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INC Research/inVentiv Health Reports Third Quarter 2017 Results

09 November 2017

Highlights

  • Net service revenue of $592.2 million and $1,102.4 million for the three and nine months ended September 30, 2017, respectively.

  • Combined Company adjusted net service revenue of $766.6 million and $2,331.6 million for the three and nine months ended September 30, 2017, respectively, after adjusting for $13.2 million and $27.0 million, respectively, eliminated as part of purchase accounting.

  • Combined Company adjusted EBITDA of $138.9 million and $424.5 million for the three and nine months ended September 30, 2017, respectively.

  • GAAP diluted loss per share of $1.70 and $1.90 for the three and nine months ended September 30, 2017, respectively.

  • Combined Company adjusted diluted EPS of $0.54 and $1.56 for the three and nine months ended September 30, 2017.

RALEIGH, N.C., Nov. 09, 2017 (GLOBE NEWSWIRE) -- INC Research (NASDAQ:INCR), which, following the completion of the merger on August 1, 2017 with inVentiv Health ("the Merger"), we refer to as INC Research/inVentiv Health ("the Company"), the only fully-integrated biopharmaceutical solutions organization combining a CRO and a CCO (Contract Commercial Organization), today reported financial results for the third quarter and year-to-date periods ended September 30, 2017. To aid investors and analysts with year-over-year comparability of results for the merged business, we are including certain "Combined Company" metrics that represent combined financial information of INC Research and inVentiv Health as if the Merger had taken place on January 1, 2016, with conforming adjustments to the current year presentation. Please refer to the "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to Combined Company Non-GAAP Measures" included in this press release and accompanying tables for important disclosures about non-GAAP measures and a reconciliation of these measures to the nearest GAAP measure. 

“We’ve experienced a quarter of rapid evolution as we achieve integration milestones at an accelerated pace, and we have significant customer interest in our unique, integrated business model. By combining clinical and commercial insights to deliver Real-World Evidence/late phase capabilities and full commercialization, we’re seeing an increasing interest from customers for our high-value solutions in a highly competitive market,” said Chief Executive Officer Alistair Macdonald.

“In the Clinical segment, our momentum continues with another strong quarter of net awards, illustrating our ability to leverage our complementary customer bases, delivery platforms, and market approaches. While our Commercial segment performance was lower than expected, over time we expect this to improve with potentially more quarterly variability than our CRO business. Specifically, we remain confident in our ability to deliver on our long-term Commercial growth through our market leading offering in an improving sales environment  stemming from increased drug approvals and related new drug launches and expectations that this trend will continue over the near and mid-term.”

“We’re confident in unlocking meaningful value from this combination and remain on target to achieve the $100 million of annual savings by year three while building market momentum. All of this is made possible by the dedicated efforts of our transition management team and the thousands of INC Research/inVentiv Health employees worldwide who are committed to speeding the delivery of important therapies for our customers and the patients they serve.”

Third Quarter 2017 Results

Net service revenue for the three months ended September 30, 2017 increased by $332.7 million, or 128.2%, to $592.2 million from $259.6 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, net service revenue increased by $335.0 million, or 43.7%, to $1.10 billion from $767.4 million for the nine months ended September 30, 2016. Our total net service revenue increased compared to the same periods in the prior year, solely due to the Merger, which accounted for $340.8 million of the increase for both the three and nine months ended September 30, 2017. This increase was partially offset by a decline in revenues due to continued customer and regulatory delays, which we believe are transitory in nature. In addition, under purchase accounting rules, approximately $12.7 million of inVentiv Health deferred revenue, which otherwise would have been recognized as revenue in the three months ended September 30, 2017, was eliminated. The impact of fluctuations in foreign currency exchange rates on net service revenue was not material for the three months ended September 30, 2017. During the nine months ended September 30, 2017, fluctuations in foreign currency exchange rates resulted in an unfavorable impact of $7.1 million on net service revenue as compared to the nine months ended September 30, 2016.

