Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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: 001-39212
PPD, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
45-3806427
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
929 North Front Street, Wilmington, North Carolina 28401
(Address of Principal Executive Offices) (Zip Code)
910-251-0081
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
PPD
The NASDAQ Stock Market LLC
(Nasdaq Global Select Market)
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x
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   o    No  x 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   o   No  x 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer  
x
Smaller reporting company
o
 
 
Emerging growth company
o
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  o   No  x 
As of June 28, 2019, the last business day of the registrant’s most recently completed second quarter, the registrant’s common stock was not publicly traded. The registrant's common stock, $0.01 par value per share, began trading on The Nasdaq Global Select Market (“Nasdaq”) on February 6, 2020. As of February 27, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $2,001.7 million (based upon the closing sale price of the common stock on that date on Nasdaq). For purposes of this computation, shares of the registrant’s common stock held by affiliates, including executive officers, directors and certain holders known to the registrant, have been excluded.
As of February 27, 2020, the registrant had outstanding 348,580,422 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
No items are incorporated by reference into this Annual Report on Form 10-K.




PPD, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS

 
 
 
Item
 
Page
 
 
 
 
PART I
1.
Business
1A.
Risk Factors
1B.
Unresolved Staff Comments
2.
Properties
3.
Legal Proceedings
4.
Mine Safety Disclosures
 
 
 
 
PART II
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
6.
Selected Financial Data
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A.
Quantitative and Qualitative Disclosures About Market Risk
8.
Financial Statements and Supplementary Data
9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
9A.
Controls and Procedures
9B.
Other Information
 
 
 
 
PART III
10.
Directors and Executive Officers of the Registrant and Corporate Governance
11.
Executive Compensation
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13.
Certain Relationships and Related Transactions, and Director Independence
14.
Principal Accountant Fees and Services
 
 
 
 
PART IV
15.
Exhibits and Financial Statement Schedules
 
Exhibit Index
16.
Form 10-K Summary
 
Signatures






2


FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “targets,” “projections,” “should,” “could,” “would,” “may,” “might,” “will,” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” in Part I, Item 1A of this report. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.
When we use the terms “PPD,” the “Company,” “we,” “us” or “our” in this Annual Report on Form 10-K, we mean PPD, Inc. and its subsidiaries on a consolidated basis, unless the context indicates otherwise.
WEBSITE AND SOCIAL MEDIA DISCLOSURE

We use our website (www.ppdi.com) and our corporate Facebook, LinkedIn, and Twitter accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission (the “SEC”) filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this Annual Report on Form 10-K.
TRADEMARKS AND SERVICE MARKS
All trademarks, trade names, product names, graphics and logos of PPD contained herein are trademarks or registered trademarks of PPD, Inc. or its subsidiaries, as applicable, in the United States and/or other countries. All other party trademarks, trade names, product names, graphics and logos contained herein are the property of their respective owners. The use or display of other parties’ trademarks, trade names, product names, graphics or logos is not intended to imply, and should not be construed to imply, a relationship with, or endorsement or sponsorship of PPD, Inc. or its subsidiaries by such other party. Solely for convenience, we may refer to trademarks in this Annual Report on Form 10-K without the TM and ® symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks. Other trademarks appearing in this Annual Report on Form 10-K are the property of their respective owners.
INDUSTRY AND MARKET DATA

Market data used throughout this Annual Report on Form 10-K is based on management’s knowledge of the industry and the good faith estimates of management. All of management’s estimates presented herein are based on industry sources, including analyst reports and management’s knowledge. We also relied, to the extent available, upon management’s review of independent industry surveys and publications prepared by a number of sources and other publicly available information. We are responsible for all of the disclosure in this Annual Report on Form 10-K and while we believe that each of the publications, studies and surveys used throughout this Annual Report on Form 10-K are prepared by reputable sources and are generally reliable, we have not independently verified market and industry data from third-party sources. All of the market data used in this Annual Report on Form 10-K involves a number of assumptions and limitations and therefore is inherently uncertain and imprecise, and you are cautioned not to give undue weight to such estimates. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and elsewhere in this Annual Report on Form 10-K. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.

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Part I

Item 1. Business
Our Company
We are a leading provider of drug development services to the biopharmaceutical industry, focused on helping our customers bring their new medicines to patients around the world. We have been in the drug development services business for more than 30 years, providing a comprehensive suite of clinical development and laboratory services to pharmaceutical, biotechnology, medical device and government organizations, as well as other industry participants. Over that time, we have developed a track record of consistent quality, delivery and continuous innovation that has enabled us to grow faster than our underlying market over the past five years and deliver strong financial results. In 2019, we served all of the top 50 biopharmaceutical companies in the world, as ranked by 2018 research and development (“R&D”) spending, and, in 2018, were involved in 66 drug approvals. We also participated in the development of all of 2018’s top ten selling drugs, as ranked by 2018 revenue. Since 2014, we have also worked with over 300 companies in the growing biotechnology sector through our PPD Biotech model, which was built specifically to serve the unique needs of this customer segment. We have two reportable segments, Clinical Development Services and Laboratory Services.
Our purpose and mission are to improve health by helping our customers deliver life-changing therapies to patients. We pursue our purpose and mission through our clinical development and laboratory services and our strategy to bend the cost and time curve of drug development and optimize value for our customers.
https://cdn.kscope.io/8554796ef248d3ad356b40338f6c98ca-ppdbtccinfographic.jpg
Our customers benefit from accelerated time to market because it results in lengthened periods of market exclusivity, and our real-world evidence solutions support the superior efficacy and health economics of their novel therapies. We believe our medical, scientific and drug development expertise, along with our innovative technologies and knowledge of global regulatory requirements help our customers accelerate the development of safe and effective therapeutics and maximize returns on their R&D investments.
Our service offerings include both clinical development and laboratory services. Our clinical development services include all phases of development (i.e., Phase I-IV), peri- and post-approval and site and patient access services. Our laboratory services offer a range of high-value, advanced testing services, including bioanalytical, biomarker, vaccine, good manufacturing practice (“GMP”) and central laboratory services. We have deep experience across a broad range of rapidly growing areas of drug development and engage with customers through a variety of commercial models, including both full-service and functional service partnerships and other offerings tailored to address the specific needs of our customers.
We have developed significant expertise in the design and execution of complex global clinical trials, a result of conducting studies on global, national, regional and local levels across a wide spectrum of therapeutic areas for more than 30 years and in over 100 countries. Our customers entrust us to design, execute and deliver results on some of the most critical aspects of the drug development process for the key assets in their pipelines.

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As of December 31, 2019, we had more than 23,000 employees worldwide, approximately 5,100 of whom hold advanced degrees, and we had 100 offices in 46 countries. Over the last five years, we have conducted more than 2,100 clinical trials, and our laboratory scientists have completed more than 57,000 pharmaceutical development projects and worked with more than 7,600 compounds. Among other elements, our ability to successfully assess feasibility in the context of study design, recruit for increasingly specialized patient populations and devise optimal regulatory strategies is essential to our competitive advantage in winning new studies.
Our deep understanding of the drug development process has allowed us to effectively invest in and evolve our service offerings to meet the needs of our customers. We have developed a differentiated site and patient access capability, built a delivery model for biotechnology companies, invested in advanced laboratory testing, broadened the scope of our peri- and post-approval services and expanded our global presence. Specific examples of some of our recent initiatives and investments include:
Innovative site and patient access. We have developed differentiated capabilities that meaningfully address two of the biggest challenges that our customers face: patient enrollment and site performance. Through our Accelerated Enrollment Solutions (“AES”) delivery model, we focus on meeting the unique feasibility, site start-up and patient recruitment needs of each study. We address these complex needs by leveraging (i) large data sets, including identified and consented personal data on 100 million U.S. households and health information on approximately 20 million previously screened study candidates and (ii) our global site network of over 180 research sites across five continents and 17 countries.
Purpose-built PPD Biotech. Over the past five years, we pioneered the development, implementation and scaling of a purpose-built, customer-facing delivery model to address the specific needs of the increasingly relevant biotechnology sector. Our model is founded on (i) dedicating commercial, medical, operational and functional leaders to our biotechnology customers and (ii) allocating the right mix of experienced resources to drive their drug development programs.
Advanced laboratory services. Over the last five years, in response to strong customer demand for our services (over $1 billion of laboratory services in our backlog as of December 31, 2019), we have invested over $200 million to significantly increase the size and operating capacity of our laboratory facilities, acquire innovative laboratory equipment, expand our test menus and build out differentiated IT systems and laboratory automation.
Innovative peri-and post-approval studies. Our customers increasingly require evidence-based solutions to help them demonstrate the real-world effectiveness, safety and value of newly approved therapies, which are essential to optimize the commercial potential of their products. We have significantly expanded our capabilities in this growing area, providing our customers with service offerings in areas such as (i) market access, (ii) health economics modeling and (iii) patient-centered research.
Targeted geographic expansion. We maintain a strong presence of experienced professionals in all key regions and countries necessary to support our customers’ global drug development programs. In response to the growing importance of conducting global studies that include cohorts in Japan and China and the opportunity to serve local customers in those geographies with their global drug development needs, we have significantly increased the size and scale of our operations in those countries while maintaining the quality and operating standards demanded by our customers and regulatory authorities alike.
We believe these investments in our businesses and our innovative solutions have enhanced the strength of our clinical development and laboratory services and further differentiated our offerings from other clinical development organizations, providing us with meaningful competitive advantages and growth opportunities.
Our Industry
The drug development process involves the testing of drug candidates to demonstrate safety and efficacy in order to meet regulatory requirements. Developing new drugs for the treatment of human disease is an extremely expensive, complex, high-risk and time-consuming process. It is estimated that bringing a new drug or medical device to market can take up to 15 years and cost $2.5 billion or more.





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The Drug Development Process
The drug development process consists of two stages: pre-clinical and clinical. In the pre-clinical stage, the new drug candidate is tested in vitro and in vivo in animals, generally over a one- to three-year period, to assess and optimize potential use in humans. After successful pre-clinical testing and receipt of required regulatory authorizations, the new drug candidate can be advanced to the clinical development stage, which involves testing in humans. As we do not participate in the pre-clinical market, the following discussion describes the clinical drug development process in the context of the U.S. regulatory framework. The clinical drug development process and regulatory frameworks in other countries can vary from the United States framework, but in many ways are substantially similar.
Prior to commencing human clinical trials in the United States, a company must file with the U.S. Food and Drug Administration (“FDA”) an investigational new drug application (“IND”) containing information about animal toxicity and distribution studies, manufacturing and control data, stability data, a clinical development plan and a study protocol for the initial proposed clinical trial. The design of these trials, described in the study protocols, is essential to the success of the drug development effort. The studies are designed to generate the type of clinical data that will support the development of the drug candidate and, ultimately, potentially support regulatory approval. An IND must become effective in order for human clinical trials to begin. If the FDA does not place the IND on clinical hold within 30 days after an IND filing, human clinical trials may begin upon expiration of the 30-day period or upon earlier notification by the FDA that the clinical investigations may begin.
The clinical stage is the most time-consuming and expensive part of the drug development process. During the clinical stage, the drug candidate undergoes a series of tests in humans, including healthy volunteers, as well as participants with the targeted disease or condition. Human trials usually start on a small scale to assess safety, efficacy and dosage (Phase I-II) and then expand to larger trials (Phase III) to test efficacy and safety in the target population. These trials are generally conducted in the following sequential phases, which may overlap or be combined:
Phase I trials involve testing the drug candidate on a limited number of healthy individuals, typically 20 to 80 people, to determine the drug candidate’s basic safety data, including tolerance, absorption, metabolism and excretion. This phase lasts an average of six months to one year. In some therapeutic areas such as oncology, where cytotoxic compounds are being investigated, it is sometimes necessary to run Phase I trials in diagnosed patients instead of healthy individuals.
Phase II trials involve testing a small number of volunteer participants, typically 100 to 200 people, who suffer from the targeted disease or condition, to assess the drug candidate’s effectiveness and how different doses work. This phase lasts an average of one to two years.
Phase III trials involve testing large numbers of participants, typically several hundred to several thousand people, to evaluate efficacy on a large scale, as well as long-term safety. These trials involve numerous sites and generally last two to three years, but can be shorter or longer.
Phase IV or post-approval clinical trials involve monitoring or verifying the risks and benefits of a drug product.
Real-world data and evidence studies, meaning data and evidence gathered outside of the context of clinical trials, are often used to assess usage, potential benefits or risks, safety, effectiveness and health economics to achieve successful market access and product uptake.
Our Markets
As of December 31, 2019, our total addressable market was greater than $51 billion, consisting of clinical development services, including peri- and post-approval services and site and patient enrollment services, and laboratory services. We believe the clinical development services (Phase I–III), or clinical research organization (“CRO”), market to be an approximately $20.4 billion market as of December 31, 2019 and expect this market to continue to grow at an average annual growth rate of approximately 6-9%. We have expanded our capabilities in the $10.0 billion Phase IV and peri- and post-approval services market, which we anticipate will grow at an annual growth rate of approximately 6-7%. Our AES delivery model has allowed us to participate in the economics and growth of the investigator and patient recruitment market that otherwise would represent pass-through revenues, as it does for most other CROs. We expect this to be an approximately $10.4 billion market and anticipate it to grow at an annual growth rate of approximately 5-6%. In addition to competing in the CRO market, through our strategic investments we have strengthened our position in the laboratory services market and expanded our addressable market to include the markets for investigator and patient recruitment and peri- and post-approval services. In laboratory services, in addition to the $4.3 billion central laboratory market, we compete in the $6.0 billion market for advanced laboratory testing, which we anticipate will grow at an annual growth rate of 7-8%.

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https://cdn.kscope.io/8554796ef248d3ad356b40338f6c98ca-ppdtaminfographic.jpg
We believe there are five key trends affecting our end markets that will create increasing demand for our offering of services:
Growth in R&D spending. Biopharmaceutical companies must continually invest in drug development in order to create innovative new therapies or use existing drugs to treat new indications, to address unmet medical needs and to replace lost revenues when their currently marketed drugs lose patent protection. From 2008 to 2018, R&D spending increased approximately 3.3% annually, driven by long-term secular fundamentals including a 30% increase in active INDs and an approximately 80% increase in average annual FDA approvals from 2008 to 2018.
Increased levels of outsourcing by biopharmaceutical companies. As biopharmaceutical companies continue to seek ways to reduce clinical development costs and focus resources on core competencies, we believe they will continue to increase the amount of clinical development work they outsource to CROs. Outsourcing penetration as a percentage of total development spending by biopharmaceutical companies increased from approximately 36% in 2007 to approximately 49% in 2018. Drivers of increased outsourcing include:
biopharmaceutical companies’ desire for flexible cost structures and focus on core competencies;
experience, expertise, capability and value provided by CROs;
difficulty conducting large, global and complex clinical trials required by the current regulatory environment;
ability to generate real-world data and evidence; and
desire to address declining R&D productivity by utilizing more efficient means of conducting clinical trials.
Increased complexity in clinical development. Clinical trials continue to increase in complexity due to a confluence of factors including, but not limited to, (i) new therapeutic modalities, (ii) the collection of more clinical trial endpoints, (iii) more specific patient inclusion/exclusion criteria, (iv) ever-changing regulatory requirements and (v) an expansion of evidence generation methods, such as electronic patient-reported outcomes and virtual clinical trials. All of these factors result in more complex trial design, challenges in enrolling protocol-eligible patients, longer duration of clinical trials and greater overall clinical trial cost. As a result, we expect biopharmaceutical companies to increasingly seek partners that have the experience and expertise to conduct cost-effective clinical studies. In particular, we believe large CROs who possess scale, geographic reach and differentiated capabilities to manage the complexity of clinical trials will continue to grow at a higher rate and take market share versus the overall industry.

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Biotechnology sector growth. The U.S. biotechnology sector has grown rapidly over the last decade and has emerged as a key customer segment for the drug development services industry. The rate of biotechnology companies’ R&D spending growth has been higher than that of traditional pharmaceutical companies in recent years, and we believe that over the last five years, innovative biotechnology companies have accounted for approximately 40% of new drug approvals (“NDAs”). This has largely been fueled by a robust funding environment, both public and private, with over $150 billion of capital raised for biotechnology companies in the last three years. Today, we believe the majority of biotechnology companies have enough cash on hand to fund R&D expenditures for two to three years. Many biotechnology companies are smaller, discovery research-focused organizations that do not find it economically attractive to invest in the infrastructure and personnel necessary to conduct their clinical development programs on their own, and we believe they will continue to rely on CROs, like us, for their global drug development needs.
Increasing importance to prove value of new therapies. As participants in the healthcare industry are increasingly focused on managing costs, biopharmaceutical companies need to find alternatives to align market constituents on the value of their treatments. The ability to perform peri- and post-approval studies to transform real-world data (such as medical claims data or electronic medical records) into real-world evidence provides biopharmaceutical companies a solution to quantify the value of new therapies to market constituents. Real-world data and evidence enable biopharmaceutical companies to develop better therapies and optimize the commercial potential of their new therapies. With increased R&D activity and competition among newly approved therapies in similar indications, we anticipate the continued adoption of real-world data and evidence to demonstrate the value of new medicines.
Our Competitive Strengths
We believe we are well-positioned to serve the global biopharmaceutical industry in obtaining the approval for, and maximizing the market access and value of, their new medicines. We differentiate ourselves from others in our industry through our competitive strengths, which include:
Leading Drug Development Expertise with Scale and a Long Track Record of Excellence
We are one of the world’s largest providers of clinical development services, with the scale to leverage investments in capabilities and innovative solutions to serve the increasingly complex and diverse needs across our extensive customer base. As of December 31, 2019, we had more than 23,000 employees worldwide and 100 offices in 46 countries, allowing us to offer our customers global infrastructure and deep expertise across a broad range of therapeutic areas and all stages of clinical development.
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Through our integrated global platform and workforce, we provide our customers with consistent quality and operating standards worldwide, thereby minimizing risks in, and maintaining the integrity of, the evidence generation process without the need to rely on local sub-contractors or vendors. We have developed our scale, capabilities and track record of quality and innovation over a more than 30-year history, earning us a reputation as a leading global partner to the most sophisticated biopharmaceutical companies. In 2019, for the eighth consecutive year, we were recognized by Life Science Leader magazine for excellence in clinical research. We believe the combination of our scale, expertise, track record and innovative offerings positions us to continue to grow and take market share within the industry.



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Differentiated Clinical Development Services
Building on our solid foundation, we have invested heavily in recent years to further strengthen our competitive position through differentiated clinical development solutions designed to address our customers’ needs and bend the time and cost curve of their clinical trials. Our key clinical development investments include:
Study start-up. We have acquired and embedded leading technologies and tools in our global start-up processes to (i) improve feasibility by helping our customers assess trial viability quickly and effectively and (ii) reduce study start-up timelines. Due to the substantial costs and investments associated with clinical trial starts, our ability to reduce key cycle times to below-industry averages addresses a critical need of our customers. For example, our median cycle time from final protocol received (“FPR”) to first site activated is more than 10% faster than industry benchmark cycle times. Similarly, our median time from FPR to the milestone of 50% of sites activated is more than 10% faster than industry benchmarks. This accelerated site activation, coupled with our clinical operations, has also resulted in significantly improved patient enrollment timelines: FPR to first patient, first visit is more than 10% faster and FPR to 50% patients enrolled is more than 30% faster than benchmarks.
Accelerated Enrollment Solutions: Our AES delivery model aligns the fundamental components of the clinical trial execution process and extends across five continents, 17 countries and over 180 research sites. In the past five years, AES has participated in over 750 studies, including trials conducted by us, our customers and other CROs. Since 2013, we have deployed over $600 million making strategic acquisitions and bringing together complementary capabilities to create a delivery model which would be difficult to replicate. We believe our AES delivery model represents the industry’s largest aggregation of fully identified data on individuals who have provided their consent and indicated an interest in participating, or have participated, in clinical trials. With our AES delivery model, we are able to provide significant flexibility to our customers, giving them the ability to engage us for (i) discrete components of our AES service offerings, (ii) the full suite of AES capabilities or (iii) wholly integrated constructs which combine our AES offerings with our clinical development services. Through this model, we have been able to deliver compelling value propositions to our customers, including:
significant percentages (e.g., 30% - 80%) of their trial enrollment with fewer sites, in less time and under one contract and uniform procedures and quality standards; and
significantly faster start-up times and higher enrollment rates than the independent site model.
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Site monitoring. We have built and implemented a global risk-based monitoring model designed to efficiently focus site monitoring resources on key risks. Driven by an adaptive and intelligent monitoring model powered by real-time data analytics and remote site monitoring, we are able to provide an efficient and cost-effective study monitoring solution focused on the prevention and mitigation of protocol compliance risks in our customers’ clinical development programs. By focusing our on-site monitors on key risks, our differentiated site monitoring solution enables us to reduce our monitors’ time on site, translating to faster and lower-cost clinical trials with better quality oversight.
Peri- and post-approval services. We are a leading provider of real-world research and evidence-based solutions designed to help sponsors support the real-world effectiveness, safety and value of biopharmaceutical and biotechnology products with capabilities in 35 countries. Through this offering, we provide our customers with critical scientific expertise and global operational capabilities to help generate the evidence needed to optimize the market access and commercial potential of their products. As of December 31, 2019, we had over 450 scientists and consultants conducting real-world, patient-centered, health economics, epidemiological and market access research. We specialize in engaging with key market constituents early in the drug development process to create an evidence strategy that will meet the needs of all relevant stakeholders. We develop evidence to demonstrate the safety, effectiveness and value of over 150 drugs and therapies per year across more than 20 countries. We have also contributed to a number of payer submissions, including the reversal of multiple decisions by the U.K.’s National Institute for Health and Care Excellence.
Comprehensive and Growing Laboratory Services
We own and operate an integrated and scaled suite of laboratory services. We offer a range of high-value, advanced testing services, including bioanalytical, biomarker, vaccines, GMP and central laboratory infrastructure to support R&D. We believe our scientific employee base with advanced degrees provides us with a competitive advantage – of our approximately 480 laboratory services scientists with advanced degrees, approximately 180 have PhDs and approximately 300 have MSs. Since 2015, we have invested an aggregate of over $200 million in capital expenditures to expand and enhance our global laboratory services capabilities and capacity. We believe we are differentiated from other laboratory providers by our global scale and the comprehensiveness of our service offering and focus on servicing the research needs of the biopharmaceutical industry. The breadth of our test menus, efficient technology and instrumentation platforms and global facility footprint allow us to offer a comprehensive set of scientific laboratory services. The ability to integrate patient data from the clinical trial and associated laboratory results has also contributed to increased customer wallet share. Our laboratory facilities have been successfully audited by customers and regulatory authorities over 1,100 times since 2014, and our track record of quality has significant reputational value. We believe we are one of the leading providers in each of the GMP, bioanalytical and central laboratory services sectors as well as in the growing vaccines market. In 2019, for the second time in three years, we were named Best CRO Provider at the World ADC Awards, a recognition of our efforts to help customers advance their antibody drug conjugates (“ADC”) research to develop new anticancer therapies.
Large and Growing Diversified Customer Base
Our leading capabilities are evidenced by the quality, scale and diversity of our customers. Over the past five years, we have provided services to all of the top 50 biopharmaceutical companies in the world, as ranked by 2018 R&D spending, small and mid-size pharmaceutical companies and over 300 biotechnology customers as well as government, academic and non-profit organizations. We have long-standing relationships with our customers as demonstrated by having provided services for a decade or more to each of our top ten customers by revenue for the year ended December 31, 2019. These relationships tend to have larger and longer-term contracts, which provide stability and visibility to our revenues. In addition, our customer base continues to grow and is very diverse, spanning key geographies, therapeutic areas and clinical stages of development. This diversity enables us to continuously develop and refine our expertise and enhance our ability to bend the cost and time curve of drug development and optimize value for our customers. We have also strategically positioned ourselves to benefit from the rapid growth of the biotechnology market through the formation and build-out of PPD Biotech where nearly 80% of our biotechnology awards are for Phase IIb-IV, post proof of concept drug development. As a result of our diversified customer base, no one customer accounted for more than 10% of our 2019 revenue.







