clinical Solutions segment; (ii) implementing new internal controls over recording revenue transactions; and (iii) additional training for staff involved in the related processes. During the first quarter of 2019, management made progress in all three areas of the remediation plan described above. Remediation efforts are ongoing.

Management believes the measures described above and others that may be implemented will remediate the material weaknesses. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the planned remediation measures. Subsequent testing of the operational effectiveness of any modified or new controls will be necessary to validate that the material weaknesses have been fully remediated.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are party to legal proceedings incidental to our business. While our management currently believes the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our ~~unaudited condensed~~ consolidated financial statements, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial condition and results of operations.

On December 1, 2017, the first of two virtually identical actions alleging federal securities law claims was filed against us and certain of our officers on behalf of a putative class of our shareholders. The first action, captioned Bermudez v. INC Research, Inc., et al, No. 17-09457 (S.D.N.Y.), names as defendants us, Michael Bell, Alistair MacDonald, Michael Gilbertini, and Gregory S. Rush (the "Bermudez action"), and the second action, Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.), filed on January 25, 2018, names as defendants us, Alistair MacDonald, and Gregory S. ~~Rush.~~Rush (the "Vaitkuvienë action"). Both complaints allege similar claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of purchasers of our common stock between May 10, 2017 and November 8, 2017 ~~(Vaitkuvienë action)~~ and November 9, ~~2017 (Bermudez action).~~2017. The complaints allege that we published inaccurate or incomplete information regarding, among other things, the financial performance and business outlook for inVentiv’s business prior to the Merger and with respect to the combined company following the Merger. On January 30, 2018, two alleged shareholders ~~of ours~~separately filed motions ~~both~~ seeking to be appointed lead plaintiff and approving the selection of lead counsel. These motions remain pending. On March 30, 2018, Plaintiff Bermudez filed a notice of voluntary dismissal of the Bermudez action, without prejudice, and as to all defendants. On May 29, 2018, the Court in the Vaitkuvienë action appointed the San Antonio Fire & Police Pension Fund and El Paso Firemen & Policemen’s Pension Fund as Lead Plaintiffs and, on June 7, 2018, the Court entered a schedule providing for, among other things, Lead Plaintiffs to file an amended complaint by July 23, 2018 (later extended to July 30, 2018). Lead Plaintiffs filed their amended complaint on July 30, 2018, which also includes a claim against the same defendants listed above, as well as each member of the board of directors at the time of the INC Research - inVentiv Health merger vote in July 2017, contending that the inVentiv merger proxy was misleading under Section 14(a) of the Act. Lead Plaintiffs seek, among other things, orders (i) declaring that the lawsuit is a proper class action and (ii) awarding compensatory damages in an amount to be proven at trial, including interest thereon, and reasonable costs and expenses incurred in this action, including attorneys’ fees and expert fees, to Lead Plaintiffs and other class members. Defendants filed a Motion to Dismiss Plaintiffs’ Amended Complaint on September 20, 2018. Lead Plaintiffs filed a Response in Opposition to such motion on November 21, 2018, and Defendants filed a Reply to such response on December 5, 2018. We and the other defendants deny the allegations in these complaints and intend to defend vigorously against these claims. In the Company's opinion, the ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial position, results of operations, or cash flows.

On February 21, 2019, the SEC notified the Company that it has commenced an investigation into our revenue accounting policies, internal controls and related matters, and requested that we retain certain documents for the periods beginning with January 1, 2017. The Audit Committee of our Board of Directors subsequently initiated an independent review of our revenue accounting policies, internal controls and

related matters with the assistance of outside counsel and accounting advisors, which is now complete. On March 22, 2019, the SEC subpoenaed certain documents in connection with its investigation.

On March 1, 2019, a complaint was filed in the United States District Court for the District of New Jersey on behalf of a putative class of shareholders who purchased our common stock during the period between May 10, 2017 and February 27, 2019. The complaint names us and certain of our executive officers as defendants and allege violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements about our business, operations, and prospects. The plaintiffs seek awards of compensatory damages, among other relief, and their costs and attorneys’ and experts’ fees.

