Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - INVENTIV HEALTH INC | vtiv-ex321_7.htm |
EX-31.2 - EX-31.2 - INVENTIV HEALTH INC | vtiv-ex312_6.htm |
EX-31.1 - EX-31.1 - INVENTIV HEALTH INC | vtiv-ex311_8.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2016
OR
o |
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 000-30318
INVENTIV HEALTH, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware |
|
52-2181734 |
(State or other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
1 VAN DE GRAAFF DRIVE
BURLINGTON, MASSACHUSETTS 01803
(Address of Principal Executive Offices, Including Zip Code)
(800) 416-0555
(Registrant's Telephone Number, Including Area Code)
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
o |
|
|
Accelerated filer |
o |
|
|
|
|
|
|
Non-accelerated filer |
x |
(Do not check if a smaller reporting company) |
|
Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares of the registrant's Common Stock outstanding at July 29, 2016: 1,000
!
FORM 10-Q
TABLE OF CONTENTS
INVENTIV HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
95,877 |
|
|
$ |
121,317 |
|
Restricted cash |
|
|
1,790 |
|
|
|
1,607 |
|
Accounts receivable, net of allowances for doubtful accounts of $5,937 and $5,395 at June 30, 2016 and December 31, 2015, respectively |
|
|
377,469 |
|
|
|
359,081 |
|
Unbilled services |
|
|
244,071 |
|
|
|
207,465 |
|
Prepaid expenses and other current assets |
|
|
43,279 |
|
|
|
42,930 |
|
Income tax receivable |
|
|
1,411 |
|
|
|
1,076 |
|
Total current assets |
|
|
763,897 |
|
|
|
733,476 |
|
Property and equipment, net |
|
|
138,345 |
|
|
|
142,032 |
|
Goodwill |
|
|
897,441 |
|
|
|
895,369 |
|
Intangible assets, net |
|
|
317,131 |
|
|
|
334,646 |
|
Non-current deferred tax assets |
|
|
10,341 |
|
|
|
10,032 |
|
Other assets |
|
|
39,895 |
|
|
|
37,134 |
|
Total assets |
|
$ |
2,167,050 |
|
|
$ |
2,152,689 |
|
LIABILITIES AND STOCKHOLDER’S DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of capital lease obligations and other financing arrangements |
|
$ |
24,712 |
|
|
$ |
23,333 |
|
Accrued payroll, accounts payable and accrued expenses |
|
|
354,397 |
|
|
|
333,726 |
|
Income taxes payable |
|
|
5,600 |
|
|
|
5,484 |
|
Deferred revenue and client advances |
|
|
237,133 |
|
|
|
246,656 |
|
Total current liabilities |
|
|
621,842 |
|
|
|
609,199 |
|
Capital lease obligations, net of current portion |
|
|
47,151 |
|
|
|
45,258 |
|
Long-term debt, net of current portion |
|
|
2,121,561 |
|
|
|
2,101,885 |
|
Non-current income tax liability |
|
|
7,570 |
|
|
|
5,942 |
|
Deferred tax liability |
|
|
79,931 |
|
|
|
73,360 |
|
Other non-current liabilities |
|
|
80,341 |
|
|
|
88,153 |
|
Total liabilities |
|
|
2,958,396 |
|
|
|
2,923,797 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
inVentiv Health, Inc. stockholder’s deficit: |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding at June 30, 2016 and December 31, 2015, respectively |
|
|
1 |
|
|
|
1 |
|
Due from parent |
|
|
(3,362 |
) |
|
|
— |
|
Additional paid-in-capital |
|
|
576,741 |
|
|
|
573,739 |
|
Accumulated deficit |
|
|
(1,332,687 |
) |
|
|
(1,309,136 |
) |
Accumulated other comprehensive loss |
|
|
(33,481 |
) |
|
|
(37,340 |
) |
Total inVentiv Health, Inc. stockholder’s deficit |
|
|
(792,788 |
) |
|
|
(772,736 |
) |
Noncontrolling interest |
|
|
1,442 |
|
|
|
1,628 |
|
Total stockholder’s deficit |
|
|
(791,346 |
) |
|
|
(771,108 |
) |
Total liabilities and stockholder’s deficit |
|
$ |
2,167,050 |
|
|
$ |
2,152,689 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Net revenues |
|
$ |
561,022 |
|
|
$ |
489,417 |
|
|
$ |
1,102,318 |
|
|
$ |
940,394 |
|
Reimbursed out-of-pocket expenses |
|
|
82,824 |
|
|
|
83,077 |
|
|
|
173,807 |
|
|
|
150,400 |
|
Total revenues |
|
|
643,846 |
|
|
|
572,494 |
|
|
|
1,276,125 |
|
|
|
1,090,794 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
389,735 |
|
|
|
326,230 |
|
|
|
762,111 |
|
|
|
626,735 |
|
Reimbursable out-of-pocket expenses |
|
|
82,824 |
|
|
|
83,077 |
|
|
|
173,807 |
|
|
|
150,400 |
|
Selling, general and administrative expenses |
|
|
117,956 |
|
|
|
133,555 |
|
|
|
241,712 |
|
|
|
266,469 |
|
Total operating expenses |
|
|
590,515 |
|
|
|
542,862 |
|
|
|
1,177,630 |
|
|
|
1,043,604 |
|
Operating income (loss) |
|
|
53,331 |
|
|
|
29,632 |
|
|
|
98,495 |
|
|
|
47,190 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
221 |
|
|
|
— |
|
Interest expense |
|
|
(54,621 |
) |
|
|
(57,126 |
) |
|
|
(110,538 |
) |
|
|
(113,605 |
) |
Interest income |
|
|
208 |
|
|
|
6 |
|
|
|
272 |
|
|
|
22 |
|
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
|
(1,082 |
) |
|
|
(27,488 |
) |
|
|
(11,550 |
) |
|
|
(66,393 |
) |
Income tax (provision) benefit |
|
|
(3,305 |
) |
|
|
(2,738 |
) |
|
|
(11,481 |
) |
|
|
(7,266 |
) |
Income (loss) before income (loss) from equity investments |
|
|
(4,387 |
) |
|
|
(30,226 |
) |
|
|
(23,031 |
) |
|
|
(73,659 |
) |
Income (loss) from equity investments |
|
|
4 |
|
|
|
238 |
|
|
|
9 |
|
|
|
(1,291 |
) |
Net income (loss) |
|
|
(4,383 |
) |
|
|
(29,988 |
) |
|
|
(23,022 |
) |
|
|
(74,950 |
) |
Less: Net (income) loss attributable to the noncontrolling interest |
|
|
(91 |
) |
|
|
(243 |
) |
|
|
(529 |
) |
|
|
(366 |
) |
Net income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(4,474 |
) |
|
$ |
(30,231 |
) |
|
$ |
(23,551 |
) |
|
$ |
(75,316 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Net income (loss) |
|
$ |
(4,383 |
) |
|
$ |
(29,988 |
) |
|
$ |
(23,022 |
) |
|
$ |
(74,950 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(1,560 |
) |
|
|
4,218 |
|
|
|
3,859 |
|
|
|
(1,227 |
) |
Total other comprehensive income (loss) |
|
|
(1,560 |
) |
|
|
4,218 |
|
|
|
3,859 |
|
|
|
(1,227 |
) |
Total comprehensive income (loss) |
|
|
(5,943 |
) |
|
|
(25,770 |
) |
|
|
(19,163 |
) |
|
|
(76,177 |
) |
Less: Comprehensive (income) loss attributable to the noncontrolling interest |
|
|
(91 |
) |
|
|
(243 |
) |
|
|
(529 |
) |
|
|
(366 |
) |
Comprehensive income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(6,034 |
) |
|
$ |
(26,013 |
) |
|
$ |
(19,692 |
) |
|
$ |
(76,543 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S DEFICIT
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Accumulated Other |
|
|
Non- |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
Due from |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
controlling |
|
|
|
|
|
|||||
|
|
Shares |
|
|
Common Stock |
|
|
Parent |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Interest |
|
|
Total |
|
||||||||
Balance at December 31, 2015 |
|
|
1 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
573,739 |
|
|
$ |
(1,309,136 |
) |
|
$ |
(37,340 |
) |
|
$ |
1,628 |
|
|
$ |
(771,108 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(23,551 |
) |
|
|
— |
|
|
|
529 |
|
|
|
(23,022 |
) |
Increase in amounts due from parent |
|
|
— |
|
|
|
— |
|
|
|
(3,362 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,362 |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
3,859 |
|
|
|
— |
|
|
|
3,859 |
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,977 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,977 |
|
Distributions to noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(715 |
) |
|
|
(715 |
) |
Balance at June 30, 2016 |
|
|
1 |
|
|
$ |
1 |
|
|
$ |
(3,362 |
) |
|
$ |
576,741 |
|
|
$ |
(1,332,687 |
) |
|
$ |
(33,481 |
) |
|
$ |
1,442 |
|
|
$ |
(791,346 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(23,022 |
) |
|
$ |
(74,950 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used) in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
27,721 |
|
|
|
22,650 |
|
Amortization of intangible assets |
|
|
18,243 |
|
|
|
26,261 |
|
Amortization of deferred financing costs and original issue discount/premium |
|
|
9,469 |
|
|
|
9,475 |
|
Payment-in-kind interest |
|
|
8,025 |
|
|
|
31,800 |
|
(Gain) loss on disposal of assets |
|
|
1,354 |
|
|
|
589 |
|
Stock-based compensation expense |
|
|
2,977 |
|
|
|
515 |
|
Gain on extinguishment of debt |
|
|
(221 |
) |
|
|
— |
|
Deferred taxes |
|
|
6,569 |
|
|
|
5,183 |
|
Other non-cash adjustments |
|
|
(886 |
) |
|
|
2,236 |
|
Changes in assets and liabilities, net |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(19,603 |
) |
|
|
(12,462 |
) |
Unbilled services |
|
|
(37,496 |
) |
|
|
(27,859 |
) |
Prepaid expenses and other current assets |
|
|
1,073 |
|
|
|
(1,661 |
) |
Accrued payroll, accounts payable and accrued expenses |
|
|
22,842 |
|
|
|
6,886 |
|
Income tax receivable and non-current income tax liability |
|
|
1,054 |
|
|
|
429 |
|
Deferred revenue and client advances |
|
|
5,400 |
|
|
|
36,276 |
|
Other, net |
|
|
1,783 |
|
|
|
(561 |
) |
Net cash provided by (used in) operating activities |
|
|
25,282 |
|
|
|
24,807 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(12,617 |
) |
|
|
(19,808 |
) |
Proceeds from vehicle sales and rebates on vehicle leases |
|
|
8,320 |
|
|
|
6,826 |
|
Other, net |
|
|
(248 |
) |
|
|
(32 |
) |
Net cash provided by (used in) investing activities |
|
|
(4,545 |
) |
|
|
(13,014 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments on capital leases and other financing arrangements |
|
|
(20,312 |
) |
|
|
(14,943 |
) |
Repurchase of Notes |
|
|
(22,790 |
) |
|
|
— |
|
Borrowings under line of credit |
|
|
— |
|
|
|
153,000 |
|
Repayment on line of credit |
|
|
— |
|
|
|
(153,000 |
) |
Payment on installment note and contingent consideration related to acquisition |
|
|
(2,322 |
) |
|
|
(2,082 |
) |
Payments to parent |
|
|
(173 |
) |
|
|
— |
|
Other, net |
|
|
(226 |
) |
|
|
(470 |
) |
Net cash provided by (used in) financing activities |
|
|
(45,823 |
) |
|
|
(17,495 |
) |
Effects of foreign currency exchange rate changes on cash |
|
|
(354 |
) |
|
|
238 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
(25,440 |
) |
|
|
(5,464 |
) |
Cash and cash equivalents, beginning of period |
|
|
121,317 |
|
|
|
57,059 |
|
Cash and cash equivalents, end of period |
|
$ |
95,877 |
|
|
$ |
51,595 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
71,563 |
|
|
$ |
72,440 |
|
Cash paid (refund) for income taxes |
|
|
4,090 |
|
|
|
1,502 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
Vehicles acquired through capital lease agreements |
|
|
23,108 |
|
|
|
17,617 |
|
Accrued capital expenditures |
|
|
926 |
|
|
|
3,340 |
|
Expenses to be paid on behalf of parent included in accrued payroll, accounts payable and accrued expenses |
|
|
3,189 |
|
|
|
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Notes to Unaudited Condensed Consolidated Financial Statements
1. |
Organization and Business |
inVentiv Health, Inc. (“inVentiv”, or the “Company”) is a leading global provider of outsourced clinical development and commercialization services to biopharmaceutical companies. The Company provides services through two reportable business segments: Clinical and Commercial. The Company provides a full suite of services to enhance its clients’ ability to successfully develop, launch and market their products. The Company offers its solutions on both a standalone and integrated basis. The Company’s services cover the entire biopharmaceutical development and commercialization continuum spanning from first-in-human clinical trials to the ongoing commercialization of mature products.
On August 4, 2010, inVentiv Acquisition, Inc., an indirect, wholly owned subsidiary of inVentiv Group Holdings, Inc. (“Group Holdings” or “Parent”) merged with and into the Company (the “THL Acquisition”). Group Holdings is controlled by affiliates of Thomas H. Lee Partners (“THL”), a global private investment and advisory firm, as well as certain co-investors and certain members of management (together with the private equity funds sponsored by THL, and the co-investors, the “Investors”).
2. |
Basis of Presentation |
The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of inVentiv Health, Inc. and its wholly owned subsidiaries. In addition, the Company consolidates the accounts of its 60% owned subsidiary and reflects the minority interest as a noncontrolling interest classified in equity. The Company has both equity and cost method investments in securities of certain privately held entities. Investments accounted for under the equity method are recorded at the amount of the Company’s investment and adjusted each period for the Company’s share of the investee’s income or loss. During the six months ended June 30, 2015, the Company recognized a $1.3 million loss on dissolution of a joint venture accounted for under the equity method, which is included in income (loss) from equity investments in the consolidated statements of operations. Investments accounted for under the cost method are recorded at the historical carrying value. The carrying value of both types of investments is recorded in other assets in the consolidated balance sheets and is immaterial. All intercompany transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. They do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the 2015 audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 dated March 18, 2016 on file with the Securities and Exchange Commission (the “SEC”). The results reported in these condensed consolidated financial statements should not necessarily be viewed as indicative of the results that may be expected for the entire year. The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
The unaudited condensed consolidated financial statements of the Company have been prepared in conformity with GAAP, which requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accompanying financial statements. The significant estimates made by the Company include the estimated forecast that is used in assessing the realizability of the Company’s deferred tax assets and assessing whether the fair value of intangible assets and goodwill exceed the related carrying value. In addition, the Company also makes significant estimates as it relates to revenue recognition, self-insurance reserves, including reserves for employee medical, automobile insurance and worker’s compensation. In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements.
Reclassifications
In the Company’s 2015 consolidated financial statements, the Company reclassified certain costs from selling, general and administrative (“SG&A”) expenses to cost of revenues to conform to the presentation adopted for 2016. The revised classification aligns all personnel and related costs associated with service delivery within cost of revenues, along with the associated information technology costs supporting these processes. These changes better harmonize the accounting policies of the group, and are consistent with how management is assessing performance and managing costs. As a result of the revision in the classification of the costs, the previously reported SG&A was reduced by $7.9 million and $17.2 million, respectively, for the three and six months ended June 30, 2015, and cost of revenues has increased by a corresponding amount. The reclassification had no impact on our consolidated financial position, net operating results included in our statements of operations or cash flows. The Company also aggregated the presentation
6
of certain line items in the consolidated statement of cash flows for the six months ended June 30, 2015 to conform to the current year presentation.
3. |
Recent Accounting Pronouncements |
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09 (“ASU 2016-09”), Compensation—Stock Compensation (Topic 718) to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2016-09 on the Company’s consolidated financial position, results of operations and statement of cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) to increase transparency and comparability among organizations by requiring the recognition of right-to-use assets and liabilities on the balance sheet and disclosing qualitative and quantitative information about leasing arrangements. ASU 2016-02 will be applied on a modified retrospective basis and to each prior reporting period presented and is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The adoption of this standard is expected to have a material impact on the Company’s consolidated balance sheets, and its potential impact is currently being evaluated.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance for revenue recognition (“ASU 2014-09”). ASU 2014-09 will supersede the revenue recognition requirements in Revenue Recognition (Topic 605), and most industry-specific guidance. In July 2015, the FASB deferred the effective date of the new revenue recognition standard by one year, and it is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted, but no earlier than the original effective date of January 1, 2017. In May 2016, the FASB issued ASU 2016-12 which provides clarifying guidance in a few narrow areas and adds some practical expedients to the guidance. The Company is currently evaluating the impact of adopting the new revenue recognition standard on the Company’s consolidated financial position and results of operations.
4. |
Goodwill |
The following table sets forth the carrying amount of goodwill for each segment as of June 30, 2016 and December 31, 2015 (in thousands):
|
|
Clinical |
|
|
Commercial |
|
|
Total |
|
|||
Net goodwill at December 31, 2015 |
|
$ |
382,215 |
|
|
$ |
513,154 |
|
|
$ |
895,369 |
|
Foreign currency translation |
|
|
(40 |
) |
|
|
2,112 |
|
|
|
2,072 |
|
Net goodwill at June 30, 2016 |
|
$ |
382,175 |
|
|
$ |
515,266 |
|
|
$ |
897,441 |
|
As of June 30, 2016 and December 31, 2015, the Company had accumulated goodwill impairment losses of $478.3 million.
5. |
Intangible Assets |
The following table sets forth the carrying amount of the Company’s intangible assets as of June 30, 2016 and December 31, 2015 (in thousands):
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
||||||
Customer relationships |
|
$ |
366,268 |
|
|
$ |
(164,093 |
) |
|
$ |
202,175 |
|
|
$ |
365,777 |
|
|
$ |
(148,679 |
) |
|
$ |
217,098 |
|
Technology |
|
|
27,214 |
|
|
|
(26,559 |
) |
|
|
655 |
|
|
|
27,003 |
|
|
|
(26,206 |
) |
|
|
797 |
|
Tradenames subject to amortization |
|
|
18,310 |
|
|
|
(16,894 |
) |
|
|
1,416 |
|
|
|
18,293 |
|
|
|
(16,657 |
) |
|
|
1,636 |
|
Backlog |
|
|
95,050 |
|
|
|
(92,144 |
) |
|
|
2,906 |
|
|
|
95,014 |
|
|
|
(89,427 |
) |
|
|
5,587 |
|
Other |
|
|
1,020 |
|
|
|
(645 |
) |
|
|
375 |
|
|
|
1,020 |
|
|
|
(585 |
) |
|
|
435 |
|
Total finite-lived intangible assets |
|
|
507,862 |
|
|
|
(300,335 |
) |
|
|
207,527 |
|
|
|
507,107 |
|
|
|
(281,554 |
) |
|
|
225,553 |
|
Tradenames not subject to amortization |
|
|
109,604 |
|
|
|
— |
|
|
|
109,604 |
|
|
|
109,093 |
|
|
|
— |
|
|
|
109,093 |
|
Total intangible assets |
|
$ |
617,466 |
|
|
$ |
(300,335 |
) |
|
$ |
317,131 |
|
|
$ |
616,200 |
|
|
$ |
(281,554 |
) |
|
$ |
334,646 |
|
7
6. |
Debt |
The Company’s indebtedness is summarized as follows (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
Term Loan Facility B3 loans, due 2018 |
|
$ |
129,645 |
|
|
$ |
129,645 |
|
Term Loan Facility B4 loans, due 2018 |
|
|
445,694 |
|
|
|
445,694 |
|
Senior Secured Notes, due 2018 |
|
|
625,000 |
|
|
|
625,000 |
|
ABL Facility |
|
|
— |
|
|
|
— |
|
Junior Lien Secured Notes, due 2018 |
|
|
579,837 |
|
|
|
569,691 |
|
Senior Unsecured Notes, due 2018 |
|
|
376,316 |
|
|
|
376,316 |
|
International Facility |
|
|
— |
|
|
|
— |
|
Capital leases and other financing arrangements |
|
|
71,863 |
|
|
|
68,591 |
|
Total borrowings |
|
|
2,228,355 |
|
|
|
2,214,937 |
|
Less: unamortized premium (discount) |
|
|
(7,174 |
) |
|
|
(9,030 |
) |
Less: unamortized deferred financing costs |
|
|
(27,757 |
) |
|
|
(35,431 |
) |
Less: current portion of capital leases and other financing arrangements |
|
|
(24,712 |
) |
|
|
(23,333 |
) |
Total long-term borrowings, net of current portion |
|
$ |
2,168,712 |
|
|
$ |
2,147,143 |
|
At June 30, 2016, the Company had $575.3 million outstanding under the Senior Secured Credit Facilities, which consisted of $129.6 million under the B3 term loans and $445.7 million under the B4 term loans. The Company had $625.0 million outstanding under the Senior Secured Notes, and there were no outstanding borrowings under the ABL Facility (as defined below). The Company also had $579.8 million outstanding under the Junior Lien Secured Notes (as defined below), and $376.3 million outstanding under the Senior Unsecured Notes. In addition, the Company had capitalized leases and other financing arrangements of $71.9 million outstanding as of June 30, 2016.