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Experienced, Highly Technical Organization with a Culture of Excellence and Industry-Leading Retention
We are led by an experienced and talented team of individuals who collectively have extensive experience in the CRO and biopharmaceutical industries. Many of our senior leaders previously worked for our biopharmaceutical customers, and as such have first-hand knowledge of the challenges our customers face in today’s clinical development environment. To achieve our goal of delivering best-in-class services to our customers, our management team has built a culture of excellence based on a set of defining principles by which we hire, develop and compensate our talent. The result is a company-wide culture focused on the pursuit of industry leadership, innovation and excellence aimed at our purpose and mission. We believe the technical and therapeutic expertise of our dedicated employees provides us with a competitive advantage—of our more than 23,000 employees as of December 31, 2019, approximately 5,100 hold advanced, masters or equivalent degrees, including over 1,100 MDs and PhDs. As a result, we have industry-shaping domain expertise and thought leadership, including in key areas such as product development strategy, protocol design, outcomes and patient-centered research and health economics. In recent years, we have made significant investments to build capabilities to effectively recruit, train, develop and retain talented individuals and teams. Our consistent focus on talent and culture has contributed to both overall retention and retention in key operational roles, such as project managers, that is significantly ahead of industry averages. Our low turnover rates in key operational roles provides our customers consistency in their study teams and is an important differentiator for us. For example, our project manager turnover rates have ranged from 8.9% in 2017 to 8.0% in 2019, which we believe is lower than industry averages. Our investment in these areas has been recognized by industry publications. In 2018, for the eighth consecutive year, we received honors from Training magazine for our employee training and development programs while Forbes magazine named us to their list of America’s Best Employers in the large company category in 2018 and 2019.
Disciplined Operational and Financial Approach
We have strategically oriented our business towards the largest and highest growth areas of the drug development services market, including key therapeutic areas, the biotechnology end market and peri- and post-approval services, in order to position ourselves to win high value-add business. Our operating model is focused on providing our customers with a mix of full-service contracts and select functional service provider (“FSP”) commercial arrangements in differentiated value-add areas. We have also leveraged our track record of operational discipline and expertise around contract pricing and backlog policy to create a highly visible and stable revenue base. Furthermore, we have focused our operations on key initiatives, including optimal utilization of billable staff and prudent cost management. Our positive historical operating results have allowed us to deploy significant capital into our business through strategic investments and acquisitions while also returning capital to our stockholders. We believe our strong financial profile demonstrates the quality and efficiency of our operating model and positions us for continued growth.
Our Growth Strategy
The key elements of our growth strategy to help our customers bend the cost and time curve of drug development include:
Further Strengthen Our Offerings in Existing and New Markets
Our global footprint, scale, integrated systems and deep scientific expertise enable us to conduct complex, multi-center clinical trials simultaneously throughout the world. We have a well-established presence in all of the major biopharmaceutical markets, including the United States, Europe and Asia, with nearly 3,800 professionals in the latter region and scale and differentiation in Japan and China, two countries of increasingly strategic importance for drug development programs. As a result, we continue to gain share within the CRO market as biopharmaceutical customers continue to look for strategic partners with global scale and service offerings to conduct complex global trials. We plan to further strengthen our leadership position by investing in geographies that are critical to address the needs of our customers and their drug development pipelines.
Expand Leading Therapeutic Expertise in Existing and Novel Areas
We have amassed deep scientific expertise in the largest and fastest growing therapeutic areas. In addition, we have developed specific capabilities in disciplines that cross therapeutic areas, such as rare diseases, vaccines and a broad array of chronic conditions. Over 75% of total R&D spend on late stage clinical trials conducted from 2015 through 2018 related to hematology/oncology and chronic conditions. Over the last five years, we have performed a significant amount of work in both of these areas, having provided services in over 500 hematology/oncology studies and over 1,000 chronic condition studies in the last five years.

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We are also conducting significant work in growing areas of R&D innovation, such as immuno-oncology, which has experienced a 91% increase in the number of drugs in development since 2017, and cell and gene therapy, for which the industry pipeline of drugs has more than tripled since 2014. In addition, customers are hiring us to run their programs in other areas of innovative R&D, such as ADC’s, ribonucleic acid (“RNA”) interference, messenger RNA and others. We intend to continue investing in our scientific and operational capabilities to further strengthen our leadership position in key therapeutic areas and position ourselves to take advantage of the evolving trends in the biopharmaceutical industry.
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Build Upon Our Existing Dedicated Biotech Offering
Over the last five years, innovative biotechnology companies focused on new and complex therapies have accounted for approximately 40% of NDAs and have driven significant growth in related R&D spending. Large biopharmaceutical companies have had to fill gaps in their pipelines through strategic collaborations with, and acquisitions of, biotechnology companies, further increasing growth in the number of innovative, complex and global clinical trials. We were at the forefront of realizing these trends and formed our dedicated PPD Biotech model in 2014. Since that time, we have more than doubled PPD Biotech annual authorizations and grown revenue by over 80%. We continue to leverage our sophisticated customer development activities within PPD Biotech, which include early identification of novel molecules and extensive pre-trial consultative advisory engagement with customers, to optimally position ourselves to win new business. PPD Biotech’s success is evidenced by the increase in our win rates from biotechnology companies whereby we have increased our average win rate from approximately 26% in 2016 to over 40% in 2019. We believe that our track record of serving biotechnology companies through our PPD Biotech model has earned us a reputation as the strategic partner of choice. Since the beginning of 2014, we have worked with some of the most innovative companies to help bring disease-modifying therapies to the market for patients. We believe our differentiated offering will enable us to continue to capture share within the biotechnology market.






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Increase Use of Our Innovative Site Network and Patient Enrollment Platform
Through our AES delivery model, we have developed an approach to directly serve our customers’ needs by addressing patient enrollment and site performance challenges, which are two of the biggest challenges our customers face in clinical development. We believe our integrated strategy of using technology and identified and consented data, our global site network and support for leading independent sites, is the ideal approach to serving our customers. To date, AES has played a critical role in completing some of the most important and complex clinical trials for our customers. We plan to continue to build out our AES capabilities and further strengthen the value propositions we offer and deliver to our customers through this differentiated model.
In addition to providing us with a competitively advantaged asset, our AES delivery model is financially attractive as it allows us to participate in the economics and growth of the market for investigator and patient recruitment services that otherwise would represent pass-through revenues, as is the case for most other CROs.
Capitalize on our Growing Laboratory Segment
Our laboratory services offering is focused on the high-growth, innovative segment of laboratory services through its diverse range of high-value, advanced testing services. As an example, we have developed a significant and growing number of assays to address the testing needs of gene therapy. Our Laboratory Services segment represents approximately 19.0% of our 2019 total direct revenues and increased approximately 19.3% for the year ended December 31, 2019 as compared to the same period in 2018. It also affords us significant operating leverage and diversification, and provides higher backlog visibility and related conversion rates. Our Laboratory Services segment allows us to provide integrated offerings to customers that need both clinical development and laboratory services.
Continue to Invest in Innovation
We have consistently been and are committed to spending our time and resources on adding to and improving on our capabilities and service offerings. We assess the need to add new and innovative capabilities to reduce the cost and time required to generate evidence for our customers’ product candidates. We believe that the biopharmaceutical industry is constantly evolving and we are focused on evaluating opportunities in a disciplined manner that is both capital efficient and flexible in approach. We are adept at successfully identifying and executing on acquisitions, joint ventures and strategic venture investments to pursue and amplify nascent technologies and capabilities for our customers’ benefit, as evidenced by our investments in Science 37, Inc. and Medable, Inc.
Our Services
We are a leading provider of drug development services to the biopharmaceutical industry, offering comprehensive, integrated clinical development and laboratory services to our customers. We provide our services through our Clinical Development Services and Laboratory Services segments. Within each segment, we offer numerous services and solutions for our customers, and across segments our offerings are complementary so that customers may optimize their development programs and maximize value and outcomes by accessing our full suite of offerings.
Clinical Development Services
Our Clinical Development Services offerings span the lifecycle of clinical product development and include:
Product development and consulting services. We specialize in developing integrated product development strategies that provide biopharmaceutical companies with interdisciplinary preclinical, chemistry, manufacturing and controls, clinical and regulatory road maps for the development and marketing of their products and product candidates through the global product life cycle. Our services are designed to speed our customers’ product candidates to market with reduced operational risk and increased commercial potential. Our team of physicians, scientists, regulatory professionals and biostatisticians with pharmaceutical expertise offers specialized guidance across all major therapeutic areas, including oncology, cardiovascular disease and critical care, neurology and psychiatry, infectious diseases, rheumatology and metabolic diseases and across a range of specialized disciplines, including advanced therapies, biosimilars, pediatrics and rare diseases.
Early development services. We provide comprehensive support to early clinical development programs, including Phase I trials. We conduct early-phase studies at our 185-bed clinic in Austin, Texas for healthy volunteer studies, our 24-bed hospital-adjacent facility in Las Vegas, Nevada for both healthy and patient volunteer studies and our 52-bed hospital-adjacent facility in Orlando, Florida for healthy volunteer studies. Our Orlando facility also has two ten-bed intensive treatment rooms. We complement these Phase I units with a global network of affiliated clinical trial sites which provide access to numerous special populations and disease indications and a fully integrated early development services team providing streamlined program management, clinical monitoring, data management, biostatistics, clinical pharmacology, medical writing, regulatory and pharmacovigilance support. We have particular experience in the conduct of first in human studies and have specialized capabilities for flow cytometry measurement, allowing rapid measurement of cell surface biomarkers and conducting glucose clamp and other endocrinology and metabolic studies.

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Phases II-IV clinical trial management. We provide full service protocol management for Phase II-IV clinical research studies for investigational new drugs, biologics and medical devices. The core of our Clinical Development Services offering is a comprehensive global suite of services for Phase II-IV clinical trials. These services include:
Protocol design;
Clinical trial strategic feasibility and investigator site selection;
Project management;
Site study startup activities;
Clinical monitoring and data capture;
Data management;
Biostatistics;
Safety medical monitoring/pharmacovigilance;
Regulatory affairs;
Medical writing;
Global clinical supplies – including depots in Kiev, Ukraine; Moscow, Russia; Johannesburg, South Africa; and Athlone, Ireland;
eClinical services;
Quality assurance; and
Virtual and digitally-enabled solutions.
We provide these services under a variety of outsourcing models, including the traditional full-service model in which we provide all or substantially all of these services to our customers by trial or asset. We also offer our services through a FSP model in which we provide specific services by function ranging from staff augmentation to functional services across trials, globally or by region. We are able to provide custom-built offerings with tailored services that are flexible and innovative to meet the specific needs of our customers.
In addition to managing trials for biopharmaceutical and biotechnology customers, we also provide clinical trial services to the U.S. government, including the National Institute of Allergy and Infectious Diseases (“NIAID”) under the National Institute of Health. We provide support to the NIAID Division of AIDS, including monitoring services at domestic and international sites, laboratory audits, Good Laboratory Practice (“GLP”) training and quality management, biostatistics and data management. We also support other U.S. government research priorities, such as developing a vaccine for the Zika virus, through subcontracts with other U.S. government contractors.
We have extensive expertise and experience in numerous therapeutic areas, including oncology/hematology, metabolic/endocrine, neuroscience, pediatric, cardiovascular, analgesia, gastroenterology, rare diseases, chronic diseases, urology and vaccines.
Accelerated Enrollment Solutions. We believe our AES delivery model provides the largest global dedicated site network, extending across five continents, 17 countries and over 180 research sites combined with the industry’s largest aggregation of fully identified and consented data on individuals interested or having participated in clinical trials. Through AES, we offer services to replace or complement the traditional site selection model, focusing on maximizing patient delivery through efficient and predictive centralized recruitment, having the ability to provide patient enrollment at significantly higher rates than the independent site model. Our SynexusPlus offering is an adaptable solution that allows us to meet customers’ needs, including more patients per site, faster startup and reduction in the number of sites or enrollment completion within a specific timeframe, all under a results-based single-price-per-patient model. SynexusPlus may be combined with our core global clinical trial management services to create PatientAdvantage, a fully outsourced trial solution that is designed to offer patient enrollment and budget certainty, as well as speed and cost savings, through streamlined contracting terms, capitated budget constructs, fewer sites and reduced recruiting time.

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Peri- and post-approval services. We are a leading provider of real-world research and evidence-based solutions to demonstrate the real-world effectiveness, safety and value of biopharmaceutical and biotechnology products with capabilities in 35 countries and, since 2015, have invested over $200 million to enhance our peri- and post-approval services. Through this offering, we provide our customers with critical scientific expertise and global operational capabilities to help generate the evidence needed to optimize the market access and commercial potential of their products. As of December 31, 2019, we had over 450 scientists and consultants conducting real-world, patient-centered, health economics, epidemiological and market access research. We provide our customers with critical scientific expertise and insight across the development continuum of a product, from early development through loss of exclusivity, with a primary focus on demonstrating the real-world effectiveness, safety and value of treatments. We specialize in engaging with key market constituents early in the development process to create an evidence strategy that will meet the needs of all relevant stakeholders. We develop evidence to demonstrate the safety, effectiveness and value of over 150 drug therapies per year across more than 20 countries. We have also contributed to a number of payer submissions, including the reversal of multiple decisions by the U.K.’s National Institute for Health and Care Excellence.
Medical communications. We provide industry inbound and outbound peri- and post-approval contact center solutions focused on medical and clinical support to the biopharmaceutical industry. Our multidisciplinary team, consisting of over 800 highly trained health care professionals, including physicians, pharmacists, nurses and life science graduates, provides medical and technical information to our customers’ patients with a focus on compliance, quality and delivery of what we believe to be best-in-class customer experiences. We support full portfolios of marketed products, providing local language expertise as well as a global reach. Live customer question and answering services are provided in multiple languages covering the major markets in which our customers sell their pharmaceutical products from 11 locations in North America, Latin America, Europe and Asia-Pacific. Using dedicated teams, our programs are customized and flexible to meet each customer’s evolving needs.
Laboratory Services
We own and operate an integrated and scaled suite of laboratory services. We offer a range of high value, advanced testing services, including bioanalytical, biomarker, vaccines, GMP and central laboratory infrastructure to support R&D. Throughout the drug development cycle, our customers benefit from global, comprehensive laboratory services spanning bioanalytical, biomarker, vaccines, GMP and central laboratory. Our laboratory services accelerate drug development for small molecules, biologics and cell and gene therapies which we believe allows customers to make faster decisions about their products. We believe we are one of the leading providers in each of the GMP, bioanalytical and central laboratory services sectors, as well as in the growing vaccines market. In 2019, for the second time in three years, we were named Best CRO Provider at the World ADC Awards, a recognition of our efforts to help customers advance their ADC research to develop new anticancer therapies.
Bioanalytical laboratory services. We provide bioanalytical services through our highly automated locations in Richmond, Virginia and Middleton, Wisconsin that are designed to be compliant with GLPs. Our bioanalytical laboratories analyze drug and metabolite concentrations from biological fluid and tissue samples within preclinical and human clinical studies. Our bioanalytical methods include: liquid chromatography combined with mass spectrometry (“LC-MS”) and high-resolution mass spectrometry, high performance liquid chromatography, ligand-binding, enzyme-linked immunosorbent assay, radioimmunoassay, flow cytometry and cell-based assay support. Our bioanalytical laboratories support the complete service necessary for biologic, small molecule, oligonucleotide and cell and gene therapy development. This includes pharmacokinetic evaluation of the therapeutic agent, immunogenicity testing to determine the presence of antibodies, and cell-based assays to determine the neutralizing antibody effect of the antibodies. We have the proven ability to handle an increasingly diverse range of large molecules, which include therapeutic peptides, monoclonal antibodies and ADC’s, as well as new areas such as glycans and biotransformation.
Biomarker laboratory services. Our biomarker laboratory core facility is located in Richmond, Virginia. The laboratory is closely aligned with both the central laboratories and bioanalytical laboratories to provide customized solutions for biomarker projects. The capabilities include LC-MS, ligand binding, flow cytometry and molecular genomics. Our technologies and applications enable the biomarker laboratory to develop or transfer methods and either perform sample analysis within the biomarker laboratory or transfer validated methods to the central laboratory or Phase I clinic as needed.
Vaccine science services. We perform testing for vaccines in our dedicated facility located in Richmond, Virginia. Our scientists perform immunogenicity testing to evaluate the efficacy of vaccines in inducing cellular and humoral immune responses and employ molecular detection methods, such as polymerase chain reaction testing to detect the absence of pathogens or to characterize attenuated vaccine strains following administration of a vaccine. Our service offering also includes providing dedicated laboratory space to conduct complex proprietary assays in support of multiple vaccine programs.

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GMP laboratory services. We provide early preclinical development through post-approval testing services and product analysis laboratory services through our locations in Middleton, Wisconsin and Athlone, Ireland that are designed to be compliant with GMPs. Our product analysis services include analytical method development and validation, stability and quality control testing of product and pharmaceutical ingredients and impurities characterization for small molecules and biologics for all dosage forms, as well as analytical testing of biopharmaceuticals, inhalation devices and cell and gene therapies. Our Athlone laboratory offers the advantage of proximity to our growing number of European customers and allows us to conduct release testing of products to be marketed in Europe for our global customers.
Central laboratory services. With facilities in Highland Heights, Kentucky, Brussels, Belgium, Singapore and Shanghai, China, our central laboratories provide highly standardized safety and biomarker testing services with customized results databases for our customers. We focus on providing long-term, large-scale studies where laboratory measurement of clinically relevant endpoints is critical. Our central laboratories utilize the same standard operating procedures and maintain identical instruments in every facility. All of our facilities are College of American Pathologists (“CAP”) accredited, and National Glycohemoglobin Standardization Program (“NGSP”) and Centers of Disease Control and Prevention (“CDC”) lipid standardization survey (“LSP”) certified. All our facilities run the same CAP proficiency tests on a quarterly basis. In addition to these industry quality standards, we run our own unique global laboratory assay standardization survey program monthly on our most common analyses, ensuring continuity and consistency of data at all stages of a clinical project. We also standardize data collection and reporting on a global basis utilizing the same software platform, our Preclarus central laboratory database. This platform provides real-time data and eliminates the need to merge data sets from different regions. Our laboratories provide on-site biorepository services that enable storage and archiving of samples for future testing, including specialized biomarker testing of specific patient populations to speed drug discovery and development efforts. In 2018, we formed a global strategic alliance for pathology and molecular testing solutions with NeoGenomics to provide a fully integrated global pathology and molecular testing solution to our customers, further expanding our central laboratory services related to oncology clinical trial activities.
Customers
Our customers consist predominantly of large biopharmaceutical companies and small to mid-size biotechnology and pharmaceutical companies. We also serve governmental organizations, medical device companies and other industry participants. We participated in the development of all of 2018’s top ten selling drugs, as ranked by 2018 revenue, and, in 2019, we served all of the top 50 biopharmaceutical companies in the world, as ranked by 2018 R&D spending. Since 2014, we have also worked with over 300 companies in the growing biotechnology sector, with no one customer accounting for more than 10% of our revenue in 2019. We seek to meet the individual needs of each of our customers by tailoring our services to address their specific objectives and offering a competitive commercial structure. We customize our offerings based on numerous factors, including the particular therapeutic area, trial type, trial size, study complexity, competitive landscape and unique customer needs. We believe that we are recognized among our customers as a leading provider of drug development services to the biopharmaceutical industry, differentiated on the basis of our expertise, global scale, track record, differentiated service offerings, comprehensive laboratory services and dedicated workforce.
Sales and Marketing
Our approach to sales and marketing to both biopharmaceutical and biotechnology companies involves the coordinated approach of a team of internal scientific, operational and other technical experts as well as our business development team members, building multi-faceted relationships and designing solutions tailored to the specific customer’s pipeline and other particular needs, and often includes members of our senior leadership team. For those large biopharmaceutical customers with which we have, or seek to have, a strategic partnership arrangement, a dedicated strategic account management team supports all aspects of the relationship. For small and mid-size biotechnology and pharmaceutical companies, we developed our PPD Biotech business model which is built specifically to serve the unique needs of this customer segment and is comprised of business development personnel and leaders from our commercial operational, medical and functional groups dedicated to working with customers in this customer segment.
Our Laboratory Services segment has a dedicated business development group that is organized into three separate teams focused on (i) central laboratory services, (ii) bioanalytical, biomarker and vaccines testing and (iii) GMP testing. The group has representatives in North America, Europe and Asia and is further supplemented by a laboratory partnerships group that ensures operational delivery. In addition to calling on biopharmaceutical and biotechnology companies directly, the Laboratory Services segment business development teams coordinate efforts with our other business development teams for customers that are interested in buying services across our segments.