Combined Company non-GAAP net service revenue for the three months ended September 30, 2017 decreased by $48.7 million, or 6.0%, to $766.6 million from $815.2 million for the three months ended September 30, 2016, respectively. Combined Company non-GAAP net service revenue for the nine months ended September 30, 2017 decreased by $93.8 million, or 3.9%, to $2.33 billion from $2.43 billion for the three months ended September 30, 2016, respectively. Combined Company non-GAAP net service revenue for the three and nine months ended September 30, 2017 includes revenue of $13.2 million and $27.0 million, respectively, eliminated as part of purchase accounting.

For the three and nine months ended September 30, 2017, our Combined Clinical Solutions Segment generated adjusted net service revenue of $533.4 million and $1.58 billion, respectively, representing an increase of 2.6% for each period compared to $519.8 million and $1.54 billion for the three and nine months ended September 30, 2016, respectively. Our Combined Clinical Solutions segment revenue increased primarily due to our strong bookings in 2017, partially offset by continued customer delays.

For the three and nine months ended September 30, 2017, our Combined Commercial Solutions Segment generated net service revenue of $233.2 million and $752.9 million, respectively, compared to $295.5 million and $887.3 million, during the three and nine months ended September 30, 2016, respectively. Our Combined Commercial Solutions Segment revenue declined by 21.1% and 15.1%, respectively, for the three and nine months ended September 30, 2017 compared to the same periods in 2016. The decrease in revenue was primarily due to (i) the impact of cancellations at the end of 2016, (ii) further cancellations in third quarter of 2017, and (iii) lower new drug approval activity during 2016.

For the three and nine months ended September 30, 2017, we generated a loss from operations of $88.9 million and $43.9 million, respectively, compared to income from operations of $39.4 million and $111.6 million for the three and nine months ended September 30, 2016, respectively.  Our operating results for the three and nine months ended September 30, 2017 were impacted by (i) Merger-related transaction expenses of $84.3 million and $108.1 million, respectively, (ii) an impairment charge of $30.0 million recorded in the third quarter of 2017 with respect to the INC Research trademark and intangible asset, and (iii) an increase in amortization expense of $41.9 million in both periods due to the acquisition of intangible assets as a result of the Merger.

Our income (loss) from operations includes expenses associated with certain transactions that we believe are not representative of our core operations. Excluding these items, adjusted Combined Company non-GAAP income from operations decreased to $120.5 million and $366.5 million for the three and nine months ended September 30, 2017, respectively, compared to $133.7 million and $382.4 million for the three and nine months ended September 30, 2016, respectively. Adjusted operating margin for both the three and nine months ended September 30, 2017, was 15.7%, compared to 16.4% and 15.8%, respectively, for the same periods in 2016.

For the three and nine months ended September 30, 2017, we reported a net loss of $148.0 million and $123.4 million, respectively, resulting in a diluted loss per share of $1.70 and $1.90, respectively. For the three and nine months ended September 30, 2016, we reported net income of $27.3 million and $75.1 million, respectively, or $0.49 and $1.35 per diluted share, respectively. Combined Company adjusted net income for the three and nine months ended September 30, 2017 was $56.5 million and $164.2 million, or $0.54 and $1.56 per diluted share, respectively, compared to $49.2 million and $135.2 million, or $0.47 and $1.28 per diluted share, for the three and nine months ended September 30, 2016, respectively.

Combined Company adjusted EBITDA for the three and nine months ended September 30, 2017 was $138.9 million and $424.5 million, respectively, compared to $153.1 million and $439.4 million for the three and nine months ended September 30, 2016, respectively. For the three-month periods ended September 30, 2017 and 2016, adjusted EBITDA margin was 18.1% and 18.8%, respectively. For the nine-month periods ended September 30, 2017 and 2016, adjusted EBITDA margin was 18.2% and 18.1%, respectively.

Important disclosures about and reconciliations of non-GAAP measures, including Combined Company non-GAAP measures related to adjusted net service revenue, adjusted income from operations, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, to the nearest corresponding GAAP measures are provided below under "Use of Non-GAAP Financial Measures."