On July 1, 2015 one of the Company’s indirect subsidiaries in the United Kingdom, inVentiv Health Clinical UK Ltd., (“inVentiv UK”) as borrower, and one of the Company’s indirect subsidiaries in Switzerland, inVentiv Health Switzerland GmbH, as guarantor, entered into an asset-based lending facility (the “International Facility”) for up to $20.0 million. This facility is available to enhance international cash management. At June 30, 2016, the Company had no outstanding borrowings under the International Facility, approximately $0.1 million in letters of credit outstanding against the International Facility and would have been able to borrow up to $18.3 million.
On August 15, 2014, the Company consummated an exchange offer (the “Junior Lien Notes Exchange Offer”) with holders of its 10% Senior Unsecured Notes due 2018 in which the Company issued $475.0 million aggregate principal amount of new 10%/12% Junior Lien Secured Notes due 2018 (the “Junior Lien Secured Notes”) in exchange for a like amount of the Company’s 10% Senior Unsecured Notes due 2018. The Junior Lien Secured Notes permit up to six semi-annual interest payments to be settled through the issuance of additional Junior Lien Secured Notes. The interest rate with respect to the Junior Lien Secured Notes is a cash rate of 10% per annum or a payment-in-kind (“PIK”) rate of 12% per annum (“PIK Interest”). The Company paid interest on the Junior Lien Secured Notes for the periods commencing August 15, 2014, February 15, 2015 and August 15, 2015 in PIK Interest and elected to pay interest for the period commencing February 15, 2016 in cash. The Company does not intend to utilize the PIK feature for the period commencing on August 15, 2016 and ending on February 14, 2017 with respect to the PIK Notes and intends to pay interest on the PIK Notes entirely in cash for this period. On January 8, 2016, the Company’s Board of Directors approved the repurchase by the Company of its certain Junior Lien Secured Notes and the subsequent cancellation of such repurchased notes (the “PIK Note Repurchase”). During the first quarter of 2016, the Company repurchased and cancelled an aggregate principal amount of $23.7 million of its Junior Lien Secured Notes, including accrued and unpaid interest, through open market purchases for $23.1 million. As a result of the PIK Note Repurchase, the Company reduced its debt and a pro rata portion of deferred financing costs and debt discount on the transactions and recorded a gain on extinguishment of debt of $0.2 million.
On August 12, 2014, in connection with the Junior Lien Notes Exchange Offer, affiliates of Thomas H. Lee Partners, L.P. and certain co-investors purchased $25.0 million of Junior Lien Secured Notes and $26.3 million of the Company’s 10% Senior Unsecured Notes due 2018 for a total consideration of $50.0 million (the “New Money Investment”). The $26.3 million of 10% Senior Unsecured Notes due 2018 were issued at a 5% discount to par value resulting in a $1.3 million discount that is accreted over the related term using the effective interest method. Additionally, on August 15, 2014 the Company issued an additional $7.0 million of Junior Lien Secured Notes (the “Backstop Consideration”) to a group of holders of the Company’s 10% Senior Unsecured Notes due 2018 as
8
consideration for such holders’ agreement to tender the 10% Senior Unsecured Notes due 2018 held by them into the Junior Lien Notes Exchange Offer.
In connection with the Junior Lien Notes Exchange Offer, the Company’s term loan facility and asset-backed revolving facility were amended on July 28, 2014 (the “Credit Agreement Amendments”) to permit the Junior Lien Notes Exchange Offer, the New Money Investment and the issuance of the Backstop Consideration and to extend the maturities of certain outstanding term loans from 2016 to 2018. The margin on the term loans increased by 0.25% when compared to the interest rates on the prior term loans. There was no net change in the outstanding principal balance of the term loans as a result of the modified terms.
On August 16, 2013, the Company, Citibank, N.A. and certain financial institutions entered into a credit agreement for an asset-based revolving credit facility of up to $150.0 million (the “ABL Facility”), subject to borrowing base availability, which matures on August 16, 2018. Up to $35.0 million of the ABL Facility is available for the issuance of letters of credit.
All obligations under the ABL Facility are secured by the Company’s domestic subsidiaries and secured by a first priority lien on current assets of the Company and its domestic subsidiaries and a second priority lien on all other assets of the Company and its domestic subsidiaries. The available borrowing capacity varies monthly according to the levels of the Company’s eligible accounts receivable and unbilled receivables. As of June 30, 2016, the Company had no outstanding borrowings under the ABL Facility, approximately $20.7 million in letters of credit outstanding against the ABL Facility and would have been able to borrow up to an additional $129.3 million.
Cash Pooling
The Company and certain of its international subsidiaries entered into a notional cash pooling arrangement (“Cash Pool”) to help manage global liquidity requirements. The parties to the arrangement combine their cash balances in pooling accounts with the ability to set-off overdrafts to the bank against positive cash balances. Each subsidiary receives interest on the cash balances or pays interest on amounts owed. At June 30, 2016, the Company’s net cash position in the pool of $11.1 million, defined as the gross cash position in the pool of $98.2 million less borrowings of $87.1 million, is reflected as cash and cash equivalents in the consolidated balance sheet.
Fair Value of Long-Term Debt
The carrying amounts and the estimated fair values of long-term debt as of June 30, 2016 and December 31, 2015 are as follows (in thousands):
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
|
Carrying value |
|
|
Estimated fair value |
|
|
Carrying value |
|
|
Estimated fair value |
|
||||
Term Loan Facility |
|
$ |
569,320 |
|
|
$ |
573,900 |
|
|
$ |
567,673 |
|
|
$ |
570,051 |
|
Senior Secured Notes |
|
|
620,204 |
|
|
|
645,312 |
|
|
|
618,616 |
|
|
|
633,594 |
|
Junior Lien Secured Notes |
|
|
565,660 |
|
|
|
592,158 |
|
|
|
551,552 |
|
|
|
537,646 |
|
Senior Unsecured Notes |
|
|
366,376 |
|
|
|
376,316 |
|
|
|
364,043 |
|
|
|
371,142 |
|
The fair value of long-term debt instruments is measured based on market values for debt issues with similar characteristics, such as maturities, credit ratings, collateral and interest rates available on the measurement dates for debt with similar terms (level 2 within the fair value hierarchy). The Company believes the carrying values for capital leases and other financing arrangements approximate their fair values.
7. |
Contingencies |
On October 31, 2013, Cel-Sci Corporation (Cel-Sci) (“Claimant”) made a demand for arbitration under a Master Services Agreement (the “MSA”), dated as of April 6, 2010 between Claimant and two of the Company’s subsidiaries, inVentiv Health Clinical, LLC (formerly known as PharmaNet, LLC) and PharmaNet GmbH (currently known as inVentiv Health Switzerland GmbH and formerly known as PharmaNet AG) (collectively, “PharmaNet”). Under the MSA and related project agreement, which were terminated by Claimant in April 2013, Claimant engaged PharmaNet in connection with a Phase III Clinical Trial of its investigational drug. The arbitration claim alleges (i) breach of contract, (ii) fraud in the inducement, and (iii) common law fraud on the part of PharmaNet, and seeks damages of at least $50 million. In December 2013, inVentiv Health Clinical, LLC filed a counterclaim against Claimant that alleges breach of contract and seeks at least $2 million in damages. The matter proceeded to the discovery phase. In January 2015, inVentiv Health Clinical, LLC filed additional counterclaims against Claimant that allege (i) breach of contract, (ii) opportunistic breach, restitution and unjust enrichment, and (iii) defamation, and seeks at least $2 million in damages and $20 million in other equitable remedies. A hearing is currently scheduled to begin in the second half of 2016. No assessment can be made at this
9
time as to the likely outcome of this matter or an estimate of the possible range of loss. Accordingly, no provision has been recorded as no loss is considered probable or estimable.
Other Matters
The Company is subject to lawsuits, investigations and claims arising out of the conduct of its business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against the Company. The Company does not believe that the outcome of any legal proceedings, individually or in the aggregate, if decided adversely to its interests, would have a material adverse effect on its business, financial condition, liquidity or results of operations.
8. |
Concentration of Credit Risk |
The Company’s receivables are concentrated with major pharmaceutical companies. Credit risk is managed through the continuous monitoring of exposures with the Company’s clients. The Company does not require collateral or other security to support client receivables. For the three and six months ended June 30, 2016, Pfizer accounted for approximately 12% of the Company’s net revenues. For the three months ended June 30, 2015, Pfizer Inc. accounted for approximately 10% of the Company’s net revenues. No customer accounted for 10% or more of the Company’s net revenues for the six months ended June 30, 2015. As of June 30, 2016, one client represented approximately 10% of the accounts receivable balance.
9. |
Common Stock and Stock Incentive Plans |
On July 2, 2015 the Company’s Board of Directors granted new option awards to eligible employees in exchange for certain outstanding restricted stock units granted under the Group Holdings’ Equity Incentive Plan, on a one-for-one basis. Thirty-five percent of the options in the new award vest upon the passage of time and completion of a service requirement and sixty-five percent vests based upon achievement of certain specified performance targets and completion of a service requirement. Approximately 1,606,478 of the outstanding restricted stock units were exchanged in the program. The exchange was treated as a modification of the awards and no incremental stock compensation was recognized as the exchange securities were not considered probable of vesting on the date of the exchange. The Company recognizes the fair value of the new option awards in compensation expense over the service period to the extent that vesting of the awards is considered probable.
On March 25, 2016, the Company granted 1,147,154 share-based awards. Of these share-based awards, 1,106,956 represent options that vest thirty-five percent upon the passage of time and completion of a service requirement and sixty-five percent upon achievement of certain specified performance targets and completion of a service requirement. The remaining 40,198 share-based awards are comprised of restricted stock awards that vest if a liquidity event occurs such that the Investors achieve a defined return on their investment and options that vest based on the passage of time. The Company recognizes the fair value of the option awards in compensation expense over the service period to the extent that vesting of the awards is considered probable.
10. |
Termination Benefits and Other Cost Reduction Actions |
The Company undertook certain actions to continue to implement cost containment measures and efficiency initiatives in an effort to better align operating costs with market and business conditions. Expenses related to these actions that include real estate consolidations, elimination of redundant functions and employees, are summarized below (in thousands):
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Employee severance and related costs |
|
$ |
2,342 |
|
|
$ |
3,545 |
|
|
$ |
5,087 |
|
|
$ |
6,124 |
|
Facilities-related costs |
|
|
3,846 |
|
|
|
155 |
|
|
|
5,231 |
|
|
|
331 |
|
Total |
|
$ |
6,188 |
|
|
$ |
3,700 |
|
|
$ |
10,318 |
|
|
$ |
6,455 |
|
For the three and six months ended June 30, 2016, restructuring costs of $1.1 million and $2.6 million, respectively, have been included in cost of revenues and $5.1 million and $7.7 million, respectively, have been included in SG&A expenses, respectively. The $6.2 million of costs incurred in the three months ended June 30, 2016 includes $1.5 million of costs related to Clinical, $4.4 million related to Commercial and $0.3 million related to Corporate. The $10.3 million of costs incurred in the six months ended June 30, 2016 includes $2.7 million of costs related to Clinical, $7.3 million related to Commercial and $0.3 million related to Corporate. For the three and six months ended June 30, 2015, restructuring costs of $1.6 million and $2.9 million, respectively, have been included in cost of revenues and $2.1 million and $3.6 million, respectively, have been included in SG&A expenses, respectively. The $3.7 million of costs incurred in the three months ended June 30, 2015 includes $0.6 million of costs related to Clinical and $3.1 million
10
related to Commercial. The $6.5 million of costs incurred in the six months ended June 30, 2015 includes $1.6 million of costs related to Clinical, $4.8 million related to Commercial and $0.1 million related to Corporate.
The following table summarizes the Company’s restructuring reserve as of June 30, 2016 and December 31, 2015 (in thousands):
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
||
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
||
|
|
2015 |
|
|
Net Costs |
|
|
Cash Payments |
|
|
2016 |
|
||||
Employee severance and related costs |
|
$ |
4,245 |
|
|
$ |
5,087 |
|
|
$ |
(6,331 |
) |
|
$ |
3,001 |
|
Facilities-related costs |
|
|
3,942 |
|
|
|
5,231 |
|
|
|
(2,214 |
) |
|
|
6,959 |
|
Total |
|
$ |
8,187 |
|
|
$ |
10,318 |
|
|
$ |
(8,545 |
) |
|
$ |
9,960 |
|
The Company expects that severance payments accrued at June 30, 2016 will be paid within the next twelve months. Certain facility costs will be paid over the remaining lease term of the exited facilities through 2027.
The net costs in the table above exclude non-cash charges of approximately $0.5 million for the six months ended June 30, 2016 related to abandoned assets at certain facilities.
11. |
Income Taxes |
The Company accounts for income taxes at each interim period using its estimated annual effective tax rate. Discrete items and changes in the estimate of the annual effective tax rate are recorded in the period they occur. The consolidated effective tax rate was approximately (305.5%) and (10.0%) for the three months ended June 30, 2016 and 2015, respectively, and (99.4%) and (10.9%) for the six months ended June 30, 2016 and 2015, respectively. The income tax provision for the three and six months ended June 30, 2016 and 2015 reflects that the Company (i) continued to record a full valuation allowance for its domestic and certain foreign tax jurisdictions, (ii) recorded a tax provision for certain foreign and state jurisdictions that generated earnings, (iii) incurred a deferred tax provision in its domestic jurisdiction arising from taxable temporary differences related to amortization of indefinite-lived intangible assets and goodwill, and (iv) recorded changes in unrecognized tax benefits (including related penalties and interest) as they occur.
The Company provides a valuation allowance to reduce deferred tax assets to their estimated realizable value if, based on the weight of all available evidence, it is not more likely than not that a portion or all of the deferred tax assets will be realized. The Company does not expect to record significant tax benefits on future domestic net operating losses until circumstances justify the recognition of such benefits.
As a result of the domestic valuation allowance, taxable temporary differences from the amortization of goodwill and indefinite-lived intangible assets are expected to result in $8.5 million of income tax expense for 2016, and are reflected in the Company’s estimated domestic annual effective tax rate. Goodwill and indefinite-lived intangible assets are amortized for income tax purposes, but not for financial statement reporting purposes. This difference results in net deferred income tax expense since the taxable temporary difference cannot be scheduled to reverse during the loss carryforward period. The Company will record tax expense related to the amortization of its tax deductible goodwill and indefinite-lived intangible assets during those future periods for which it maintains domestic valuation allowances, or until its estimated unamortized balance of $111.4 million at December 31, 2016 is fully amortized for tax purposes.
12. |
Related Parties |
Management Arrangements
Upon completion of the THL Acquisition, the Company entered into a management agreement (“THL Management Agreement”) with THL Managers VI, LLC (“THL Managers”), in which THL Managers agreed to provide management services to the Company until the tenth anniversary of the consummation of the THL Acquisition with evergreen one-year extensions thereafter. Pursuant to the THL Management Agreement, THL Managers will receive an aggregate annual management fee in an amount per year equal to the greater of (a) $2.5 million or (b) 1.5% of EBITDA, as defined in the THL Management Agreement. In addition, the Company will reimburse out-of-pocket expenses, including travel related costs, incurred by THL Managers. The Company recognized $1.0 million and $0.7 million in management fees and related costs for the three months ended June 30, 2016 and 2015, respectively, and $1.9 million and $1.4 million for the six months ended June 30, 2016 and 2015, respectively.
The management agreement with the THL Managers includes customary exculpation and indemnification provisions in favor of the THL Managers and their affiliates. The THL Managers may terminate their management agreement at any time. The THL Managers’ management agreement will terminate automatically upon an initial public offering or a change of control. Upon
11
termination due to an initial public offering or a change of control, the THL Managers will be entitled to a termination fee based on the net present value of their annual fee due during the remaining period from the date of termination to the then applicable scheduled date of termination of their management agreement.
Upon completion of the THL Acquisition, the Company entered into a management agreement with Liberty Lane IH LLC (“Liberty Lane”), in which Liberty Lane agreed to provide management services to the Company. Mr. Meister, the Company’s former Chief Executive Officer, is affiliated with Liberty Lane. Pursuant to the agreement, Liberty Lane or its affiliates received an aggregate annual management fee in an amount per year equal to $1.0 million. On December 5, 2012, the agreement was amended to lower the per year management fee to $0.8 million beginning January 1, 2013. The agreement was terminated in the second quarter of 2015 with an effective date of September 24, 2014 to reflect Mr. Meister’s resignation as Chief Executive Officer. The Company reversed management fees of $0.2 million for the three months ended June 30, 2015 and no net fees were incurred for the six months ended June 30, 2015.
On November 12, 2012, the Human Capital and Compensation Committee of Group Holdings granted to Liberty Lane options to purchase shares of Common Stock equal to approximately 1.4% of the fully diluted equity of Group Holdings. The options would have vested if a liquidity event occurred such that the Investors achieved a certain return on their investment. These awards were cancelled in the second quarter of 2015 to reflect Mr. Meister’s resignation as Chief Executive Officer, and the Company issued 38,054 Multiple of Money (“MoM”) Option Awards to Mr. Meister during 2015.
At June 30, 2016, the Company had outstanding receivables from Group Holdings in the amount of $3.4 million, which was included in due from parent within stockholder’s deficit in the Company’s condensed consolidated balance sheet.
Commercial Transactions
There were three entities for the three and six months ended June 30, 2016 and four entities for the three and six months ended June 30, 2015 in which THL or its affiliates held a 10% or greater interest that provided services exceeding $120,000 in value to the Company. The services included facilities management, audio conferencing and information technology services in 2015 and information technology services in 2016. The aggregate fees for these services were $0.2 million and $1.1 million for the three months ended June 30, 2016 and 2015, respectively, and $0.6 million and $2.7 million for the six months ended June 30, 2016 and 2015, respectively,
One of the Company’s directors, Blane Walter, acquired a 10% or greater interest in and became a director of an entity in 2013 which provided relationship enterprise technology solutions to the Company exceeding $120,000 in value over the previous twelve month period. No services were provided for the three and six months ended June 30, 2016 and services for fees of less than $0.1 million and $1.8 million were provided for the three and six months ended June 30, 2015.
Debt Instruments
In 2014, affiliates of Thomas H. Lee Partners, L.P., Liberty Lane and Blane Walter purchased $25.0 million of Junior Lien Secured Notes and $26.3 million of the Company’s 10% Senior Unsecured Notes due 2018 for a total consideration of $50.0 million as described in Note 6.
13. |
Fair Value Measurements |
The Company’s financial instruments include cash and cash equivalents, accounts receivables, unbilled services, accounts payable, short-term borrowings, capital leases and other financing arrangements as well as deferred revenues and client advances. Due to the short-term nature of such instruments, the Company believes their carrying values approximate fair value. Please refer to Note 6 for discussion of the Company’s debt instruments.