We are presently unable to predict the duration, scope or result of the SEC’s investigation, the related putative class action or any other related lawsuit or investigation.

Item 1A. Risk Factors.

There have been no significant changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Refer to “Risk Factors” in Part 1, Item 1A of that report for a detailed discussion of risk factors affecting the Company.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

Recent Sales of Unregistered Securities

Not applicable.

~~Use of Proceeds from Registered Securities~~

~~Not applicable.~~

Purchases of Equity Securities by the Issuer

During the three months ended March 31, 2019, we repurchased 672,700 shares of our Class A common stock under our previously announced stock repurchase program described below, for a total of approximately $26.6 million. As of March 31, 2019, we have remaining authorization to repurchase up to approximately $148.4 million of shares of our Class A common stock under the stock repurchase program.



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (1)	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
January 1, 2019 - January 31, 2019	552,100	$	39.16	552,100	$	153,395
February 1, 2019 - February 28, 2019	120,600	$	41.40	120,600	$	148,402
March 1, 2019 - March 31, 2019	—	$	—	—	$	148,402
Total	672,700			672,700

(1) On February 26, 2018, the Board authorized the repurchase of up to an aggregate of $250.0 million of our Class A common stock, par value $0.01 per share, from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or privately negotiated transactions. The stock repurchase program commenced on March 1, 2018 and will end no later than December 31, 2019. We intend to use cash on hand and future free cash flow to fund the stock repurchase program. The stock

repurchase program does not obligate us to repurchase any particular amount of our Class A common stock, and may be modified, extended, suspended or discontinued at any time. The timing and amount of repurchases is determined by our management based on a variety of factors such as the market price of our Class A common stock, our corporate requirements, and overall market conditions. The stock repurchase program is subject to applicable legal requirements, including federal and

state securities laws. We may also repurchase shares of our Class A common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of our Class A common stock to be repurchased when we might otherwise be precluded from doing so by law.

~~In March 2018, we~~The Company immediately retired all of the repurchased ~~948,100 shares of our~~ common stock in open market transactions at an average price of $39.55 per share, resulting in a total purchase price of approximately $37.5 million. In April 2018, we repurchased 1,024,400 shares of our common stock in open market transactions at an average price of $36.60 per share, resulting in a total purchase price of approximately $37.5 million. As of June 30, 2018, we have remaining authorization to repurchase up to approximately $175.0 million of shares of our common stock underand charged the ~~stock repurchase program.~~

~~The following table summarizes the stock repurchase program activity for the three months ended June 30, 2018 and the approximate dollar~~par value of the shares ~~that may yet be purchased pursuant~~ to common stock. The excess of the repurchase ~~program:~~

Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs
(in thousands, except share and per share data)
April 1, 2018 - April 30, 2018 1,024,400
$ 36.60
1,024,400
$ 175,015
May 1, 2018 - May 31, 2018 —
$ —
—
$ 175,015
June 1, 2018 - June 30, 2018 —
$ —
—
$ 175,015
1,024,400
1,024,400

price over par was applied on a pro rata basis against additional paid-in-capital, with the remainder applied to accumulated deficit.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits

Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date
10.1
Amendment No. 1 to the Credit Agreement, dated as of May 4, 2018, among Syneos Health, Inc., the lenders party thereto, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, and each of the other parties thereto.
8-K 001-36730 10.1 May 7, 2018
10.2
Syneos Health, Inc. 2018 Equity Incentive Plan.
8-K 001-36730 10.1 May 25, 2018
10.3
Syneos Health, Inc. 2016 Employee Stock Purchase Plan (as Amended and Restated).
8-K 001-36730 10.2 May 25, 2018
10.4
Receivables Financing Agreement dated June 29, 2018 among Syneos Health Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, INC Research, LLC, as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders.
8-K 001-36730 10.1 June 29, 2018
10.5
Purchase and Sale Agreement dated June 29, 2018 among various entities listed on Schedule I thereto, as originators, INC Research, LLC, as servicer, and Syneos Health Receivables LLC, as buyer.
8-K 001-36730 10.2 June 29, 2018
10.6
First Amendment to the Receivables Financing Agreement, dated August 1, 2018 among Syneos Health Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent and as lender and INC Research, LLC, as initial servicer.
— — — Filed herewith
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
— — — Filed herewith
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
— — — Filed herewith
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
— — — Furnished herewith
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
— — — Furnished herewith
101.INS XBRL Instance Document. — — — Filed herewith
101.SCH XBRL Taxonomy Extension Schema Document. — — — Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. — — — Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. — — — Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document. — — — Filed herewith
101.PRE Taxonomy Extension Presentation Linkbase Document. — — — Filed herewith



		Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.1	Amendment No. 2 to the Credit Agreement, dated as of March 26, 2019, among the Company, the lenders party thereto, JPMorgan Chase Bank N.A., as Administrative Agent, and each of the other parties thereto.	8-K	001-36730	10.1	March 28, 2019
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Furnished herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Furnished herewith
101.INS	XBRL Instance Document.	—	—	—	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document.	—	—	—	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.	—	—	—	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.	—	—	—	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.	—	—	—	Filed herewith
101.PRE	Taxonomy Extension Presentation Linkbase Document.	—	—	—	Filed herewith

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~~SIGNATURES~~SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~Quarterly Report on Form 10-Q~~report to be signed on its behalf by the undersigned, thereunto duly authorized ~~in the City of Raleigh, State of North Carolina, on August 1, 2018.~~.




		SYNEOS HEALTH, INC.

Date: ~~August 1, 2018~~May 8, 2019	BY:	/s/ Jason Meggs
		Jason Meggs
		Chief Financial Officer (Principal Financial ~~and Accounting~~ Officer)

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~~EXHIBIT INDEX~~

Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date
10.1 Amendment No. 1 to the Credit Agreement, dated as of May 4, 2018, among Syneos Health, Inc., the lenders party thereto, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, and each of the other parties thereto. 8-K 001-36730 10.1 May 7, 2018
10.2 Syneos Health, Inc. 2018 Equity Incentive Plan. 8-K 001-36730 10.1 May 25, 2018
10.3 Syneos Health, Inc. 2016 Employee Stock Purchase Plan (as Amended and Restated). 8-K 001-36730 10.2 May 25, 2018
10.4 Receivables Financing Agreement dated June 29, 2018 among Syneos Health Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, INC Research, LLC, as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders. 8-K 001-36730 10.1 June 29, 2018
10.5 Purchase and Sale Agreement dated June 29, 2018 among various entities listed on Schedule I thereto, as originators, INC Research, LLC, as servicer, and Syneos Health Receivables LLC, as buyer. 8-K 001-36730 10.2 June 29, 2018
10.6 First Amendment to the Receivables Financing Agreement, dated August 1, 2018 among Syneos Health Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent and as lender and INC Research, LLC, as initial servicer. — — — Filed herewith
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. — — — Filed herewith
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. — — — Filed herewith
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. — — — Furnished herewith
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. — — — Furnished herewith
101.INS XBRL Instance Document. — — — Filed herewith
101.SCH XBRL Taxonomy Extension Schema Document. — — — Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. — — — Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. — — — Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document. — — — Filed herewith
101.PRE Taxonomy Extension Presentation Linkbase Document. — — — Filed herewith



	June 30, 2018			December 31, 2017
Gross cash position	$	131,577		$	195,376
Less: cash borrowings	(97,508		)	(88,226		)
Net cash position	$	34,069		$	107,150



	Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount
Foreign currency translation adjustments	$	(32,378	)	$	(2,868	)	$	(35,246	)
Unrealized loss on derivative instruments:
Unrealized loss arising during period	(685		)	—			(685		)
Reclassification adjustment of realized gains to net income	(598		)	—			(598		)
Net unrealized loss on derivative instruments	(1,283		)	—			(1,283		)
Other comprehensive loss	$	(33,661	)	$	(2,868	)	$	(36,529	)



	Before-Tax Amount			Tax (Expense) or Benefit		Net-of-Tax Amount
Foreign currency translation adjustments	$	7,486		$	—	$	7,486
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) arising during period	(271		)	105		(166		)
Reclassification adjustment for gains realized in net income	(190		)	73		(117		)
Net unrealized gain (loss) on derivative instruments	(461		)	178		(283		)
Other comprehensive income	$	7,025		$	178	$	7,203



	June 30, 2018
Assets acquired:
Cash and cash equivalents	$	57,338
Restricted cash	433
Accounts receivable	367,595
Unbilled accounts receivable	261,585
Other current assets	95,506
Property and equipment	113,674
Intangible assets	1,334,200
Other assets	50,052
Total assets acquired	2,280,383
Liabilities assumed:
Accounts payable	38,072
Accrued liabilities	304,341
Contract liabilities	247,474
Capital leases	40,928
Long-term debt, current and non-current	737,872
Deferred income taxes, net	11,988
Other liabilities	121,241
Total liabilities assumed	1,501,916
Total identifiable assets acquired, net	778,467
Goodwill	$	3,727,156



	Three Months Ended June 30, 2017		Six Months Ended June 30, 2017
	(In thousands, except per share data)
Pro forma total revenue	$	1,054,348	$	2,119,311
Pro forma net income	4,180		7,299
Pro forma income per share:
Basic	$	0.04	$	0.07
Diluted	$	0.04	$	0.07



	Base Rate				Eurocurrency Rate
Term Loan A	0.25	%	-	0.50%	1.25	%	-	1.50%
Term Loan B	0.75	%	-	1.00%	1.75	%	-	2.00%



Balance at December 31, 2017	$	50,480
Changes in fair value recognized in earnings	2,388
Payments	—
Balance at June 30, 2018	$	52,868



	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2017	907,580		$	49.30
Granted	1,858,183		$	38.32
Vested	(187,400	)	$	49.64
Forfeited	(203,310	)	$	47.38
Non-vested at June 30, 2018	2,375,053		$	40.85



	Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations Classification	2018		2017		2018		2017
Direct costs	$	5,572	$	2,954	$	9,324	$	5,667
Selling, general, and administrative expenses	2,803		3,275		6,839		6,381
Restructuring and other costs	—		—		91		—
Total share-based compensation expense	$	8,375	$	6,229	$	16,254	$	12,048



	June 30, 2018
Capitalized costs incurred to obtain or fulfill contracts with customers	$	20,389



	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Amortization of capitalized costs	$	4,568	$	7,702



	As Reported			Adjustments			Adjusted
	December 31, 2017			ASC 606 Adoption			January 1, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	321,262		$	—		$	321,262
Restricted cash	714			—			714
Accounts receivable billed, net	642,985			—			642,985
Accounts receivable unbilled	373,003			(152,644		)	220,359
Contract assets	—			94,567			94,567
Prepaid expenses and other current assets	84,215			19,452			103,667
Total current assets	1,422,179			(38,625		)	1,383,554
Property and equipment, net	180,412			—			180,412
Goodwill	4,292,571			—			4,292,571
Intangible assets, net	1,286,050			—			1,286,050
Deferred income tax assets	20,159			5,857			26,016
Other long-term assets	84,496			12,601			97,097
Total assets	$	7,285,867		$	(20,167	)	$	7,265,700