New Business Awards and Backlog

In connection with the Merger, we re-evaluated our existing backlog policy for our Clinical Solutions Segment. As a result of this evaluation, effective during the third quarter of 2017, we changed our policy for calculating and reporting the amounts of our net new business awards and backlog. Under our new policy our Combined Company Clinical Solutions backlog was adjusted from $4.80 billion to $3.72 billion as of September 30, 2017. Prior to the adoption of our new policy, our Combined Company Clinical Solutions net new business awards for the three and nine months ended September 30, 2017 were $755.0 million and $2.13 billion, respectively, resulting in a book-to-bill of 1.4x and 1.3x, respectively. Under our new policy, we adjusted Combined Company Clinical Solutions net new business awards for the three and nine months ended September 30, 2017 to $683.2 million and $1.88 billion, respectively, representing a book-to-bill ratio of 1.3x and 1.2x, respectively.

Business Outlook

The Company's fourth quarter guidance for 2017 is outlined in the following table. The guidance takes into account a number of factors, including current sales pipeline, trends in cancellations and delays, and our expectations for commercial sales during the fourth quarter of 2017. Furthermore, our guidance is based on current foreign currency exchange rates, current interest rates, and our expected tax rates.

 
  Low   High
Net service revenue $ 738.0  million   $ 768.0  million
Adjusted net service revenue 750.0  million   780.0  million
Clinical Solutions adjusted net service revenue 525.0  million   540.0  million
Commercial Solutions adjusted net service revenue 225.0  million   240.0  million
Adjusted EBITDA 137.0  million   147.0  million
Adjusted net income 56.0  million   63.5  million
GAAP diluted EPS $ (0.25 )   $ (0.14 )
Adjusted diluted EPS $ 0.52     $ 0.60  
               

Important disclosures about and reconciliations of non-GAAP measures, including adjusted net service revenue, adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to the corresponding GAAP measures are provided below under "Use of Non-GAAP Financial Measures."

Webcast and Conference Call Details

INC Research/inVentiv Health will host a conference call at 8:00 a.m. EST on November 9, 2017, to discuss its third quarter and year-to-date 2017 financial results. The live webcast will be available in listen-only mode in the Events section of the Company's Investor Relations website at investor.incresearch.com. To participate via phone, please dial +1 (877) 930-8058 within the United States or +1 (253) 336-7551 outside the United States, approximately 15 minutes before the scheduled start of the call. The conference ID for the call is 3396217.

An archived replay of the conference call is expected to be available online at investor.incresearch.com after 1:00 p.m. EST on November 9, 2017. In addition, an audio replay will be available for one week following the call and will be accessible by dialing +1 (855) 859-2056 within the United States or +1 (404) 537-3406 outside the United States. The audio replay ID is 3396217.

About INC Research/inVenitv Health

INC Research/inVentiv Health (NASDAQ:INCR) is the only fully integrated biopharmaceutical solutions organization. The Company, including a Contract Research Organization (CRO) and Contract Commercial Organization (CCO), is purpose-built to address new market realities where clinical and commercial operations share expertise, data, and insights to accelerate biopharmaceutical performance. With more than 22,000 employees and the ability to support customers in more than 110 countries, its global scale and deep therapeutic alignment enables INC Research/inVentiv Health to help customers successfully navigate an increasingly complex environment. For more information on the Raleigh, N.C.-based company, please visit www.incresearch.com or inventivhealth.com.

Forward-Looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: risks associated with the integration of our business with the business of inVentiv, and our operation of the combined business following the closing of the Merger; our ability to maintain or generate new business awards; our ability to increase our market share, grow our business, and execute our growth strategies; our backlog not being indicative of future revenues and our ability to realize the anticipated future revenue reflected in our backlog; our ability to adequately price our contracts and not overrun cost estimates; general and international economic, political, and other risks, including currency and stock market fluctuations and the uncertain economic environment; fluctuations in our financial results; reliance on key personnel; our customer or therapeutic area concentration; and the other risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 10-Q for the quarter ended June 30, 2017, and other SEC filings, copies of which are available free of charge on our website at investor.incresearch.com. INC Research assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with U. S. Generally Accepted Accounting Principles ("GAAP"), this press release contains certain Combined Company and Combined Segment non-GAAP financial measures, including net service revenue, adjusted income from operations, adjusted operating margin, adjusted net income (including adjusted diluted earnings per share), EBITDA, and adjusted EBITDA. A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s financial performance that excludes or includes amounts from the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets, or statements of cash flows of the Company. To aid investors and analysts with year-over-year comparability for the merged business, the Company has included financial information that combines certain stand-alone INC Research and inVentiv Health financial information as if the merger had taken place on January 1, 2016, with conforming adjustments to the current year presentation.