The Company’s contingent consideration obligations are carried at fair value considering the Company’s best estimates as to the probable timing and amount of settlement (level 3 within the fair value hierarchy). As of June 30, 2016, the contingent consideration obligations had an aggregate fair value of $0.2 million, which is included in accrued expenses in the consolidated balance sheets.
The Company’s deferred compensation plan provides eligible management and other highly compensated employees with the opportunity to defer their compensation and to receive the deferred amounts in the future or upon termination of employment with the Company. The Company invests in the underlying mutual fund investments available to plan participants through investments held in a rabbi trust, which generally offset the liability associated with the deferred compensation plan. These securities are classified as trading securities and carried at fair value (level 1 within the fair value hierarchy) of $12.2 million and $10.8 million as of June 30,
12
2016 and December 31, 2015 and included in other assets in the consolidated balance sheets. Gains and losses are included in SG&A expenses.
14. |
Segment Information |
The Company provides services through two reportable segments, Clinical and Commercial. Each reportable business segment is comprised of multiple service offerings that, when combined, create a fully integrated biopharmaceutical outsourced services provider. Clinical provides a continuum of services spanning phases I-IV of clinical development. Commercial, provides commercialization, medication adherence and consulting services to biopharmaceutical companies. The Clinical and Commercial segments provide services to the other segments primarily in connection with the delivery of services to the end client. The Company accounts for intersegment sales on prices that management considers to be consistent with market pricing. Total intersegment sales from Clinical to Commercial was $0.1 million and $0.7 million for the three months ended June 30, 2016 and 2015, respectively, and $0.2 million and $1.3 million for the six months ended June 30, 2016 and 2015, respectively. Total intersegment sales from Commercial to Clinical or Corporate and other was $4.7 million and $3.0 million for the three months ended June 30, 2016 and 2015, respectively, and $9.1 million and $5.6 million for the six months ended June 30, 2016 and 2015, respectively.
Management measures and evaluates the Company’s operating segments based on segment net revenues and adjusted operating income. The results of these reportable business segments are regularly reviewed by the Company’s chief operating decision maker, the Chief Executive Officer. Certain costs are excluded from segment operating income because management evaluates the operating results of the segments excluding such charges. These items include depreciation and amortization; certain foreign currency impacts; net charges associated with acquisitions; certain legal charges, net of insurance recoveries; certain asset impairment charges; stock-based compensation; as well as corporate and other unallocated expenses. The Corporate and other unallocated expenses primarily consist of expenses for corporate overhead functions such as finance, human resources, information technology, facilities and legal; restructuring and related charges; and certain expenses incurred in connection with the management agreements with affiliates of certain shareholders of the Parent. Although these amounts are excluded from adjusted segment operating income, as applicable, they are included in reported consolidated operating loss and in the reconciliations presented below.
The Company has an agreement to provide commercialization services to a biopharmaceutical client for launch of certain products in return for a royalty on the client’s net revenues. The results of this arrangement are included in Corporate and other as the contract is managed and evaluated on a corporate level. As these activities were included in the Commercial segment prior to the three months ended September 30, 2015, segment information for the three and six months ended June 30, 2015 has been restated to include these results in Corporate and other and Commercial recognized intersegment revenues related to performing services under this arrangement. The substantial majority of the intersegment sales from Commercial to Corporate and other for both 2015 and 2016 is related to providing services for this arrangement. The amount of costs included in Corporate and other related to this arrangement was $5.7 million and $0.8 million for the three months ended June 30, 2016 and 2015, respectively, and $10.1 million and $1.3 million for the six months ended June 30, 2016 and 2015, respectively.
13
Selected information for each reportable segment is as follows (in thousands):
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Net Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
|
$ |
259,907 |
|
|
$ |
233,582 |
|
|
$ |
514,766 |
|
|
$ |
453,246 |
|
Commercial |
|
|
305,908 |
|
|
|
259,462 |
|
|
|
596,834 |
|
|
|
494,008 |
|
Intersegment revenues |
|
|
(4,793 |
) |
|
|
(3,627 |
) |
|
|
(9,282 |
) |
|
|
(6,860 |
) |
Consolidated net revenues |
|
$ |
561,022 |
|
|
$ |
489,417 |
|
|
$ |
1,102,318 |
|
|
$ |
940,394 |
|
Adjusted Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
|
$ |
42,802 |
|
|
$ |
28,469 |
|
|
$ |
85,538 |
|
|
$ |
54,118 |
|
Commercial |
|
|
54,028 |
|
|
|
42,898 |
|
|
|
102,948 |
|
|
|
74,777 |
|
Corporate and other |
|
|
(13,661 |
) |
|
|
(10,096 |
) |
|
|
(25,985 |
) |
|
|
(18,994 |
) |
Reportable segments adjusted operating income (loss) |
|
|
83,169 |
|
|
|
61,271 |
|
|
|
162,501 |
|
|
|
109,901 |
|
Depreciation and amortization |
|
|
(22,201 |
) |
|
|
(23,908 |
) |
|
|
(45,964 |
) |
|
|
(48,911 |
) |
Stock-based compensation |
|
|
(1,560 |
) |
|
|
(45 |
) |
|
|
(2,977 |
) |
|
|
(515 |
) |
Other unallocated charges |
|
|
(6,077 |
) |
|
|
(7,686 |
) |
|
|
(15,065 |
) |
|
|
(13,285 |
) |
Operating income (loss) |
|
|
53,331 |
|
|
|
29,632 |
|
|
|
98,495 |
|
|
|
47,190 |
|
Interest income (expense), net |
|
|
(54,413 |
) |
|
|
(57,120 |
) |
|
|
(110,266 |
) |
|
|
(113,583 |
) |
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
221 |
|
|
|
— |
|
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
$ |
(1,082 |
) |
|
$ |
(27,488 |
) |
|
$ |
(11,550 |
) |
|
$ |
(66,393 |
) |
15. |
Guarantor Financial Information |
Borrowings under each of our Senior Secured Credit Facilities, ABL Facility, Senior Secured Notes, Junior Lien Secured Notes and Senior Unsecured Notes are guaranteed by certain of the Company’s domestic wholly-owned subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional and joint and several. The Company’s Senior Secured Credit Facility, ABL Facility, Senior Secured Notes, Junior Lien Secured Notes and Senior Unsecured Notes are not guaranteed by certain of the Company’s subsidiaries, including all of its non-U.S. subsidiaries or non-wholly owned subsidiaries. The following supplemental financial information sets forth, on a condensed consolidating basis, balance sheet information, results of operations, comprehensive loss and cash flow information for inVentiv Health, Inc., the Guarantor Subsidiaries and other subsidiaries (the “Non-Guarantor Subsidiaries”). The supplemental financial information reflects the investments of inVentiv Health, Inc.’s investment in the Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of accounting.
Subsequent to the issuance of the June 30, 2015 condensed consolidated financial statements, management determined that within the condensed consolidating statement of cash flows, certain intercompany transfers historically presented on a gross basis within operating, investing and financing activities represent centralized treasury activities that are more appropriately presented on a net basis within investing and financing activities between the respective parent, guarantor, and non guarantor entities. The aforementioned items have been corrected in the condensed consolidating statements of cash flows for the six months ended June 30, 2015. The corrections had no impact on the Company’s consolidated financial position, results of operations or cash flows.
14
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION |
|
|||||||||||||||||||
At June 30, 2016 |
|
|||||||||||||||||||
(in thousands, except share and per share amounts) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
74,624 |
|
|
$ |
— |
|
|
$ |
114,186 |
|
|
$ |
(92,933 |
) |
|
$ |
95,877 |
|
Restricted cash |
|
|
946 |
|
|
|
— |
|
|
|
844 |
|
|
|
— |
|
|
|
1,790 |
|
Accounts receivable, net of allowances for doubtful accounts |
|
|
— |
|
|
|
321,872 |
|
|
|
55,597 |
|
|
|
— |
|
|
|
377,469 |
|
Unbilled services |
|
|
— |
|
|
|
206,879 |
|
|
|
37,192 |
|
|
|
— |
|
|
|
244,071 |
|
Intercompany receivables |
|
|
507,192 |
|
|
|
859,832 |
|
|
|
125,857 |
|
|
|
(1,492,881 |
) |
|
|
— |
|
Prepaid expenses and other current assets |
|
|
5,557 |
|
|
|
13,642 |
|
|
|
24,080 |
|
|
|
— |
|
|
|
43,279 |
|
Income tax receivable |
|
|
26 |
|
|
|
— |
|
|
|
1,385 |
|
|
|
— |
|
|
|
1,411 |
|
Total current assets |
|
|
588,345 |
|
|
|
1,402,225 |
|
|
|
359,141 |
|
|
|
(1,585,814 |
) |
|
|
763,897 |
|
Property and equipment, net |
|
|
19,354 |
|
|
|
99,675 |
|
|
|
19,316 |
|
|
|
— |
|
|
|
138,345 |
|
Goodwill |
|
|
— |
|
|
|
855,317 |
|
|
|
42,124 |
|
|
|
— |
|
|
|
897,441 |
|
Intangible assets, net |
|
|
— |
|
|
|
310,381 |
|
|
|
6,750 |
|
|
|
— |
|
|
|
317,131 |
|
Non-current deferred tax assets |
|
|
— |
|
|
|
— |
|
|
|
10,341 |
|
|
|
— |
|
|
|
10,341 |
|
Other assets |
|
|
20,365 |
|
|
|
4,046 |
|
|
|
15,484 |
|
|
|
— |
|
|
|
39,895 |
|
Non-current intercompany receivables |
|
|
442,077 |
|
|
|
27,167 |
|
|
|
— |
|
|
|
(469,244 |
) |
|
|
— |
|
Investment in consolidated subsidiaries |
|
|
726,602 |
|
|
|
111,817 |
|
|
|
— |
|
|
|
(838,419 |
) |
|
|
— |
|
Total assets |
|
$ |
1,796,743 |
|
|
$ |
2,810,628 |
|
|
$ |
453,156 |
|
|
$ |
(2,893,477 |
) |
|
$ |
2,167,050 |
|
LIABILITIES AND STOCKHOLDER’S DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations and other financing arrangements |
|
$ |
457 |
|
|
$ |
24,174 |
|
|
$ |
87,145 |
|
|
$ |
(87,064 |
) |
|
$ |
24,712 |
|
Accrued payroll, accounts payable and accrued expenses |
|
|
94,428 |
|
|
|
200,337 |
|
|
|
65,502 |
|
|
|
(5,870 |
) |
|
|
354,397 |
|
Intercompany payables |
|
|
929,017 |
|
|
|
544,148 |
|
|
|
19,715 |
|
|
|
(1,492,880 |
) |
|
|
— |
|
Income taxes payable |
|
|
— |
|
|
|
432 |
|
|
|
5,168 |
|
|
|
— |
|
|
|
5,600 |
|
Deferred revenue and client advances |
|
|
— |
|
|
|
181,626 |
|
|
|
55,507 |
|
|
|
— |
|
|
|
237,133 |
|
Total current liabilities |
|
|
1,023,902 |
|
|
|
950,717 |
|
|
|
233,037 |
|
|
|
(1,585,814 |
) |
|
|
621,842 |
|
Capital lease obligations, net of current portion |
|
|
— |
|
|
|
47,011 |
|
|
|
140 |
|
|
|
— |
|
|
|
47,151 |
|
Long-term debt, net of current portion |
|
|
1,551,286 |
|
|
|
570,275 |
|
|
|
— |
|
|
|
— |
|
|
|
2,121,561 |
|
Non-current income tax liability |
|
|
— |
|
|
|
4,806 |
|
|
|
2,764 |
|
|
|
— |
|
|
|
7,570 |
|
Deferred tax liability |
|
|
74 |
|
|
|
78,155 |
|
|
|
1,702 |
|
|
|
— |
|
|
|
79,931 |
|
Other non-current liabilities |
|
|
14,269 |
|
|
|
41,591 |
|
|
|
24,481 |
|
|
|
— |
|
|
|
80,341 |
|
Non-current intercompany liabilities |
|
|
— |
|
|
|
442,071 |
|
|
|
27,173 |
|
|
|
(469,244 |
) |
|
|
— |
|
Total liabilities |
|
|
2,589,531 |
|
|
|
2,134,626 |
|
|
|
289,297 |
|
|
|
(2,055,058 |
) |
|
|
2,958,396 |
|
Total inVentiv Health, Inc. stockholder’s deficit |
|
|
(792,788 |
) |
|
|
676,002 |
|
|
|
162,417 |
|
|
|
(838,419 |
) |
|
|
(792,788 |
) |
Noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
1,442 |
|
|
|
— |
|
|
|
1,442 |
|
Total stockholder’s deficit |
|
|
(792,788 |
) |
|
|
676,002 |
|
|
|
163,859 |
|
|
|
(838,419 |
) |
|
|
(791,346 |
) |
Total liabilities and stockholder’s deficit |
|
$ |
1,796,743 |
|
|
$ |
2,810,628 |
|
|
$ |
453,156 |
|
|
$ |
(2,893,477 |
) |
|
$ |
2,167,050 |
|
15
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
At December 31, 2015
(in thousands, except share and per share amounts)
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
55,226 |
|
|
$ |
— |
|
|
$ |
148,970 |
|
|
$ |
(82,879 |
) |
|
$ |
121,317 |
|
Restricted cash |
|
|
226 |
|
|
|
— |
|
|
|
1,381 |
|
|
|
— |
|
|
|
1,607 |
|
Accounts receivable, net of allowances for doubtful accounts |
|
|
— |
|
|
|
292,548 |
|
|
|
66,533 |
|
|
|
— |
|
|
|
359,081 |
|
Unbilled services |
|
|
— |
|
|
|
174,070 |
|
|
|
33,395 |
|
|
|
— |
|
|
|
207,465 |
|
Intercompany receivables |
|
|
529,457 |
|
|
|
840,499 |
|
|
|
18,211 |
|
|
|
(1,388,167 |
) |
|
|
— |
|
Prepaid expenses and other current assets |
|
|
8,839 |
|
|
|
11,401 |
|
|
|
22,690 |
|
|
|
— |
|
|
|
42,930 |
|
Income tax receivable |
|
|
104 |
|
|
|
— |
|
|
|
1,076 |
|
|
|
(104 |
) |
|
|
1,076 |
|
Total current assets |
|
|
593,852 |
|
|
|
1,318,518 |
|
|
|
292,256 |
|
|
|
(1,471,150 |
) |
|
|
733,476 |
|
Property and equipment, net |
|
|
23,227 |
|
|
|
101,507 |
|
|
|
17,298 |
|
|
|
— |
|
|
|
142,032 |
|
Goodwill |
|
|
— |
|
|
|
855,317 |
|
|
|
40,052 |
|
|
|
— |
|
|
|
895,369 |
|
Intangible assets, net |
|
|
— |
|
|
|
328,239 |
|
|
|
6,407 |
|
|
|
— |
|
|
|
334,646 |
|
Non-current deferred tax assets |
|
|
— |
|
|
|
— |
|
|
|
10,032 |
|
|
|
— |
|
|
|
10,032 |
|
Other assets |
|
|
19,084 |
|
|
|
4,491 |
|
|
|
13,559 |
|
|
|
— |
|
|
|
37,134 |
|
Non-current intercompany receivables |
|
|
416,161 |
|
|
|
29,235 |
|
|
|
35,021 |
|
|
|
(480,417 |
) |
|
|
— |
|
Investment in consolidated subsidiaries |
|
|
676,479 |
|
|
|
93,191 |
|
|
|
— |
|
|
|
(769,670 |
) |
|
|
— |
|
Total assets |
|
$ |
1,728,803 |
|
|
$ |
2,730,498 |
|
|
$ |
414,625 |
|
|
$ |
(2,721,237 |
) |
|
$ |
2,152,689 |
|
LIABILITIES AND STOCKHOLDER’S DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations and other financing arrangements |
|
$ |
1,936 |
|
|
$ |
21,324 |
|
|
$ |
73,355 |
|
|
$ |
(73,282 |
) |
|
$ |
23,333 |
|
Accrued payroll, accounts payable and accrued expenses |
|
|
71,953 |
|
|
|
200,063 |
|
|
|
71,307 |
|
|
|
(9,597 |
) |
|
|
333,726 |
|
Intercompany payables |
|
|
820,965 |
|
|
|
542,500 |
|
|
|
24,702 |
|
|
|
(1,388,167 |
) |
|
|
— |
|
Income taxes payable |
|
|
— |
|
|
|
165 |
|
|
|
5,423 |
|
|
|
(104 |
) |
|
|
5,484 |
|
Deferred revenue and client advances |
|
|
— |
|
|
|
190,828 |
|
|
|
55,828 |
|
|
|
— |
|
|
|
246,656 |
|
Total current liabilities |
|
|
894,854 |
|
|
|
954,880 |
|
|
|
230,615 |
|
|
|
(1,471,150 |
) |
|
|
609,199 |
|
Capital lease obligations, net of current portion |
|
|
— |
|
|
|
45,247 |
|
|
|
11 |
|
|
|
— |
|
|
|
45,258 |
|
Long-term debt, net of current portion |
|
|
1,533,197 |
|
|
|
568,688 |
|
|
|
— |
|
|
|
— |
|
|
|
2,101,885 |
|
Non-current income tax liability |
|
|
— |
|
|
|
4,806 |
|
|
|
1,136 |
|
|
|
— |
|
|
|
5,942 |
|
Deferred tax liability |
|
|
74 |
|
|
|
73,047 |
|
|
|
239 |
|
|
|
— |
|
|
|
73,360 |
|
Other non-current liabilities |
|
|
38,494 |
|
|
|
30,896 |
|
|
|
18,763 |
|
|
|
— |
|
|
|
88,153 |
|
Non-current intercompany liabilities |
|
|
34,920 |
|
|
|
416,260 |
|
|
|
29,237 |
|
|
|
(480,417 |
) |
|
|
— |
|
Total liabilities |
|
|
2,501,539 |
|
|
|
2,093,824 |
|
|
|
280,001 |
|
|
|
(1,951,567 |
) |
|
|
2,923,797 |
|
Total inVentiv Health, Inc. stockholder’s deficit |
|
|
(772,736 |
) |
|
|
636,674 |
|
|
|
132,996 |
|
|
|
(769,670 |
) |
|
|
(772,736 |
) |
Noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
1,628 |
|
|
|
— |
|
|
|
1,628 |
|
Total stockholder’s deficit |
|
|
(772,736 |
) |
|
|
636,674 |
|
|
|
134,624 |
|
|
|
(769,670 |
) |
|
|
(771,108 |
) |
Total liabilities and stockholder’s deficit |
|
$ |
1,728,803 |
|
|
$ |
2,730,498 |
|
|
$ |
414,625 |
|
|
$ |
(2,721,237 |
) |
|
$ |
2,152,689 |
|
16
CONSOLIDATING STATEMENT OF OPERATIONS |
|
|||||||||||||||||||
For the Three Months Ended June 30, 2016 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net revenues |
|
$ |
— |
|
|
$ |
432,250 |
|
|
$ |
137,165 |
|
|
$ |
(8,393 |
) |
|
$ |
561,022 |
|
Reimbursed out-of-pocket expenses |
|
|
— |
|
|
|
73,151 |
|
|
|
9,678 |
|
|
|
(5 |
) |
|
|
82,824 |
|
Total revenues |
|
|
— |
|
|
|
505,401 |
|
|
|
146,843 |
|
|
|
(8,398 |
) |
|
|
643,846 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
312,576 |
|
|
|
85,031 |
|
|
|
(7,872 |
) |
|
|
389,735 |
|
Reimbursable out-of-pocket expenses |
|
|
— |
|
|
|
73,151 |
|
|
|
9,678 |
|
|
|
(5 |
) |
|
|
82,824 |
|