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	58,575		$	—		$	58,575
Accrued liabilities	500,303			49,611			549,914
Contract liabilities	559,270			34,075			593,345
Current portion of capital lease obligations	16,414			—			16,414
Current portion of long-term debt	25,000			—			25,000
Total current liabilities	1,159,562			83,686			1,243,248
Capital lease obligations, non-current	20,376			—			20,376
Long-term debt, non-current	2,945,934			—			2,945,934
Deferred income tax liabilities	37,807			(8,355		)	29,452
Other long-term liabilities	99,609			3,317			102,926
Total liabilities	4,263,288			78,648			4,341,936
Shareholders' equity:
Preferred stock	—			—			—
Common stock	1,044			—			1,044
Additional paid-in capital	3,414,389			—			3,414,389
Accumulated other comprehensive loss, net of tax	(22,385		)	—			(22,385		)
Accumulated deficit	(370,469		)	(98,815		)	(469,284		)
Total shareholders' equity	3,022,579			(98,815		)	2,923,764
Total liabilities and shareholders' equity	$	7,285,867		$	(20,167	)	$	7,265,700



	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
	ASC 606 As Reported			ASC 605 As Adjusted			ASC 606 As Reported			ASC 605 As Adjusted
Service revenue	$	1,072,530		$	796,461		$	2,129,726		$	1,556,519
Reimbursable out-of-pocket expenses	—			299,445			—			609,543
Total revenue	1,072,530			1,095,906			2,129,726			2,166,062
Direct costs (exclusive of depreciation and amortization)	547,993			548,122			1,080,050			1,085,010
Reimbursable out-of-pocket expenses	299,472			299,445			608,238			609,543
Selling, general, and administrative	100,218			100,813			199,477			200,529
Restructuring and other costs	8,591			8,591			22,298			22,298
Transaction and integration-related expenses	18,032			18,032			43,243			43,243
Depreciation	17,557			17,557			35,585			35,585
Amortization	49,945			49,945			99,938			99,938
Total operating expenses	1,041,808			1,042,505			2,088,829			2,096,146
Income from operations	30,722			53,401			40,897			69,916
Other expense, net:
Interest income	1,655			1,655			2,494			2,494
Interest expense	(32,894		)	(32,894		)	(64,630		)	(64,630		)
Loss on extinguishment of debt	(1,877		)	(1,877		)	(2,125		)	(2,125		)
Other income, net	32,001			32,001			19,447			19,447
Total other expense, net	(1,115		)	(1,115		)	(44,814		)	(44,814		)
Income (loss) before provision for income taxes	29,607			52,286			(3,917		)	25,102
Income tax expense	(16,047		)	(21,553		)	(7,075		)	(13,376		)
Net income (loss)	$	13,560		$	30,733		$	(10,992	)	$	11,726
Earnings (loss) per share attributable to common shareholders:
Basic	$	0.13		$	0.30		$	(0.11	)	$	0.11
Diluted	$	0.13		$	0.30		$	(0.11	)	$	0.11
Weighted average common shares outstanding:
Basic	102,899			102,899			103,674			103,674
Diluted	104,005			104,005			103,674			104,676



	Balance at June 30,
	2018		2017		Change
Clinical Solutions	$	4,090.6	$	2,038.8	$	2,051.8	100.6	%
Commercial Solutions - Selling Solutions ^(a)	424.7		—		424.7		n/m
Total Backlog	$	4,515.3	$	2,038.8	$	2,476.5	121.5	%



	Three Months Ended June 30,
	2018^(a)			2017^(b)			Change
Direct costs (exclusive of depreciation and amortization)	$	547,993		$	162,010		$	385,983	238.2	%
Reimbursable out-of-pocket expenses	299,472			133,048			166,424		125.1	%
Total direct costs and reimbursable out-of-pocket expenses	$	847,465		$	295,058		$	552,407	187.2	%
Percentage of service revenue	79.0		%	62.8		%
Gross margin percentage	21.0		%	37.2		%



	Three Months Ended June 30, 2018 to 2017		Six Months Ended June 30, 2018 to 2017
Change in:
Salaries, benefits, and incentive compensation	$	329,321	$	658,300
Facilities and IT related costs	28,661		49,722
Other	28,001		55,183
Total	$	385,983	$	763,205

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