The Company defines Combined Company adjusted net service revenue as the stand-alone INC Research and inVentiv Health net service revenue as if the merger had taken place on January 1, 2016, with conforming adjustments to the current year presentation and adjusted to include revenue eliminated under purchase accounting.

The Company defines Combined Company adjusted income from operations as income from operations excluding expenses and transactions that the Company believes are not representative of its core operations, namely, acquisition-related deferred revenue adjustments; acquisition-related amortization; restructuring and other costs; transaction and integration-related expenses; asset impairment charges; share-based compensation expense; contingent consideration and other expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; and acquisition-related revaluation adjustments. The Company defines Combined Company adjusted operating margin as adjusted income from operations as a percentage of adjusted net service revenue.

The Company defines Combined Company adjusted net income (including adjusted diluted earnings per share) as net income (including diluted earnings per share) excluding the items excluded from adjusted income from operations mentioned previously, bridge financing fees, loss on extinguishment of debt, and other expense, net. After giving effect to these items and other unusual tax impacts during the period, the Company has also included an adjustment to its income tax rate to reflect the expected long-term income tax rate.

EBITDA represents earnings before interest, taxes, depreciation and amortization. The Company defines adjusted EBITDA as EBITDA, further adjusted to exclude certain expenses and transactions that the Company believes are not representative of its core operations, namely, acquisition-related deferred revenue adjustments; restructuring and other costs; transaction and integration-related expenses; asset impairment charges; share-based compensation expense; contingent consideration and other expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; acquisition-related revaluation adjustments; other expense, net; and loss on extinguishment of debt. The Company presents EBITDA and adjusted EBITDA because it believes they are useful metrics for investors as they are commonly used by investors, analysts, and debt holders to measure the Company's ability to fund capital expenditures and meet working capital requirements.

Each of the non-GAAP measures noted above are used by management and the Company's board of directors (the "Board") to evaluate the Company's core operating results because they exclude certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the core operations of the business. Adjusted income from operations, adjusted operating margin, and adjusted net income (including adjusted diluted earnings per share) are used by management and the Board to assess the Company's business.

Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. Also, other companies might calculate these measures differently. Investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures included in this press release and the accompanying tables.

Investor Relations Contact:

Ronnie Speight
Vice President, Investor Relations
Phone: +1 (919) 745-2745
Email: investor.relations@incresearch.com
Press/Media Contact:

Danielle DeForge
Senior Director, External Communications
Phone: +1 (781) 425-2624
Email: danielle.deforge@inventivhealth.com


       
INC Research Holdings, Inc. and Subsidiaries
GAAP Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
       
  Three Months Ended September 30,   Nine Months Ended September 30,
  2017   2016   2017   2016
Net service revenue $ 592,207     $ 259,557     $ 1,102,372     $ 767,358  
Reimbursable out-of-pocket expenses 230,121     132,234     493,009     437,167  
Total revenue 822,328     391,791     1,595,381     1,204,525  
               
Costs and operating expenses:              
Direct costs (exclusive of depreciation and amortization) 405,798     159,641     722,643     471,196  
Reimbursable out-of-pocket expenses 230,121     132,234     493,009     437,167  
Selling, general, and administrative 88,855     41,743     176,320     127,818  
Restructuring and other costs 6,670     2,881     12,626     10,283  
Transaction and integration-related expenses 84,340     1,127     108,081     2,857  
Asset impairment charges 30,000         30,000      
Depreciation 14,049     5,305     26,279     15,257  
Amortization 51,383     9,464     70,309     28,388  
Total operating expenses 911,216     352,395     1,639,267     1,092,966  
(Loss) income from operations (88,888 )   39,396     (43,886 )   111,559  
               