Selling, general and administrative expenses |
|
|
16,822 |
|
|
|
67,336 |
|
|
|
34,319 |
|
|
|
(521 |
) |
|
|
117,956 |
|
Allocation of intercompany costs |
|
|
(13,898 |
) |
|
|
10,921 |
|
|
|
2,977 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
2,924 |
|
|
|
463,984 |
|
|
|
132,005 |
|
|
|
(8,398 |
) |
|
|
590,515 |
|
Operating income (loss) |
|
|
(2,924 |
) |
|
|
41,417 |
|
|
|
14,838 |
|
|
|
— |
|
|
|
53,331 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest income (expense), net |
|
|
(42,394 |
) |
|
|
(12,209 |
) |
|
|
190 |
|
|
|
— |
|
|
|
(54,413 |
) |
Intercompany interest income (expense) |
|
|
13,369 |
|
|
|
(13,103 |
) |
|
|
(266 |
) |
|
|
— |
|
|
|
— |
|
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
|
(31,949 |
) |
|
|
16,105 |
|
|
|
14,762 |
|
|
|
— |
|
|
|
(1,082 |
) |
Income tax (provision) benefit |
|
|
— |
|
|
|
(403 |
) |
|
|
(2,902 |
) |
|
|
— |
|
|
|
(3,305 |
) |
Income (loss) before income (loss) from equity investments |
|
|
(31,949 |
) |
|
|
15,702 |
|
|
|
11,860 |
|
|
|
— |
|
|
|
(4,387 |
) |
Income (loss) from equity investments |
|
|
27,475 |
|
|
|
9,554 |
|
|
|
— |
|
|
|
(37,025 |
) |
|
|
4 |
|
Net income (loss) |
|
|
(4,474 |
) |
|
|
25,256 |
|
|
|
11,860 |
|
|
|
(37,025 |
) |
|
|
(4,383 |
) |
Less: Net (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(91 |
) |
|
|
— |
|
|
|
(91 |
) |
Net income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(4,474 |
) |
|
$ |
25,256 |
|
|
$ |
11,769 |
|
|
$ |
(37,025 |
) |
|
$ |
(4,474 |
) |
17
CONSOLIDATING STATEMENT OF OPERATIONS |
|
|||||||||||||||||||
For the Three Months Ended June 30, 2015 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net revenues |
|
$ |
— |
|
|
$ |
382,908 |
|
|
$ |
112,927 |
|
|
$ |
(6,418 |
) |
|
$ |
489,417 |
|
Reimbursed out-of-pocket expenses |
|
|
— |
|
|
|
68,450 |
|
|
|
14,689 |
|
|
|
(62 |
) |
|
|
83,077 |
|
Total revenues |
|
|
— |
|
|
|
451,358 |
|
|
|
127,616 |
|
|
|
(6,480 |
) |
|
|
572,494 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
255,110 |
|
|
|
77,005 |
|
|
|
(5,885 |
) |
|
|
326,230 |
|
Reimbursable out-of-pocket expenses |
|
|
— |
|
|
|
68,450 |
|
|
|
14,689 |
|
|
|
(62 |
) |
|
|
83,077 |
|
Selling, general and administrative expenses |
|
|
20,491 |
|
|
|
80,661 |
|
|
|
32,936 |
|
|
|
(533 |
) |
|
|
133,555 |
|
Allocation of intercompany costs |
|
|
(9,899 |
) |
|
|
7,935 |
|
|
|
1,964 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
10,592 |
|
|
|
412,156 |
|
|
|
126,594 |
|
|
|
(6,480 |
) |
|
|
542,862 |
|
Operating income (loss) |
|
|
(10,592 |
) |
|
|
39,202 |
|
|
|
1,022 |
|
|
|
— |
|
|
|
29,632 |
|
Interest income (expense), net |
|
|
(45,006 |
) |
|
|
(12,279 |
) |
|
|
165 |
|
|
|
— |
|
|
|
(57,120 |
) |
Intercompany interest income (expense) |
|
|
11,801 |
|
|
|
(11,554 |
) |
|
|
(247 |
) |
|
|
— |
|
|
|
— |
|
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
|
(43,797 |
) |
|
|
15,369 |
|
|
|
940 |
|
|
|
— |
|
|
|
(27,488 |
) |
Income tax (provision) benefit |
|
|
— |
|
|
|
(1,650 |
) |
|
|
(1,088 |
) |
|
|
— |
|
|
|
(2,738 |
) |
Income (loss) before income (loss) from equity investments |
|
|
(43,797 |
) |
|
|
13,719 |
|
|
|
(148 |
) |
|
|
— |
|
|
|
(30,226 |
) |
Income (loss) from equity investments |
|
|
13,566 |
|
|
|
(976 |
) |
|
|
— |
|
|
|
(12,352 |
) |
|
|
238 |
|
Net income (loss) |
|
|
(30,231 |
) |
|
|
12,743 |
|
|
|
(148 |
) |
|
|
(12,352 |
) |
|
|
(29,988 |
) |
Less: Net (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(243 |
) |
|
|
— |
|
|
|
(243 |
) |
Net income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(30,231 |
) |
|
$ |
12,743 |
|
|
$ |
(391 |
) |
|
$ |
(12,352 |
) |
|
$ |
(30,231 |
) |
18
CONSOLIDATING STATEMENT OF OPERATIONS |
|
|||||||||||||||||||
For the Six Months Ended June 30, 2016 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net revenues |
|
$ |
— |
|
|
$ |
851,586 |
|
|
$ |
267,098 |
|
|
$ |
(16,366 |
) |
|
$ |
1,102,318 |
|
Reimbursed out-of-pocket expenses |
|
|
— |
|
|
|
156,969 |
|
|
|
16,892 |
|
|
|
(54 |
) |
|
|
173,807 |
|
Total revenues |
|
|
— |
|
|
|
1,008,555 |
|
|
|
283,990 |
|
|
|
(16,420 |
) |
|
|
1,276,125 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
612,968 |
|
|
|
164,329 |
|
|
|
(15,186 |
) |
|
|
762,111 |
|
Reimbursable out-of-pocket expenses |
|
|
— |
|
|
|
156,969 |
|
|
|
16,892 |
|
|
|
(54 |
) |
|
|
173,807 |
|
Selling, general and administrative expenses |
|
|
37,951 |
|
|
|
138,705 |
|
|
|
66,236 |
|
|
|
(1,180 |
) |
|
|
241,712 |
|
Allocation of intercompany costs |
|
|
(27,797 |
) |
|
|
21,836 |
|
|
|
5,961 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
10,154 |
|
|
|
930,478 |
|
|
|
253,418 |
|
|
|
(16,420 |
) |
|
|
1,177,630 |
|
Operating income (loss) |
|
|
(10,154 |
) |
|
|
78,077 |
|
|
|
30,572 |
|
|
|
— |
|
|
|
98,495 |
|
Gain on extinguishment of debt |
|
|
221 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
221 |
|
Interest income (expense), net |
|
|
(86,225 |
) |
|
|
(24,486 |
) |
|
|
445 |
|
|
|
— |
|
|
|
(110,266 |
) |
Intercompany interest income (expense) |
|
|
26,344 |
|
|
|
(25,818 |
) |
|
|
(526 |
) |
|
|
— |
|
|
|
— |
|
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
|
(69,814 |
) |
|
|
27,773 |
|
|
|
30,491 |
|
|
|
— |
|
|
|
(11,550 |
) |
Income tax (provision) benefit |
|
|
— |
|
|
|
(5,548 |
) |
|
|
(5,933 |
) |
|
|
— |
|
|
|
(11,481 |
) |
Income (loss) before income (loss) from equity investments |
|
|
(69,814 |
) |
|
|
22,225 |
|
|
|
24,558 |
|
|
|
— |
|
|
|
(23,031 |
) |
Income (loss) from equity investments |
|
|
46,263 |
|
|
|
20,128 |
|
|
|
— |
|
|
|
(66,382 |
) |
|
|
9 |
|
Net income (loss) |
|
|
(23,551 |
) |
|
|
42,353 |
|
|
|
24,558 |
|
|
|
(66,382 |
) |
|
|
(23,022 |
) |
Less: Net (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(529 |
) |
|
|
— |
|
|
|
(529 |
) |
Net income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(23,551 |
) |
|
$ |
42,353 |
|
|
$ |
24,029 |
|
|
$ |
(66,382 |
) |
|
$ |
(23,551 |
) |
19
CONSOLIDATING STATEMENT OF OPERATIONS |
|
|||||||||||||||||||
For the Six Months Ended June 30, 2015 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net revenues |
|
$ |
— |
|
|
$ |
729,889 |
|
|
$ |
222,678 |
|
|
$ |
(12,173 |
) |
|
$ |
940,394 |
|
Reimbursed out-of-pocket expenses |
|
|
— |
|
|
|
128,066 |
|
|
|
22,472 |
|
|
|
(138 |
) |
|
|
150,400 |
|
Total revenues |
|
|
— |
|
|
|
857,955 |
|
|
|
245,150 |
|
|
|
(12,311 |
) |
|
|
1,090,794 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
491,573 |
|
|
|
146,309 |
|
|
|
(11,147 |
) |
|
|
626,735 |
|
Reimbursable out-of-pocket expenses |
|
|
— |
|
|
|
128,066 |
|
|
|
22,472 |
|
|
|
(138 |
) |
|
|
150,400 |
|
Selling, general and administrative expenses |
|
|
36,578 |
|
|
|
165,200 |
|
|
|
65,717 |
|
|
|
(1,026 |
) |
|
|
266,469 |
|
Allocation of intercompany costs |
|
|
(19,799 |
) |
|
|
15,879 |
|
|
|
3,920 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
16,779 |
|
|
|
800,718 |
|
|
|
238,418 |
|
|
|
(12,311 |
) |
|
|
1,043,604 |
|
Operating income (loss) |
|
|
(16,779 |
) |
|
|
57,237 |
|
|
|
6,732 |
|
|
|
— |
|
|
|
47,190 |
|
Interest income (expense), net |
|
|
(89,404 |
) |
|
|
(24,448 |
) |
|
|
269 |
|
|
|
— |
|
|
|
(113,583 |
) |
Intercompany interest income (expense) |
|
|
22,923 |
|
|
|
(22,526 |
) |
|
|
(397 |
) |
|
|
— |
|
|
|
— |
|
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
|
(83,260 |
) |
|
|
10,263 |
|
|
|
6,604 |
|
|
|
— |
|
|
|
(66,393 |
) |
Income tax (provision) benefit |
|
|
— |
|
|
|
(4,625 |
) |
|
|
(2,641 |
) |
|
|
— |
|
|
|
(7,266 |
) |
Income (loss) before income (loss) from equity investments |
|
|
(83,260 |
) |
|
|
5,638 |
|
|
|
3,963 |
|
|
|
— |
|
|
|
(73,659 |
) |
Income (loss) from equity investments |
|
|
7,944 |
|
|
|
654 |
|
|
|
— |
|
|
|
(9,889 |
) |
|
|
(1,291 |
) |
Net income (loss) |
|
|
(75,316 |
) |
|
|
6,292 |
|
|
|
3,963 |
|
|
|
(9,889 |
) |
|
|
(74,950 |
) |
Less: Net (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(366 |
) |
|
|
— |
|
|
|
(366 |
) |
Net income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(75,316 |
) |
|
$ |
6,292 |
|
|
$ |
3,597 |
|
|
$ |
(9,889 |
) |
|
$ |
(75,316 |
) |
20
CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS |
|
|||||||||||||||||||
For the Three Months Ended June 30, 2016 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net income (loss) |
|
$ |
(4,474 |
) |
|
$ |
25,256 |
|
|
$ |
11,860 |
|
|
$ |
(37,025 |
) |
|
$ |
(4,383 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(1,560 |
) |
|
|
(5,688 |
) |
|
|
383 |
|
|
|
5,305 |
|
|
|
(1,560 |
) |
Total other comprehensive income (loss) |
|
|
(1,560 |
) |
|
|
(5,688 |
) |
|
|
383 |
|
|
|
5,305 |
|
|
|
(1,560 |
) |
Total comprehensive income (loss) |
|
|
(6,034 |
) |
|
|
19,568 |
|
|
|
12,243 |
|
|
|
(31,720 |
) |
|
|
(5,943 |
) |
Less: Comprehensive (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(91 |
) |
|
|
— |
|
|
|
(91 |
) |
Total comprehensive income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(6,034 |
) |
|
$ |
19,568 |
|
|
$ |
12,152 |
|
|
$ |
(31,720 |
) |
|
$ |
(6,034 |
) |
21
CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS |
|
|||||||||||||||||||
For the Three Months Ended June 30, 2015 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net income (loss) |
|
$ |
(30,231 |
) |
|
$ |
12,743 |
|
|
$ |
(148 |
) |
|
$ |
(12,352 |
) |
|
$ |
(29,988 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
4,218 |
|
|
|
5,113 |
|
|
|
2,596 |
|
|
|
(7,709 |
) |
|
|
4,218 |
|
Total other comprehensive income (loss) |
|
|
4,218 |
|
|
|
5,113 |
|
|
|
2,596 |
|
|
|
(7,709 |
) |
|
|
4,218 |
|
Total comprehensive income (loss) |
|
|
(26,013 |
) |
|
|
17,856 |
|
|
|
2,448 |
|
|
|
(20,061 |
) |
|
|
(25,770 |
) |
Less: Comprehensive (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(243 |
) |
|
|
— |
|
|
|
(243 |
) |
Total comprehensive income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(26,013 |
) |
|
$ |
17,856 |
|
|
$ |
2,205 |
|
|
$ |
(20,061 |
) |
|
$ |
(26,013 |
) |
22
CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS |
|
|||||||||||||||||||
For the Six Months Ended June 30, 2016 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net income (loss) |
|
$ |
(23,551 |
) |
|
$ |
42,353 |
|
|
$ |
24,558 |
|
|
$ |
(66,382 |
) |
|
$ |
(23,022 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
3,859 |
|
|
|
(3,026 |
) |
|
|
6,502 |
|
|
|
(3,476 |
) |
|
|
3,859 |
|
Total other comprehensive income (loss) |
|
|
3,859 |
|
|
|
(3,026 |
) |
|
|
6,502 |
|
|
|
(3,476 |
) |
|
|
3,859 |
|
Total comprehensive income (loss) |
|
|
(19,692 |
) |
|
|
39,327 |
|
|
|
31,060 |
|
|
|
(69,858 |
) |
|
|
(19,163 |
) |
Less: Comprehensive (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(529 |
) |
|
|
— |
|
|
|
(529 |
) |
Total comprehensive income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(19,692 |
) |
|
$ |
39,327 |
|
|
$ |
30,531 |
|
|
$ |
(69,858 |
) |
|
$ |
(19,692 |
) |
23
CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS |
|
|||||||||||||||||||
For the Six Months Ended June 30, 2015 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Net income (loss) |
|
$ |
(75,316 |
) |
|
$ |
6,292 |
|
|
$ |
3,963 |
|
|
$ |
(9,889 |
) |
|
$ |
(74,950 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(1,227 |
) |
|
|
(322 |
) |
|
|
(1,415 |
) |
|
|
1,737 |
|
|
|
(1,227 |
) |
Total other comprehensive income (loss) |
|
|
(1,227 |
) |
|
|
(322 |
) |
|
|
(1,415 |
) |
|
|
1,737 |
|
|
|
(1,227 |
) |
Total comprehensive income (loss) |
|
|
(76,543 |
) |
|
|
5,970 |
|
|
|
2,548 |
|
|
|
(8,152 |
) |
|
|
(76,177 |
) |
Less: Comprehensive (income) loss attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(366 |
) |
|
|
— |
|
|
|
(366 |
) |
Total comprehensive income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(76,543 |
) |
|
$ |
5,970 |
|
|
$ |
2,182 |
|
|
$ |
(8,152 |
) |
|
$ |
(76,543 |
) |
24
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
|
|||||||||||||||||||
For the Six Months Ended June 30, 2016 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(67,876 |
) |
|
$ |
61,218 |
|
|
$ |
37,813 |
|
|
$ |
(5,873 |
) |
|
$ |
25,282 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(2,464 |
) |
|
|
(4,648 |
) |
|
|
(5,505 |
) |
|
|
— |
|
|
|
(12,617 |
) |
Proceeds from vehicle sales and rebates on vehicle leases |
|
|
— |
|
|
|
8,320 |
|
|
|
— |
|
|
|
— |
|
|
|
8,320 |
|
Intercompany transfers |
|
|
117,196 |
|
|
|
20,386 |
|
|
|
— |
|
|
|
(137,582 |
) |
|
|
— |
|
Other, net |
|
|
(720 |
) |
|
|
— |
|
|
|
472 |
|
|
|
— |
|
|
|
(248 |
) |
Net cash provided by (used in) investing activities |
|
|
114,012 |
|
|
|
24,058 |
|
|
|
(5,033 |
) |
|
|
(137,582 |
) |
|
|
(4,545 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on capital leases and other financing arrangements |
|
|
(1,942 |
) |
|
|
(18,495 |
) |
|
|
125 |
|
|
|
— |
|
|
|
(20,312 |
) |
Repurchase of Notes |
|
|
(22,790 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,790 |
) |
Payment on installment note and contingent consideration related to acquisition |
|
|
(2,322 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,322 |
) |
Intercompany transfers |
|
|
— |
|
|
|
(66,781 |
) |
|
|
(66,620 |
) |
|
|
133,401 |
|
|
|
— |
|
Payments to parent |
|
|
(173 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(173 |
) |
Other, net |
|
|
489 |
|
|
|
— |
|
|
|
(715 |
) |
|
|
— |
|
|
|
(226 |
) |
Net cash provided by (used in) financing activities |
|
|
(26,738 |
) |
|
|
(85,276 |
) |
|
|
(67,210 |
) |
|
|
133,401 |
|
|
|
(45,823 |
) |
Effects of foreign currency exchange rate changes on cash |
|
|
— |
|
|
|
— |
|
|
|
(354 |
) |
|
|
— |
|
|
|
(354 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
19,398 |
|
|
|
— |
|
|
|
(34,784 |
) |
|
|
(10,054 |
) |
|
|
(25,440 |
) |
Cash and cash equivalents, beginning of period |
|
|
55,226 |
|
|
|
— |
|
|
|
148,970 |
|
|
|
(82,879 |
) |
|
|
121,317 |
|
Cash and cash equivalents, end of period |
|
$ |
74,624 |
|
|
$ |
— |
|
|
$ |
114,186 |
|
|
$ |
(92,933 |
) |
|
$ |
95,877 |
|
25
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
|
|||||||||||||||||||
For the Six Months Ended June 30, 2015 |
|
|||||||||||||||||||
(in thousands) |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inVentiv |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Health, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(81,925 |
) |
|
$ |
99,468 |
|
|
$ |
12,189 |
|
|
$ |
(4,925 |
) |
|
$ |
24,807 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(6,599 |
) |
|
|
(10,285 |
) |
|
|
(2,924 |
) |
|
|
— |
|
|
|
(19,808 |
) |
Proceeds from vehicle sales and rebates on vehicle leases |
|
|
— |
|
|
|
6,826 |
|
|
|
— |
|
|
|
— |
|
|
|
6,826 |
|
Intercompany transfers |
|
|
107,905 |
|
|
|
27,120 |
|
|
|
— |
|
|
|
(135,025 |
) |
|
|
— |
|
Other, net |
|
|
(32 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(32 |
) |
Net cash provided by (used in) investing activities |
|
|
101,274 |
|
|
|
23,661 |
|
|
|
(2,924 |
) |
|
|
(135,025 |
) |
|
|
(13,014 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on capital leases and other financing arrangements |
|
|
(1,965 |
) |
|
|
(12,726 |
) |
|
|
(252 |
) |
|
|
— |
|
|
|
(14,943 |
) |
Borrowings under line of credit |
|
|
153,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
153,000 |
|
Repayments on line of credit |
|
|
(153,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(153,000 |
) |
Payment on installment note and contingent consideration related to acquisition |
|
|
(2,082 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,082 |
) |
Intercompany transfers |
|
|
— |
|
|
|
(113,842 |
) |
|
|
14,263 |
|
|
|
99,579 |
|
|
|
— |
|
Other, net |
|
|
38 |
|
|
|
— |
|
|
|
(508 |
) |
|
|
— |
|
|
|
(470 |
) |
Net cash provided by (used in) financing activities |
|
|
(4,009 |
) |
|
|
(126,568 |
) |
|
|
13,503 |
|
|
|
99,579 |
|
|
|
(17,495 |
) |
Effects of foreign currency exchange rate changes on cash |
|
|
— |
|
|
|
— |
|
|
|
238 |
|
|
|
— |
|
|
|
238 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
15,340 |
|
|
|
(3,439 |
) |
|
|
23,006 |
|
|
|
(40,371 |
) |
|
|
(5,464 |
) |
Cash and cash equivalents, beginning of period |
|
|
19,643 |
|
|
|
3,439 |
|
|
|
86,014 |
|
|
|
(52,037 |
) |
|
|
57,059 |
|
Cash and cash equivalents, end of period |
|
$ |
34,983 |
|
|
$ |
— |
|
|
$ |
109,020 |
|
|
$ |
(92,408 |
) |
|
$ |
51,595 |
|
16.Subsequent Events
The Company’s Board of Directors approved a 10.8-for-1 split of the Company’s common stock that was
effected July 29, 2016. All share and per share data shown in the accompanying condensed consolidated financial statements and notes have been revised to retrospectively reflect the stock split.