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Our corporate marketing team supports the activities of our business development staff. Our global marketing initiatives include integrated, multi-channel campaigns designed to help differentiate and promote our expertise and services and strengthen our corporate brand. We provide our perspective on current industry challenges and developments to create an ongoing dialogue with our customers and prospective customers and to promote our scientific expertise, differentiated service offerings, quality, technology and innovation. In support of these efforts, we exhibit, provide speakers, present papers and host customer meetings at key industry events, and publish scientific articles in industry, trade, medical and pharmaceutical journals.
Backlog and Authorizations
Our backlog represents anticipated direct revenue for work not yet completed or performed (i) under signed contracts, letters of intent and, in some cases, awards that are supported by other forms of written communication and (ii) where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the services within six months. Our backlog excludes anticipated third-party pass-through and out-of-pocket revenue.
Backlog and backlog conversion to direct revenue vary from period to period depending upon new authorizations, contract modifications, cancellations and the amount of direct revenue recognized under existing contracts. The weighted-average duration of contracts in our backlog fluctuates from period to period based on the contracts constituting our backlog at any given time. We adjust backlog for foreign currency fluctuations and exclude direct revenue that has been recognized as revenue in our statements of operations.
Although an increase in backlog will generally result in an increase in future direct revenue to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in backlog at a particular point in time does not necessarily correspond to an increase in direct revenue during a particular period. The timing and extent to which backlog will result in direct revenue depends on many factors, including the timing of commencement of work, the rate at which we perform services, scope changes, cancellations, delays, receipt of regulatory approvals and the nature, duration, size, complexity and phase of the studies. Our contracts generally have terms ranging from several months to several years. In addition, delayed projects remain in backlog until they are canceled. As a result of these factors, our backlog might not be a reliable indicator of future direct revenue and we might not realize all or any part of the direct revenue from the authorizations in backlog as of any point in time. Our backlog was $7,066.3 million at December 31, 2019 and $6,313.7 million at December 31, 2018.
We add new authorizations to backlog based on the aforementioned criteria for backlog. New authorizations vary from period to period depending on numerous factors, including customer authorization volume, sales performance and overall health of the biopharmaceutical industry, among others. New authorizations have and will continue to vary significantly from quarter to quarter and from year to year. Once work begins, we recognize direct revenue over the life of the contract based on our performance of services under the contract. Our net authorizations were $3,827.3 million, $3,421.0 million, and $2,485.4 million, respectively, for the years ended December 31, 2019, 2018 and 2017.
Competition
The drug development services industry is highly competitive, consisting of hundreds of small, limited-scope service providers and a limited number of large full-service global development companies. While the industry has seen an increasing level of consolidation over the past several years, largely driven by the larger full-service providers, it remains highly fragmented.
Our Clinical Development Services segment competes primarily with a small number of other global, full-service CROs, although we also compete against small and medium-sized niche CROs, in-house R&D departments of biopharmaceutical companies, universities and teaching hospitals. We generally compete on the basis of scientific and therapeutic experience, project team expertise, qualifications and experience, ability to recruit patients, price, quality and the ability to innovate to achieve time and cost savings for our customers, amongst other factors. Our major competitors include IQVIA Holdings, Inc. (“IQVIA”), ICON plc (“ICON”), PAREXEL International Corporation, PRA Health Sciences, Inc. (“PRA Health Sciences”), the Covance Drug Development business of Laboratory Corporation of America Holdings (“Covance”), Syneos Health, Inc. (“Syneos Health”) and Medpace Holdings, Inc.
Our Laboratory Services segment competes primarily with the laboratory businesses of other large CROs, large global laboratory organizations, specialty laboratories and in-house laboratories of biopharmaceutical companies. We generally compete on the basis of testing capability, scientific and therapeutic experience, global footprint, price, quality and speed. Our major competitors include the advanced and central laboratory segments of Laboratory Corporation of America Holdings and Syneos Health, Q2 Solutions, ICON, Eurofins Scientific, WuXi AppTec, BioAgilytix and SGS.
We believe that our competitive position is generally strong and that we are able to effectively compete in both the clinical development and laboratory services markets.

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Intellectual Property
In the course of conducting our business, we have developed, and continue to develop and use proprietary software, systems, processes, databases and other intellectual property. We seek to protect our proprietary and confidential information and trade secrets through confidentiality agreements with employees, customers and other third parties, as well as administrative and technical safeguards. We rely on patent, copyright and trademark laws, as may be appropriate and applicable, to protect our other intellectual property rights. For example, we have applied for and/or obtained and maintain registration in the United States and other countries for numerous trademarks, including PPD®, PPD® Biotech, PPD® Laboratories and Preclarus®. We also enter into agreements with third-parties for the license and use of their intellectual property, although no one such license is considered to be material to the business as a whole. We do not have any material patents.
Government Regulation
Regulation of Drugs and Biologics
The development, testing, manufacturing, labeling, storage, approval, promotion, marketing, distribution and post-approval monitoring and reporting of pharmaceutical, biological and medical device products are subject to rigorous regulation by numerous governmental authorities in the United States at the federal, state and local level, including the FDA, as well as those of other countries, such as the European Medicines Agency (the “EMA”) in the European Union and the Medicines and Healthcare products Regulatory Agency (the “MHRA”) in the United Kingdom. These regulations apply to our customers and are generally applicable to us when we are providing services to our customers, either as a result of their direct applicability, through a transfer of regulatory obligations from our customers, or as a consequence of acting as local legal representative on behalf of our customers in a particular country or countries. Consequently, we must comply with all relevant laws and regulations in the conduct of our Clinical Development Services and Laboratory Services segments. The following discussion describes the role of the FDA in the clinical drug development process in the United States. Clinical trials conducted outside the United States are subject to the laws and regulations of the country where the trials are conducted. These laws and regulations might not be similar to the laws and regulations administered by the FDA and other laws and regulations regarding the protections of patient safety and privacy and the control of study pharmaceuticals, medical devices or other materials. FDA laws and regulations may apply to clinical studies conducted outside the United States if, for example, such studies are conducted under an IND or offered as support for an IND.
Prior to commencing human clinical trials, a company developing a new drug must file an IND with the FDA. The IND must include information about pre-clinical tests, manufacturing and control data, and a study protocol for the proposed clinical trial of the drug in humans. If the FDA does not object in writing within 30 days after filing the IND becomes effective and the clinical trial may begin. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Each clinical trial must be conducted in accordance with an effective IND.
The study protocol must also be reviewed and approved by an institutional review board/independent ethics committee (“IRB/IEC”) for each institution in which a study is proposed to be conducted and each IRB/IEC may impose additional requirements on the conduct of the study in its institution. IRB/IECs have the authority to review, approve and monitor clinical trials, and clinical trials are subject to oversight by IRB/IECs. The industry standard for the conduct of clinical trials is embodied in the FDA’s regulations for IRB/IECs, investigators and sponsor/monitors, which regulations collectively are termed Good Clinical Practices (“GCP”) by industry, and the GCP guidelines issued by the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“ICH”), which have been agreed upon by industry and regulatory representatives from the United States, the European Union and Japan. GCP requirements address, among other things, IRBs, qualified investigators, informed consent, recordkeeping and reporting. Regulatory authorities enforce GCP requirements through periodic inspections, and violations of GCP requirements could result in enforcement actions including the issuance of warning letters, civil penalties, product recalls, criminal prosecutions or debarment from involvement in the submission of NDAs. Our global standard operating procedures are written in accordance with all applicable FDA, EMA, MHRA, ICH and GCP requirements. This enables our work to be conducted locally, regionally and globally to standards that meet all currently applicable regulatory requirements. We must also maintain reports in compliance with applicable regulatory requirements for each study for auditing by the customer and regulatory authorities.
In order to comply with GCP and other regulations, sponsors of clinical trials must, among other things:
comply with specific requirements governing the selection of qualified investigators;
obtain specific written commitments from the investigators;
obtain IRB review and approval of the clinical trial;
verify that appropriate patient informed consent is obtained before the patient participates in a clinical trial;
ensure adverse drug reactions resulting from the administration of a drug or biologic during a clinical trial are medically evaluated and reported in a timely manner;

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monitor the validity and accuracy of data;
maintain records regarding drug or biologic dispensing and disposition;
instruct investigators and study staff to maintain records and reports; and
permit appropriate governmental authorities access to data for review.
If a clinical trial is not conducted in accordance with regulatory requirements, the applicable regulatory agency may require that a clinical trial be modified, suspended or terminated, and we or our customers may be subject to a variety of sanctions. For example, violations could result, depending on the nature of the violation and the type of product involved, in the issuance of a warning or untitled letter, suspension or termination of a clinical study, refusal of the FDA to approve clinical trial or marketing applications or withdrawal of such applications, injunction, seizure of investigational products, civil penalties, criminal prosecutions, or debarment from assisting in the submission of new drug applications. IRBs may also suspend or terminate research not conducted in accordance with IRB requirements or that has been associated with unexpected serious harm to subjects.
After receiving IRB/IEC approval, clinical trials usually start on a small scale to assess safety and then expand to larger trials to test both efficacy and safety in the target population. The trials are generally conducted in three phases (Phase I, II and III), which may overlap or be combined, although the FDA may require, or sponsors may voluntarily conduct, a fourth phase of clinical trials (Phase IV) as a condition of approval or to obtain additional data on the product under investigation, respectively. After the successful completion of the first three clinical phases, a company requests approval for marketing its product by submitting an NDA for a drug or a biologics license application (“BLA”) for a biologic product. NDAs/BLAs are a comprehensive, multivolume filings that include, among other things, the results of all preclinical and clinical studies, information about how the product will be manufactured, additional stability data and proposed labeling. The FDA’s review may last from several months to several years. Once the NDA/BLA is approved, the product may be marketed in the United States, subject to any conditions imposed by the FDA as part of its approval. The FDA may require a Risk Evaluation and Mitigation Strategy (“REMS”). REMS may be required by the FDA for certain products where serious safety concerns exist in order to help ensure the benefits of the product outweigh its risks.
Regulation of Testing Facilities
Laboratories such as ours that provide information included in INDs, NDAs, BLAs and other regulatory submissions must conform to regulatory requirements designed to ensure the quality and integrity of the testing process and data. For example, our bioanalytical laboratories follow the GLP requirements adopted by the FDA, the Ministry of Health in the United Kingdom and by similar regulatory authorities in other countries, as applicable. Our product analysis laboratories follow the GMP requirements adopted by the FDA and by similar regulatory authorities in other countries. Both GLPs and GMPs require standardized procedures for all equipment, processes and analytical tests, for recording and reporting data, and for retaining appropriate records. To help ensure compliance with GLPs and GMPs, we have established standard operating procedures, working practice documents and processes, and have quality assurance personnel at our laboratory facilities to audit test data and inspect testing procedures, laboratory equipment and facilities.
In addition, laboratories that analyze human blood or other biological samples for the diagnosis and treatment of study subjects must comply with the Clinical Laboratory Improvement Act (the “CLIA”). The CLIA requires laboratories to meet staffing, proficiency and quality standards, and governs laboratory accreditation, inspection and certification. Our testing facility in Austin, Texas and our central laboratory in Highland Heights, Kentucky are CLIA-certified. A failure to comply with CLIA requirements may expose laboratories to civil and criminal penalties, including fines, imprisonment, and exclusion from federal healthcare programs. Non-compliant laboratories may also have their CLIA certificate suspended, limited, or revoked. These laboratories are also subject to applicable U.S. state laboratory requirements and to accreditation bodies governing their testing and reporting functions, including the CAP, CDC LSP and NGSP. Our central laboratories in Highland Heights, Kentucky, Brussels, Belgium, Singapore and Shanghai, China are all accredited by CAP.
Regulation of Personal Information
We hold confidential personal health and other information relating to persons who have been, are and may in the future be involved in clinical trials or otherwise. The possession, retention, use and disclosure of such information is highly regulated, both in the United States and the other jurisdictions we are subject to, including but not limited to, applicable regulations arising from the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and the Privacy, Security and Breach Notification Rules, 45 C.F.R. Parts 160-164, that implement those laws; U.S. state privacy, security and breach notification and healthcare information laws; and the E.U. General Data Protection Directive (the “GDPR”). The GDPR places restrictions on the export of personal data outside the European Union.

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These regulations govern the use, handling and disclosure of personally identifiable medical information and require the use of standard transactions, privacy and security standards and other administrative simplification provisions by covered entities, which include many healthcare providers, health plans, and healthcare clearinghouses. Although certain of our businesses are subject to HIPAA, we do not consider our service offerings generally to cause us to be subject to HIPAA as a directly covered entity; however, there are extremely limited circumstances where we enter into business associate agreements. However, we endeavor to embrace sound identity protection practices and have implemented standard contractual clauses with our customers, affiliates and vendors to satisfy data export requirements and safeguards regarding the creation, receipt, maintenance and transmission of protected health information. We maintain a global privacy policy and employ dedicated privacy professionals who work closely with our senior executive leadership as part of our efforts to address applicable privacy laws.
Other Regulations
We are also subject to numerous additional national laws, rules and regulations, including those enforced by the following U.S. agencies:
Occupational Safety and Health Administration;
Nuclear Regulatory Commission;
Environmental Protection Agency;
Department of Transportation;
International Civil Aviation Organization;
Department of Health and Human Services; and
U.S. Drug Enforcement Administration (the “DEA”).
Our laboratories registered with the DEA may receive and manage controlled substances for research purposes. The DEA regulates controlled substances under the Controlled Substances Act, the Controlled Substances Import and Export Act and other laws and the regulations that implement such laws. The DEA requirements include obligations related to recordkeeping, security, handling, diversion and disposal of controlled substances. If we fail to comply with the DEA requirements regarding controlled substances, our registration may be suspended or revoked or renewal of our registration may be denied, and we may be subject to civil or criminal penalties, injunctions or other enforcement actions. Our laboratories listed below are registered with the DEA:
clinical pharmacology unit in Austin, Texas and Las Vegas, Nevada;
bioanalytical laboratories in Middleton, Wisconsin and Richmond, Virginia; and
GMP laboratory in Middleton, Wisconsin.
Our laboratory in Athlone, Ireland is registered with the Irish Health Products Regulatory Authority and may receive and manage controlled substances.
We also must comply with other related international, federal, state and local regulations that govern the use, handling, disposal, packaging, shipment and receipt of certain drugs or unknown compounds, chemicals and chemical waste, toxic substances, biohazards and biohazard waste, and radioactive materials and radioactive waste. In order to comply with these regulations, we have established standard operating procedures, and provide appropriate equipment and training to our employees involved in these activities.
Any failure on our part to comply with applicable regulations could result in the termination of ongoing research, the disqualification of data for submission to regulatory authorities, fines and other sanctions, as well as liability to our customers. Furthermore, any issuance of a notice of finding by a governmental authority against either us or our customers, based upon a material violation by us of any applicable regulation, could materially and adversely affect our reputation and business.
Healthcare Reform
In the United States and certain foreign jurisdictions there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect the pharmaceutical industry, which, in turn, could affect our business. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), was signed into law. The ACA contains a number of provisions of particular importance to the pharmaceutical industry, including those governing enrollment in federal healthcare programs, reimbursement adjustments and fraud and abuse changes. Additionally, the ACA creates a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research and establishes a Center for Medicare Innovation at the Centers for Medicare and Medicaid Services to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

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Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, in December 2019, the U.S. Court of Appeals for the Fifth Circuit ruled that the ACA’s individual mandate is unconstitutional because the Tax Cuts and Jobs Act modified the individual mandate so that it could no longer constitute a tax and remanded the case to a U.S. district court in Texas to determine if the remainder of the ACA is severable from the individual mandate. Pending review, the ACA remains in effect, but it is unclear at this time what the effect of this decision and subsequent decisions and appeals will have on the ACA and our business. Litigation over the ACA is likely to continue, with unpredictable and uncertain results. Legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, and proposed and enacted legislation and regulations designed, among other things, to bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference-pricing systems and publication of discounts and list prices. Any of these judicial, legislative or regulatory developments could harm our customers’ businesses, which could cause them to reduce their spending on research and development, which, in turn, could negatively impact our business.
Employees
As of December 31, 2019, we employed more than 23,000 employees. Approximately 54% of our employees are located outside of the United States, primarily in Europe and Asia. Of our staff, approximately 5,100 hold advanced, masters or equivalent degrees. Some of our employees located outside the United States are represented by works councils or labor unions, and/or subject to collective bargaining agreements. We believe that our relations with our employees are generally good.
Indemnification and Insurance
Our business exposes us to potential liability including, but not limited to, potential liability for (i) breach of contract or negligence claims by our customers, (ii) non-compliance with applicable laws and regulations and (iii) third-party claims in connection with our performance of drug development services (for example, patient claims for personal injury). In certain circumstances, we may also be liable for the acts or omissions of others, such as suppliers of goods or services.
We attempt to manage our potential liability to third-parties through contractual protection (such as indemnification and limitation of liability provisions) in our contracts with customers and others, and through insurance. The contractual indemnification provisions vary in scope and generally do not protect us against all potential liabilities, such as liability arising out of our gross negligence or willful misconduct. In addition, in the event that we seek to enforce such an indemnification provision, the indemnifying party may not have sufficient resources to fully satisfy its indemnification obligations or may otherwise not comply with its contractual obligations.
We generally require our customers and other counterparties to maintain adequate insurance, and we currently maintain errors, omissions and professional liability insurance coverage with limits we believe to be appropriate. This insurance provides coverage for vicarious liability due to the negligence of the investigators who contract with us, as well as claims by our customers that a clinical trial was compromised due to an error or omission from us. The coverage provided by such insurance may not be adequate for all claims made and such claims may be contested by applicable insurance carriers.
Available Information
Our website address is www.ppdi.com, and our investor relations website is located at investors.ppdi.com. Information on our website is not incorporated by reference herein. We will make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. You should consider carefully the risks and uncertainties described below together with the other information included in this Annual Report on Form 10-K, including our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, in evaluating our company. The occurrence of any of the following risks may materially and adversely affect our business, financial condition, results of operations and future prospects.
Risks Related to Our Business
Our backlog might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenue reflected in our backlog.
Our backlog represents anticipated direct revenue for work not yet completed or performed (i) under signed contracts, letters of intent and, in some cases, awards that are supported by other forms of written communication and (ii) where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the services within six months. Our backlog excludes anticipated third-party pass-through and out-of-pocket revenue. Once work begins, we recognize direct revenue over the life of the contract based on our performance of services under the contract. Contracts may be terminated or delayed by our customers or regulatory authorities for reasons beyond our control. To the extent projects are delayed, the anticipated timing of our direct revenue could be materially affected.
In the event a customer terminates a contract, we are generally entitled to be paid for services rendered through the termination date and for services provided in winding down the project. However, we are generally not entitled to receive the full amount of direct revenue reflected in our backlog in the event of a contract termination. The duration of the projects in our backlog, and the related revenue recognition, ranges from several months to many years. A number of factors may affect backlog and the direct revenue generated from our backlog, including:
the size, complexity and duration of projects;
the cancellation or delay of projects; and
changes in the scope of work during the course of a project.
Our backlog at December 31, 2019 was $7,066.3 million compared to a backlog of $6,313.7 million at December 31, 2018. Although an increase in backlog will generally result in an increase in future direct revenue to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in backlog at a particular point in time does not necessarily correspond to an increase in direct revenues during a particular period. The timing and extent to which backlog will result in direct revenue depends on many factors, including the timing of commencement of work, the rate at which we perform services, scope changes, cancellations, delays, receipt of regulatory approvals and the nature, duration, size, complexity and phase of the studies. In addition, delayed projects remain in backlog until they are canceled. As a result of these factors, our backlog is not necessarily a reliable indicator of future direct revenue and we might not realize all or any part of the direct revenue from the authorizations in backlog as of any point in time.
The majority of our customers’ contracts can be terminated, delayed or reduced in scope upon short notice or no notice.
Most of our contracts may be terminated by the customer upon 30 to 90 days’ notice. Customers terminate, delay or reduce the scope of their contracts for a variety of reasons, including but not limited to:
lack of available funding or financing;
mergers or acquisitions involving the customer;
a change in customer priorities;
products being tested fail to satisfy safety requirements or efficacy criteria;
products have undesirable preclinical or clinical results;
the customer decides to forgo a particular study;
inability to enroll enough patients in a particular study;
inability to recruit enough investigators for a particular study;
the customer decides to shift business to a competitor or to use internal resources;
manufacturing problems that cause shortages of the study drug;
actions by regulatory authorities; and

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performance failures.
As a result, contract terminations, delays and reductions in scope occur regularly in the normal course of our business. However, the delay, loss or reduction in scope of a large contract or multiple smaller contracts could result in under-utilization of our personnel, a decline in revenue and profitability and adjustments to our backlog, any or all of which could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Further, we believe the risk of termination or delay of multiple contracts may be higher where we have strategic partnership arrangements with biopharmaceutical companies and a large backlog of work for those companies.
We may be adversely affected by industry, customer or therapeutic concentration.
We provide services to biopharmaceutical, biotechnology, medical device and government organizations, as well as other industry participants that sponsor clinical trials, and our revenue is dependent upon expenditures by these customers. Accordingly, our business could be materially adversely affected by mergers, consolidations, business failures, distress in the financial markets or other factors resulting in a decrease in the number of potential customers or therapeutic products being developed through the drug development process. In the last few years, biopharmaceutical consolidation has been accelerating. If the number of our potential customers were to decline in the future, they might be able to negotiate price discounts or other terms for services that are less favorable to us than they have historically. Although we did not have any one customer that represented more than 10% of our total revenue for the years ended December 31, 2019, 2018 and 2017, we have experienced customer concentration in the past and could again in the future. For example, our top 10 customers accounted for approximately 47.9% of our total revenue for the year ended December 31, 2019. The loss of business from a significant customer could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.
At times, we conduct multiple clinical studies for different customers in a single therapeutic area involving drugs with similar effects or to treat the same specific condition. As a result, our business could be adversely affected if some or all of the clinical studies are canceled due to newly discovered scientific information or regulatory decisions that affect the drugs within a particular class or for the treatment of a specific condition.
Our financial results may be adversely impacted if we underprice our contracts, overrun our cost estimates or fail to receive approval for or experience delays in documenting change orders.
The majority of our service contracts are based on fixed prices or fixed unit prices for those services, and therefore have set limits on the amounts we can charge for our direct and indirect services. As a result, variations in the timing and progress of large contracts may materially adversely affect our results of operations. In addition, we bear the risk of cost overruns unless the scope of activity is revised from the contract specifications and we are able to negotiate a contract modification with the customer shifting the additional cost to the customer. If we fail to adequately price our contracts for direct and indirect services in total or at the unit level or if we experience significant cost overruns (including direct and indirect costs such as pass-through costs), or are delayed in, or fail to, execute contract modifications with customers increasing the scope of activity, our results of operations could be materially adversely affected. From time to time, we have had to commit unanticipated resources to complete projects, resulting in lower margins and profitability on those projects. We might experience similar situations in the future, which could have a material adverse impact on our results of operations and cash flows.
Our business depends on the efficient and uninterrupted operation of our information and communication systems, including systems we use to deliver services to our customers, and failures in, breach of, or unauthorized access to or use of these systems or data contained therein may materially limit our operations and result in significant harm to our business.
Our success depends on the security and efficient and uninterrupted operation of our information and communication systems, including information and communication systems maintained by third parties on our behalf, and we expect to increase our reliance on these and similar systems over time. As the breadth, complexity and reliance on information systems grows, we will be increasingly exposed to the risks inherent in the development, deployment, operation, use and reliance on these systems, including:
disruption, impairment or failure of data centers, telecommunications facilities or other key infrastructure platforms;
security breaches of, cyber-attacks on and other failures or malfunctions in our critical application systems or their associated hardware; and
excessive costs, delays or other deficiencies in systems development and deployment.