Other (expense) income, net:              
Interest income 501     62     765     139  
Interest expense (27,432 )   (3,226 )   (33,818 )   (9,317 )
Loss on extinguishment of debt (102 )   (439 )   (102 )   (439 )
Other expense, net (5,953 )   (2,384 )   (16,164 )   (10,761 )
Total other (expense) income, net (32,986 )   (5,987 )   (49,319 )   (20,378 )
(Loss) income before provision for income taxes (121,874 )   33,409     (93,205 )   91,181  
Income tax expense (26,124 )   (6,078 )   (30,217 )   (16,042 )
Net (loss) income $ (147,998 )   $ 27,331     $ (123,422 )   $ 75,139  
               
(Loss) earnings per share:              
Basic $ (1.70 )   $ 0.50     $ (1.90 )   $ 1.39  
Diluted $ (1.70 )   $ 0.49     $ (1.90 )   $ 1.35  
Weighted average common shares outstanding:              
Basic 87,152     54,186     65,097     54,147  
Diluted 87,152     55,567     65,097     55,836  
                       


 
INC Research Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
 
  September 30, 2017   December 31, 2016
ASSETS      
Current assets:      
Cash and cash equivalents $ 304,327     $ 102,471  
Restricted cash 1,201     607  
Accounts receivable billed, net 557,257     211,476  
Accounts receivable unbilled 403,123     173,873  
Prepaid expenses and other current assets 96,894     34,202  
Total current assets 1,362,802     522,629  
Property and equipment, net 172,912     58,306  
Goodwill 4,265,175     552,502  
Intangible assets, net 1,394,728     114,486  
Deferred income tax assets 21,337     14,726  
Other long-term assets 80,000     25,858  
Total assets $ 7,296,954     $ 1,288,507  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $ 66,031     $ 23,693  
Accrued liabilities 445,958     153,559  
Deferred revenue 510,930     277,600  
Current portion of capital lease obligations 19,941      
Current portion of long-term debt 30,750     11,875  
Total current liabilities 1,073,610     466,727  
Capital lease obligations, non-current 22,104      
Long-term debt, non-current 2,984,785     485,849  
Deferred income tax liabilities 51,108     8,295  
Other long-term liabilities 139,038     26,163  
Total liabilities 4,270,645     987,034  
       
Commitments and contingencies      
       
Shareholders' equity:      
Preferred stock, $0.01 par value; 30,000,000 shares authorized, 0 shares
issued and outstanding at September 30, 2017 and December 31, 2016
     
Common stock, $0.01 par value; 600,000,000 shares authorized, 104,219,471
and 53,762,786 shares issued and outstanding at September 30, 2017 and
December 31, 2016, respectively
1,042     538  
Additional paid-in capital 3,404,506     573,176  
Accumulated other comprehensive loss, net of tax (25,540 )   (42,250 )
Accumulated deficit (353,699 )   (229,991 )
Total shareholders' equity 3,026,309     301,473  
Total liabilities and shareholders' equity $ 7,296,954     $ 1,288,507  
 



   
INC Research Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
   
  Nine Months Ended
September 30,
  2017   2016
Cash flows from operating activities:      
Net (loss) income $ (123,422 )   $ 75,139  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:      
Depreciation and amortization 96,588     43,645  
Amortization of capitalized loan fees and original issue discount, net of Senior Notes
premium
759     765  
Share-based compensation 50,928     9,404  
Provision for doubtful accounts 1,477     1,927  
Provision for (benefit from) deferred income taxes 12,733     (5,226 )
Foreign currency transaction losses 6,264     18,789  
Asset impairment charges 30,000      
Loss on extinguishment of debt 102     439  
Other non-cash items 1,404     160  
Changes in operating assets and liabilities, net of effect of business combinations:      
Billed and unbilled accounts receivable 59,043     (58,748 )
Accounts payable and accrued expenses (10,132 )   (894 )
Deferred revenue (19,425 )   5,753  
Other assets and liabilities 3,427     3,971  
Net cash provided by operating activities 109,746     95,124  
Cash flows from investing activities:      
Payments associated with business acquisitions, net of cash acquired (1,678,814 )    
Purchases of property and equipment (28,153 )   (16,826 )
Other, net (12 )    
Net cash used in investing activities (1,706,979 )   (16,826 )
Cash flows from financing activities:      
Proceeds from issuance of long-term debt 2,598,000      
Payments of debt financing costs (25,476 )   (868 )
Repayments of long-term debt (475,097 )    
Proceeds from revolving line of credit 15,000     100,000  
Repayments of revolving line of credit (40,000 )   (105,000 )
Redemption of Senior Notes and associated breakage fees (290,250 )    
Payments of capital leases (3,586 )    
Payments for repurchase of common stock     (64,500 )
Proceeds from exercise of stock options 17,048     14,415  
Payments related to tax withholding for share-based compensation (5,391 )   (825 )
Net cash provided by (used in) financing activities 1,790,248     (56,778 )
Effect of exchange rate changes on cash and cash equivalents 8,841     (3,583 )
Net increase in cash and cash equivalents 201,856     17,937  
Cash and cash equivalents, beginning of period 102,471     85,011  
Cash and cash equivalents, end of period $ 304,327     $ 102,948  
 