26
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in this Quarterly Report. Actual results may differ materially from those contained in any forward-looking statement. The terms “inVentiv,” “Company,” “we,” “us” and “our” refer to inVentiv Health, Inc. and its consolidated subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “target,” “plan,” “intend,” “believe,” “may,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Examples, though the absence of these words does not necessarily mean that a statement is not forward-looking, include, but are not limited to statements we make regarding:
|
• |
our business strategy, outlook, objectives, plans, intentions and goals, and our estimates of market size, market growth, market penetration and market share; |
|
• |
our estimates regarding our liquidity, capital expenditures and sources of both, our ability to maintain and improve our operating margins and our ability to fund our operations and planned capital expenditures for the foreseeable future; |
|
• |
our belief that our growth and success may depend on our ability to continue to enhance the quality of our existing services, serve our clients throughout the evolution of a product, and to introduce new services on a timely and cost-effective basis, integrate new services with existing services, increase penetration with existing and new clients and recruit, motivate and retain qualified personnel; |
|
• |
our expectations that biopharmaceutical companies may increasingly outsource their clinical development and commercialization services; |
|
• |
our belief that our clients are looking for service providers with scale and global capabilities; |
|
• |
our expectations regarding our pursuit of additional debt or equity sources to finance our internal growth initiatives or acquisitions; |
|
• |
our expectations regarding the levels of research and development (“R&D”) and commercialization spending and outsourcing by biopharmaceutical companies; and |
|
• |
our expectations regarding the impact of the adoption of new accounting pronouncements. |
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement and such forward-looking statements should not be unduly relied upon. Factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
|
• |
the impact of client project delays, cancellations and terminations, including the impact on our backlog; |
|
• |
the failure to convert backlog into net revenues; |
|
• |
our ability to accurately price our contracts and forecast costs; |
|
• |
our ability to achieve operational efficiencies or grow our net revenues faster than expenses; |
|
• |
the risks related to our relationships with existing or potential clients who are in competition with each other; |
|
• |
our ability to recruit suitable willing investigators and patients for clinical trials; |
27
|
• |
the impact of a loss of our access to certain data assets; |
|
• |
the potential liability associated with injury to clinical trial participants; |
|
• |
the risk of client concentration or concentration in therapeutic areas; |
|
• |
our ability to successfully develop and market new services and enter new markets; |
|
• |
the potential impact of financial, economic, political and other risks related to conducting business internationally; |
|
• |
our exposure to liability under the United States Foreign Corrupt Practices Act (the “FCPA”) and various other anti-corruption and anti-bribery laws; |
|
• |
the risks associated with our information systems infrastructure; |
|
• |
the risks associated with upgrading our information systems and evolving the technology platform for our services; |
|
• |
our ability to recruit, motivate and retain qualified personnel; |
|
• |
the impact of disruptions in the credit and capital markets and unfavorable economic conditions; |
|
• |
the risks associated with our acquisition strategy and integrating acquisitions; |
|
• |
the impact of any downgrade in our current credit ratings; |
|
• |
the risks associated with exchange rate fluctuations; |
|
• |
the risks associated with the restructuring of our operations; |
|
• |
risks associated with employment liability; |
|
• |
our limited ability to protect our intellectual property rights and the intellectual property rights of our clients; |
|
• |
our failure to manage any business expansion or contraction in the future; |
|
• |
the risks associated with effective income tax rate fluctuation and other tax matters; |
|
• |
potential impairment of goodwill or other intangible assets; |
|
• |
the risk of litigation and personal injury claims; |
|
• |
our reliance on third parties for important products and services; |
|
• |
our ability to comply with all applicable laws as well as our ability to successfully adapt to any changes in applicable laws; |
|
• |
our history of losses and our ability to achieve and sustain profitability in the future; |
|
• |
changes in outsourcing expenditures for clinical development and commercialization services by companies in the biopharmaceutical industry; |
|
• |
the impact of government regulators or clients limiting a prescription’s scope or withdrawing an approved product from the market; |
|
• |
the potential impact of healthcare reform initiatives or from changes in the reimbursement policies of third-party payers; |
|
• |
competition in the markets we serve, which may result in pricing pressure; |
|
• |
the impact on our clients of lower cost generic and other competing products; |
|
• |
the impact of costs, liability and reputational harm from failing to perform our services in accordance with contractual requirements, regulatory standards and ethical considerations; |
|
• |
our ability to respond to rapid technological changes; |
|
• |
the potential impact of government regulation on us and our clients; |
|
• |
the risks associated with an industry-wide reduction in demand for contract research organizations (“CROs”) services; |
|
• |
the impact of regulations regarding the protection of personal data; |
|
• |
the effect of covenant restrictions in our debt agreements on our ability to operate our business; and |
|
• |
our ability to service our substantial indebtedness. |
28
These risks should be considered along with the “Risk Factors” outlined in our Annual Report on Form 10-K for the year ended December 31, 2015 dated March 18, 2016 and those included in Part II Item 1A of this Quarterly Report. Except to the extent required by applicable laws or rules, we do not undertake to update any forward-looking statements or to publicly announce revisions to any of the forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a leading global provider of outsourced clinical development and commercialization services to biopharmaceutical companies. We are the only provider delivering a full suite of services to enhance our clients’ ability to successfully develop, launch and market their products. We offer our services on both a standalone basis and as integrated solutions to support clinical development and commercialization. Our solutions are designed to drive greater efficiency and lower costs. We helped develop or commercialize over 80% of all new molecular entities approved by the Food and Drug Administration (“FDA”) and 70% of those products granted marketing authorization by the European Medicines Agency (“EMA”) over the last five years through our innovative model. In 2015, we served more than 550 client organizations, including all 20 of the largest global biopharmaceutical companies, and have the ability to service clients in over 90 countries. We have over 15,000 employees globally, including more than 750 M.D.s and Ph.D.s.
The creation of our comprehensive and integrated approach to serve the biopharmaceutical development and commercialization continuum began in 2010 when we were acquired by affiliates of THL, certain co-investors and members of management (the “Investors”). We have made substantial investments, strategic acquisitions and operational changes to expand and strengthen our clinical development and commercial service offerings, geographic presence, human capital, systems and infrastructure to better serve our clients. These strategic and operational initiatives included:
|
• |
Completion and integration of 10 strategic acquisitions, including three CROs, to offer a full suite of services on a global basis; |
|
• |
Enhancement of therapeutic area focus with particular expertise in oncology, neuroscience, pain and respiratory; |
|
• |
Integration and rationalization of legacy commercial acquisitions and separately-operated brands into the biopharmaceutical industry’s only contract commercial organization (“CCO”) providing a full suite of complementary commercialization services; |
|
• |
Expansion of our geographic capabilities in Japan, India, Western Europe, Latin America and China; |
|
• |
Evolution of our selling solutions capabilities into a market-leading strategic offering with expertise in helping clients launch and market complex biopharmaceutical products; and |
|
• |
Recruitment of Michael A. Bell, our Chairman and CEO who has extensive experience across the healthcare delivery continuum and who has managed and grown sophisticated global service organizations. |
We have actively pursued the integration of our acquisitions and sought cost savings or synergies from combining our existing and acquired businesses. These synergies include elimination of redundant facilities, functions and employees and use of our existing infrastructure to expand revenues associated with our service offerings.
Business Segments
We provide services through the following segments, each of which provides multiple service offerings.
|
• |
Clinical. Our Clinical segment is a leading global CRO that is therapeutically-focused and provides a wide range of capabilities, including Phase I-IV clinical development services, delivered on a project, functional or hybrid basis. For the three months ended June 30, 2016 and 2015, our Clinical segment generated total net revenues of $259.9 million and $233.6 million, respectively, representing approximately 46% and 47%, respectively, of our consolidated net revenues. For the six months ended June 30, 2016 and 2015, our Clinical segment generated total net revenues of $514.8 million and $453.3 million, respectively, representing approximately 46% and 48%, respectively, of our consolidated net revenues. |
|
• |
Commercial. Our Commercial segment is a CCO, the biopharmaceutical industry’s only provider of a full suite of complementary commercialization services including selling solutions, communications, consulting and medication adherence (patient outcomes). For the three months ended June 30, 2016 and 2015, our Commercial segment generated total net revenues of $305.9 million and $259.5 million, respectively, representing approximately 54% and 53%, respectively, of our consolidated net revenues. For the six months ended June 30, 2016 and 2015, our Commercial segment generated total net revenues of $596.8 million and $494.0 million, respectively, representing approximately 54% and 52%, respectively, of our consolidated net revenues. |
29
Material Trends Affecting our Results of Operations
Biopharmaceutical Industry Trends
Our business is affected by general levels of R&D and commercialization spending by biopharmaceutical companies, as well as the degree to which biopharmaceutical companies choose to outsource their clinical development and commercialization activities, rather than performing such activities internally.
We estimate that total R&D spending in the biopharmaceutical industry was approximately $140 billion in 2015. Potential outsourcing development spending accounted for approximately 70%, or $100 billion, and is estimated to grow approximately 4% annually through 2020.
We estimate that total clinical development outsourcing to CROs in 2015 was approximately 30% of total potential outsourcing development spending, representing an approximately $30 billion market. This market is expected to achieve approximately 40% penetration, or approximately $55 billion of spending, by 2020. Because the market for product commercialization services is more diverse, it is difficult to estimate the current amount of outsourced product commercialization services and the expected growth in such services. However, we estimate that less than 15% of product commercialization expenditures are currently being outsourced. As business models continue to evolve in the healthcare sector, we believe that the rate of commercial outsourcing could follow a similar path to the clinical development market.
If outsourced clinical development or commercialization declines or grows less rapidly than anticipated, or we are unable to compete in these markets successfully, it could have a material adverse effect on our results of operations and financial condition. See “Risk Factors—Risks Related to Our Business” and “Risk Factors— Risks Related to Our Industry” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
The Number, Type and Timing of Projects
In both of our segments, our client relationships are typically comprised of numerous services and projects and our results are tied to the number, type and timing of projects that we manage. The timing of project starts and completions are subject to various factors, including regulatory approvals, interim analysis of project results and success, and client budget cycles. Our full service offering in our Clinical segment is subject to regular project delays and cancellations due to interim client results or client budget reprioritizations, which can adversely affect our results of operations. Within our Commercial segment, project start delays, downsizings and cancellations, particularly within our selling solutions and communications service offerings, can adversely affect our results of operations. While there are operational steps we can take to mitigate our operating expenses in the event a project is delayed or terminated, these steps may not be sufficient to offset the resultant effect on our results of operations.
Exchange Rate Fluctuations
Some of our agreements with our clients provide for payment in currencies other than the U.S. Dollar. We have significant transactions in Pound Sterling, Canadian Dollar and Japanese Yen. These foreign currency revenues when converted into U.S. Dollars, can vary significantly from period to period depending on the exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues, by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and these related constant currency adjustments will continue to occur in future periods.
30
We believe that the non-GAAP adjustments to calculate revenue on a constant currency basis assists investors in making comparisons of period-to-period operating results by explaining changes in revenue associated with movement in currency . A reconciliation of net revenues, the most directly comparable GAAP measure, to constant currency net revenues for the periods presented is indicated as follows:
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
(in millions) |
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Consolidated net revenues |
|
$ |
561.0 |
|
|
$ |
489.4 |
|
|
$ |
1,102.3 |
|
|
$ |
940.4 |
|
Currency adjustments |
|
|
5.4 |
|
|
|
— |
|
|
|
12.0 |
|
|
|
— |
|
Constant currency consolidated net revenues |
|
$ |
566.4 |
|
|
$ |
489.4 |
|
|
$ |
1,114.3 |
|
|
$ |
940.4 |
|
Clinical net revenues |
|
$ |
259.9 |
|
|
$ |
233.6 |
|
|
$ |
514.8 |
|
|
$ |
453.3 |
|
Currency adjustments |
|
|
6.2 |
|
|
|
— |
|
|
|
12.5 |
|
|
|
— |
|
Constant currency Clinical net revenues |
|
$ |
266.1 |
|
|
$ |
233.6 |
|
|
$ |
527.3 |
|
|
$ |
453.3 |
|
Commercial net revenues |
|
$ |
305.9 |
|
|
$ |
259.5 |
|
|
$ |
596.8 |
|
|
$ |
494.0 |
|
Currency adjustments |
|
|
(0.8 |
) |
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
Constant currency Commercial net revenues |
|
$ |
305.1 |
|
|
$ |
259.5 |
|
|
$ |
596.3 |
|
|
$ |
494.0 |
|
(1) |
The three and six months ended June 30, 2015 are the base periods for June 30, 2016 constant currency net revenues. Because the three and six months ended June 30, 2015 are the base periods for June 30, 2016 constant currency net revenues, currency adjustments for the three and six months ended June 30, 2015 are not applicable. |
We have translated our foreign currency net revenues into U.S. Dollars using the following average exchange rates:
|
For the Three Months Ended June 30, |
|
For the Six Months Ended June 30, |
||||||
U.S. Dollars per: |
2016 |
|
2015 |
|
2016 |
|
|
2015 |
|
Pound Sterling |
1.43 |
|
1.53 |
|
1.43 |
|
|
1.52 |
|
Canadian Dollar |
0.78 |
|
0.81 |
|
0.75 |
|
|
0.81 |
|
Japanese Yen |
0.0093 |
|
0.0082 |
|
|
0.0090 |
|
|
0.0083 |
31
Results of Continuing Operations
The following tables set forth our consolidated statements of operations and certain segment data in dollars and as a percentage of net revenues for the periods presented.
|
|
For the Three Months Ended June 30, |
|
For the Six Months Ended June 30, |
||||||||||||||||||||||||||||||||
(in millions, except percentages) |
|
2016 |
|
|
% of Net Revenues |
|
|
|
2015 |
|
|
% of Net Revenues |
|
2016 |
|
|
% of Net Revenues |
|
|
|
2015 |
|
|
% of Net Revenues |
||||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
561.0 |
|
|
|
100.0 |
|
% |
|
$ |
489.4 |
|
|
|
100.0 |
|
% |
|
$ |
1,102.3 |
|
|
|
100.0 |
|
% |
|
$ |
940.4 |
|
|
|
100.0 |
|
% |
Reimbursed out-of-pocket expenses |
|
|
82.8 |
|
|
|
14.8 |
|
% |
|
|
83.1 |
|
|
|
17.0 |
|
% |
|
|
173.8 |
|
|
|
15.8 |
|
% |
|
|
150.4 |
|
|
|
16.0 |
|
% |
Total revenues |
|
|
643.8 |
|
|
|
114.8 |
|
% |
|
|
572.5 |
|
|
|
117.0 |
|
% |
|
|
1,276.1 |
|
|
|
115.8 |
|
% |
|
|
1,090.8 |
|
|
|
116.0 |
|
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
389.7 |
|
|
|
69.5 |
|
% |
|
|
326.2 |
|
|
|
66.7 |
|
% |
|
|
762.1 |
|
|
|
69.1 |
|
% |
|
|
626.7 |
|
|
|
66.6 |
|
% |
Reimbursable out-of-pocket expenses |
|
|
82.8 |
|
|
|
14.8 |
|
% |
|
|
83.1 |
|
|
|
16.9 |
|
% |
|
|
173.8 |
|
|
|
15.8 |
|
% |
|
|
150.4 |
|
|
|
16.0 |
|
% |
Selling, general and administrative expenses |
|
|
118.0 |
|
|
|
21.0 |
|
% |
|
|
133.6 |
|
|
|
27.3 |
|
% |
|
|
241.7 |
|
|
|
21.9 |
|
% |
|
|
266.5 |
|
|
|
28.3 |
|
% |
Total operating expenses |
|
|
590.5 |
|
|
|
105.3 |
|
% |
|
|
542.9 |
|
|
|
110.9 |
|
% |
|
|
1,177.6 |
|
|
|
106.8 |
|
% |
|
|
1,043.6 |
|
|
|
110.9 |
|
% |
Operating income (loss) |
|
|
53.3 |
|
|
|
9.5 |
|
% |
|
|
29.6 |
|
|
|
6.1 |
|
% |
|
|
98.5 |
|
|
|
9.0 |
|
% |
|
|
47.2 |
|
|
|
5.1 |
|
% |
Gain on extinguishment of debt |
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
0.2 |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|||
Interest expense |
|
|
(54.6 |
) |
|
|
(9.7 |
) |
% |
|
|
(57.1 |
) |
|
|
(11.7 |
) |
% |
|
|
(110.5 |
) |
|
|
(10.0 |
) |
% |
|
|
(113.6 |
) |
|
|
(12.1 |
) |
% |
Interest income |
|
|
0.2 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
0.3 |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|||
Income (loss) before income tax (provision) benefit and income (loss) from equity investments |
|
|
(1.1 |
) |
|
|
(0.2 |
) |
% |
|
|
(27.5 |
) |
|
|
(5.6 |
) |
% |
|
|
(11.5 |
) |
|
|
(1.0 |
) |
% |
|
|
(66.4 |
) |
|
|
(7.0 |
) |
% |
Income tax (provision) benefit |
|
|
(3.3 |
) |
|
|
(0.6 |
) |
% |
|
|
(2.7 |
) |
|
|
(0.6 |
) |
% |
|
|
(11.5 |
) |
|
|
(1.1 |
) |
% |
|
|
(7.3 |
) |
|
|
(0.8 |
) |
% |
Income (loss) before income (loss) from equity investments |
|
|
(4.4 |
) |
|
|
(0.8 |
) |
% |
|
|
(30.2 |
) |
|
|
(6.2 |
) |
% |
|
|
(23.0 |
) |
|
|
(2.1 |
) |
% |
|
|
(73.7 |
) |
|
|
(7.8 |
) |
% |
Income (loss) from equity investments |
|
— |
|
|
— |
|
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
(1.3 |
) |
|
|
(0.2 |
) |
% |
||||
Net Income (loss) |
|
|
(4.4 |
) |
|
|
(0.8 |
) |
% |
|
|
(30.0 |
) |
|
|
(6.2 |
) |
% |
|
|
(23.0 |
) |
|
|
(2.1 |
) |
% |
|
|
(75.0 |
) |
|
|
(8.0 |
) |
% |
Less: Net (income) loss attributable to the noncontrolling interest |
|
|
(0.1 |
) |
|
— |
|
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
|
(0.6 |
) |
|
— |
|
|
|
|
(0.3 |
) |
|
|
— |
|
|
||
Net income (loss) attributable to inVentiv Health, Inc. |
|
$ |
(4.5 |
) |
|
|
(0.8 |
) |
% |
|
$ |
(30.2 |
) |
|
|
(6.2 |
) |
% |
|
$ |
(23.6 |
) |
|
|
(2.1 |
) |
% |
|
$ |
(75.3 |
) |
|
|
(8.0 |
) |
% |
Segment Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
|
$ |
259.9 |
|
|
|
45.9 |
|
% |
|
$ |
233.6 |
|
|
|
47.4 |
|
% |
|
$ |
514.8 |
|
|
|
46.3 |
|
% |
|
$ |
453.3 |
|
|
|
47.9 |
|
% |
Commercial |
|
|
305.9 |
|
|
|
54.1 |
|
% |
|
|
259.5 |
|
|
|
52.6 |
|
% |
|
|
596.8 |
|
|
|
53.7 |
|
% |
|
|
494.0 |
|
|
|
52.1 |
|
% |
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
|
|
171.8 |
|
|
|
66.1 |
|
% |
|
|
155.0 |
|
|
|
66.4 |
|
% |
|
|
338.1 |
|
|
|
65.7 |
|
% |
|
|
298.7 |
|
|
|
65.9 |
|
% |
Commercial |
|
|
216.7 |
|
|
|
70.8 |
|
% |
|
|
173.4 |
|
|
|
66.8 |
|
% |
|
|
422.7 |
|
|
|
70.8 |
|
% |
|
|
332.2 |
|
|
|
67.2 |
|
% |
Corporate and other |
|
|
5.7 |
|
|
— |
|
|
|
|
0.8 |
|
|
— |
|
|
|
|
10.1 |
|
|
— |
|
|
|
|
1.3 |
|
|
— |
|
|
||||
SG&A: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
|
|
53.9 |
|
|
|
20.7 |
|
% |
|
|
61.0 |
|
|
|
26.1 |
|
% |
|
|
113.0 |
|
|
|
22.0 |
|
% |
|
|
122.3 |
|
|
|
27.0 |
|
% |
Commercial |
|
|
51.4 |
|
|
|
16.8 |
|
% |
|
|
59.6 |
|
|
|
23.0 |
|
% |
|
|
101.7 |
|
|
|
17.0 |
|
% |
|
|
119.9 |
|
|
|
24.3 |
|
% |
Corporate and other |
|
|
12.7 |
|
|
|
2.3 |
|
% |
|
|
13.0 |
|
|
|
2.7 |
|
% |
|
|
27.0 |
|
|
|
2.4 |
|
% |
|
|
24.3 |
|
|
|
2.6 |
|
% |
Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015
Net revenues
|
For the Three Months Ended June 30, |
|
|
Change |
|
|
|||||||||||||||||||||
(in millions, except percentages) |
2016 |
|
|
% of Total |
|
|
2015 |
|
|
% of Total |
|
|
$ |
|
|
% |
|
|
|||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
$ |
|
259.9 |
|
|
|
45.9 |
|
% |
$ |
|
233.6 |
|
|
|
47.4 |
|
% |
$ |
|
26.3 |
|
|
|
11.3 |
|
% |
Commercial |
|
|
305.9 |
|
|
|
54.1 |
|
% |
|
|
259.5 |
|
|
|
52.6 |
|
% |
|
|
46.4 |
|
|
|
17.9 |
|
% |
Intersegment eliminations |
|
|
(4.8 |
) |
|
— |
|
|
|
|
(3.7 |
) |
|
— |
|
|
|
|
(1.1 |
) |
|
— |
|
|
|||
Net revenues |
$ |
|
561.0 |
|
|
|
100.0 |
|
% |
$ |
|
489.4 |
|
|
|
100.0 |
|
% |
$ |
|
71.6 |
|
|
|
14.6 |
|
% |
32
Net revenues increased approximately $71.6 million or 14.6% (15.7% on a constant currency basis), to $561.0 million for the three months ended June 30, 2016 from $489.4 million for the three months ended June 30, 2015, due to an increase in net revenues in both our Clinical and Commercial segments. Foreign currency exchange rate fluctuations computed on a constant currency basis reduced net revenues by approximately $5.4 million for the three months ended June 30, 2016.