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The occurrence of these risks could impede the processing of data, the delivery of services to our customers and the day-to-day management and operation of our business and could result in the corruption, loss, disclosure or unauthorized access to proprietary, confidential or other data, which in turn could result in diminished internal and external reporting capabilities, impaired ability to process transactions, harm to our control environment, diminished employee productivity and unanticipated increases in costs.
While we maintain disaster recovery plans, they might not adequately protect us. Despite any precautions we take, damage from cybersecurity attacks, computer viruses, fire, floods, hurricanes, power loss, telecommunications failures, break-ins and similar events at our facilities or those of our suppliers could result in interruptions in the flow of data to our servers and from our servers to our customers. Corruption or loss of data could result in the need to repeat a trial at no cost to our customer, but at significant cost to us, and may result in the termination of a contract and/or damage to our reputation. Additionally, significant delays in system enhancements and improvements, or inadequate performance of the systems once they are completed, could damage our reputation and harm our business. Although we carry insurance, our coverage might not respond or be adequate to compensate us for all losses that may occur.
Unauthorized disclosure of or access to sensitive or confidential data, including confidential information of our customers, whether through third-party attack, system failure, employee negligence, fraud or misappropriation, could significantly damage our business. We have been, and expect we will continue to be, subject to attempts to gain unauthorized access to or through our information systems, whether by our employees or third parties, including by cyber-attack from computer programmers or hackers who deploy viruses, worms or other malicious software programs. To date, these attacks have not had a material impact on our operations or financial results. However, attacks in the future could result in fines, negative publicity, significant remediation costs, liability and/or damage to our reputation, and could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. In addition, any insurance coverage we have might not respond or be sufficient to cover us against claims or penalties imposed by the federal government or state governments related to security breaches, cyber-attacks and other related breaches.
We are in the process of upgrading our existing human capital management, financial management and general ledger systems to an integrated enterprise resource planning system. We expect this upgrade to be substantially complete in 2020. Our ability to serve customers effectively depends on the reliability of our technology network. We depend on information systems to perform many critical business needs. Any disruption to these information systems could adversely impact our business. Despite extensive planning, we could experience disruptions in our business operations because of the project’s complexity. The potential consequences could include project and other delays, loss of information, diminished internal and external reporting capabilities, impaired ability to process transactions, harm to our control environment, diminished employee productivity and unanticipated increases in costs, all of which could result in material adverse effects on our business, results of operations, financial condition and/or cash flows.
If we fail to perform our services in accordance with contractual requirements, regulatory standards and ethical considerations, we could be liable for significant costs or penalties and our reputation could be harmed.
The clinical development and laboratory services we provide to biopharmaceutical companies and other entities are complex and subject to contractual requirements, regulatory standards and ethical considerations. For example, we must adhere to regulatory requirements from the FDA governing our activities relating to preclinical studies and clinical trials, including GCP, GLP and GMP requirements. We are accredited by certain professional bodies, such as the CAP. We are also subject to regulation by the DEA which regulates the distribution, recordkeeping, handling, security and disposal of controlled substances. If we fail to perform our services in accordance with these requirements, regulatory agencies have in the past and may in the future take action against us or our customers for failure to comply with applicable regulations governing clinical trials and the development and testing of therapeutic products. Such actions may include sanctions, such as warning or untitled letters, injunctions or failure of such regulatory authorities to grant marketing approval of products, delay, suspension or withdrawal of approvals, license revocation, loss of accreditation, product seizures or recalls, operational restrictions, civil or criminal penalties or prosecutions, damages or fines. Customers may also bring claims against us for breach of our contractual obligations in clinical trials, may terminate their contracts with us and/or may choose not to award further work to us, and patients involved in the clinical trials or taking drugs approved on the basis of those trials may bring personal injury claims against us. Any such action could have a material adverse effect on our reputation, business, results of operations, financial condition and/or cash flows.

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Such consequences could arise if, among other things, the following occur:
Failure or inadequate performance of our services. The performance of clinical development and laboratory services is complex and time-consuming. For example, we might make mistakes in conducting a clinical trial or providing laboratory services that could negatively impact or obviate the usefulness of the trial or the data generated from it or cause the results of the trial to be reported improperly. If the trial results are compromised, we could be subject to significant costs or liability, which could have a material adverse impact on our business, reputation and ability to perform our services. Examples include:
non-compliance generally could result in the termination of ongoing clinical trials or the disqualification of data for submission to regulatory authorities, or enforcement action from regulators;
compromise of data from a particular trial, such as our failure to verify that informed consents were obtained from patients, could require us to repeat the trial under the terms of our contract at no further cost to our customer, but at a substantial cost to us;
improperly conducting or reporting laboratory results could affect medical decisions for the patient in the trial as well as the clinical trial data and create liability for personal injury and breach of contract for us; and
breach of a contractual term could result in liability for damages and/or termination of the contract.
Large clinical trials can cost hundreds of millions of dollars and, while we endeavor to contractually limit our exposure to such risks and maintain insurance coverage, improper performance of our services could have a material adverse effect on our financial condition, damage our reputation and result in the cancellation of current contracts by or failure to obtain future contracts from the affected customer and other customers.
Interactive Response Technology (“IRT”) malfunction. Our IRT is critical because it enables the randomization of patients in a given clinical trial to different treatment arms and regulates the supply of an investigational drug, all by means of interactive voice response and interactive web response systems. If these systems malfunction or our personnel make mistakes in the provision of these services and, as a result, patients are incorrectly randomized or misdosed during the course of the clinical trial, then we could be subject to claims for significant damages for any resulting personal injury or death and/or breach of contract claims by our customers, as well as face potential regulatory enforcement. Furthermore, we could suffer from negative publicity associated with any such malfunctions or failures that could have a material adverse effect on our business and reputation. Additionally, errors in randomization may require us to repeat the trial at no further cost to our customer, but a substantial cost to us.
Inspections/Investigations of customers. From time to time, our customers are inspected or investigated by regulatory authorities or enforcement agencies with respect to regulatory compliance of their clinical trials. In these situations, we have often provided services to our customers with respect to the clinical trials being inspected or investigated, and we are called upon to respond to requests for information by the authorities and agencies. There is a risk that either our customers or regulatory authorities could claim that we performed our services improperly or that we were responsible for clinical trial non-compliance. If our customers or regulatory authorities make such claims against us, we could be subject to material damages, fines, penalties or other liabilities. In addition, negative publicity regarding compliance of our customers’ clinical trials, programs or drugs could have an adverse effect on our business and reputation.
If we encounter difficulties or delays in attracting suitable investigators and enrolling a sufficient number of patients for our customers’ clinical trials, our Clinical Development Services segment may be adversely affected.
The recruitment of investigators and patients is essential for the clinical research studies we run for our customers. Investigators are typically located at hospitals, clinics or other sites, including sites we own, and supervise administration of the study drug to patients during the course of a clinical trial. Patients generally are people from the communities in which clinical trials are conducted and may be difficult to locate and enroll in trials, particularly for rare or acute indications, or if the trial protocol requires patients who have not taken other treatments or have failed other treatments for the relevant condition. If we are unable to attract suitable and willing investigators or recruit, enroll and retain patients for clinical trials, our Clinical Development Services segment could be materially adversely affected. For example, if we are unable to recruit sufficient investigators to conduct clinical trials as planned or enroll the required number of patients, we may need to incur additional costs to meet the recruitment or enrollment targets or cause a delay or modification to the clinical trial plans. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to fulfill our obligations to our customers. Any such difficulties or delays could result in additional costs to us and materially adversely affect our business, results of operations, financial condition and/or cash flows and reputation in the industry.


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We are subject to numerous privacy and data security laws and our failure to comply with those laws could cause us significant harm.
In the normal course of our business, we collect, process, use and disclose individual personal data, including patient-specific medical and other clinical trial data, as well as personal data relating to health professionals and our employees. The collection, processing, use, disclosure, disposal and protection of this information and personal data is highly regulated both in the United States and other jurisdictions we are subject to, including but not limited to, applicable regulations arising from HIPAA, as amended by HITECH, and the Privacy, Security and Breach Notification Rules, 45 C.F.R. Parts 160-164, that implement those laws; U.S. state privacy, security and breach notification and healthcare information laws; the E.U. GDPR; other European privacy laws and other privacy laws that are increasingly being adopted in other regions globally. These laws and regulations include varied and sometimes inconsistent requirements, increasing legal risk and the costs and risks of compliance.
These regulations often govern the use, handling and disclosure of personally identifiable medical information and require the use of standard transactions, privacy and security standards and other administrative simplification provisions by covered entities, which include many healthcare providers, health plans, and healthcare clearinghouses. Although certain aspects of our businesses are subject to HIPAA, we do not consider our service offerings generally to cause us to be subject to HIPAA as a directly covered entity; however, there are extremely limited circumstances where we enter into business associate agreements. However, we endeavor to embrace sound identity protection practices and have implemented processes and systems in order to comply with these laws and continue to monitor and enhance them. If we improperly process personal information, fail to protect the confidentiality and security of this information or otherwise breach applicable privacy laws, regulations or duties relating to the use, privacy or security of personal data, we could be subject to civil liability or criminal prosecution, be forced to alter our business practices and we could suffer significant financial, reputational and other harm and our business, results of operations, financial condition and/or cash flows could be materially adversely affected.
The GDPR became enforceable on May 25, 2018. The GDPR includes sanctions for violations up to the greater of €20 million or 4.0% of worldwide gross annual revenue and applies to services providers such as us. Other privacy laws, including HIPAA and HITECH, provide for potentially large fines for violations. Were we to be subject to any such sanction, it could result in a material adverse effect on our reputation, business, results of operations, financial condition and/or cash flows.
In connection with some clinical trials that we conduct in the European Union on behalf of our customers, we serve as the customer’s E.U. data privacy representative under the GDPR. As the customer’s representative, we could in certain circumstances be liable for the customer’s failure to comply with the GDPR. We believe we maintain adequate processes and systems to ensure our and our customers’ compliance with the requirements of the GDPR, but it is possible that we could fail to comply or that we could incur liability due to the acts or omissions of our customers. Our contracts for these services include indemnification provisions intended to protect us from a customers’ failure to comply with the GDPR, but it might not cover all our losses in the event of a failure to comply. In the event we are not able to secure indemnification or the indemnification and any insurance coverage is inadequate to cover our losses, we could suffer significant financial, operational, reputational and other harm and our business, results of operations, financial condition and/or cash flows could be materially adversely affected.
The United States, the European Union, and other jurisdictions where we operate continue to issue new, and enhance existing, privacy and data security protection regulations related to the collection, use, disclosure, disposal and protection of personal data and medical information, such as the recently enacted California Consumer Protection Act. Privacy and data security laws are rapidly evolving both in the United States and internationally, and the future interpretation of those laws is somewhat uncertain. For example, we do not know how E.U. regulators will interpret or enforce many aspects of the GDPR and some regulators may do so in an inconsistent manner. In the United States, privacy and data security is an area of emphasis for some but not all state regulators, and new legislation has been and likely will continue to be introduced at the state and/or federal level. Additional legislation or regulation might, among other things, require us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other personal data, each of which may require substantial expenditures or limit our ability to offer some of our services.








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Our business could be harmed if we are unable to effectively manage our growth.
We believe that sustained growth places a strain on human, operational and financial resources. To manage our organic and inorganic growth and increasing complexity of our business, we must continue to attract and retain qualified management, professional, scientific, technical and business development personnel and improve our operating and administrative systems. We believe that maintaining and enhancing both personnel and our systems at reasonable cost are instrumental to our success. We cannot assure you that we will be able to enhance our current technology or obtain new technology that will enable our systems to keep pace with industry developments and the sophisticated needs of our customers. The nature and pace of our organic and inorganic growth introduces risks associated with quality control and customer dissatisfaction due to delays in performance or other problems. In addition, non-U.S. operations involve the additional risks of assimilating differences in non-U.S. business practices, hiring and retaining qualified personnel and overcoming language barriers. If we are unable to manage our growth effectively, we could incur losses.
If we are unable to recruit, retain and motivate key personnel, our business could be adversely affected.
Our success depends on the collective performance, contribution and expertise of our senior management team and other key personnel throughout our businesses, including qualified management, professional, operational, scientific, technical and business development personnel. There is significant competition for qualified personnel in the biopharmaceutical and related services industries, particularly personnel with advanced degrees and those with significant experience and expertise. The loss of any key executive, or our inability to continue to recruit, retain and motivate key personnel and replace departed personnel in a timely fashion, may adversely impact our ability to compete effectively and grow our business and negatively affect our ability to meet our short and long-term financial and operational objectives.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”), including Accounting Standards Codification (“ASC”) Topic 606, or other standard-setting bodies may adversely affect trends and comparability of our financial results.
We are required to prepare our financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which is periodically revised and/or expanded. From time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the FASB and the SEC. It is possible that future accounting standards we are required to adopt may require additional changes to the current accounting treatment that we apply to our financial statements and may result in significant changes to our results, disclosures and supporting reporting systems. Such changes could result in a material adverse impact on our results of operations and financial condition.
For example, effective January 1, 2018, we were required to adopt ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers. Under ASC 606, third-party pass-through costs and reimbursed costs are included in our measurement of progress. This change in revenue recognition requires significant estimates of project costs that are updated and adjusted on a regular basis. These updates and adjustments may result in variability in our revenue recognition from period to period that may cause unexpected variability in our operating results. Additionally, effective January 1, 2019, we were required to adopt ASC Topic 842, Leases (“ASC 842”), which required us to recognize certain operating leases in our consolidated balance sheet. See Note 1, Note 3 and Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding ASC 606 and ASC 842.
We depend on third parties for critical goods and support services.
We depend on third parties for a variety of goods and support services that are critical to us. These third-party service providers include, but are not limited to, software and other technology providers, third-party transportation and travel providers, suppliers of study drugs for clinical trials, couriers, customs brokers, drug depots and distributors, suppliers of licensing agreements, investigator meeting planners, suppliers of kits, reagents, contractors and other supplies used by our laboratory segments and equipment maintenance providers. The failure of any of these third parties to adequately provide goods or services to us or to comply with relevant laws and regulations could have a material adverse effect on our reputation, business, results of operations, financial condition and/or cash flows.





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We operate in many different countries and are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), the Bribery Act and anti-corruption laws and regulations in other countries, as well as laws and regulations relating to trade compliance and economic sanctions. Violations of these laws and regulations could harm our reputation and business, or materially adversely affect our business, results of operations, financial condition and/or cash flows.
We are subject to various U.S. and non-U.S. anti-corruption laws, including the FCPA and the U.K. Bribery Act 2010 (the “Bribery Act”). The FCPA and the Bribery Act prohibit us and our officers, directors, employees and third parties acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA further requires us to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The Bribery Act also prohibits “commercial” bribery and accepting bribes.
Our global business operations also must be conducted in compliance with applicable export controls and economic sanctions laws and regulations, including those administered by the U.S. Department of the Treasury’s (the “U.S. Treasury”) Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council, the European Union, Her Majesty’s Treasury and other relevant sanctions authorities.
Our internal policies and procedures require strict compliance with these anti-corruption and economic sanctions laws. Despite our training and compliance efforts, we cannot assure that our policies and procedures will protect us from liability for violations of anti-corruption or economic sanctions laws committed by persons associated with us, including our employees or third parties acting on our behalf. Our continued expansion outside the United States, including in countries that are known to have an increased prevalence of corruption, could increase such risks in the future. Violations of these anti-corruption laws or economic sanctions, or even allegations of such violations, could disrupt our business and result in a material adverse effect on our reputation, business, results of operations, financial condition and/or cash flows. For example, violations may result in criminal or civil penalties, disgorgement of profits, related stockholder lawsuits and other remedial measures, and companies that violate these laws can be debarred by the U.S. government and lose U.S. export privileges. Future changes in anti-corruption or economic sanctions laws and enforcement could also result in increased compliance requirements and related costs which could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.
The competition between our existing and potential customers may adversely impact the extent to which those customers use our services, which may materially adversely affect our business, results of operations, financial condition and/or cash flows.
We regularly provide services to biopharmaceutical companies that compete against each other and we sometimes provide services to customers that are developing competing drugs. Therefore, the existing or future business we receive from a customer might discourage a competing customer or potential customer from requesting our services. Also, in connection with the negotiation of a contract, a customer might require that we agree to limit the scope of services we provide to other customers or other restrictive covenants that might limit our ability to provide services to others. The loss of, or reduction in, business we receive from a customer or limits on our ability to service other customers may have a material adverse effect on our business, results of operations, financial condition and/or cash flows.
We face risks associated with business restructurings and the integration of new businesses, which, if not properly managed, could materially affect our business.
In the past few years, we have adopted and implemented restructuring plans and cost-saving initiatives designed to, among other things, improve our operating efficiencies, match our capacity with market demand and reduce costs. At the same time, we have made strategic investments by acquiring businesses that we believe complement our existing portfolio of services. Restructurings and the integration of new businesses present potential risks that could materially adversely affect our business. Restructurings could result in a decline in employee morale, an increase in employment claims, the failure to achieve the stated operational objectives and/or targeted costs savings and the failure to meet customer requirements. Conversely, the success of any acquisition will depend upon, among other things, our ability to effectively integrate the acquired business operations, personnel, services and technologies into our organization, retain and motivate personnel key to the future success of the acquired business and retain customers. If we fail to identify and effectively manage these potential risks, our reputation, business, results of operations, financial condition and/or cash flows could be materially adversely affected.





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Our business exposes us to potential liability that could affect our reputation, business, results of operations, financial condition and/or cash flows.
Our business involves the testing of new drugs on humans participating in clinical trials and, if marketing approval is received, the availability of these drugs to be prescribed to patients. Our provision of clinical trial services and involvement in the drug development process exposes us to the risk of liability for personal injury or death from, among other things, improper administration of a drug during testing and adverse reactions to the drug administered during testing and after the drug has been approved for sale by regulatory authorities. For example, we have in the past been sued by individuals alleging personal injury due to their participation in a clinical trial. In addition, we have also been sued by individuals alleging personal injury and death caused by the ingestion of drugs approved for sale by regulatory authorities due to our participation in a clinical trial of the drug prior to its approval. In each of these suits, the individuals were seeking monetary damages under a variety of legal theories. If we are required to pay damages or incur defense costs in connection with any personal injury claim that is outside the scope of indemnification agreements we have with customers, if any indemnification agreement is not performed in accordance with its terms or if our liability exceeds the amount of any applicable indemnification limits or available insurance coverage, our reputation, business, results of operations, financial condition and/or cash flows could be materially adversely impacted. We also might not be able to procure adequate insurance for these risks in the future upon terms acceptable to us, if at all.
In the normal course of providing clinical trial services for our customers, we contract with physicians who serve as investigators to administer the protocols and conduct the trials. In addition, we currently own and operate a global site network and employ physicians who serve as investigators on clinical trials. In either case, if an investigator errs during a clinical trial resulting in harm to a patient, claims for personal injury or product liability damages may result. Additionally, trial data may be compromised and our customer may seek damages from us or require us to repeat the trial at our cost. If we were liable for claims related to a physician’s conduct, such liability could have a material adverse impact on our business, results of operations, financial condition and/or cash flows.
From time to time we act as legal representative, importer of record or in a similar capacity on behalf of our customers in certain countries or regions, either as a result of being directly engaged to do so or being deemed to take on such role by virtue of providing associated services. Acting in this capacity exposes us to increased risk, including potential liability to patients and regulatory authorities for the action and/or inaction of the customer. As a condition to providing such services, we generally require specific indemnification and insurance from the customer, however any such insurance coverage might not respond or be sufficient to cover us against claims or penalties imposed, and in the event that we seek to enforce an indemnification provision, the indemnifying party may not have sufficient resources to fully satisfy its indemnification obligations or may otherwise not comply with its contractual obligations. In these circumstances, we could suffer significant financial, operational, reputational and other harm and our business, results of operations, financial condition and/or cash flows could be materially adversely affected.
The operation of our early development Phase I clinics and our AES offering involves direct interaction with clinical trial volunteers, and exposes us to potential liability for personal injury or death that could materially adversely affect our reputation and business.
We operate early development clinics, which involve direct interaction by us with clinical trial volunteers, and we also have strategic alliances with other early development clinics that serve as subcontractors for us. We also own and operate a global site network, which involves direct interaction with clinical trial volunteers. As a part of our early development and our AES operations, we employ and contract with physicians, nurses and other trained health care professionals who conduct the protocol and testing directly on individuals, which may involve administration of the investigational drug, drawing of blood and other medical procedures required under the protocol. Any personal injury to, or death of, a person participating in a clinical trial caused by the medical malpractice or negligence of our physicians, nurses or other staff, or those of our subcontractors, may result in liability to us and have a material adverse effect on our reputation, business, results of operations, financial condition and/or cash flows.
Our insurance might not cover all of our liabilities, including indemnification obligations, associated with the operation of our business and provision of services.
We procure and maintain insurance for ordinary risks associated with the operation of our business, including our indemnification obligations. This insurance coverage under the policies we procure might not be sufficient to cover all of our liabilities or may be contested by our carriers. If our insurance is not adequate or available to cover our liabilities, including our indemnification obligations, or if insurance is not available in the future upon terms acceptable to us, if at all, or if the cost of our insurance is far in excess of historical amounts, our business, results of operations, financial condition and/or cash flows may be materially adversely harmed.