       
INC Research Holdings, Inc. and Subsidiaries
Reconciliation of GAAP to Combined Company Non-GAAP Measures
(in thousands)
(Unaudited)
       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2017   2016   2017   2016
Combined Company adjusted net service revenue:              
Net service revenue, as reported $ 592,207     $ 259,557     $ 1,102,372     $ 767,358  
Pre-merger inVentiv net service revenue 161,168     555,675     1,202,170     1,657,993  
Combined Company net service revenue, before adjustments 753,375     815,232     2,304,542     2,425,351  
Acquisition-related deferred revenue adjustment (a) 13,198         27,014      
Combined Company adjusted net service revenue $ 766,573     $ 815,232     $ 2,331,556     $ 2,425,351  
Combined Company Segment adjusted net service revenue:              
Clinical Solutions net service revenue, as reported $ 432,780     $ 257,291     $ 937,781     $ 760,998  
Pre-merger inVentiv Clinical Solutions net service
revenue
88,558     262,484     616,594     777,102  
Combined Company Clinical Solutions net service
revenue, before adjustments
521,338     519,775     1,554,375     1,538,100  
Acquisition-related deferred revenue adjustment (a) 12,051         24,328      
Combined Company Clinical Solutions adjusted net
service revenue
$ 533,389     $ 519,775     $ 1,578,703     $ 1,538,100  
               
Commercial Solutions net service revenue, as reported $ 159,427     $ 2,266     $ 164,591     $ 6,360  
Pre-merger inVentiv Commercial Solutions net service
revenue
72,610     293,191     585,576     880,891  
Combined Company Commercial Solutions net service
revenue, before adjustments
232,037     295,457     750,167     887,251  
Acquisition-related deferred revenue adjustment (a) 1,147         2,686      
Combined Company Commercial Solutions adjusted net
service revenue
$ 233,184     $ 295,457     $ 752,853     $ 887,251  
Combined Company adjusted income from operations:              
(Loss) income from operations, as reported $ (88,888 )   $ 39,396     $ (43,886 )   $ 111,559  
Pre-merger inVentiv (loss) income from operations (30,624 )   52,354     (58,819 )   151,087  
Combined Company (loss) income from operations,
before adjustments
(119,512 )   91,750     (102,705 )   262,646  
Acquisition-related deferred revenue adjustment (a) 13,198         27,014      
Amortization (b) 71,039     18,590     218,488     55,756  
Restructuring and other costs (c) 12,159     10,329     28,006     38,595  
Transaction and integration-related expenses (d) 100,871     7,262     133,727     11,658  
Asset impairment charges (e) 30,000         30,000      
Share-based compensation (f) 9,336     4,991     32,033     13,508  
Contingent consideration and other expense (g)     321         1,406  
Discretionary bonus accrual reversal (h)         (5,953 )   (4,144 )
R&D tax credit adjustment (i)     (216 )   (6,030 )   (421 )
Monitoring and advisory fees (j) 1,028     932     7,538     2,633  
Acquisition-related revaluation adjustments (k) 2,389     (249 )   4,408     717  
Combined Company adjusted income from operations $ 120,508     $ 133,710     $ 366,526     $ 382,354  
GAAP operating margin (15.0 )%   15.2 %   (4.0 )%   14.5 %
Combined Company adjusted operating margin 15.7 %   16.4 %   15.7 %   15.8 %
                       