Net revenues in our Clinical segment increased approximately $26.3 million or 11.3% (13.9% on a constant currency basis), to $259.9 million for the three months ended June 30, 2016 from $233.6 million for the three months ended June 30, 2015. This increase was primarily attributable to increased volume from new projects and the acceleration of conversion of backlog in our full service offering, including a $6.0 million increase from the impact of approved change orders on net revenues for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Foreign currency exchange rate fluctuations computed on a constant currency basis reduced net revenues by approximately $6.2 million for the three months ended June 30, 2016 as compared to the prior year.
Net revenues in our Commercial segment increased approximately $46.4 million or 17.9% (17.6% on a constant currency basis), to $305.9 million for the three months ended June 30, 2016 from $259.5 million for the three months ended June 30, 2015. The increase was primarily attributable to $51.0 million of growth in our selling solutions offering, the largest offering in our Commercial segment measured by net revenues, as a result of new project wins and fewer project cancellations in the United States, including a $2.1 million increase in client incentive fees. In addition, $3.0 million of growth in revenues was recognized in our communications offering. Project cancellations and downsizings in our selling solutions offering reduced net revenues on a comparative basis by approximately $12.8 million for the three months ended June 30, 2016 relative to the three months ended June 30, 2015, and occurred for various reasons, including, but not limited to, a de-emphasis on particular projects, a change in outsourcing or marketing strategy, product performance and budget considerations among certain of our clients. The growth in our selling solutions and communications offerings was partially offset by a $6.2 million decrease in our medication adherence offering primarily due to the sale of our patient access and reimbursement services offering in August 2015, and lower volume in our consulting offering. Foreign currency exchange rate fluctuations computed on a constant currency basis resulted in an increase of approximately $0.8 million in net revenues for the three months ended June 30, 2016.
The substantial majority of the intersegment eliminations from Commercial to Corporate and other for both 2015 and 2016 is related to an agreement to provide commercialization services to a biopharmaceutical client for launch of certain specified products in return for a royalty on the client’s net revenues for such products.
Cost of revenues
|
For the Three Months Ended June 30, |
|
|
Change |
|
|
|
Gross Margin |
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
(in millions, except percentages) |
2016 |
|
|
Revenues |
|
|
2015 |
|
|
Revenues |
|
|
$ |
|
|
% |
|
|
|
2016 |
|
|
2015 |
|
|
|||||||||||
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
$ |
|
171.8 |
|
|
|
66.1 |
|
% |
$ |
|
155.0 |
|
|
|
66.4 |
|
% |
$ |
|
16.8 |
|
|
|
10.8 |
|
% |
|
|
33.9 |
|
% |
|
33.6 |
|
% |
Commercial |
|
|
216.7 |
|
|
|
70.8 |
|
% |
|
|
173.4 |
|
|
|
66.8 |
|
% |
|
|
43.3 |
|
|
|
25.0 |
|
% |
|
|
29.2 |
|
% |
|
33.2 |
|
% |
Corporate and other |
|
|
5.7 |
|
|
— |
|
|
|
|
0.8 |
|
|
— |
|
|
|
|
4.9 |
|
|
|
612.5 |
|
% |
|
— |
|
|
— |
|
|
||||
Intersegment eliminations |
|
|
(4.5 |
) |
|
— |
|
|
|
|
(3.0 |
) |
|
— |
|
|
|
|
(1.5 |
) |
|
— |
|
|
|
— |
|
|
— |
|
|
|||||
Cost of revenues |
$ |
|
389.7 |
|
|
|
69.5 |
|
% |
$ |
|
326.2 |
|
|
|
66.7 |
|
% |
$ |
|
63.5 |
|
|
|
19.5 |
|
% |
|
|
30.5 |
|
% |
|
33.3 |
|
% |
Cost of revenues increased $63.5 million, or 19.5%, to $389.7 million for the three months ended June 30, 2016 from $326.2 million for the three months ended June 30, 2015, due to volume increases in our Clinical and Commercial segments. Gross margin decreased to 30.5% for the three months ended June 30, 2016 compared to 33.3% for the three months ended June 30, 2015, largely due to a shift in the mix of projects to lower gross margin projects in our Commercial segment.
Cost of revenues in our Clinical segment increased $16.8 million, or 10.8%, to $171.8 million for the three months ended June 30, 2016 from $155.0 million for the three months ended June 30, 2015. The increase primarily reflected the cost of incremental resources to deliver against higher volumes in our full service offering. Despite the increased cost of revenues, the higher volumes in our full service offering for the three months ended June 30, 2016 resulted in a slight improvement in gross margin to 33.9% compared to 33.6% for the three months ended June 30, 2015.
Cost of revenues in our Commercial segment increased $43.3 million, or 25.0%, to $216.7 million for the three months ended June 30, 2016 from $173.4 million for the three months ended June 30, 2015. The increase was primarily due to a higher volume of projects in our selling solutions offering which resulted in $41.5 million of additional costs, and a $3.9 million increase in our communications offering, partially offset by decreased costs of $1.4 million in our medication adherence offering due primarily to the sale of our patient access and reimbursement services offering in August 2015. Gross margin in this segment
33
decreased to 29.2% for the three months ended June 30, 2016 from 33.2% for the three months ended June 30, 2015 largely due to an increase in projects in our selling solutions offering which generally have lower gross margins relative to other offerings in the segment. Project cancellations and downsizings in our selling solutions offering reduced gross margin by approximately $2.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015.
Corporate and other cost of revenues increased as a result of costs incurred in connection with an agreement to provide commercialization services to a biopharmaceutical client for launch of certain specified products in return for a royalty on the client’s net revenues for such products.
Selling, General and Administrative (SG&A) Expenses
|
For the Three Months Ended June 30, |
|
|
Change |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|||||||
(in millions, except percentages) |
2016 |
|
|
Revenues |
|
|
2015 |
|
|
Revenues |
|
|
$ |
|
|
% |
|
|
|||||||||
SG&A: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
$ |
|
53.9 |
|
|
|
20.7 |
|
% |
$ |
|
61.0 |
|
|
|
26.1 |
|
% |
$ |
|
(7.1 |
) |
|
|
(11.6 |
) |
% |
Commercial |
|
|
51.4 |
|
|
|
16.8 |
|
% |
|
|
59.6 |
|
|
|
23.0 |
|
% |
|
|
(8.2 |
) |
|
|
(13.8 |
) |
% |
Corporate and other |
|
|
12.7 |
|
|
|
2.3 |
|
% |
|
|
13.0 |
|
|
|
2.7 |
|
% |
|
|
(0.3 |
) |
|
|
(2.3 |
) |
% |
Total SG&A |
$ |
|
118.0 |
|
|
|
21.0 |
|
% |
$ |
|
133.6 |
|
|
|
27.3 |
|
% |
$ |
|
(15.6 |
) |
|
|
(11.7 |
) |
% |
SG&A expenses decreased $15.6 million, or 11.7%, to $118.0 million for the three months ended June 30, 2016 from $133.6 million for the three months ended June 30, 2015, due to decreased SG&A expenses in our Clinical and Commercial segments and Corporate and other.
SG&A expenses in our Clinical segment decreased $7.1 million, or 11.6%, to $53.9 million for the three months ended June 30, 2016 from $61.0 million for the three months ended June 30, 2015. The decrease was primarily due to realized benefits of our efficiency initiatives, including a $2.9 million decrease in compensation related costs, a $1.6 million decrease in depreciation and amortization and $1.6 million of favorable foreign currency impacts and other insignificant factors. Non-cash amortization expense related to finite-lived intangible assets was $6.1 million for the three months ended June 30, 2016 compared to $7.0 million for the three months ended June 30, 2015, with the decrease primarily a result of certain assets with a shorter estimated useful life becoming fully amortized.
SG&A expenses in our Commercial segment decreased $8.2 million, or 13.8%, to $51.4 million for the three months ended June 30, 2016 from $59.6 million for the three months ended June 30, 2015. The decrease in SG&A for our Commercial segment was primarily due to a $2.8 million decrease in depreciation and amortization, a $2.1 million decrease in compensation related costs, a $2.1 million decrease in information technology investments and professional service fees, a $1.6 million decrease in our medication adherence offering primarily due to the sale of our patient access and reimbursement services offering in August 2015 and other insignificant factors, partially offset by an increase of $3.0 million in restructuring costs. Non-cash amortization expense related to finite-lived intangible assets was $3.0 million for the three months ended June 30, 2016 compared to $5.5 million for the three months ended June 30, 2015, with the decrease primarily a result of certain assets with a shorter estimated useful life becoming fully amortized.
Corporate and other SG&A expenses decreased $0.3 million, or 2.3%, to $12.7 million for the three months ended June 30, 2016 from $13.0 million for the three months ended June 30, 2015. The decrease was primarily due to a $2.8 million decrease in compensation related costs and $1.7 million of favorable foreign currency impacts, partially offset by an increase of $2.7 million in professional service fees, including transaction-related costs and other insignificant factors.
Interest Expense, Net
|
|
For the Three Months Ended June 30, |
|
|||||
(in millions) |
|
2016 |
|
|
2015 |
|
||
Interest expense, net |
|
$ |
54.4 |
|
|
$ |
57.1 |
|
Interest expense, net decreased $2.7 million to $54.4 million for the three months ended June 30, 2016 from $57.1 million for the three months ended June 30, 2015. The interest expense reflects a decrease for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 due to a decrease of $1.7 million of interest on the Junior Lien Secured Notes, which is attributable to both the PIK Note Repurchase (see defined below) and the cash rate election commencing February 15, 2016, and
34
elimination of penalty interest on the Senior Unsecured Notes described below. Interest expense included non-cash debt issuance costs and bond discount/premium amortization of $4.8 million and $4.7 million, for the three months ended June 30, 2016 and 2015, respectively, and penalty interest on the Senior Unsecured Notes of $0.9 million for the three months ended June 30, 2015. There was no penalty interest on the Senior Unsecured Notes for the three months ended June 30, 2016 as a result of the effectiveness of the registration statement with the Securities and Exchange Commission (the “SEC”) relating to the Senior Unsecured Notes under the Securities Act and completion of the subsequent exchange offer for the Senior Unsecured Notes.
(Provision) Benefit for Income Taxes
|
|
For the Three Months Ended June 30, |
|
|
||||||||||||||
|
|
|
|
|
|
Effective |
|
|
|
|
|
|
|
Effective |
|
|
||
(in millions, except percentages) |
|
2016 |
|
|
Tax Rate |
|
|
|
2015 |
|
|
Tax Rate |
|
|
||||
(Provision) benefit for income taxes |
|
$ |
(3.3 |
) |
|
|
(305.5 |
) |
% |
|
$ |
(2.7 |
) |
|
|
(10.0 |
) |
% |
We account for income taxes at each interim period using our estimated annual effective tax rate. Discrete items and changes in the estimate of the annual effective tax rate are recorded in the period they occur. The consolidated effective tax rate was (305.5%) and (10.0%) for the three months ended June 30, 2016 and 2015, respectively. The mix of earnings between domestic and foreign and the lower level of consolidated loss, along with a higher level of foreign earnings in 2016 compared to prior year, drove the increase in the tax provision and respective effective tax rate for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. The income tax provision for the three months ended June 30, 2016 and 2015 primarily reflects that we (i) continued to record a full valuation allowance for our domestic and certain foreign tax jurisdictions, (ii) recorded a tax provision for certain foreign and state jurisdictions that generated earnings, (iii) incurred a deferred tax provision in our domestic jurisdiction arising from taxable temporary differences related to amortization of indefinite-lived intangible assets and goodwill, and (iv) recorded changes in unrecognized tax benefits (including related penalties and interest) as they occur. The tax provision for the three months ended June 30, 2016 and 2015 included $2.9 million and $1.1 million of foreign taxes, $0.0 million and $(0.3) million of state taxes, $0.3 million and $1.8 million of taxable temporary differences from amortization of indefinite-lived intangible assets and goodwill and a $0.1 million and $0.1 million increase in unrecognized tax benefits, respectively.
We provide for a valuation allowance to reduce deferred tax assets to their estimated realizable value if, based on the weight of all available evidence, it is not more likely than not that a portion or all of the deferred tax assets will be realized. We do not expect to record significant tax benefits on future domestic net operating losses until circumstances justify the recognition of such benefits.
As a result of the domestic valuation allowance, taxable temporary differences from the amortization of goodwill and indefinite-lived intangible assets are expected to result in $8.5 million of income tax expense for 2016, and are reflected in our estimated domestic annual effective tax rate. Goodwill and indefinite-lived intangible assets are amortized for income tax purposes, but not for financial statement reporting purposes. This difference results in net deferred income tax expense since the taxable temporary difference cannot be scheduled to reverse during the loss carryforward period. We will record tax expense related to the amortization of our tax deductible goodwill and indefinite-lived intangible assets during those future periods for which we maintain domestic valuation allowances, or until our estimated unamortized balance of $111.4 million at December 31, 2016 is fully amortized for tax purposes.
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Net revenues
|
For the Six Months Ended June 30, |
|
|
Change |
|
|
|||||||||||||||||||||
(in millions, except percentages) |
2016 |
|
|
% of Total |
|
|
2015 |
|
|
% of Total |
|
|
$ |
|
|
% |
|
|
|||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
$ |
|
514.8 |
|
|
|
46.3 |
|
% |
$ |
|
453.3 |
|
|
|
47.9 |
|
% |
$ |
|
61.5 |
|
|
|
13.6 |
|
% |
Commercial |
|
|
596.8 |
|
|
|
53.7 |
|
% |
|
|
494.0 |
|
|
|
52.1 |
|
% |
|
|
102.8 |
|
|
|
20.8 |
|
% |
Intersegment eliminations |
|
|
(9.3 |
) |
|
— |
|
|
|
|
(6.9 |
) |
|
— |
|
|
|
|
(2.4 |
) |
|
— |
|
|
|||
Net revenues |
$ |
|
1,102.3 |
|
|
|
100.0 |
|
% |
$ |
|
940.4 |
|
|
|
100.0 |
|
% |
$ |
|
161.9 |
|
|
|
17.2 |
|
% |
Net revenues increased approximately $161.9 million or 17.2% (18.5% on a constant currency basis), to $1,102.3 million for the six months ended June 30, 2016 from $940.4 million for the six months ended June 30, 2015, due to an increase in net revenues in both our Clinical and Commercial segments. Foreign currency exchange rate fluctuations computed on a constant currency basis reduced net revenues by approximately $12.0 million for the six months ended June 30, 2016.
35
Net revenues in our Clinical segment increased approximately $61.5 million or 13.6% (16.3% on a constant currency basis), to $514.8 million for the six months ended June 30, 2016 from $453.3 million for the six months ended June 30, 2015. This increase was primarily attributable to increased volume from new projects and the acceleration of conversion of backlog in our full service offering, including a $5.5 million increase from the impact of approved change orders on net revenues for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, and growth in our strategic resourcing offering. Foreign currency exchange rate fluctuations computed on a constant currency basis reduced net revenues by approximately $12.5 million for the six months ended June 30, 2016 as compared to the prior year.
Net revenues in our Commercial segment increased approximately $102.8 million or 20.8% (20.7% on a constant currency basis), to $596.8 million for the six months ended June 30, 2016 from $494.0 million for the six months ended June 30, 2015. The increase was primarily attributable to $108.6 million of growth in our selling solutions offering, the largest offering in our Commercial segment measured by net revenues, as a result of new project wins and fewer project cancellations in the United States, including a $2.7 million increase in client incentive fees. In addition, $11.4 million of growth in revenues was recognized in our communications offering. Project cancellations and downsizings in our selling solutions offering reduced net revenues on a comparative basis by approximately $17.2 million for the six months ended June 30, 2016 relative to the six months ended June 30, 2015, and occurred for various reasons, including, but not limited to, a de-emphasis on particular projects, a change in outsourcing or marketing strategy, product performance and budget considerations among certain of our clients. The growth in our selling solutions and communications offerings was partially offset by our $11.7 million decrease in our medication adherence offering primarily due to the sale of our patient access and reimbursement services offering in August 2015, and lower volume in our consulting offering. Foreign currency exchange rate fluctuations computed on a constant currency basis resulted in an increase of approximately $0.5 million in net revenues for the six months ended June 30, 2016.
The substantial majority of the intersegment eliminations from Commercial to Corporate and other for both 2015 and 2016 is related to an agreement to provide commercialization services to a biopharmaceutical client for launch of certain specified products in return for a royalty on the client’s net revenues for such products.