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Our business uses biological and hazardous materials, which are regulated by various laws. As such, we are exposed to liabilities for violations of those laws and claims for personal injury or death that could materially adversely affect our business.
Our drug development activities involve the use of biological materials, hazardous materials, chemicals and various radioactive compounds. We are subject to various laws and regulations governing the use, storage, handling and disposal of these materials. In the event we violate these laws, we could be liable for costs and expenses for cleanup and remediation, statutory fines and penalties and other civil and criminal penalties. In addition, if there are changes in these laws or regulations or new laws or regulations are enacted, we might be required to incur significant costs to bring our operations into compliance with any new requirements. Furthermore, in the event of an incident involving these materials, we may be subject to claims for personal injury, death or property damage, all of which could materially adversely impact our business, results of operations, financial condition and/or cash flows.
Our business is subject to international and U.S. economic, currency, political and other risks that could negatively affect our business, results of operations, financial condition and/or cash flows.
We provide services globally and have business operations in numerous countries throughout the world. Because we provide our services worldwide, our business is subject to risks associated with doing business internationally. Our revenue from our non-U.S. operations represented approximately 47.1% of our total revenue for the year ended December 31, 2019. We anticipate that we will continue to perform a significant portion of our services through our international operations. Our U.S. and international operations are subject to risk and uncertainties inherent in operating in these regions, including:
conducting a clinical trial in multiple countries is complex, and issues in one country can affect the progress of the trial in other countries and result in delays or cancellation of contracts;
the United States or foreign countries could enact legislation or impose regulations, including unfavorable labor regulations, tax policies or economic sanctions, that could have an adverse effect on our ability to conduct business in or expatriate profits from the countries in which we operate;
the complexities of operating within multiple tax jurisdictions, including potentially negative consequences from changes in tax laws or from current and future tax examinations;
foreign countries are expanding or might expand their regulatory framework with respect to patient informed consent or other aspects of the conduct of clinical trials, which could delay or inhibit our ability to conduct trials in such countries;
the regulatory or judicial authorities of foreign countries might not enforce legal rights and recognize business procedures in a manner to which we are accustomed or would reasonably expect;
changes in political and economic conditions might lead to changes in the business environment in which we operate;
changes in foreign currency exchange rates, including the impact of contractual provisions that shift the risk of unfavorable movement in certain exchange rates to us;
potential violations of existing or newly enacted laws may cause difficulties in staffing and managing international operations;
customers in foreign countries may have longer payment cycles, and it may be more difficult to collect receivables in those countries;
political unrest could interrupt our services, endanger our personnel or cause project delays or loss of clinical trial material or results; and
any failure by us to comply with foreign regulations or restrictions or become aware of and acknowledge changes in foreign regulations or restrictions, which could result in the delay of a clinical trial.
These risks and uncertainties could negatively impact our ability to, among other things, perform large, global projects for our customers. Furthermore, our ability to manage these risks and uncertainties could be affected by U.S. laws and could have an adverse impact on our business, results of operations, financial condition and/or cash flows. For further information regarding foreign currency exchange rate risk, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk.”



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Our operations might be affected by the occurrence of a natural disaster or other catastrophic event.
We depend on our customers, investigators, laboratories and other facilities for the continued operation of our business. While we maintain disaster recovery plans, they might not adequately protect us. Despite any precautions we take for natural disasters or other catastrophic events, these events, including terrorist attack, pandemic disease, such as the novel coronavirus, hurricanes, fire, floods and ice and snow storms, result in interruptions in the flow of data to our servers and from our servers to our customers. Corruption or loss of data could result in the need to repeat a trial at no cost to our customer, but at significant cost to us, and may result in the termination of a contract and/or damage to our reputation. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism or other “acts of God,” particularly involving cities in which we have offices, could adversely affect our businesses. Although we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, our coverage might not respond or be adequate to compensate us for all losses that may occur. Any natural disaster or catastrophic event affecting us or our customers, investigators or payers could have a significant negative impact on our operations and financial performance.
As of the date of the filing of our Annual Report on Form 10-K, the novel coronavirus has impacted our ability to fully conduct our business in China and other impacted areas, including in relation to the ability of our employees to visit hospitals and other clinical trial sites to conduct monitoring visits.  While the financial impact of the novel coronavirus as of the filing date of this Annual Report on From 10-K has not been material, partly due to the geographical diversification of our business activities and the ability of our employees to perform certain services remotely, there is significant uncertainty as to the extent, speed and duration of the global spread of the novel coronavirus and resulting travel and other restrictions.  As such, if the situation regarding novel coronavirus was to worsen and/or governments’ actions to contain its spread were to become more onerous, it could result in a material negative impact on our business, financial condition and results of operations.
Tax reform in the United States could materially affect our business, results of operations, financial condition and/or cash flows.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code including, but not limited to, (i) reducing the corporate statutory income tax rate from 35% to 21%, effective for 2018 and thereafter, (ii) amending the limitations on deductions for interest and (iii) transitioning U.S. international taxation from a worldwide system to a territorial system, inclusive of a one-time mandatory transition tax on accumulated unremitted foreign earnings as of December 31, 2017. Although we have adopted the applicable portions of the Tax Act as required, certain amounts recorded represent our best estimate based on regulatory guidance and information available at the time of recording. The ultimate impact from applying the Tax Act may differ materially from amounts recognized, due to, among other things, additional regulatory guidance that may be issued and actions we take because of the Tax Act. Much of the applicable regulatory guidance issued to date by the Internal Revenue Service (the “IRS”) and the U.S. Treasury has been in the form of proposed regulations, with varying effective dates that would be triggered when final regulations are published. The content of these final regulations and their effective dates remain uncertain. We continue to assess the impact of the Tax Act, and are awaiting further guidance from the IRS and the U.S. Treasury relating to interpretation and application of the Tax Act. Our accounting for the Tax Act could have a material effect on our business, results of operations, financial condition and/or cash flows.
Our cash taxes paid and effective tax rate have and will continue to fluctuate from time to time, and increases in either may adversely affect our business, results of operations, financial condition and/or cash flows.
Our cash taxes paid and effective income tax rate are influenced by our projected and actual profitability in the taxing jurisdictions in which we operate as well as changes in income tax rates. Additionally, changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our cash taxes paid and effective income tax rate. Factors that may affect our cash taxes paid and/or effective income tax rate include, but are not limited to:
the requirement to exclude from our quarterly worldwide effective income tax calculations losses in jurisdictions where no income tax benefit can be recognized;
actual and projected full year pre-tax income;
changes in existing tax laws and rates in various taxing jurisdictions;
examinations or audits by taxing authorities;
the use of foreign tax credits, and restrictions therein;
changes in our capital structure;
the establishment of valuation allowances against deferred income tax assets if we determine that it is more likely than not that future income tax benefits will not be realized; and

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other provisions of the Tax Act, including (i) base erosion and anti-abuse tax, if applicable, (ii) taxation of foreign-derived intangible income and global intangible low-taxed income and (iii) limitations on deductions for interest, among others.
These factors could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.
Additionally, we rely upon generally accepted interpretations of tax laws and regulations in the countries in which we operate and cannot be certain that these interpretations are accurate or that the responsible taxing authority is in agreement with our views. We currently have open examinations with various tax authorities. If a satisfactory resolution cannot be achieved with the tax authorities, the ultimate tax outcome may have a material adverse effect on our results of operations, financial condition and/or cash flows.
Economic conditions and regulatory changes relating to the United Kingdom’s exit from the European Union could negatively affect our business, results of operations, financial condition and/or cash flows.
We have operations in multiple countries, including the United Kingdom, and have transactions in multiple currencies, including the Pound Sterling. We also employ nationals of E.U. countries in the United Kingdom and U.K. nationals in our E.U. businesses. During the second quarter of 2016, the United Kingdom voted by referendum to exit the European Union, commonly referred to as “Brexit.” On January 31, 2020, the U.K. ceased to be part of the European Union. The impact of the United Kingdom’s departure from, and future relationship with, the European Union are uncertain. Brexit has and continues to create general economic uncertainty in the United Kingdom and European Union. The effects of Brexit could have an adverse impact on our business, results of operations, financial condition, and/or cash flows.
Our inability to adequately protect our intellectual property rights could adversely affect our business.
Our success is dependent, in part, on our ability to develop, use and protect our proprietary methodologies, software, compositions, processes, procedures, systems, technologies and other intellectual property. To protect our intellectual property rights, we primarily rely upon trade secret law, confidentiality agreements and policies, invention assignments and other contractual arrangements, along with patent, copyright and trademark laws. Existing laws of the countries outside of the United States in which we provide services offer only limited protection, and these are subject to change at any time. In addition, the agreements upon which we rely to protect our intellectual property might be breached, or might not be fully enforceable. Our intellectual property rights might not prevent our competitors from independently developing intellectual property that is similar to or duplicative of ours. Also, enforcing our intellectual property rights might also require substantial time, money and oversight, and we might not be successful in enforcing our rights.
Any patents that we own or license might not provide adequate protection in the future for the covered technology or inventions. Any patent applications we file might not result in the issuance of valid patents or the scope of our issued patents might not provide meaningful competitive advantages. Also, any patent protection might not prevent others from developing competitive products using related or other technology that does not infringe our patent rights. The scope and enforceability of patents can be highly uncertain and often involves complex legal and factual questions and proceedings, which could be expensive, last several years and either prevent issuance of additional patents to us or result in a significant reduction in the scope or invalidation of our patents. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in any country.
We cannot be certain that the conduct of our business does not and will not infringe the intellectual property or other proprietary rights of others. Any claim of infringement by a third party, even one without merit, could cause us to incur substantial costs to defend against such claim, could distract our management and employees, and generally interfere with our business.








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Our investments in third parties are illiquid and subject to loss which could materially adversely affect our financial condition.
We have made investments and commitments to invest in other companies and investment vehicles. Most of our investments are as a limited partner in investment partnerships and are not directly in individual companies. In many cases, there is no public market for these investments and we might not be able to sell them on terms acceptable to us, if at all. In addition, if these funds or companies encounter financial difficulties, we might lose all or part of our investment. We account for the majority of these equity method investments at fair value, utilizing the fair value option, in accordance with GAAP. These investments could have a significant impact on our operating results due to changes in fair market value of their respective investment portfolios or changes in the valuation assumptions by management. We have recorded a liability for additional consideration estimated to be payable related to the recapitalization of the Company in 2017. The contingent additional consideration is based primarily on changes in the fair value of Auven Therapeutic Holdings, L.P. (“Auven”) and venBio Global Strategic Fund, L.P. (“venBio”), net of taxes and other expenses related to such investments. For more information see Note 7, “Investments,” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We may need to recognize impairment charges related to goodwill, definite-lived intangible assets and/or fixed assets.
We have substantial balances of goodwill and definite-lived intangible assets as a result of being taken private by certain investment funds of The Carlyle Group Inc. and its affiliates (“Carlyle”) and Hellman & Friedman LLC and its affiliates (“Hellman & Friedman” and, together with Carlyle, the “Majority Sponsors”) in 2011 as well as our other acquisitions. As of December 31, 2019, our goodwill and intangible assets totaled $1,764.1 million and $892.1 million, respectively. We are required to test goodwill for possible impairment on the same date each year and on an interim basis if there are indicators of a possible impairment. We are also required to evaluate amortizable intangible assets for impairment if there are indicators of a possible impairment.
There is significant judgment required in the analysis of a potential impairment of goodwill and intangible assets. As a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or in our financial performance and/or future outlook of reporting units with assigned goodwill or intangible assets, we may determine that impairment of our goodwill or intangible assets exists. An impairment charge would be determined based on the estimated fair value of the reporting unit’s assigned goodwill and estimated fair value of intangible assets and any such impairment charge could have a material adverse effect on our results of operations and financial condition. For example, for the years ended December 31, 2018 and 2017, we recognized goodwill impairment charges of $29.6 million and $38.4 million, respectively. For the year ended December 31, 2019 we did not recognize any goodwill impairment charges. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” for additional information on the goodwill impairment recognized.
Difficult and volatile conditions in the capital and credit markets and in the overall economy could materially adversely affect our business, financial position, results of operations and/or cash flows.
Our business, financial position, results of operations and/or cash flows could be materially adversely affected by difficult conditions and volatility in the capital and credit markets and in the overall economy. Difficult conditions in these markets and the overall economy affect our business in a number of ways. For example:
under difficult market conditions there can be no assurance that borrowings under our senior secured credit facilities would be available or sufficient, and in such a case, we might not be able to successfully obtain additional financing on reasonable terms, or at all;
in order to respond to market conditions, we may need to seek waivers of various provisions in the credit agreement governing our senior secured credit facilities, and we might not be able to obtain such waivers on reasonable terms, if at all; and
market conditions could result in our key customers experiencing financial difficulties and/or electing to limit spending or cause non-payment of invoices due, which in turn could result in decreased sales, cash flows and earnings for us.






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Risks Related to Our Industry
The CRO industry is fragmented and highly competitive and, if we fail to compete effectively, our business could suffer.
The CRO industry is fragmented and we face intense competition from numerous competitors. We primarily compete against other global, full service CROs similar to us, mid-size and small specialty CROs, in-house departments of biopharmaceutical companies and, to a lesser extent, universities, teaching hospitals and other organizations. The larger CROs against which we compete include Covance, ICON, IQVIA, PAREXEL International Corporation, PRA Health Sciences and Syneos Health, among others. Some of these competitors, including the in-house departments of biopharmaceutical companies, may have greater capital, deeper expertise in selected areas and more resources than us. In recent years, IQVIA and Syneos Health have engaged in mergers to add new or ancillary services, which might be attractive to consumers. In addition, our competitors that are smaller specialized CROs might compete effectively against us based on price and other commercial terms, as well as on their concentrated size and focus.
As a result of the level of competition we face in our industry, we might not be successful in retaining our existing customers and relationships or in winning new business. For example, in recent years a number of the large biopharmaceutical companies have established strategic or preferred partnerships or other alliances with one or more CROs relating to the provision of services over extended time periods. These partnerships and alliances differ in purpose, scope and term, but they have generally resulted in fewer CROs being selected to perform work for the biopharmaceutical companies. If we are unable to continue to effectively compete in the future, we might not be able to maintain current strategic or preferred partnerships or win new ones. In addition, the level of competition among CROs has led to firms competing aggressively on price, payment terms and other commercial terms, and has and may continue to result in us agreeing to terms that are less favorable to us than we have historically agreed to. Our future success depends on our ability to compete and, if we are unable to do so effectively, our business, results of operations, financial condition and/or cash flows could be materially adversely affected.
Trends in R&D spending and the rate of outsourcing by biopharmaceutical companies could materially adversely affect our growth potential, business, results of operations, financial condition and/or cash flows.
We provide clinical development and laboratory services to companies and other participants in the biopharmaceutical industry that sponsor clinical research, and our direct revenues, growth prospects and backlog are highly dependent on R&D spending levels and outsourcing rates. As such, industry trends, economic factors, regulatory developments, patent protection and political and other events and circumstances that affect the biopharmaceutical industry, such as volatility or declines in securities markets limiting capital and liquidity, also affect us. For example, in recent years there has been significant public and private capital inflows to biotechnology companies and, while the level of fundraising in recent years has been strong, the ability of small and mid-sized biotechnology companies to attract the funding needed to sustain operations and advance clinical candidates to subsequent stages in the development process remains dependent on the overall health of the financial markets.
Thus, if for these reasons or any other reason biopharmaceutical firms reduce their R&D spending or the extent to which they outsource their work to CROs, our ability to grow our business and our results of operations, financial condition and/or cash flows could be materially adversely affected. In addition, in the past, mergers, consolidations, product withdrawals, lawsuits and other events in the biopharmaceutical industry appear to have slowed decision-making by pharmaceutical companies and resulted in delays and cancellations of drug development projects. Continuation or increases in these trends, as well as their effect on R&D spending and outsourcing penetration, could also have a material adverse effect on our business.
Our future success depends on our ability to keep pace with rapid technological changes that could make our services less competitive or obsolete.
The biopharmaceutical industry generally, and drug development services industry more specifically, is subject to increasingly rapid technological changes. Our customers, competitors and other businesses might acquire or develop technologies or services that are more effective or commercially attractive than our current or future technologies or services or that render our technologies or services less competitive or potentially obsolete. If competitors acquire or introduce superior technologies or services and we cannot procure or develop these technologies or services or enhance ours in a timely manner to remain competitive, our competitive position, and in turn our business, results of operations, financial condition and/or cash flows may be materially adversely affected.
The U.S. and international healthcare industry is subject to political, economic and/or regulatory influences and changes, such as healthcare reform, all of which could adversely affect both our customers’ business and our business.
The U.S. and international healthcare industry is subject to changing political, economic and regulatory influences that could significantly affect the drug development process, R&D costs and the pricing and reimbursement for pharmaceutical products.

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Governments worldwide have increased efforts to expand healthcare coverage while at the same time curtailing and better controlling the increasing costs of healthcare. In recent years, the U.S. Congress enacted healthcare reform legislation that expanded health insurance coverage and imposed healthcare industry cost containment measures. More recently, there has been considerable discussion in the United States about repeal of or changes to current healthcare laws. At this point, it is uncertain as to what changes, new legislation or regulations will be adopted or how any such changes, new legislation or regulations would impact our business. If cost-containment efforts limit our customers’ profitability, they may decrease R&D spending, which could decrease the demand for our services and materially adversely affect our growth prospects. Likewise, if a simplified or more relaxed drug approval process is adopted, the demand for our services may decrease.
The U.S. Congress has also considered and might adopt other legislation that could put downward pressure on the prices that biopharmaceutical companies can charge for prescription drugs. In addition, government bodies may have adopted or are considering the adoption of healthcare reform to control the increasing cost of healthcare. Cost-containment measures, whether instituted by healthcare providers or imposed by governments or through new government regulations, could result in greater selectivity in the number of pharmaceutical products available for purchase, resulting in third-party payers potentially challenging the price and cost-effectiveness of certain pharmaceutical products. In addition, in many major markets outside the United States, pricing approval is required before sales may commence. As a result, significant uncertainty exists as to the reimbursement status of approved healthcare products. Any of these factors could harm our customers’ businesses, which, in turn, could materially adversely hurt our business.
In addition to healthcare reform proposals, the expansion of managed care organizations, which focus on reducing healthcare costs by limiting expenditures on pharmaceutical products and medical devices, could result in biopharmaceutical and medical device companies spending less on R&D, which could decrease the demand for our services. If this were to occur, we would have fewer business opportunities and our revenues could decrease, potentially materially.
Government bodies may also adopt healthcare legislation or regulations that are more burdensome than existing regulations. For example, product safety concerns and recommendations from the FDA’s Drug Safety Oversight Board could change the regulatory environment for drug products, including the process for conducting clinical trials of drug and biologic product candidates, FDA product approval and post-approval safety surveillance. These and other changes in regulation could increase our expenses or limit our ability to offer some of our services. Additionally, new or heightened regulatory requirements may have a negative impact on the ability of our customers to conduct and fund clinical trials for new medicines, which could reduce the demand for our services.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, our business may be harmed.
The biopharmaceutical industry has a history of patent and other intellectual property litigation, and we might be involved in costly intellectual property lawsuits.
The biopharmaceutical industry has a history of intellectual property litigation, and these lawsuits will likely continue in the future. Accordingly, we may face patent infringement suits by companies that hold patents for similar business processes or other claims alleging infringement of their intellectual property rights. As the industry employs new technologies, the risk of intellectual property litigation could rise. Legal proceedings relating to intellectual property are costly, take significant time and resources and divert management’s attention from other business concerns, regardless of the merits or the outcome of such claims. If we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, and we could be required to stop the infringing activity or obtain a license to continue such activity, which might not be available on favorable terms or at all, all of which could materially adversely affect our ability to provide services to our customers and our business, results of operations, financial condition and/or cash flows.