       
INC Research Holdings, Inc. and Subsidiaries
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
(Unaudited)
       
  Three Months Ended September 30,   Nine Months Ended September 30,
  2017   2016   2017   2016
Combined Company EBITDA and Adjusted EBITDA:              
Net (loss) income, as reported $ (147,998 )   $ 27,331     $ (123,422 )   $ 75,139  
Pre-merger inVentiv net loss (26,070 )   (9,697 )   (105,577 )   (32,728 )
Combined Company net (loss) income, before adjustments (174,068 )   17,634     (228,999 )   42,411  
Interest expense, net 39,431     57,994     119,837     174,274  
Income tax expense (benefit) 8,813     14,226     (15,663 )   35,671  
Depreciation 18,285     19,461     57,860     57,135  
Amortization (b) 71,039     18,590     218,488     55,756  
EBITDA (36,500 )   127,905     151,523     365,247  
Acquisition-related deferred revenue adjustment (a) 13,198         27,014      
Restructuring and other costs (c) 12,159     10,329     28,006     38,595  
Transaction and integration-related expenses (d) 100,871     7,262     133,727     11,658  
Asset impairment charges (e) 30,000         30,000      
Share-based compensation (f) 9,336     4,991     32,033     13,508  
Contingent consideration and other expense (g)     321         1,406  
Discretionary bonus accrual reversal (h)         (5,953 )   (4,144 )
R&D tax credit adjustment (i)     (216 )   (6,030 )   (421 )
Monitoring and advisory fees (j) 1,028     932     7,538     2,633  
Acquisition-related revaluation adjustments (k) 2,389     (249 )   4,408     717  
Other expense, net (l) 6,269     1,435     22,085     10,025  
Loss on extinguishment of debt (m) 102     439     102     219  
Combined Company adjusted EBITDA $ 138,852     $ 153,149     $ 424,453     $ 439,443  
Adjusted EBITDA Margin 18.1 %   18.8 %   18.2 %   18.1 %
                       


       
INC Research Holdings, Inc. and Subsidiaries
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
(Unaudited)
       
  Three Months Ended September 30,   Nine Months Ended September 30,
  2017   2016   2017   2016
Combined Company Adjusted Net Income:              
Net (loss) income, as reported $ (147,998 )   $ 27,331     $ (123,422 )   $ 75,139  
Pre-merger inVentiv net loss (26,070 )   (9,697 )   (105,577 )   (32,728 )
Combined Company net (loss) income, before adjustments (174,068 )   17,634     (228,999 )   42,411  
Acquisition-related deferred revenue adjustment (a) 13,198         27,014      
Amortization (b) 71,039     18,590     218,488     55,756  
Restructuring and other costs (c) 12,159     10,329     28,006     38,595  
Transaction and integration-related expenses (d) 100,871     7,262     133,727     11,658  
Asset impairment charges (e) 30,000         30,000      
Share-based compensation (f) 9,336     4,991     32,033     13,508  
Contingent consideration and other expense (g)     321         1,406  
Discretionary bonus accrual reversal (h)         (5,953 )   (4,144 )
R&D tax credit adjustment (i)     (216 )   (6,030 )   (421 )
Monitoring and advisory fees (j) 1,028     932     7,538     2,633  
Acquisition-related revaluation adjustments (k) 2,389     (249 )   4,408     717  
Other expense, net (l) 6,269     1,435     22,085     10,025  
Loss on extinguishment of debt (m) 102     439     102     219  
Bridge financing fee (n) 5,815         5,815      
Income tax adjustment to normalized rate (o) (21,592 )   (12,283 )   (104,032 )   (37,157 )
Combined Company adjusted net income $ 56,546     $ 49,185     $ 164,202     $ 135,206  
               
Combined Company diluted weighted average common
shares outstanding:
             
Diluted weighted average common shares outstanding, as
reported
87,152     55,567     65,097     55,836  
Effect of certain securities considered anti-dilutive under
GAAP (p)
1,534         1,275      
Estimated additional dilutive shares outstanding as a result
of the Merger (q)
16,961     49,927     38,938     49,927  
Combined Company diluted weighted average common
shares outstanding
105,647     105,494     105,310     105,763  
               
Combined Company adjusted diluted earnings per share $ 0.54     $ 0.47     $ 1.56     $ 1.28  
                               
  1. Represents non-cash adjustments resulting from the revaluation of deferred revenue and the subsequent elimination of revenue in purchase accounting in connection with business combinations.