Cost of revenues
|
For the Six Months Ended June 30, |
|
|
Change |
|
|
|
Gross Margin |
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
(in millions, except percentages) |
2016 |
|
|
Revenues |
|
|
2015 |
|
|
Revenues |
|
|
$ |
|
|
% |
|
|
|
2016 |
|
|
2015 |
|
|
|||||||||||
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
$ |
|
338.1 |
|
|
|
65.7 |
|
% |
$ |
|
298.7 |
|
|
|
65.9 |
|
% |
$ |
|
39.4 |
|
|
|
13.2 |
|
% |
|
|
34.3 |
|
% |
|
34.1 |
|
% |
Commercial |
|
|
422.7 |
|
|
|
70.8 |
|
% |
|
|
332.2 |
|
|
|
67.2 |
|
% |
|
|
90.5 |
|
|
|
27.2 |
|
% |
|
|
29.2 |
|
% |
|
32.8 |
|
% |
Corporate and other |
|
|
10.1 |
|
|
— |
|
|
|
|
1.3 |
|
|
— |
|
|
|
|
8.8 |
|
|
|
676.9 |
|
% |
|
— |
|
|
— |
|
|
||||
Intersegment eliminations |
|
|
(8.8 |
) |
|
— |
|
|
|
|
(5.5 |
) |
|
— |
|
|
|
|
(3.3 |
) |
|
— |
|
|
|
— |
|
|
— |
|
|
|||||
Cost of revenues |
$ |
|
762.1 |
|
|
|
69.1 |
|
% |
$ |
|
626.7 |
|
|
|
66.6 |
|
% |
$ |
|
135.4 |
|
|
|
21.6 |
|
% |
|
|
30.9 |
|
% |
|
33.4 |
|
% |
Cost of revenues increased $135.4 million, or 21.6%, to $762.1 million for the six months ended June 30, 2016 from $626.7 million for the six months ended June 30, 2015, due to volume increases in our Clinical and Commercial segments. Gross margin decreased to 30.9% for the six months ended June 30, 2016 compared to 33.4% for the six months ended June 30, 2015, largely due to a shift in the mix of projects to lower gross margin projects in our Commercial segment.
Cost of revenues in our Clinical segment increased $39.4 million, or 13.2%, to $338.1 million for the six months ended June 30, 2016 from $298.7 million for the six months ended June 30, 2015. The increase primarily reflected the cost of incremental resources to deliver against higher volumes in our full service offering. Despite the increased cost of revenues, the higher volumes in our full service offering for the six months ended June 30, 2016 resulted in a slight improvement in gross margin to 34.3% compared to 34.1% for the six months ended June 30, 2015.
Cost of revenues in our Commercial segment increased $90.5 million, or 27.2%, to $422.7 million for the six months ended June 30, 2016 from $332.2 million for the six months ended June 30, 2015. The increase was primarily due to a higher volume of projects in our selling solutions offering which resulted in $88.8 million of additional costs, and a $6.5 million increase in our communications offering, partially offset by decreased costs of $3.9 million in our medication adherence offering due primarily to the sale of our patient access and reimbursement services offering in August 2015. Gross margin in this segment decreased to 29.2% for the six months ended June 30, 2016 from 32.8% for the six months ended June 30, 2015 largely due to an increase in projects in our selling solutions offering which generally have lower gross margins relative to other offerings in the segment. Project cancellations and downsizings in our selling solutions offering reduced gross margin by approximately $3.0 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015.
36
Corporate and other cost of revenues increased as a result of costs incurred in connection with an agreement to provide commercialization services to a biopharmaceutical client for launch of certain specified products in return for a royalty on the client’s net revenues for such products.
Selling, General and Administrative (SG&A) Expenses
|
For the Six Months Ended June 30, |
|
|
Change |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
|||||||
(in millions, except percentages) |
2016 |
|
|
Revenues |
|
|
2015 |
|
|
Revenues |
|
|
$ |
|
|
% |
|
|
|||||||||
SG&A: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical |
$ |
|
113.0 |
|
|
|
22.0 |
|
% |
$ |
|
122.3 |
|
|
|
27.0 |
|
% |
$ |
|
(9.3 |
) |
|
|
(7.6 |
) |
% |
Commercial |
|
|
101.7 |
|
|
|
17.0 |
|
% |
|
|
119.9 |
|
|
|
24.3 |
|
% |
|
|
(18.2 |
) |
|
|
(15.2 |
) |
% |
Corporate and other |
|
|
27.0 |
|
|
|
2.4 |
|
% |
|
|
24.3 |
|
|
|
2.6 |
|
% |
|
|
2.7 |
|
|
|
11.1 |
|
% |
Total SG&A |
$ |
|
241.7 |
|
|
|
21.9 |
|
% |
$ |
|
266.5 |
|
|
|
28.3 |
|
% |
$ |
|
(24.8 |
) |
|
|
(9.3 |
) |
% |
SG&A expenses decreased $24.8 million, or 9.3%, to $241.7 million for the six months ended June 30, 2016 from $266.5 million for the six months ended June 30, 2015, due to lower Clinical and Commercial segment SG&A expenses, partially offset by increased SG&A expenses in Corporate and other.
SG&A expenses in our Clinical segment decreased $9.3 million, or 7.6%, to $113.0 million for the six months ended June 30, 2016 from $122.3 million for the six months ended June 30, 2015. The decrease was primarily due to realized benefits of our efficiency initiatives, including a $5.9 million decrease in compensation related costs, a $2.9 million decrease in depreciation and amortization and a $1.4 million decrease in information technology investments and professional service fees, partially offset by unfavorable foreign currency impacts of $1.0 million. Non-cash amortization expense related to finite-lived intangible assets was $12.2 million for the six months ended June 30, 2016 compared to $15.2 million for the six months ended June 30, 2015, with the decrease primarily a result of certain assets with a shorter estimated useful life becoming fully amortized.
SG&A expenses in our Commercial segment decreased $18.2 million, or 15.2%, to $101.7 million for the six months ended June 30, 2016 from $119.9 million for the six months ended June 30, 2015. The decrease in SG&A for our Commercial segment was primarily due to a $5.5 million decrease in depreciation and amortization, $4.9 million of favorable foreign currency impacts, a $4.3 million decrease in information technology investments and professional service fees, a $2.0 million decrease in compensation related costs, a $3.5 million decrease in our medication adherence offering primarily due to the sale of our patient access and reimbursement services offering in August 2015 and other insignificant factors, partially offset by an increase of $3.9 million in restructuring costs. Non-cash amortization expense related to finite-lived intangible assets was $6.0 million for the six months ended June 30, 2016 compared to $11.0 million for the six months ended June 30, 2015, with the decrease primarily a result of certain assets with a shorter estimated useful life becoming fully amortized.
Corporate and other SG&A expenses increased $2.7 million, or 11.1%, to $27.0 million for the six months ended June 30, 2016 from $24.3 million for the six months ended June 30, 2015. The increase was primarily due to a $3.1 million increase in professional service fees, including transaction-related costs, and a $1.1 million increase in depreciation and other insignificant factors, partially offset by $1.5 million in decreased compensation related costs.
Gain on Extinguishment of Debt
|
|
For the Six Months Ended June 30, |
|
|||||
(in millions) |
|
2016 |
|
|
2015 |
|
||
Gain on extinguishment of debt |
|
$ |
0.2 |
|
|
$ |
— |
|
37
For the six months ended June 30, 2016, we recognized a gain on extinguishment of debt of $0.2 million related to open market repurchases of $23.7 million in face value of our Junior Lien Secured Notes for $23.1 million, including interest, during the first quarter of 2016. Gain on extinguishment of debt principal was partially offset by the write-off of deferred financing costs and unamortized discount associated with the repurchase transactions.
Interest Expense, Net
|
|
For the Six Months Ended June 30, |
|
|||||
(in millions) |
|
2016 |
|
|
2015 |
|
||
Interest expense, net |
|
$ |
110.3 |
|
|
$ |
113.6 |
|
Interest expense, net decreased $3.3 million to $110.3 million for the six months ended June 30, 2016 from $113.6 million for the six months ended June 30, 2015. The interest expense reflects a decrease for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 due to a decrease of $1.5 million of interest on the Junior Lien Secured Notes, which is attributable to both the PIK Note Repurchase (see defined below) and the cash rate election commencing February 15, 2016, and the elimination of penalty interest on the Senior Unsecured Notes described below. Interest expense included non-cash debt issuance costs and bond discount/premium amortization of $9.5 million, for both the six months ended June 30, 2016 and 2015, respectively, and penalty interest on the Senior Unsecured Notes of $1.8 million for the six months ended June 30, 2015. There was no penalty interest on the Senior Unsecured Notes for the six months ended June 30, 2016 as a result of the effectiveness of the registration statement with the SEC relating to the Senior Unsecured Notes under the Securities Act and completion of the subsequent exchange offer for the Senior Unsecured Notes.
(Provision) Benefit for Income Taxes
|
|
For the Six Months Ended June 30, |
|
|
||||||||||||||
|
|
|
|
|
|
Effective |
|
|
|
|
|
|
|
Effective |
|
|
||
(in millions, except percentages) |
|
2016 |
|
|
Tax Rate |
|
|
|
2015 |
|
|
Tax Rate |
|
|
||||
(Provision) benefit for income taxes |
|
$ |
(11.5 |
) |
|
|
(99.4 |
) |
% |
|
$ |
(7.3 |
) |
|
|
(10.9 |
) |
% |
We account for income taxes at each interim period using our estimated annual effective tax rate. Discrete items and changes in the estimate of the annual effective tax rate are recorded in the period they occur. The consolidated effective tax rate was (99.4%) and (10.9%) for the six months ended June 30, 2016 and 2015, respectively. The mix of earnings between domestic and foreign and the lower level of consolidated loss, along with a higher level of foreign earnings in 2016 compared to prior year, drove the increase in the tax provision and respective effective tax rate for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The income tax provision for the six months ended June 30, 2016 and 2015 primarily reflects that we (i) continued to record a full valuation allowance for our domestic and certain foreign tax jurisdictions, (ii) recorded a tax provision for certain foreign and state jurisdictions that generated earnings, (iii) incurred a deferred tax provision in our domestic jurisdiction arising from taxable temporary differences related to amortization of indefinite-lived intangible assets and goodwill, and (iv) recorded changes in unrecognized tax benefits (including related penalties and interest) as they occur. The tax provision for the six months ended June 30, 2016 and 2015 included $5.8 million and $2.6 million of foreign taxes, $0.2 million and $0.2 million of state taxes, $5.1 million and $4.3 million of taxable temporary differences from amortization of indefinite-lived intangible assets and goodwill and a $0.4 million and $0.2 million increase in unrecognized tax benefits, respectively.
We provide for a valuation allowance to reduce deferred tax assets to their estimated realizable value if, based on the weight of all available evidence, it is not more likely than not that a portion or all of the deferred tax assets will be realized. We do not expect to record significant tax benefits on future domestic net operating losses until circumstances justify the recognition of such benefits.
As a result of the domestic valuation allowance, taxable temporary differences from the amortization of goodwill and indefinite-lived intangible assets are expected to result in $8.5 million of income tax expense for 2016, and are reflected in our estimated domestic annual effective tax rate. Goodwill and indefinite-lived intangible assets are amortized for income tax purposes, but not for financial statement reporting purposes. This difference results in net deferred income tax expense since the taxable temporary difference cannot be scheduled to reverse during the loss carryforward period. We will record tax expense related to the amortization of our tax deductible goodwill and indefinite-lived intangible assets during those future periods for which we maintain domestic valuation allowances, or until our estimated unamortized balance of $111.4 million at December 31, 2016 is fully amortized for tax purposes.
Seasonality
Our results are subject to some quarterly variability as a result of client purchasing patterns, the timing of the realization of incentive and performance fees and the annual cadence of compensation and benefits expenses. We have historically experienced an
38
increase in net revenues in the fourth quarter as a result of clients’ increased spending at the end of the calendar year as well as the realization of incentive and performance fees under certain selling solutions contracts. We have also historically experienced decreased cost of net revenues and SG&A expenses in the fourth quarter and, to a lesser extent, the third quarter related to compensation and benefits expenses, specifically related to reduced employment taxes and benefits accruals.
Financial Condition, Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. At June 30, 2016, we had cash and cash equivalents of $95.9 million and $147.6 million of combined unused availability under our ABL Facility and International Facility to fund our general working capital needs. Drawing upon the combined unused availability under our ABL Facility and International Facility would not result in the violation of any covenants contained in any of the agreements governing our outstanding indebtedness.
Our primary cash needs are for operating expenses, acquisitions, working capital, capital expenditures, the repayment of principal and the payment of interest on our indebtedness and debt repurchases. Our capital expenditures have been primarily related to information technology and real estate and were $12.6 million and $19.8 million for the six months ended June 30, 2016 and 2015, respectively. We expect to invest approximately $42.0 million in capital expenditures during the year ended December 31, 2016.
We and our subsidiaries, affiliates and significant stockholders may from time to time seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We repurchased $23.7 million in face value of our Junior Lien Secured Notes during the first quarter of 2016. See Note 6 to our Consolidated Financial Statements for additional information.
Our Junior Lien Secured Notes permit up to six semi-annual interest payments to be settled on a PIK basis through the issuance of additional Junior Lien Secured Notes. We paid $30.4 million, $32.2 million and $33.9 million of interest on the Junior Lien Secured Notes for the periods commencing August 15, 2014, February 15, 2015 and August 15, 2015, respectively, in PIK interest, and elected to pay interest for the period commencing February 15, 2016 in cash. We do not intend to utilize the PIK feature for the period commencing on August 15, 2016 and ending on February 14, 2017 with respect to the PIK Notes and intend to pay interest on the PIK Notes entirely in cash for this period.
We believe that our current cash and equivalents, along with cash flows from operations and unused availability under our ABL Facility and International Facility will be sufficient to fund our current operating requirements over the next twelve months. Our liquidity and our ability to meet our obligations and fund our capital and other requirements are also dependent on our future financial performance, which is subject to general economic and market conditions and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings or equity financings will be available to meet our liquidity needs. If we were unable to generate new contracts with existing and new clients, if the level of contract cancellations increased, or if contract delays lengthen or increase, our cash flow from operations would be materially adversely affected. We anticipate that to the extent we need additional liquidity, it will be funded through the incurrence of additional indebtedness, equity financings or a combination thereof. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms or at all. Although we have no current plans to do so, if we decide to pursue one or more significant acquisitions or significant internal growth initiatives, we may incur additional debt or sell additional equity to finance such acquisitions or initiatives.
39
The following table sets forth our net financial liabilities at June 30, 2016 and December 31, 2015:
(in millions) |
June 30, 2016 |
|
|
December 31, 2015 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
95.9 |
|
|
$ |
|
121.3 |
|
Restricted cash |
|
|
1.8 |
|
|
|
|
1.6 |
|
Total financial assets |
|
|
97.7 |
|
|
|
|
122.9 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of capital leases and other financing arrangements |
|
|
24.7 |
|
|
|
|
23.3 |
|
Senior Secured Credit Facilities |
|
|
575.3 |
|
|
|
|
575.3 |
|
Senior Secured Notes |
|
|
625.0 |
|
|
|
|
625.0 |
|
ABL Facility |
|
|
— |
|
|
|
|
— |
|
Junior Lien Secured Notes |
|
|
579.8 |
|
|
|
|
569.7 |
|
Senior Unsecured Notes |
|
|
376.3 |
|
|
|
|
376.3 |
|
International Facility |
|
|
— |
|
|
|
|
— |
|
Long-term portion of capital leases |
|
|
47.2 |
|
|
|
|
45.3 |
|
Less: unamortized premium (discount) |
|
|
(7.2 |
) |
|
|
|
(9.0 |
) |
Less: deferred financing costs |
|
|
(27.7 |
) |
|
|
|
(35.4 |
) |
Total debt |
|
|
2,193.4 |
|
|
|
|
2,170.5 |
|
Net financial liabilities |
$ |
|
(2,095.7 |
) |
|
$ |
|
(2,047.6 |
) |
Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the periods presented:
|
For the Six Months Ended June 30, |
|
|||||||
(in millions) |
2016 |
|
|
2015 |
|
||||
Cash provided by (used in) continuing operations: |
|
|
|
|
|
|
|
|
|
Operating activities |
$ |
|
25.3 |
|
|
$ |
|
24.8 |
|
Investing activities |
|
|
(4.5 |
) |
|
|
|
(13.0 |
) |
Financing activities |
|
|
(45.8 |
) |
|
|
|
(17.5 |
) |
For the Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Cash provided by operating activities increased by $0.5 million to $25.3 million for the six months ended June 30, 2016, compared to $24.8 million for the six months ended June 30, 2015. The increase in cash provided by operations for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily due to the growth in the business and the timing of cash flows associated with certain accruals and other liabilities, partially offset by the increase in unbilled accounts receivable, which was driven by the timing of the achievement of billing milestones compared with the delivery of services for revenue recognition purposes. The $22.8 million increase in accrued payroll, accounts payable and accrued expenses was primarily due to a $21.9 million increase in our accrued interest related to our Junior Lien Secured Notes associated with the cash rate election commencing February 15, 2016, and the timing of our incentive compensation accruals, as well as the timing of invoice receipts and payments.
Cash used in investing activities decreased by $8.5 million to $4.5 million for the six months ended June 30, 2016 compared to $13.0 million for the six months ended June 30, 2015. Cash used for the six months ended June 30, 2016 and 2015 primarily related to our purchase of property and equipment, partially offset by proceeds from our fleet vehicle sales and rebates on our vehicle leases.
Cash used in financing activities increased by $28.3 million to $45.8 million for the six months ended June 30, 2016, compared to $17.5 million for the six months ended June 30, 2015. Cash used for the six months ended June 30, 2016 primarily reflected repurchase of our Junior Lien Secured Notes, payments on our capital lease obligations and other financing arrangements, and partial settlement of an installment note related to our 2011 Campbell acquisition. Cash used for the six months ended June 30, 2015 primarily reflects payments on our capital lease obligations and other financing arrangements, and partial settlement of an installment note related to our 2011 Campbell acquisition.
40
Changes in days sales outstanding (“DSO”) and unbilled services days sales outstanding (“Unbilled DSO”) did not have a meaningful impact on operating cash flows during either period.
DSO is determined based on the net three-month average balance of accounts receivable divided by the daily average total revenues for the relevant quarter. Unbilled DSO represents the average number of days for services delivered to clients to be converted into accounts receivable. DSO has varied between reporting periods as a result of normal fluctuations in the timing of cash receipts and contractual billing milestones across thousands of ongoing contracts at any point in time. DSO was 51 days, 50 days and 51 days at June 30, 2016 and 2015 and December 31, 2015, respectively. The change in DSO is not expected to have a material impact on our results of operations or financial position.
Unbilled DSO is determined based on the net three-month average balance of unbilled services divided by the daily average total revenues for the relevant quarter. Unbilled DSO has varied between reporting periods as a result of normal fluctuations in the timing of contractual billing milestones across thousands of ongoing contracts at any point in time. The unbilled services are generally billed in the quarter following the performance of services. The total balance of unbilled services as of December 31, 2015 was approximately $207.5 million, out of which a substantial portion, approximately 90%, was billed in the subsequent quarter. The unbilled services that had aged past 90 days was approximately $20 million, and was primarily the result of certain contract fees that are payable in installments based on the achievement of performance milestones that may include target patient enrollment rates, initiation of clinical testing sites and other factors that are specific to the terms of each individual contract, while revenues on contracts are recognized as contractual obligations are performed. The scheduling of contractual milestones over a study, trial or project duration and the achievement of a particular milestone principally caused the billing of services to extend beyond 90 days from the date the relevant services were provided. Unbilled DSO was 34 days, 32 days and 32 days at June 30, 2016 and 2015 and December 31, 2015, respectively. The change in Unbilled DSO is not expected to have a material impact on our results of operations or financial position.