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Risks Associated with Our Indebtedness
Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments.
We have a significant amount of indebtedness. As of December 31, 2019, our total borrowings under our senior secured credit facilities was $3,096.4 million, and we had $1,125.0 million outstanding of 6.375% Senior Notes due 2023 issued by Jaguar Holding Company II and Pharmaceutical Product Development, LLC (the “OpCo Notes”) and $1,450.0 million of 7.625%/8.375% Senior PIK Toggle Notes (the “Initial HoldCo Notes”) and 7.75%/8.50% Senior PIK Toggle Notes due 2022 (the “Additional HoldCo Notes” and together with the Initial HoldCo Notes, the “HoldCo Notes”), which HoldCo Notes were redeemed in full on February 18, 2020. In addition, as of December 31, 2019, we had a $300.0 million revolving credit facility under which we had $298.4 million of availability after giving effect to outstanding letters of credit. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information on our indebtedness. In addition, subject to restrictions in the agreements governing our senior secured credit facilities and the indenture for our OpCo Notes, we may incur additional debt.
Our substantial debt could have important consequences to you, including the following:
it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness;
our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;
a substantial portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, acquisitions and other purposes;
we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited;
our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt; and
our ability to borrow additional funds or to refinance debt may be limited.
Furthermore, all of our debt under our senior secured credit facilities bears interest at variable rates based on LIBOR. If these rates were to increase significantly, whether because of an increase in market interest rates or a decrease in our creditworthiness, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify. Each quarter-point increase in the LIBOR would have increased the interest expense on our current variable rate debt by approximately $7.8 million during 2019.
In addition, on July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021.
If LIBOR ceases to exist, the method and rate used to calculate our interest rates and/or payments on our senior secured credit facilities in the future may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been applicable to our obligations if LIBOR was available in its current form. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event is uncertain, but were it to occur, our cost of capital, financial results, cash flows and results of operations may be adversely affected.
Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.
Our business may not generate sufficient cash flow from operating activities to service our debt obligations. Our ability to make payments on and to refinance our debt and to fund planned capital expenditures depends on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

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If we are unable to generate sufficient cash flow from operations to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations, delay capital expenditures or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.
Restrictive covenants in the credit agreement governing our senior secured credit facilities and the indenture governing our OpCo Notes may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt.
The operating and financial restrictions and covenants in the credit agreement governing our senior secured credit facilities and the indenture governing our OpCo Notes may materially adversely affect our ability to distribute monies to our stockholders, finance future operations or capital needs or engage in other business activities. Such agreements limit our ability, among other things, to:
incur additional indebtedness and guarantee indebtedness;
pay dividends on or make distributions in respect of our common stock or make other restricted payments;
make loans and investments;
sell or otherwise dispose of assets;
incur liens;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into agreements restructuring our subsidiaries’ ability to pay dividends;
enter into certain transactions with our affiliates; and
designate our subsidiaries as unrestricted subsidiaries.
In addition, the restrictive covenants in the credit agreement governing our senior secured credit facilities require us to maintain a specified first lien net leverage ratio when a certain percentage of our revolving credit facility commitments are borrowed and outstanding as of the end of each fiscal quarter. In certain circumstances, our ability to meet this financial covenant may be affected by events beyond our control.
A breach of the covenants under the credit agreement governing our senior secured credit facilities or the indenture governing our OpCo Notes could result in an event of default under the applicable indebtedness. Such a default might allow the creditors to accelerate the related debt and might result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our senior secured credit facilities would permit the lenders under our senior secured credit facilities to terminate all commitments to extend further credit under our senior secured credit facilities. Furthermore, if we were unable to repay the amounts due and payable under our senior secured credit facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
As a result of all of these restrictions, we and/or our subsidiaries, as applicable, may be:
limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.
These restrictions might hinder our ability to service our indebtedness or grow in accordance with our business strategy.
Furthermore, the terms of any future indebtedness we may incur could have further additional restrictive covenants. We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants.




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Despite current debt levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
We and our subsidiaries may be able to incur substantial additional debt in the future. Although the credit agreement governing our senior secured credit facilities and the indenture governing our OpCo Notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions, and the debt incurred in compliance with these restrictions could be substantial. Additionally, we may successfully obtain waivers of these restrictions. If we incur additional debt above the levels currently in effect, the risks associated with our leverage, including those described above, would increase. In addition, we had a $300.0 million revolving credit facility under which we had $298.4 million of availability as of December 31, 2019 after giving effect to outstanding letters of credit.
Risks Related to Ownership of Our Common Stock
Our stock price may change significantly, and you may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
The trading price of our common stock may be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. Factors that could cause fluctuations in the trading price of our common stock include the following:
results of operations that vary from the expectations of securities analysts and investors;
results of operations that vary from those of our competitors;
changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;
declines in the market prices of stocks generally;
strategic actions by us or our competitors;
announcements by us or our competitors of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;
changes in general economic or market conditions or trends in our industry or markets;
changes in business or regulatory conditions;
additions or departures of key management personnel;
future sales of our common stock or other securities by us or our existing stockholders, or the perception of such future sales;
investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;
the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
announcements relating to litigation;
guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
the development and sustainability of an active trading market for our stock;
changes in accounting principles; and
other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.
These broad market and industry fluctuations may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock are low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.


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Our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors, which could materially adversely affect our stock price.
Our operating results have fluctuated from quarter to quarter at points in the past, and they may do so in the future. Therefore, results of any one fiscal quarter are not a reliable indication of results to be expected for any other fiscal quarter or for any year. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, our stock price may decline, and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. We maintain a forecasting process that seeks to align expenses to backlog conversion. If we do not control costs or appropriately adjust costs to actual results, or if actual results differ significantly from our forecast, our financial performance could be materially adversely affected.
We currently do not intend to declare dividends on our common stock in the foreseeable future and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We currently do not expect to declare any dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations and to finance the growth and development of our business. Any determination to declare or pay dividends in the future will be at the discretion of our board of directors, subject to applicable laws and dependent upon a number of factors, including our earnings, capital requirements and overall financial conditions. In addition, our ability to pay dividends on our common stock is currently limited by the covenants of our senior secured credit facilities and our indenture governing our OpCo Notes and may be further restricted by the terms of any future debt or preferred securities. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for such common stock.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business or industry. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business or industry, the price of our stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.
The sale of additional shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Shares held by affiliates of Hellman & Friedman, Carlyle, the Abu Dhabi Investment Authority (“ADIA”), Clocktower Investment Pte Ltd. (“GIC”) (collectively, the “Sponsors”) and certain of our directors, officers and employees are “restricted securities” as defined by Rule 144 of the Securities Act (“Rule 144”) and subject to certain restrictions on resale. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144.
Shares covered by registration rights represented approximately 79% of our common stock as of February 27, 2020. Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement.
As restrictions on resale end or if these stockholders exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
In addition, the shares of our common stock reserved for future issuance under the 2020 Incentive Plan will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and Rule 144, as applicable. A total of 39,053,663 shares of common stock have been reserved for future issuance under the 2020 Incentive Plan.

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In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in dilution to you.
Provisions in our organizational documents could delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation, amended and restated bylaws and second amended and restated stockholders agreement may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common stock.
These provisions provide for, among other things:
the division of our board of directors into three classes, as nearly equal in size as possible, with directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year;
that at any time when the Majority Sponsors and certain of their respective affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of our company entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of the holders of at least two-thirds in voting power of all the then-outstanding shares of stock entitled to vote thereon, voting together as a single class;
the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control;
advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings;
the right of the Majority Sponsors and certain of their respective affiliates to nominate the majority of the members of our board of directors and the obligation of certain of our other pre-IPO stockholders to support such nominees;
certain limitations on convening special stockholder meetings; and
that certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class, if the Majority Sponsors and certain of their respective affiliates beneficially own, in the aggregate, less than 40% in voting power of our stock entitled to vote generally in the election of directors.
These provisions could make it more difficult for a third-party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
We are controlled by the Majority Sponsors, whose interests may be different than the interests of other holders of our securities.
The Majority Sponsors are able to control actions to be taken by us, including future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, amendments to our organizational documents and the approval of significant corporate transactions, including mergers, sales of substantially all of our assets, distributions of our assets, the incurrence of indebtedness and any incurrence of liens on our assets.

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The interests of the Majority Sponsors may be materially different than the interests of our other stakeholders. In addition, the Majority Sponsors may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to you. For example, the Majority Sponsors may cause us to take actions or pursue strategies that could impact our ability to make payments under our senior secured credit facilities and OpCo Notes or cause a change of control. In addition, to the extent permitted by agreements governing our senior secured credit facilities, the Majority Sponsors may cause us to pay dividends rather than make capital expenditures or repay debt. The Majority Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Our amended and restated certificate of incorporation provides that none of the Majority Sponsors, any of their respective affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. The Majority Sponsors also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
So long as the Majority Sponsors continue to own a significant amount of our outstanding common stock, even if such amount is less than 50%, they will continue to be able to strongly influence or effectively control our decisions and, so long as each of the Majority Sponsors continues to own shares of our outstanding common stock, they will have the ability to nominate individuals to our board of directors pursuant to a stockholders agreement to be entered into in connection with this offering. See Part III, Item 13, “Certain Relationships and Related Transactions, Director Independence—Second Amended and Restated, Stockholders Agreement.” In addition, the Majority Sponsors, acting together, will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of our company and ultimately might affect the market price of our common stock.
Failure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.
As a public company, we have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. In addition, we are required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting in the second annual report following the completion of this offering. This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. The rules governing the standards that must be met for our management to assess our internal controls over financial reporting are complex and require significant documentation, testing and possible remediation. Testing internal controls may divert our management’s attention from other matters that are important to our business.
In connection with the implementation of the necessary procedures and practices related to internal controls over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report.
Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. A material weakness in internal controls could result in our failure to detect a material misstatement of our annual or quarterly consolidated financial statements or disclosures. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.



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Our amended and restated bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America are the sole and exclusive forums for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide, subject to limited exceptions, that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of our company to the Company or our stockholders, (iii) action asserting a claim against the Company or any director, officer or other employee of the Company arising pursuant to any provision of the Delaware General Corporation Law, (the “DGCL”), or our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) action asserting a claim against the Company or any director, officer or other employee of the Company governed by the internal affairs doctrine. These provisions shall not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction and our stockholders cannot waive compliance with federal securities laws and the rules and regulations thereunder. Unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated bylaws.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for disputes with us or any of our directors, officers or other employees which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provisions that will be contained in our amended and restated bylaws to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However, this decision may be reviewed and ultimately overturned by the Supreme Court of the State of Delaware.
Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Our amended and restated certificate of incorporation authorizes our board of directors, without the approval of our stockholders, to issue 100,000,000 shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value.
We will incur increased costs as a result of operating as a newly publicly traded company, and our management will be required to devote substantial time to new compliance initiatives.
As a newly publicly traded company, we will incur additional legal, accounting, and other expenses that we did not previously incur. Although we are currently unable to estimate these costs with any degree of certainty, they may be material in amount. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules of the SEC, and the stock exchange on which our common shares are listed, have imposed various requirements on public companies. Our management and other personnel devotes a substantial amount of time to these compliance initiatives as well as investor relations. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.
Item 1B. Unresolved Staff Comments
None.

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Item 2. Properties
As of December 31, 2019, we had 186 office, laboratory and other real estate facilities in 46 countries. We own six of these locations and lease the remaining 180. Our headquarters is located in Wilmington, North Carolina. Our properties are geographically distributed to meet our worldwide operating requirements, and none of our properties are individually material to our business operations. Many of our leases have an option to renew, and we believe that we will be able to successfully renew expiring leases on terms satisfactory to us. We believe that our facilities are adequate for our operations and that suitable additional space will be available when needed.
As of December 31, 2019, our significant operating locations, which we define as the facilities we lease with more than 70,000 square feet, plus all the facilities we own with more than 25,000 square feet, were as follows:
Leased
Location
 
Approximate square footage
Middleton, Wisconsin (2 properties)
 
273,000

Richmond, Virginia (2 properties)
 
251,000

Austin, Texas (2 properties)
 
225,000

Morrisville, North Carolina (3 properties)
 
220,000

Sofia, Bulgaria
 
153,000

Bangalore, India
 
111,000

Manila, Philippines
 
88,000

Highland Heights, Kentucky
 
72,000

Owned
Location
 
Approximate square footage
Wilmington, North Carolina
 
395,000

Bellshill, United Kingdom
 
70,000

Brussels, Belgium
 
43,000

Beijing, China
 
26,000

As of December 31, 2019, our total laboratory square footage was more than 860,000 square feet.
Item 3. Legal Proceedings

We are party to legal proceedings incidental to our business. While our management currently believes the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our consolidated financial statements, all litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial condition and results of operations.
Item 4. Mine Safety Disclosures
Not applicable.

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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
On February 6, 2020, our common stock began trading on Nasdaq under the symbol “PPD.” Prior to that time, there was no public market for our common stock.
Holders of Record
On February 27, 2020, we had approximately 165 common stockholders of record as reported by our transfer agent. Holders of record are defined as those stockholders whose shares are registered in their names in our stock records and do not include beneficial owners of common stock whose shares are held in the names of brokers, dealers or clearing agencies.
Dividend Policy
We currently do not expect to declare any dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations, to finance the growth and development of our business and to reduce our net debt. Any determination to declare dividends in the future will be at the discretion of our board of directors, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition. We are controlled by the Majority Sponsors, who have the ability to nominate a majority of the members of our board of directors and therefore control the payment of dividends. See Part I, Item 1A, “Risk Factors—Risks Related to Ownership of Our Common Stock—We are controlled by the Majority Sponsors, whose interests may be different than the interests of other holders of our securities.” In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under the covenants of the credit agreement governing our senior secured credit facilities and the indenture governing our OpCo Notes, and may be further restricted by the terms of any future debt or preferred securities. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness” for more information about our senior secured credit facilities and our OpCo Notes.
In May 2019, we paid our stockholders a special cash dividend of $1,086.0 million, or $3.89 per share. In addition, in November 2019, we paid our stockholders a special cash dividend of $160.0 million, or $0.57 per share. The May 2019 special cash dividend was funded with the issuance of long-term debt and cash on hand, and the November 2019 dividend was funded with cash on hand. These special cash dividends were considered a return of capital to our stockholders.
Recent Sales of Unregistered Securities
Since January 1, 2019, we have granted under our equity incentive plans (1) stock options to purchase an aggregate of 2,366,888 shares of our common stock, which options had exercise prices per share ranging between $17.00 and $22.00 when issued and (2) an aggregate of 12,060 shares of restricted common stock to our directors. On July 1, 2019, we issued an aggregate of 268,054 shares of our non-voting common stock to a seller of Medimix International in connection with our acquisition of such company.
The issuances of these stock options and shares of common stock were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering.
Purchases of Equity Securities by the Issuer
None.




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Use of Proceeds from Public Offering of Common Stock
On February 10, 2020, we completed the initial public offering (“IPO”) of our common stock at a price to the public of $27.00 per share. We issued and sold 69.0 million shares of common stock in the IPO, including 9.0 million common shares issued pursuant to the full exercise of the underwriters option to purchase additional shares as previously disclosed in the IPO prospectus. The shares sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (the “IPO Registration Statement”), which was declared effective by the SEC on February 5, 2020. Our common stock is listed on Nasdaq under the symbol “PPD.” Shares of common stock were sold at an initial offering price of $27.00 per share. The offering generated net proceeds to us of approximately $1,765.7 million after deducting underwriting discounts and commissions and estimated offering expenses.
We used a portion of the net proceeds received by us from the IPO to redeem $550.0 million in aggregate principal amount of the Initial HoldCo Notes, plus accrued and unpaid interest thereon and $5.5 million of redemption premium and to redeem $900.0 million in aggregate principal amount of the Additional HoldCo notes, plus accrued and unpaid interest thereon and $9.0 million of redemption premium. Any excess net proceeds from the offering will be used for general corporate purposes, which may include, among other things, further repayment of indebtedness.
Item 6. Selected Financial Data
The following tables set forth, for the periods and at the dates indicated, our selected consolidated financial data. We have derived the following balance sheet data as of December 31, 2019 and 2018 and the statements of operations and cash flow data for the years ended December 31, 2019, 2018 and 2017 from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We have derived the following balance sheet data as of December 31, 2017, 2016 and 2015 and the statements of operations and cash flow data for the years ended December 31, 2016 and 2015 from our audited consolidated financial statements not included in this Annual Report on Form 10-K. You should read the consolidated financial data set forth below together with our audited consolidated financial statements and the related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of future results of operations.
On January 1, 2018 we adopted ASC 606, which outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers.We adopted ASC 606 using the modified retrospective method for all contracts not completed as of the date of adoption. Our consolidated financial data for the periods beginning January 1, 2018 and thereafter are presented in accordance with ASC 606. Prior to January 1, 2018, we applied the accounting guidance from the application of ASC Topic 605, Revenue (“ASC 605”).

Additionally, on January 1, 2019 we adopted ASC 842, which required us to recognize certain operating leases in our consolidated balance sheet. We adopted ASC 842 using the modified retrospective method for all operating leases and capital leases under ASC Topic 840, Leases (“ASC 840”). Our consolidated financial data for the periods beginning January 1, 2019 are presented in accordance with ASC 842. Prior to January 1, 2019, we applied the accounting guidance from the application of ASC 840.

On January 15, 2020, we filed our amended and restated certificate of incorporation which, among other things, effected a 1.8-for-1 stock split of our common stock and increased the authorized number of shares of common stock to 2.08 billion. All references to share and per share amounts in the consolidated financial data set forth below have been retrospectively revised to reflect the stock split and the increase in authorized shares.

45


 
Year Ended December 31,(1)
 
2019(2)
 
2018
 
2017(2)
 
2016(2)
 
2015(2)
 
(in thousands)
Statement of operations data:
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Revenue
$
4,031,017

 
$
3,748,971

 
$
2,767,476

 
$
2,467,941

 
$
2,073,484

Reimbursed revenue(3)

 

 
233,574

 
211,624

 
178,350

Total revenue
4,031,017

 
3,748,971

 
3,001,050

 
2,679,565

 
2,251,834

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Direct costs, exclusive of depreciation and amortization
1,484,258

 
1,333,812

 
1,302,983

 
1,175,051

 
965,098

Reimbursed costs
924,634

 
940,913

 
233,574

 
211,624

 
178,350

Selling, general and administrative expenses
938,806

 
813,035

 
809,333

 
718,139

 
652,900

Recapitalization costs

 

 
114,766

 

 

Depreciation and amortization
264,830

 
258,974

 
279,066

 
260,487

 
262,871

Goodwill and long-lived asset impairments
1,284

 
29,626

 
43,459

 
28,101

 
13,686

Total operating costs and expenses
3,613,812

 
3,376,360

 
2,783,181

 
2,393,402

 
2,072,905

Income from operations
417,205

 
372,611

 
217,869

 
286,163

 
178,929

Interest expense, net
(311,744
)
 
(263,618
)
 
(253,891
)
 
(203,294
)
 
(228,084
)
(Loss) gain on investments(4)
(19,043
)
 
15,936

 
92,750

 
61,576

 
19,525

Loss on extinguishment of debt

 

 

 

 
(131,755
)
Other (expense) income, net
(27,143
)
 
21,701

 
(40,259
)
 
22,448

 
19,462

Income (loss) before provision for (benefit from) income taxes
59,275

 
146,630

 
16,469

 
166,893

 
(141,923
)
Provision for (benefit from) income taxes
2,957

 
39,579

 
(284,360
)
 
(15,961
)
 
2,173

Income (loss) before equity in losses of unconsolidated affiliates
56,318

 
107,051

 
300,829

 
182,854

 
(144,096
)
Equity in losses of unconsolidated affiliates, net of income taxes
(3,563
)
 
(186
)
 

 

 

Net income (loss)
52,755

 
106,865

 
300,829

 
182,854

 
(144,096
)
Loss from discontinued operations, net of taxes

 

 

 

 
(4,139
)
Net (income) loss attributable to noncontrolling interests
(4,934
)
 
(2,679
)
 
(4,802
)
 
241

 
1,678

Net income (loss) attributable to PPD, Inc.
47,821

 
104,186

 
296,027

 
183,095

 
(146,557
)
Recapitalization investment portfolio consideration
6,846

 
(7,849
)
 
(97,136
)
 

 

Net income (loss) attributable to common stockholders of PPD, Inc.
$
54,667

 
$
96,337

 
$
198,891

 
$
183,095

 
$
(146,557
)
 
Year Ended December 31,(1)
 
2019(2)
 
2018
 
2017(2)
 
2016(2)
 
2015(2)
 
(in thousands, except per share data)
Per share data:
 
 
 
 
 
 
 
 
 
Earnings/(loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.34

 
$
0.68

 
$
0.59

 
$
(0.46
)
Diluted
$
0.19

 
$
0.34

 
$
0.68

 
$
0.58

 
$
(0.46
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
279,285

 
279,238

 
291,027

 
312,065

 
311,874

Diluted
280,693

 
279,317

 
293,826

 
316,553

 
311,874


46


 
Year Ended December 31,(1)
 
2019(2)
 
2018
 
2017(2)
 
2016(2)
 
2015(2)
 
(in thousands)
Cash flow data:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
 
 
Operating activities
$
432,946

 
$
423,406

 
$
359,079

 
$
407,995

 
$
416,288

Investing activities
(233,228
)
 
(90,525
)
 
(92,743
)
 
(519,746
)
 
(253,542
)
Financing activities
(422,039
)
 
(166,942
)
 
(249,393
)
 
130,465

 
(44,629
)
Other financial data:
 
 
 
 
 
 
 
 
 
Net authorizations(5)
3,827,291

 
3,420,954

 
2,485,419

 
3,051,596

 
2,491,584

Backlog (at end of period)(5)
7,066,254

 
6,313,710

 
5,730,568

 
6,006,644

 
5,192,054

Backlog conversion(5)
11.9
%
 
11.9
%
 
11.7
%
 
11.4
%
 
10.6
%
Net book-to-bill(5)
1.2x

 
1.2x

 
0.9x

 
1.2x

 
1.2x

 
As of December 31,(1)
2019(2)
 
2018
 
2017(2)
 
2016(2)
 
2015(2)
 
(in thousands)
Balance sheet data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
345,187

 
$
553,066

 
$
418,960

 
$
361,741

 
$
365,846

Property and equipment, net
458,845

 
399,103

 
384,187

 
382,946

 
333,737

Working capital
(288,059
)
 
137,456

 
30,352

 
150,452

 
252,699

Total assets
5,556,246

 
5,489,361

 
5,444,873

 
5,310,304

 
4,849,447

Total debt
5,643,928

 
4,795,684

 
4,822,234

 
4,309,112

 
3,655,200

Total stockholders’ deficit
(2,698,148
)
 
(1,522,421
)
 
(1,491,680
)
 
(964,241
)
 
(444,369
)
__________
(1)
Financial data as of and for the years ended December 31, 2019 and 2018 is reported in accordance with ASC 606. Financial data as of and for the years ended December 31, 2017, 2016 and 2015 is reported in accordance with ASC 605.
(2)
We acquired Synarc Inc. on September 3, 2019, Medimix International on July 1, 2019, Optimal Research, LLC on September 1, 2017, Evidera Holdings, Inc. on September 1, 2016, Synexus Clinical Research Topco Limited on May 31, 2016, CRA Intermediate Holdings, Inc. on May 12, 2015 and the clinical research division of SNBL, subsequently renamed PPD-SNBL, on April 1, 2015. We own 60% of PPD-SNBL. The financial results of these entities have been included as of and since the dates of each acquisition.
(3)
Represents out-of-pocket revenues and related costs reimbursed by our customers at cost when we are the principal (and not the agent) in the relationship in accordance with ASC 605 for the years ended December 31, 2017, 2016 and 2015.
(4)
Represents the fair value accounting gains or losses primarily from our investments in Auven and venBio. The gains or losses from our investments in Auven and venBio will likely continue to fluctuate from period to period based on the changes in fair values of the net asset values of the limited partnerships and changes in the discounts applied to such investments for our lack of control and lack of marketability. A contingent liability for additional consideration estimated to be payable to certain owners prior to the 2017 recapitalization was recorded, primarily based on changes in the fair value of such investments, net of taxes and other related expenses. For more information, see Note 2, “Recapitalization Transaction” and Note 7, “Investments” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
(5)
Net authorizations represent new business awards, net of award or contract modifications, contract cancellations, foreign currency fluctuations and other adjustments. Backlog for all periods represents anticipated direct revenue for work not yet completed or performed (i) under signed contracts, letters of intent and, in some cases, awards that are supported by other forms of written communication and (ii) where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the services within six months. Backlog and net authorizations exclude the impact of net authorizations from anticipated third-party pass-through and out-of-pocket revenue. Backlog conversion represents the quarterly average of direct revenue for the period divided by opening backlog for that period. Net book-to-bill represents the amount of net authorizations for the period divided by direct revenue recognized in that period.

