| Revenue from Contract with Customers | Revenue from Contracts with Customers Service Revenue 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 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’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 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. 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 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, 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. 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 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 ASC 606 was $5.10 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 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 , the Company recognized approximately $207.3 million and $382.5 million , respectively, of revenue that was included in the contract liabilities balance at the beginning of the period. During the three and six months ended June 30, 2018 , approximately $12.6 million and $27.5 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 the contract assets and liabilities balances during the three and six months ended June 30, 2018 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. 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 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 ASC 605 ASC 606 ASC 605 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 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. 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 ASC 605 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 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. |