Long-term Debt and Credit Facilities
At June 30, 2016, we had $575.3 million outstanding under our Senior Secured Credit Facilities, which consisted of $129.6 million under the B-3 term loans and $445.7 million under the B-4 term loans. The term loans under our Senior Secured Credit Facilities mature in May 2018. In addition, we have an ABL Facility which matures in August 2018, and an International Facility, which matures in July 2020. At June 30, 2016, we had no outstanding borrowings and $20.7 million in letters of credit outstanding under the ABL Facility and no outstanding borrowings and $0.1 million in letters of credit outstanding under the International Facility, and we would have been able to borrow up to $129.3 million and $18.3 million, respectively, under those facilities. We also had the option, subject to certain conditions, to increase the amounts borrowed under term loan facilities in our Senior Secured Credit Facilities by up to $300.0 million.
In addition, at June 30, 2016, we also had $625.0 million principal amount of our 9% Senior Secured Notes due 2018 outstanding, which mature in January 2018, $579.8 million principal amount of our 10%/12% Junior Lien Secured Notes due 2018 outstanding, which mature in August 2018, and $376.3 million principal amount of our 10% Senior Unsecured Notes due 2018 outstanding, which mature in August 2018.
We also had capitalized leases and other financing arrangements of $71.9 million outstanding as of June 30, 2016.
As of June 30, 2016, we were in compliance with the covenants under each of the credit agreements governing our credit facilities and each of the indentures governing our notes.
On January 8, 2016, our Board of Directors approved the repurchase of our Junior Lien Secured Notes and the subsequent cancellation of such repurchased notes (the “PIK Note Repurchase”). We have repurchased and cancelled an aggregate principal amount of $23.7 million of our Junior Lien Secured Notes, including accrued and unpaid interest, through open market purchases for $23.1 million. As a result of the PIK Note Repurchase, we reduced our debt and a pro rata portion of our associated deferred financing costs and debt discount.
Senior Secured Credit Facilities
On August 4, 2010, we, our parent, Citibank, N.A., certain financial institutions and certain of our subsidiaries entered into the Senior Secured Credit Facilities, consisting of a $525 million term loan facility and a $75 million revolving credit facility.
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Borrowings under the Senior Secured Credit Facilities are secured by a senior lien on all of our and our domestic subsidiaries’ assets on par with the lien granted to the holders of our Senior Secured Notes and subject to a first priority lien on the current assets pledged pursuant to the ABL Facility. Amounts borrowed under the Senior Secured Credit Facilities are subject to an interest rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans, a base rate determined by reference to the highest of (i) the prime rate of Citibank, N.A., (ii) 2.5%, or (iii) the one month US Dollar LIBOR rate plus 1.0% or (b) for Eurodollar rate loans, a rate determined by reference to the highest of (i) the US Dollar LIBOR rate based on the term of the borrowing or (ii) 1.50%. All of our outstanding term loans issued pursuant to the Senior Secured Credit Facilities now mature in May 2018. As of June 30, 2016 and December 31, 2015, margins on the Senior Secured term B3 loans were 6.25% for Eurodollar Rate loans and 5.25% for Base Rate loans. As of June 30, 2016 and December 31, 2015, margins on Senior Secured term B4 loans were 6.25% for Eurodollar Rate loans and 5.25% for Base Rate loans. As of June 30, 2016, the interest rate on the B3 and B4 term loans was 7.75%. The terms contained in the Senior Secured Credit Facilities provide for customary events of default and contain covenants limiting, among other things, the ability of the Company and its restricted subsidiaries and co-borrowers to (subject to certain exceptions) incur indebtedness, make certain restricted payments and investments, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and enter into certain transactions with affiliates.
9% Senior Secured Notes due 2018
On December 20, 2012, we issued $600 million aggregate principal amount of 9.0% Senior Secured Notes due 2018, and on December 13, 2013, we issued an additional $25 million of aggregate principal amount of 9.0% Senior Secured Notes due 2018. The additional notes were issued at a 2.5% premium, have the same terms and are treated as a single series with the previously issued $600 million Senior Secured Notes.
Our $625.0 million Senior Secured Notes bear interest at a rate of 9.0% per annum and mature on January 15, 2018. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year. The Senior Secured Notes are secured by a senior lien on all assets of the Company and its domestic subsidiaries on par with the lien granted pursuant to the Senior Secured Credit Facilities and subject to a first priority lien on the current assets pledged pursuant to the ABL Facility. The Senior Secured Notes are our and the guarantors’ secured senior obligations and rank equally in right of payment with all of our and the guarantors’ existing and future unsubordinated secured indebtedness and senior to any of our and the guarantors’ future subordinated indebtedness, if any. We are not obligated to file a registration statement related to the Senior Secured Notes. The indenture governing the Senior Secured Notes provides for customary events of default and contains covenants limiting, among other things, our ability to (subject to certain exceptions) incur indebtedness, make certain restricted payments and investments, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and enter into certain transactions with affiliates.
Asset Based Revolving Credit Facility
On August 16, 2013, we, Citibank, N.A. and certain financial institutions entered into a credit agreement for an asset-based revolving credit facility of up to $150.0 million (the “ABL Facility”), subject to borrowing base availability, which matures on August 16, 2018. Up to $35.0 million of the ABL Facility is available for the issuance of letters of credit. Amounts borrowed under the ABL Facility are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for a base rate loan, a base rate determined by reference to the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the prime rate of Citibank, N.A., or (iii) the one month US Dollar LIBOR rate plus 1.0% or (b) for a Eurodollar rate loan, the US Dollar LIBOR rate based on the interest period. The applicable margin percentage for asset based revolving loans is a percentage per annum and ranges from 1.0% to 1.5% for base rate loans or 2.0% to 2.5% for Eurodollar rate loans. The applicable margin percentage with respect to borrowings under the ABL Facility is subject to adjustments based on historical excess availability. As of June 30, 2016, the interest rate applicable to the ABL Facility was 4.5%. We are also required to pay an unused line fee to the lenders under the ABL Facility on the committed but unutilized balance of the facility at a rate of 0.25% or 0.375% per annum, which varies depending on utilization.
The ABL Facility contains customary covenants and restrictions on our and our subsidiaries’ activities, including but not limited to, limitations on the incurrence of additional indebtedness, liens, use of cash in certain circumstances, dividends, repurchase of capital stock, investments, loans, asset sales, distributions, acquisitions, divestitures and ability to enter into certain transactions with affiliates. The ABL Facility requires us to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0 and requires certain cash management restrictions, in each case, if available borrowing capacity is less than the greater of 10% of the maximum amount that can be borrowed under the ABL Facility, accounting for the borrowing base at such time, and $12.0 million. The requirement to maintain a minimum fixed-charge coverage ratio was not in effect given our available borrowing capacity as of June 30, 2016. All obligations under the ABL Facility are secured by our wholly owned domestic subsidiaries (with certain agreed upon exceptions) and secured by a first priority lien on our and such domestic subsidiaries’ current assets and a second priority lien on all of our and such domestic subsidiaries’ other assets. The credit agreement governing our ABL Facility also provides for customary events of default. The available borrowing capacity varies monthly according to the levels of our eligible accounts receivable and unbilled receivables. We periodically borrow from the ABL Facility to finance our temporary working capital needs. As of June 30, 2016, we had no
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outstanding borrowings under our ABL Facility, approximately $20.7 million in letters of credit outstanding against the ABL Facility and we would have been able to borrow up to an additional $129.3 million.
10%/12% Junior Lien Secured Notes due 2018
In August 2014, we issued $507.0 million aggregate principal amount of our Junior Lien Secured Notes ($579.8 million at June 30, 2016). The interest rate with respect to the Junior Lien Secured Notes is a cash rate of 10% per annum or a payment-in-kind (“PIK”) rate of 12% per annum (“PIK Interest”) and mature on August 15, 2018. Interest on the Junior Lien Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year. We may elect to pay interest by increasing the amount of the Junior Lien Secured Notes by issuing additional Junior Lien Secured Notes for six interest payment periods in the aggregate. The Junior Lien Secured Notes are guaranteed, on a junior lien basis, by each of our domestic wholly-owned subsidiaries that guarantee the Senior Secured Credit Facilities. All obligations under the Junior Lien Secured Notes, and the guarantees of those obligations, are secured on a junior lien basis by our assets and the assets of our subsidiary guarantors that secure the obligations under our Senior Secured Credit Facilities and ABL Facility. The Junior Lien Secured Notes are our and the guarantors’ secured senior obligations and rank equally in right of payments with all of our and the guarantors’ existing and future unsubordinated indebtedness and senior to any of our and the guarantors’ future subordinated indebtedness, if any.
On August 15, 2014, we consummated an exchange offer (the “Junior Lien Notes Exchange Offer”) with holders of our Senior Unsecured Notes in which we issued $475.0 million aggregate principal amount of Junior Lien Secured Notes in exchange for a like amount of our Senior Unsecured Notes.
We paid $30.4 million, $32.2 million and $33.9 million of interest on the Junior Lien Secured Notes for the periods commencing August 15, 2014, February 15, 2015 and August 15, 2015, respectively, in PIK interest, and elected to pay interest for the period commencing February 15, 2016 in cash. We do not intend to utilize the PIK feature for the period commencing on August 15, 2016 and ending on February 14, 2017 with respect to the PIK Notes and intend to pay interest on the PIK Notes entirely in cash for this period. As of June 30, 2016, we accrued 10% interest on the Junior Lien Secured Notes related to the February 15, 2016 cash rate election, which is included in current liabilities. As further described in Note 6 to our consolidated financial statements, we repurchased $23.7 million in face value of our Junior Lien Secured Notes during the first quarter of 2016.
On August 12, 2014, in connection with the Junior Lien Notes Exchange Offer, affiliates of Thomas H. Lee Partners, L.P. and certain co-investors purchased $25 million of Junior Lien Secured Notes and $26.3 million of our 10% Senior Unsecured Notes due 2018 for a total consideration of $50.0 million (the “New Money Investment”). The $26.3 million of our Senior Unsecured Notes were issued at a 5% discount to par value resulting in a $1.3 million discount that will be accreted over the related term using the effective interest method. Additionally, on August 15, 2014 we issued an additional $7.0 million of Junior Lien Secured Notes (the “Backstop Consideration”) to a group of holders of our Senior Unsecured Notes as consideration for such holders’ agreement to tender the Senior Unsecured Notes held by them into the Junior Lien Notes Exchange Offer. In connection with the Junior Lien Notes Exchange Offer, our term loan facility and asset-backed revolving facility were amended on July 28, 2014 (the “Credit Agreement Amendments”) to permit the Junior Lien Notes Exchange Offer, the New Money Investment and the issuance of the Backstop Consideration and to extend the maturities of certain outstanding term loans from 2016 to 2018. The margin on the term loans increased by 0.25% when compared to the interest rates on the prior term loans. There was no net change in the outstanding principal balance of the term loans as a result of the modified terms.
The indenture governing the Junior Lien Secured Notes provides for customary events of default and contains covenants limiting, among other things, our ability to (subject to certain exceptions) incur indebtedness, make certain restricted payments and investments, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and enter into certain transactions with affiliates.
10% Senior Unsecured Notes due 2018
On August 4, 2010, we issued $275.0 million aggregate principal amount of 10% Senior Notes due 2018 (the “Senior Unsecured Notes”). In addition, on August 12, 2014, in connection with the Junior Lien Notes Exchange Offer, affiliates of THL and certain co-investors purchased $26.3 million of the Senior Unsecured Notes, which were issued at a 5% discount to par value resulting in a $1.3 million discount that is accreted over the related term using the effective interest method. We also issued $160.0 million of additional Senior Unsecured Notes on June 10, 2011 and $390.0 million of Senior Unsecured Notes on July 13, 2011 in connection with certain acquisitions, which were issued at a 5% discount to par value, creating a discount of $19.5 million that is recorded net of the related notes within long-term debt, net of current portion, in the unaudited condensed consolidated balance sheet and is accreted up to the par value using an effective interest method over its related term. We had $376.3 million in Senior Unsecured Notes outstanding as of June 30, 2016. The Senior Unsecured Notes bear interest at a rate of 10.0% per annum and mature on August 15, 2018.
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Interest on the Senior Unsecured Notes is payable semi-annually on February 15 and August 15 of each year. The Senior Unsecured Notes are guaranteed, on an unsecured senior basis, by each of our domestic wholly-owned subsidiaries that guarantee the Senior Secured Credit Facilities. The Senior Unsecured Notes are our and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of our and the guarantors’ existing and future unsubordinated unsecured indebtedness and senior to any of our and the guarantors’ future subordinated indebtedness, if any. The indenture governing the Senior Unsecured Notes provides for customary events of default and contains covenants limiting, among other things, our ability to (subject to certain exceptions) incur indebtedness, make certain restricted payments and investments, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and enter into certain transactions with affiliates.
We entered into registration rights agreements in connection with the issuances of the Senior Unsecured Notes. Under the registration rights agreement with respect to the notes issued on August 4, 2010 in connection with the THL Acquisition, we agreed to use reasonable best efforts to file a registration statement related to the exchange of such notes for exchange notes with the SEC on or prior to the 270th day after August 4, 2010, to cause such registration statement to become effective under the Securities Act on or prior to the earlier of the 90th day following such filing or the 360th day after August 4, 2010, and to consummate the exchange offer on or prior to the 30th day after effectiveness. The registration rights agreement provides that additional interest will accrue on the principal amount of the notes at a rate of 0.25% per annum during the 90-day period immediately following the first to occur of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period until all such defaults are cured, but in no event will the penalty rate exceed 1.00% per annum. The registration rights agreements with respect to the additional notes issued on June 10, 2011 and July 13, 2011 contain similar requirements. As a result of the effectiveness of the registration statement relating to the Senior Unsecured Notes under the Securities Act and completion of the subsequent exchange offer for the Senior Unsecured Notes, the obligation to pay additional interest on $185.5 million of the notes issued in 2010 ceased on August 5, 2015 and the obligation to pay additional interest on $164.5 million of notes issued in 2011 ceased on September 3, 2015.
International Facility
On July 1, 2015 one of our indirect subsidiaries in the United Kingdom, inVentiv Health Clinical UK Ltd., (“inVentiv UK”) as borrower, and one of our indirect subsidiaries in Switzerland, inVentiv Health Switzerland GmbH, as guarantor, entered into an asset-based lending facility (the “International Facility”) for up to $20.0 million. This facility is used to enhance international cash management. At June 30, 2016, we had no outstanding borrowings under the International Facility, approximately $0.1 million in letters of credit outstanding against the International Facility and we would have been able to borrow up to $18.3 million.
Non-Guarantor Subsidiaries
Our Senior Secured Credit Facilities, ABL Facility, Senior Secured Notes, Junior Lien Secured Notes and Senior Unsecured Notes are not guaranteed by certain of our subsidiaries, including all of our non-U.S. subsidiaries or non-wholly owned subsidiaries, and the International Facility is not guaranteed by any subsidiaries other than inVentiv Health Switzerland GmbH. Accordingly, claims of holders of the notes and lenders under our credit facilities will be structurally subordinated to the claims of creditors of these non-guarantor subsidiaries, including trade creditors. All obligations of our non-guarantor subsidiaries will have to be satisfied before any of the assets of such subsidiaries would be available for distribution, upon liquidation or otherwise, to us or a guarantor of our indebtedness. For supplemental financial information relating to our guarantor subsidiaries and non-guarantor subsidiaries, see Note 15 to the Consolidated Financial Statements provided herewith.
Critical Accounting Policies
Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 18, 2016. There have been no material changes, updates or revisions to our critical accounting policies.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09 (“ASU 2016-09”), Compensation—Stock Compensation (Topic 718) to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact of adopting ASU 2016-09 on our consolidated financial position, results of operations and statement of cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) to increase transparency and comparability among organizations by requiring the recognition of right-to-use assets and liabilities on the balance sheet and disclosing qualitative and quantitative information about leasing arrangements. ASU 2016-02 will be applied on a modified retrospective basis and to each prior reporting period presented and is effective for interim and annual reporting periods beginning
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after December 15, 2018. Early adoption is permitted. The adoption of this standard is expected to have a material impact on our consolidated balance sheets, and its potential impact is currently being evaluated.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance for revenue recognition (“ASU 2014-09”). ASU 2014-09 will supersede the revenue recognition requirements in Revenue Recognition (Topic 605), and most industry-specific guidance. In July 2015, the FASB deferred the effective date of the new revenue recognition standard by one year, and it is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted, but no earlier than the original effective date of January 1, 2017. In May 2016, the FASB issued ASU 2016-12 which provides clarifying guidance in a few narrow areas and adds some practical expedients to the guidance. We are currently evaluating the impact of adopting the new revenue recognition standard on our consolidated financial position and results of operations.
Off-Balance Sheet Arrangements
As of June 30, 2016 and December 31, 2015, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
We are exposed to market risk from changes in interest rates and foreign currency exchange rates.
Interest Rate Exposure
We will incur variable interest expense with respect to our Senior Secured Credit Facilities and any outstanding borrowings under our ABL Facility and International Facility. Based on our variable rate debt outstanding at June 30, 2016, a hypothetical increase or decrease of 10% of current market rates would not have an effect on our interest expense since market rates are well below the minimum floating rate (i.e. a floor of 1.5% for Eurodollar rate loans) that is used to calculate the interest we are required to pay pursuant to our Senior Secured Credit Facilities and there are no outstanding borrowings under our ABL Facility or our International Facility.
Foreign Currency Exchange Rate Exposure
Our international expansion has resulted in increased foreign exchange rate exposure and we may become more susceptible to foreign currency exchange rate exposure as we continue to expand our international operations. We may enter into forward exchange contracts to mitigate this variability.
The financial statements of our subsidiaries expressed in foreign currencies are translated from the respective functional currencies to U.S. Dollars, with results of operations and cash flows translated at average exchange rates during the period, and assets and liabilities translated at end of the period exchange rates. At June 30, 2016, the accumulated other comprehensive loss related to foreign currency translations was approximately $33.8 million.
We have net revenues denominated in currencies other than the U.S. Dollar. Our financial statements are reported in U.S. Dollars and, accordingly, fluctuations in exchange rates will affect the translation of our revenues and expenses denominated in foreign currencies into U.S. Dollars for purposes of reporting our consolidated financial results. For the three and six months ended June 30, 2016 and 2015, the most significant currency exchange rate exposures were the Pound Sterling, Canadian Dollar and Japanese Yen. Excluding the impacts from any potential future hedging transactions, a hypothetical change of 10% in average exchange rates used to translate all foreign currencies to U.S. Dollars would have impacted income (loss) before income tax provision (benefit) for the three and six months ended June 30, 2016 by approximately $1.0 million and $2.0 million, respectively.
We are subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of a transaction. We earn revenues from our contracts over a period of several months and, in some cases, over a period of several years. Accordingly, exchange rate fluctuations during this period may affect our profitability with respect to such contracts. We limit our foreign currency transaction risk through exchange rate fluctuation provisions stated in our contracts with clients, or we may hedge our transaction risk with foreign currency exchange contracts. Historically we have not used derivative financial instruments or other financial instruments to hedge such economic exposures.
We do not have significant operations in countries in which the economy is considered to be highly-inflationary.
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Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act as of June 30, 2016. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes during the quarter ended June 30, 2016 in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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From time to time, we are involved in certain legal proceedings not described herein that are incidental to the normal conduct of our business. We do not believe that the outcome of any such proceedings, individually or in the aggregate, if decided adversely to our interests, would have a material adverse effect on our business, financial condition or results of operations.
For a discussion of the risks relating to our business, see “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016. Management does not believe that there have been any material changes in our risk factors from those previously described in our Quarterly Report.
Change in Compensation for Mr. Michael Bell
On July 31, 2016, our board of directors approved an increase in Mr. Bell’s base salary from $625,000 per year to $850,000 per year.
The exhibits in the accompanying Exhibit Index following the signature page are filed or furnished as a part of this report and are incorporated herein by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Burlington, Massachusetts, on August 1, 2016.
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INVENTIV HEALTH, INC. |
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By: |
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/s/ Jonathan E. Bicknell |
Jonathan E. Bicknell Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit No. |
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Description |
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31.1 |
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Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.1 |
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Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statement of Stockholder’s Deficit, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Condensed Consolidated Financial Statements. |
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