47


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the discussion includes forward-looking statements related to future events and our future operating performance that are based on current expectations and are subject to risk and uncertainties. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in Part I, Item 1A,“Risk Factors” of this Annual Report on Form 10-K.
Company Overview
We are a leading provider of drug development services to the biopharmaceutical industry, focused on helping our customers bring their new medicines to patients around the world. We have been in the drug development services business for more than 30 years, providing a comprehensive suite of clinical development and laboratory services to pharmaceutical, biotechnology, medical device and government organizations, as well as other industry participants. Over that time, we have developed a track record of consistent quality, delivery and continuous innovation that has enabled us to grow faster than our underlying market over the past five years and deliver strong financial results. In 2019, we served all of the top 50 biopharmaceutical companies in the world, as ranked by 2018 R&D spending, and, in 2018, were involved in 66 drug approvals. We also participated in the development of all of 2018’s top ten selling drugs, as ranked by 2018 revenue. Since 2014, we have also worked with over 300 companies in the growing biotechnology sector through our PPD Biotech model, which was built specifically to serve the unique needs of this customer segment.
Our purpose and mission are to improve health by helping our customers deliver life-changing therapies to patients. We pursue our purpose and mission through our clinical development and laboratory services and our strategy to bend the cost and time curve of drug development and optimize value for our customers. Our customers benefit from accelerated time to market because it results in lengthened periods of market exclusivity, and our real-world evidence solutions support the superior efficacy and value of their novel therapies. We believe our medical, scientific and drug development expertise, along with our innovative technologies and knowledge of global regulatory requirements, help our customers accelerate the development of safe and effective therapeutics and maximize returns on their R&D investments. We have two reportable segments, Clinical Development Services and Laboratory Services.
For a description of our service offerings within our segments, see Part I, Item 1, “Business” of this Annual Report on Form 10-K.
Effective January 1, 2018, we adopted ASC 606, using the modified retrospective method for all contracts not completed as of the date of adoption. The audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 included elsewhere in this Annual Report on Form 10-K, reflect the application of the accounting guidance of ASC 606, while the consolidated financial statements and other financial information (as applicable) for the period commencing prior to January 1, 2018, reflect previous accounting guidance from the application of ASC 605.
Industry Outlook
For information about the industry outlook and markets that we operate in, refer to “Our Markets” within Part I, Item I of this Annual Report on Form 10-K.
Sources of Revenue
Under ASC 606, revenue is comprised of direct, third-party pass-through and out-of-pocket revenue from providing services to our customers. Direct revenue represents revenue associated with the direct services provided under our contracts. Third-party pass-through and out-of-pocket revenue represents the reimbursement by customers of third-party pass-through and out-of-pocket costs incurred by us under our contracts. Revenue typically fluctuates and may fluctuate significantly period to period based on the timing and types of services performed, staff utilization and hours worked, actual and estimated third-party pass-through and out-of-pocket costs and the volume of our net authorizations driving growth in backlog, among other factors.


48


With the adoption of ASC 606, we record the reimbursement of third-party pass-through and out-of-pocket revenue and the related costs incurred as revenue and reimbursed costs on the consolidated statements of operations. We record these reimbursed costs as revenue when we are the principal in the relationship, are primarily responsible for the services provided by third parties and significantly integrate the services of the third parties with our own services in delivering a combined output to the customer.
Previously under ASC 605, revenue only included direct revenue from providing services to our customers. Third-party pass-through revenue and costs were presented on a net basis and out-of-pocket revenue and costs were presented on a gross basis as reimbursed revenue and reimbursed costs on the consolidated statements of operations. Additionally, third-party pass-through and out-of-pocket costs were excluded from the costs used in the measure of progress for full-service clinical trial management contracts that utilized the proportional performance method to recognize revenue, and the related revenue was recognized for these reimbursed costs when the costs were incurred. Third-party pass-through and out-of-pocket revenue and costs did not have a significant impact on our financial performance, because they were ancillary to the clinical development and laboratory services provided by us, generally provided by us without profit or mark-up and variable from period to period without being important to our underlying business performance. Therefore, prior to January 1, 2018, we did not analyze third-party pass-through and out-of-pocket revenue and related costs from period to period.
Our Clinical Development Services segment represented 81.0%, 82.3% and 83.8% of direct revenue for the years ended December 31, 2019, 2018 and 2017, respectively, with the remainder generated from Laboratory Services. These segment results are based on management segment reporting.
We have a diverse customer mix, with no one customer accounting for more than 10% of our revenue for the years ended December 31, 2019, 2018 and 2017. Our top 10 customers accounted for approximately 47.9%, 47.5% and 50.5% of our revenue for the years ended December 31, 2019, 2018 and 2017, respectively. Based on the diversity of our customer base, we do not believe we have significant customer concentration risk. We do not have any significant product revenues.
Operating Costs and Expenses
Our operating costs and expenses primarily consist of direct costs, reimbursed costs, selling, general and administrative (“SG&A”) expenses and depreciation and amortization.
Direct Costs
Direct costs represent costs for providing services to customers. Direct costs primarily include labor-related costs, such as compensation and benefits for employees providing services, an allocation of facility and information technology costs, supply costs, costs for certain media-related services for patient recruitment, other overhead costs and offsetting R&D incentive credits. Direct costs typically increase or decrease with changes in revenue and may fluctuate significantly from period to period as a percentage of revenue due to staff labor utilization, project labor mix, the type of services, changes to the timing of work performed and project inefficiencies, among other factors.
Reimbursed Costs
Reimbursed costs include third-party pass-through and out-of-pocket costs which are generally reimbursable by our customers at cost. Third-party pass-through and out-of-pocket costs include, but are not limited to, payments to investigators, payments for the use of third-party technology, shipping costs and travel costs related to the performance of services, among others. Third-party pass-through and out-of-pocket costs are incurred across both of our reportable segments.
Because services associated with reimbursed costs are generally provided by us without profit or mark-up and fluctuate from period to period without being important to our underlying performance over the full term of a contract, these costs do not have a significant impact on our income from operations. While fluctuations from period to period are not meaningful over the full term of a contract, actual and estimated reimbursed costs can impact revenue recognized and income from operations throughout the duration of a contract.
Selling, General and Administrative Expenses
SG&A expenses represent costs of business development, administrative and support functions. SG&A expenses primarily include compensation and benefits for employees, costs related to employees performing administrative tasks, stock-based compensation expense, sales, marketing and promotional expenses, employee recruiting and relocation expenses, employee training costs, travel costs, an allocation of facility and information technology costs and other overhead costs.

49


Depreciation and Amortization
Depreciation and amortization represents the costs charged for our property and equipment and intangible assets. We record depreciation and amortization using the straight-line method, based on the estimated useful lives of the respective assets. We depreciate leasehold improvements over the shorter of the lease term or the estimated useful lives of the improvements. We amortize software developed or obtained for internal use, including software licenses obtained through a cloud computing arrangement, over the estimated useful life of the software or term of the licensing or service agreement. Amortization expense primarily comes from acquired definite-lived intangible assets. We amortize definite-lived intangible assets using either the straight-line method or sum-of-the-years digits method over the estimated useful lives of the assets.
How We Assess the Performance of Our Business
We manage and assess our business based on segment performance and allocate resources utilizing segment revenues and segment operating income. We also assess the performance of our consolidated business using a number of metrics including backlog and net authorizations. Our financial information for all periods presented below for backlog and net authorizations exclude the impact of net authorizations from anticipated third-party pass-through and out-of-pocket revenue.
Our backlog represents anticipated direct revenue for work not yet completed or performed (i) under signed contracts, letters of intent and, in some cases, awards that are supported by other forms of written communication and (ii) where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the services within six months.
Backlog and backlog conversion to direct revenue (defined as the quarterly average of segment direct revenue for the period divided by opening backlog for that period) vary from period to period depending upon new authorizations, contract modifications, cancellations and the amount of direct revenue recognized under existing contracts. We adjust backlog for foreign currency fluctuations and exclude direct revenue that has been recognized as revenue in our consolidated statements of operations.
Although an increase in backlog will generally result in an increase in future direct revenue to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in backlog at a particular point in time does not necessarily correspond to an increase in direct revenue during a particular period. The timing and extent to which backlog will result in direct revenue depends on many factors, including the timing of commencement of work, the rate at which we perform services, scope changes, cancellations, delays, receipt of regulatory approvals and the nature, duration, size, complexity and phase of the studies. Our contracts generally have terms ranging from several months to several years. In addition, delayed projects remain in backlog until they are canceled. As a result of these factors, our backlog might not be a reliable indicator of future direct revenue and we might not realize all or any part of the direct revenue from the authorizations in backlog as of any point in time.
We add new authorizations to backlog based on the aforementioned criteria for backlog. Net authorizations represent new business awards, net of award or contract modifications, contract cancellations, foreign currency fluctuations and other adjustments. New authorizations vary from period to period depending on numerous factors, including customer authorization volume, sales performance and overall health of the biopharmaceutical industry, among others. New authorizations have varied and will continue to vary significantly from quarter to quarter and from year to year. In addition to net authorizations, we also assess net book-to-bill which represents the amount of net authorizations for the period divided by the direct revenue recognized in that period.







50


Backlog and Net Authorizations
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in millions)
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Net authorizations (for the years ended December 31)
 
$
3,827.3

 
$
3,421.0

 
$
2,485.4

 
$
406.3

 
11.9
%
 
$
935.6

 
37.6
%
Backlog (as of December 31)
 
7,066.3

 
6,313.7

 
5,730.6

 
752.6

 
11.9

 
583.1

 
10.2

Backlog conversion (quarterly average for the years ended December 31)
 
11.9
%
 
11.9
%
 
11.7
%
 
 
 

 
 
 
0.2

Net book-to-bill
 
1.2x

 
1.2x

 
0.9x

 
 
 
 
 
 
 
 
Our net authorizations for the years ended December 31, 2019, 2018 and 2017 were $3,827.3 million, $3,421.0 million and $2,485.4 million, respectively. Our backlog as of December 31, 2019, 2018 and 2017 was $7,066.3 million, $6,313.7 million and $5,730.6 million, respectively. The increase in net authorizations and backlog in 2019 as compared to the same period in the prior year was primarily due to a higher win rate on competitive decisions (which represents the total dollar amount of new business on which we bid) and favorable net foreign currency fluctuations, partially offset by cancellations. The increase in net authorizations and backlog in 2018 as compared to the same period in the prior year was primarily due to a higher number of competitive decisions and lower cancellations, partially offset by unfavorable foreign currency fluctuations.
Acquisitions
September 2019 Acquisition
On September 3, 2019, we acquired 100% of the issued and outstanding equity of Synarc, Inc. (“Synarc”), the global site network of Bioclinica, Inc., expanding its global footprint into China and Latin America and expanding its central nervous system offering in the United States. As of December 31, 2019, the preliminary purchase price was $45.2 million. The initial accounting for the acquisition is not yet complete. See Note 6, “Business Combinations,” of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
July 2019 Acquisition
On July 1, 2019, we acquired 100% of the issued and outstanding equity of Medimix International (“Medimix”), a global technology company that provides real-world evidence insights and information to the pharmaceutical, diagnostic and medical device industries. As of December 31, 2019, the preliminary purchase price was $36.8 million, including $5.0 million of common stock of the Company. The initial accounting for the acquisition is not yet complete. See Note 6, “Business Combinations,” of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
September 2017 Acquisition
On September 1, 2017, we acquired 100% of Optimal Research, LLC (“Optimal Research”), a dedicated clinical research site network with enhanced oncology enrollment capabilities. The purchase price was $24.0 million. See Note 6, “Business Combinations,” of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Incremental Public Company Expenses
As a new public company, we will incur additional expenses on an ongoing basis that we did not incur as a private company. Those costs include additional director and officer liability insurance expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, investor and public relations expenses and additional stock-based compensation expense as we align our long-term incentive plan with other public company plans. These costs will generally be SG&A expenses.

51


We also expect to replace our existing cash-based long-term incentive plan with annual equity awards in 2020. We recorded compensation expense of $14.1 million, $12.0 million and $11.1 million for each of the years ended December 31, 2019, 2018 and 2017, respectively, in connection with awards issued under our cash-based long-term incentive plan.
Results of Operations
We have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the year ended December 31, 2019 to the year ended December 31, 2018 and the year ended December 31, 2018 to the year ended December 31, 2017. We have noted in the discussion below, to the extent meaningful and quantifiable, the impact on the comparability of our consolidated results of operations to prior year results due to the inclusion of acquired companies as well as the impact of ASC 606 when comparing the year ended December 31, 2018 to the year ended December 31, 2017.
Year Ended December 31, 2019 versus Year Ended December 31, 2018 and Year Ended December 31, 2018 versus Year Ended December 31, 2017
Consolidated Results of Operations
Revenue
 
 
 
 
 
 
 
 
Change
 
 
Years Ended December 31,
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in thousands)
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Revenue
 
$
4,031,017

 
$
3,748,971

 
$
2,767,476

 
$
282,046

 
7.5
%
 
$
981,495

 
35.5
%
Reimbursed revenue
 

 

 
233,574

 

 
n.m.

 
(233,574
)
 
n.m.

Total revenue
 
$
4,031,017

 
$
3,748,971

 
$
3,001,050

 
$
282,046

 
7.5

 
$
747,921

 
24.9

Revenue increased $282.0 million, or 7.5%, to $4,031.0 million for the year ended December 31, 2019 as compared to the same period in 2018. Revenue increased 7.6% from organic volume growth due to increased net authorizations and backlog growth in 2019 and 2018 and 0.7% from inorganic growth primarily due to our current year acquisitions of Synarc and Medimix (the “2019 Acquisitions”). The increase in revenue was partially offset by a 0.8% decrease from the unfavorable impact from foreign currency exchange rates.
Total revenue increased $747.9 million, or 24.9%, to $3,749.0 million for the year ended December 31, 2018 as compared to the same period in 2017. Total revenue increased primarily due to the adoption of ASC 606, which requires third-party pass-through revenue and out-of-pocket reimbursed revenue to be reported on a gross presentation basis as part of revenue. Previously, under ASC 605, third-party pass-through revenue was presented net of third-party pass-through costs in our consolidated statements of operations. Excluding the impact of the adoption of ASC 606, revenue increased $70.3 million, or 2.5%. Total revenue increased 1.5% primarily due to organic volume growth and higher backlog conversion, 0.7% due to the effect of favorable foreign currency exchange rates, and 0.3% due to inorganic growth from the 2017 acquisition of Optimal Research (the “2017 Acquisition”).
Direct Costs
 
 
 
 
 
 
 
 
Change
 
 
Years Ended December 31,
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in thousands)
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Direct costs
 
$
1,484,258

 
$
1,333,812

 
$
1,302,983

 
$
150,446

 
11.3
%
 
$
30,829

 
2.4
%
% of total revenue
 
36.8
%
 
35.6
%
 
43.4
%
 
 
 
 
 
 
 
 




52


Direct costs increased $150.4 million to $1,484.3 million for the year ended December 31, 2019 as compared to the same period in 2018. The increase in direct costs was due to (i) a $97.9 million increase from growth in employee headcount and contract labor to support current and anticipated growth in future revenue as well as compensation increases, (ii) a $16.5 million increase from the impact of the 2019 Acquisitions and (iii) an increase in project delivery costs, including media-related costs for patient recruitment services and laboratory supply costs. The increase in direct costs was partially offset by a 1.6% decrease from the favorable impact from foreign currency exchange rates. As a percentage of revenue, direct costs increased to 36.8% for the year ended December 31, 2019 as compared to 35.6% in the same period in 2018 primarily due to the factors identified above.
Direct costs increased $30.8 million to $1,333.8 million for the year ended December 31, 2018 as compared to the same period in 2017. The increase in direct costs was primarily due to (i) a $30.9 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases, (ii) an increase in project delivery costs, including media-related costs for patient recruitment services and (iii) an inorganic increase of $5.2 million for the 2017 Acquisition, partially offset by increased R&D incentive credits. The increase in direct costs included a 0.8% increase from the unfavorable impact from foreign currency exchange rates. As a percentage of revenue, direct costs decreased to 35.6% for the year ended December 31, 2018 as compared to 43.4% in the same period in 2017. Excluding the impact from the adoption of ASC 606, direct costs were 43.4%, as a percentage of revenue, for the year ended December 31, 2018.
Reimbursed Costs
 
 
 
 
 
 
 
 
Change
 
 
Years Ended December 31,
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in thousands)
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Reimbursed costs
 
$
924,634

 
$
940,913

 
$
233,574

 
$
(16,279
)
 
(1.7
)%
 
$
707,339

 
302.8
%
% of total revenue
 
22.9
%
 
25.1
%
 
7.8
%
 
 
 
 
 
 
 
 
Reimbursed costs decreased $16.3 million to $924.6 million for the year ended December 31, 2019 as compared to the same period in 2018. Reimbursed costs decreased due to lower pass-through costs for certain larger clinical trials within our Clinical Development Services segment as a result of fluctuations in enrollment and patient activity, as well as the general timing of costs incurred across the remainder of the portfolio, which will vary over the course of clinical trials due to the timing of the work performed, scope changes and the complexity and phase of the study, among other factors.
Reimbursed costs increased $707.3 million to $940.9 million for the year ended December 31, 2018 as compared to the same period in 2017. Reimbursed costs increased primarily due to the adoption of ASC 606, which requires third-party pass-through costs to be recorded on a gross presentation basis instead of being presented net of pass-through revenue. Previously, under ASC 605, third-party pass-through costs were presented net of third-party pass-through revenue in our consolidated statements of operations for periods that commenced prior to January 1, 2018. Excluding the impact from the adoption of ASC 606, reimbursed costs would have been $222.2 million for the year ended December 31, 2018. See discussion above on the impact from the adoption of ASC 606 on our revenues.
Selling, General and Administrative Expenses
 
 
 
 
 
 
 
 
Change
 
 
Years Ended December 31,
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in thousands)
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Selling, general and administrative expenses
 
$
938,806

 
$
813,035

 
$
809,333

 
$
125,771

 
15.5
%
 
$
3,702

 
0.5
%
% of total revenue
 
23.3
%
 
21.7
%
 
27.0
%
 
 
 
 
 
 
 
 




53


SG&A expenses increased $125.8 million to $938.8 million for the year ended December 31, 2019 as compared to the same period in 2018. The increase in SG&A expenses was primarily due to (i) a $43.7 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases, (ii) $18.4 million in compensation costs related to a stock option modification and special cash bonus to option holders, (iii) an increase in professional fees, including acquisition and IPO transaction costs of $15.3 million and (iv) a $12.2 million increase in technology costs related to both licensing and cloud services and the implementation of a new enterprise resource planning system. The increase in SG&A expenses was partially offset by a 1.4% decrease from the favorable impact from foreign currency exchange rates. As a percentage of revenue, SG&A expenses increased to 23.3% for the year ended December 31, 2019 as compared to 21.7% in the same period in 2018 primarily due to the factors identified above.
SG&A expenses increased $3.7 million to $813.0 million for the year ended December 31, 2018 as compared to the same period in 2017. The increase in SG&A expenses was primarily due to (i) a $9.5 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases and (ii) an inorganic increase of $3.3 million from the 2017 Acquisition, partially offset by $10.4 million of lower stock-based compensation, severance and other related costs. The increase in SG&A expenses included a 0.4% increase from the unfavorable impact from foreign currency exchange rates. As a percentage of revenue, SG&A expenses decreased to 21.7% for the year ended December 31, 2018 as compared to 27.0% in the same period in 2017. Excluding the impact from the adoption of ASC 606, as a percentage of revenue, SG&A expenses decreased to 26.7% for the year ended December 31, 2018.
Recapitalization Costs
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Recapitalization costs
 