  2. Represents the amortization of intangible assets associated with acquired customer relationships, backlog, and trademarks.

  3. Restructuring and other costs consist primarily of: (i) severance costs associated with a reduction/optimization of the Company's workforce in line with the Company's expectations of future business operations, (ii) transition costs associated with the change in the Company's Chief Executive Officer during the fourth quarter of 2016, (iii) consulting costs incurred for the continued consolidation of legal entities and restructuring of the Company's contract management process to meet the requirements of upcoming accounting regulation changes, and (iv) termination costs in connection with abandonment and closure of redundant facilities and other lease-related charges.

  4. Represents fees associated with corporate transactions and integration-related activities which primarily related to the Merger in 2017.

  5. Represents impairment charges associated with the INC Research trade name due to the Company’s intention to relaunch its operations under a new brand name in January 2018 in connection with the Merger.

  6. Represents non-cash share-based compensation expense related to awards granted under equity incentive plans.

  7. Represents contingent consideration expense incurred as a result of acquisitions and other expenses accounted for as compensation expense under GAAP.

  8. Represents inVentiv discretionary bonus accruals from the prior year that were reversed in periods prior to the Merger.

  9. Represents additional research and development tax credits in certain international locations for pre-Merger expenses recorded as a reduction of direct costs.

  10. Represents the annual sponsor management fee previously paid pursuant to the THL and Advent Management Agreement with inVentiv.

  11. Represents non-cash adjustments resulting from the revaluation of certain items such as vehicle leases in connection with inVentiv's Merger with Advent in 2016 and facilities.

  12. Represents other (income) expense comprised primarily of foreign exchange gains and losses.

  13. Represents loss on extinguishment of debt associated with the debt refinancing activities.

  14. Represents bridge financing fees incurred by the Company related to its 2017 Credit Agreement prior to the Merger.

  15. Represents the income tax effect of the non-GAAP adjustments made to arrive at adjusted net income using an estimated effective tax rate of approximately 35.0% for the combined company for all periods. This rate has been adjusted to exclude tax impacts related to valuation allowances recorded against deferred tax assets.

  16. Represents the weighted average number of equity-based awards issued under the Company's equity incentive plans calculated using the treasury stock method that were excluded from shares used in computing GAAP diluted net loss per share due to reporting a net loss under GAAP for the period.

  17. Represents the estimated impact on the dilutive weighted average shares outstanding had the Merger occurred on January 1, 2016. The amount consists of the shares issued to inVentiv shareholders on August 1, 2017 and the fully vested stock option awards and restricted stock units issued under the equity incentive plans formerly related to inVentiv that were assumed by the Company in the Merger.
       
INC Research Holdings, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Fourth Quarter 2017 Guidance
(in millions, except per share data)
(unaudited)
       
  Adjusted Net Income   Adjusted Diluted
Earnings Per Share
  Low   High   Low   High
Net (loss) income and diluted earnings per share $ (26.2 )   $ (14.4 )   $ (0.25 )   $ (0.14 )
Adjustments:              
Amortization (a) 75.0     75.0          
Share-based compensation (a) 5.4     5.4          
Restructuring and other costs (a) 9.5     10.0          
Transaction expenses (a) 6.5     6.5          
Merger-related deferred revenue adjustment (a) 11.9     11.9          
Other (a) 0.1     1.1          
Income tax effect of above adjustments (b) (26.2 )   (32.0 )        
Adjusted net income and adjusted diluted earnings per share $ 56.0     $ 63.5     $ 0.52     $ 0.60  
 
  1. Amounts are estimates with an estimated range of +/- 5% and are presented gross without the benefit of income tax reduction.

  2. Income tax expense is calculated and the adjustments are tax-affected at an approximate rate of 35%, which represents our best estimate of the Company's full year non-GAAP effective tax rate.

INC Research, LLC