$

 
$

 
$
114,766

Recapitalization costs associated with the recapitalization of the Company were $114.8 million for the year ended December 31, 2017 and consisted of (i) $51.2 million of transaction costs, (ii) $52.2 million of stock-based compensation expense for the vesting and cash settlement of stock options, (iii) $4.3 million of accelerated other compensation expense for special cash bonuses to option holders and (iv) $7.1 million of other compensation expense for payroll taxes related to the cash and share settlement of stock options and special cash bonuses to option holders. There were no recapitalization costs for the years ended December 31, 2019 or 2018.
Depreciation and Amortization
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Depreciation and amortization
 
$
264,830

 
$
258,974

 
$
279,066

Depreciation and amortization was $264.8 million for the year ended December 31, 2019 as compared to $259.0 million in the same period in 2018. The increase in depreciation and amortization expense primarily relates to the impact from (i) our laboratory facilities expansion, (ii) new purchased and internally developed software and (iii) the definite-lived intangibles amortization impact from the 2019 Acquisitions, partially offset by a decrease due to the timing of amortization of certain definite-lived intangible assets and a favorable impact from foreign currency exchange rates.
Depreciation and amortization was $259.0 million for the year ended December 31, 2018 as compared to $279.1 million in the same period in 2017. Depreciation and amortization expense decreased primarily due to certain definite-lived intangible assets and internally developed software becoming fully amortized in 2017, partially offset by an unfavorable impact from foreign currency exchange rates.
Goodwill and Long-Lived Asset Impairments
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Goodwill and long-lived asset impairments
 
$
1,284

 
$
29,626

 
$
43,459


54


Goodwill impairment was $29.6 million for the year ended December 31, 2018 as compared to $38.4 million in the same period in 2017. Our 2018 and 2017 annual goodwill impairment tests each indicated that one reporting unit in our Clinical Development Services segment had an estimated fair value below carrying value as a result of decreases in future cash flows. The goodwill impairments in 2018 and 2017 were recorded on different reporting units. There was no goodwill impairment in 2019.
In 2018, the expected future cash flows of the reporting unit decreased due to lower forecasted long-term revenue growth and higher forecasted operating expenses, resulting in reduced margins. In 2017, the expected future cash flows of the reporting unit decreased due to lower forecasted long-term revenue growth and reduced margins, primarily as a result of the loss of certain key customers.
Interest Expense, Net
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Interest expense, net
 
$
311,744

 
$
263,618

 
$
253,891

Interest expense, net, was $311.7 million for the year ended December 31, 2019 as compared to $263.6 million in the same period in 2018. The increase in interest expense is due to $49.1 million of interest expense related to the issuance of the Additional HoldCo Notes and an increase in the interest rate on our term loan under our senior secured credit facilities for a portion of the year, partially offset by favorable amortization from our terminated interest rate swaps.
Interest expense, net, was $263.6 million for the year ended December 31, 2018 as compared to $253.9 million in the same period in 2017. The overall increase in interest expense is due to $16.0 million of interest expense from the issuance of the Initial HoldCo Notes in connection with the May 2017 recapitalization of the Company and an increase in the interest rate on our term loan under our senior secured credit facilities from 4.38% to 5.02%. These increases were partially offset by favorable interest rate swaps and the impact of a repricing of our term loan in March 2018 resulting in a lower margin on our term loan.
(Loss) Gain on Investments
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
(Loss) gain on investments
 
$
(19,043
)
 
$
15,936

 
$
92,750

Loss on investments was $19.0 million for the year ended December 31, 2019 as compared to a gain of $15.9 million in the same period in 2018. The loss for 2019 and gain for 2018, respectively, was primarily a result of changes in the fair values of the net asset values of our investments, partially offset by changes to the discounts on certain investments.
Gain on investments was $15.9 million for the year ended December 31, 2018 as compared to a gain of $92.8 million in the same period in 2017. The gain in 2018 and 2017 was primarily a result of increases in the fair value of the net asset values of our investments, partially offset by changes to the discount on certain investments.
The gains or losses from our investments will likely continue to fluctuate from period to period primarily based on the changes in fair value of the underlying holdings of the limited partnerships and changes in the discounts applied to such investments for our lack of control and lack of marketability, where applicable.
Other (Expense) Income, Net
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Other (expense) income, net
 
$
(27,143
)
 
$
21,701

 
$
(40,259
)
Other expense, net, was $27.1 million for the year ended December 31, 2019 as compared to other income, net of $21.7 million in the same period in 2018. Foreign exchange rate movement resulted in transaction and re-measurement losses of $24.7 million for the year ended December 31, 2019 and transaction and re-measurement gains of $16.7 million in the same period in 2018.

55


Other income, net, was $21.7 million for the year ended December 31, 2018 as compared to other expense, net, of $40.3 million in the same period in 2017. The change in other income (expense), net, was primarily due to foreign exchange rate movement that resulted in transaction and re-measurement gains of $16.7 million for the year ended December 31, 2018 as compared to transaction and re-measurement losses of $40.1 million in the same period in 2017.
Provision for (Benefit from) Income Taxes
 
 
Years Ended December 31,
(dollars in thousands)
 
2019
 
2018
 
2017
Provision for (benefit from) income taxes
 
$
2,957

 
$
39,579

 
$
(284,360
)
Effective income tax rate
 
5.0
%
 
27.0
%
 
(1,726.6
)%
Our provision for income taxes was $3.0 million, resulting in an effective income tax rate of 5.0%, for the year ended December 31, 2019 as compared to $39.6 million, or an effective income tax rate of 27.0%, in the same period in 2018. Our provision for income taxes for the year ended December 31, 2019 was primarily due to the estimated tax effect on our income before provision for income taxes offset by the impact from the benefit related to state taxes, net of federal benefit, related to the Tax Act, as well as the realization of carryforward foreign tax attributes and an increase in foreign R&D credits. Our provision for income taxes for the year ended December 31, 2018 was primarily due to the estimated tax effect on our income before provision for income taxes, which included a decrease in the corporate statutory tax rate and other tax impacts as a result of the Tax Act.
Our provision for income taxes was $39.6 million, resulting in an effective income tax rate of 27.0%, for the year ended December 31, 2018, as compared to a benefit from income taxes of $284.4 million, or an effective income tax rate of (1,726.6)%, in the same period in 2017. Our provision for income taxes for the year ended December 31, 2018 was primarily due to the estimated tax effect on our income before provision for income taxes, which included a decrease in the corporate statutory tax rate and other tax impacts as a result of the Tax Act. Our benefit from income taxes for the year ended December 31, 2017 was primarily due to (i) the net impacts of the Tax Act, including the benefit on our deferred tax liabilities from the decrease in the corporate statutory tax rate, the generation of foreign tax credits and the release of a deferred tax liability for accumulated unremitted foreign earnings, offset by the inclusion of the one-time mandatory transition tax and (ii) the estimated tax effect of certain stock-based and other compensation costs, offset by certain non-deductible transaction costs, all related to the recapitalization of the Company in May 2017.
Segment Results of Operations
We assess our segment revenue on a direct revenue basis, excluding third-party pass-through and out-of-pocket revenue. Clinical Development Services and Laboratory Services segment revenue, segment direct costs, segment SG&A expenses and segment operating income for the years ended December 31, 2019, 2018 and 2017 are detailed below.
Clinical Development Services
 
 
 
 
 
 
 
 
Change
 
 
Years Ended December 31,
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in thousands)
 
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Segment revenue
 
$
2,545,046

 
$
2,336,005

 
$
2,319,103

 
$
209,041

 
8.9
%
 
$
16,902

 
0.7
%
Segment direct costs
 
1,164,906

 
1,058,245

 
1,053,557

 
106,661

 
10.1

 
4,688

 
0.4

Segment SG&A expenses
 
530,311

 
476,408

 
464,794

 
53,903

 
11.3

 
11,614

 
2.5

Segment operating income
 
849,829

 
801,352

 
800,752

 
48,477

 
6.0

 
600

 
0.1

    




56


Segment Revenue
Clinical Development Services’ segment revenue was $2,545.0 million for the year ended December 31, 2019, an increase of $209.0 million as compared to the same period in 2018. Segment revenue increased (i) 8.7% from organic volume growth in our Phase II-IV clinical trial management services, site and patient access services and medical communications services, as well as higher opening backlog at the beginning of the year and (ii) 1.1% from inorganic growth due to the 2019 Acquisitions. The increase in segment revenue was partially offset by a 0.8% decrease from the unfavorable impact from foreign currency exchange rates. The higher opening backlog was primarily due to increased net authorizations for our Phase II-IV clinical trial management services in 2018.
Clinical Development Services’ segment revenue was $2,336.0 million in 2018, an increase of $16.9 million as compared to the same period in 2017. Segment revenue increased 0.4% due to inorganic growth from the 2017 Acquisition and 0.7% due to favorable foreign currency exchange rates, partially offset by a 0.4% decrease in organic volume. The decrease in organic growth was primarily the result of a lower opening backlog and a decrease in net authorizations in 2017 in our Phase II-IV clinical trial management services.
Segment Direct Costs
Clinical Development Services’ segment direct costs were $1,164.9 million for the year ended December 31, 2019, an increase of $106.7 million as compared to the same period in 2018. The increase in segment direct costs was primarily due to (i) a $66.9 million increase from growth in employee headcount and contract labor to support current and anticipated growth in future revenue as well as compensation increases, (ii) a $16.5 million increase from the impact of the 2019 Acquisitions and (iii) an increase in project delivery costs including media-related costs for patient recruitment services. The increase in segment direct costs was partially offset by a 1.8% decrease from the favorable impact from foreign currency exchange rates.
Clinical Development Services’ segment direct costs were $1,058.2 million in 2018, an increase of $4.6 million as compared to the same period in 2017. The increase in segment direct costs was primarily due to (i) a $20.2 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases, (ii) an increase in media-related costs for patient recruitment services and (iii) an inorganic increase of $5.2 million for the 2017 Acquisition, partially offset by increased R&D incentive credits and a $23.1 million decrease in temporary labor and certain other project delivery costs. The increase in segment direct costs included a 0.9% increase from the unfavorable impact from foreign currency exchange rates.
Segment SG&A Expenses
Clinical Development Services’ segment SG&A expenses were $530.3 million for the year ended December 31, 2019, an increase of $53.9 million as compared to the same period in 2018. The increase in segment SG&A expenses was primarily due to (i) a $32.2 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases and (ii) a $7.1 million increase from the impact of the 2019 Acquisitions. The increase in segment SG&A expenses was partially offset by a 1.7% decrease from the favorable impact from foreign currency exchange rates.
Clinical Development Services’ segment SG&A expenses were $476.4 million in 2018, an increase of $11.6 million as compared to the same period in 2017. The increase in segment SG&A expenses was primarily due to (i) a $13.4 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases and (ii) an increase of $3.3 million from the impact of the 2017 Acquisition, partially offset by a decrease in bad debt expense. The increase in segment SG&A expenses included a 0.7% increase from the unfavorable impact from foreign currency exchange rates.

57


Laboratory Services
 
 
 
 
 
 
 
 
Change
 
 
Years Ended December 31,
 
2019 vs. 2018
 
2018 vs. 2017
(dollars in thousands)
 
2019
 
2018
 
2017
 
$      
 
%     
 
$      
 
%     
Segment revenue
 
$
598,691

 
$
501,805

 
$
448,373

 
$
96,886

 
19.3
%
 
$
53,432

 
11.9
%
Segment direct costs
 
307,346

 
258,473

 
235,137

 
48,873

 
18.9

 
23,336

 
9.9

Segment SG&A expenses
 
83,130

 
70,673

 
60,097

 
12,457

 
17.6

 
10,576

 
17.6

Segment operating income
 
208,215

 
172,659

 
153,139

 
35,556

 
20.6

 
19,520

 
12.7

Segment Revenue
Laboratory Services’ segment revenue was $598.7 million for the year ended December 31, 2019, an increase of $96.9 million as compared to the same period in 2018. Segment revenue increased from organic volume growth across all our laboratory services, including increased net authorizations in 2019, as well as higher opening backlog at the beginning of the year. The higher opening backlog was primarily due to increased net authorizations in 2018.
Laboratory Services’ segment revenue was $501.8 million in 2018, an increase of $53.4 million as compared to the same period in 2017. Segment revenue increased primarily from organic volume growth from our bioanalytical and GMP laboratory services as well as higher opening backlog at the beginning of the year. The higher opening backlog was primarily due to increased net authorizations in 2017.
Segment Direct Costs
Laboratory Services’ segment direct costs were $307.3 million for the year ended December 31, 2019, an increase of $48.9 million as compared to the same period in 2018. The increase in segment direct costs was primarily due to (i) a $27.9 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases and (ii) an increase in laboratory supply costs associated with the growth in revenue.
Laboratory Services’ segment direct costs were $258.5 million in 2018, an increase of $23.3 million as compared to the same period in 2017. The increase in segment direct costs was primarily due to (i) a $19.1 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases and (ii) an increase in laboratory supplies costs associated with the growth in revenue.
Segment SG&A Expenses
Laboratory Services’ segment SG&A expenses were $83.1 million for the year ended December 31, 2019, an increase of $12.5 million as compared to the same period in 2018. The increase in segment SG&A expenses was primarily due to a $9.1 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases.
Laboratory Services’ segment SG&A expenses were $70.7 million in 2018, an increase of $10.6 million as compared to the same period in 2017. The increase in segment SG&A expenses was primarily due to an $8.3 million increase from growth in employee headcount to support current and anticipated growth in future revenue as well as compensation increases.

58


Liquidity and Capital Resources
Overview
We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary cash uses on a short-term and long-term basis are for repayment of debt, interest payments, working capital, capital expenditures, geographic or service offering expansion, acquisitions, investments and other general corporate purposes. We have historically funded our operations with cash flows from operations. We have historically used long-term debt and cash on hand to fund acquisitions and make special cash dividends or distributions to our stockholders. We hold our cash balances in the United States and numerous locations in the rest of the world.
The following table presents key measures of our liquidity on the dates set forth below:
(in thousands)
 
December 31,
 
 
2019
 
2018
Cash and cash equivalents:
 
 
 
 
Cash held in the United States
 
$
135,917

 
$
371,495

Cash held in foreign locations
 
209,270

 
181,571

Total
 
$
345,187

 
$
553,066

Revolving Credit Facility (net of letters of credit)
 
$
298,370

 
$
298,370

During May 2019, we amended the Initial HoldCo Notes indenture to permit us to make special cash dividends and distributions to our stockholders. Expenses of $11.0 million for consent fees were deferred in connection with this debt modification. Additionally, during May 2019, we issued $900.0 million of Additional HoldCo Notes at 99% of face value, or a discount of 1.0%. We used the net proceeds from the Additional HoldCo Notes, together with cash on hand, to pay a special cash dividend of $1,086.0 million to our stockholders, as well as pay for fees and expenses associated with the debt issuance. Debt issuance costs of $18.2 million, consisting primarily of underwriters’ and professional fees, were deferred in connection with this debt issuance. During November 2019, we declared, and subsequently paid, a special cash dividend to our stockholders of $160.0 million with cash on hand.
As a result of the recapitalization of the Company in 2017, we incurred certain future obligations associated with potential additional recapitalization consideration. During 2018, we finalized the amount of the recapitalization tax benefit liability and distributed $108.3 million from our cash and cash equivalents on-hand to the pre-closing holders. We do not expect the payment of the recapitalization investment portfolio liability (as defined in our audited consolidated financial statements included elsewhere on this Annual Report on Form 10-K) to impact our future liquidity or capital resources as the right for the pre-closing holders to receive any such payment depends upon receipt of future cash proceeds from the applicable portion of the investment portfolio. We have classified in long-term liabilities the portion of the investment portfolio we estimate to be payable, net of taxes and other expenses, to the pre-closing holders. Future payments will be required to be made, if and when, cash proceeds are received and are payable under the recapitalization transaction merger agreement. For example, as required under the recapitalization transaction merger agreement, during 2018 and 2017, we made cash distributions of $16.0 million and $10.5 million, respectively, for the payment of a portion of the recapitalization investment portfolio liability from the cash proceeds received from the investment portfolio. No distributions for the recapitalization investment portfolio liability were made in 2019.
As of December 31, 2019, we had total long-term debt and finance lease obligations outstanding of approximately $5.7 billion. See “Indebtedness” and Note 10, “Long-term Debt and Finance Lease Obligations,” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion and additional information regarding our debt instruments and other obligations, including the redemption of the HoldCo Notes from the use of proceeds from the IPO.

59


We expect to continue funding our operations from existing cash, cash flows from operations and, if necessary or appropriate, borrowings under our revolving credit facility, which remains undrawn. We believe that these sources of liquidity will be sufficient to fund our operations and service our debt and interest for the foreseeable future. From time to time, we evaluate potential acquisitions, investments and other growth and strategic opportunities that might require use of existing cash, borrowings under our revolving credit facility or additional long-term financing. We may also use existing cash and cash flows from operations to pay down additional long-term debt from time to time.
While we believe we have sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by factors described under “Indemnification and Insurance” within Part I, Item 1, “Business,”; Part I, Item 1A, “Risk Factors,”; “Contractual Obligations and Commercial Commitments,” and “Critical Accounting Policies and Estimates,” within Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”; and Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included elsewhere in this Annual Report on Form 10-K.
Cash Flows
Year Ended December 31, 2019 versus Year Ended December 31, 2018 and Year Ended December 31, 2018 versus Year Ended December 31, 2017
Cash flows from operating activities
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Net cash provided by operating activities
 
$
432,946

 
$
423,406

 
$
359,079

2019 compared to 2018
The increase in operating cash flows of $9.5 million was due to a $41.1 million increase in cash from the changes in operating assets and liabilities, partially offset by a $31.6 million decrease in net income and non-cash reconciling items. The change in operating assets and liabilities was primarily due to period over period fluctuations in the timing of collections and payments, with the source of cash from (i) net accounts receivable (defined as the sum of period-end balances of accounts receivable and unbilled services net of unearned revenue), (ii) accounts payable, accrued expenses and other liabilities and (iii) income taxes being favorable and the use of cash for (i) operating lease liabilities, (ii) prepaid expenses and other current assets and (iii) other assets being unfavorable.
The decrease in net income and non-cash reconciling items was primarily due to (i) a decrease in net income, (ii) an increase in the deferred income tax benefit and (iii) goodwill impairment recorded in the prior year but not in the current year, partially offset by (i) non-cash operating lease expense and (ii) an unrealized loss on investments recorded in the current year, compared to an unrealized gain on investments in the prior year. The change in operating lease liabilities and the non-cash operating lease expense was the result of the adoption of ASC 842.
The change in the source of cash for net accounts receivable of $76.8 million for the year ended December 31, 2019 was largely due to a decrease in days sales outstanding, which represents the number of days revenue is outstanding in net accounts receivable, as well as the timing in the receipt of collections and contractual billings under our contracts. Other changes to cash flows from operating activities include a $37.6 million increase in cash paid for interest and a $7.8 million net increase in cash paid for income taxes during the year ended December 31, 2019 as compared to the same period in 2018. Cash paid for interest increased primarily due to the issuance of the Additional HoldCo Notes in May 2019. Additionally, cash paid for interest increased due to higher interest rates on our term loan for a portion of the year ended December 31, 2019. Cash paid for income taxes increased as a result of increased tax payments in certain foreign jurisdictions due to increases in pre-tax income from foreign subsidiaries, partially offset by foreign income tax refunds recognized during the year ended December 31, 2019. Additionally, for the year ended December, 31 2019, we paid special cash bonuses of $21.1 million to option holders in connection with the special cash dividends to our stockholders that we declared in May 2019 and November 2019, and subsequently paid.




60


2018 compared to 2017
The increase in operating cash flows of $64.3 million was due to a $74.2 million increase in net income and non-cash reconciling items, partially offset by a $9.9 million decrease in cash from the changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to period over period fluctuations in the timing of collections and payments, with the use of cash for (i) accounts payable, accrued expenses and other liabilities and (ii) prepaid expenses and other current assets being unfavorable and the source of cash for (i) net accounts receivable (defined as the sum of period-end balances of accounts receivable and unbilled services net of unearned revenue), (ii) income taxes and (iii) certain assets being favorable. The increase in net income and non-cash reconciling items was primarily due to an increase in income from operations and a decrease in the cash used as a result of the costs related to the 2017 recapitalization of the Company, which did not reoccur during 2018, and growth in the business.
The change in source of cash for net accounts receivable of $94.6 million for the year ended December 31, 2018 was largely a result of a decrease in days sales outstanding. Other changes to cash flows from operating activities included a $24.1 million increase in cash paid for interest and a $21.3 million increase in cash paid for income taxes during 2018 as compared to 2017. Cash paid for interest increased primarily as a result of the issuance of the Initial HoldCo Notes in May 2017 as part of the recapitalization. Cash paid for income taxes increased during 2018 as compared to 2017 as a result of increased tax payments in certain foreign jurisdictions due to increases in pre-tax income from foreign subsidiaries.
Cash flows from investing activities
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Net cash used in investing activities
 
$
(233,228
)
 
$
(90,525
)
 
$
(92,743
)
2019 compared to 2018
The increase in cash used during 2019 was primarily due to (i) the net cash paid for the 2019 Acquisitions of $74.2 million, (ii) new and incremental investments in unconsolidated affiliates, (iii) a decrease in distributions received from investments and (iv) an increase in purchases of property and equipment. Additionally, the increase in cash used resulted from $8.0 million of net cash proceeds received from the sale of a business in the prior year and no proceeds from the sale of a business in the current year.
Cash paid for investments in unconsolidated affiliates in 2019 and 2018 was $30.0 million and $9.0 million, respectively. Cash paid for property and equipment was $125.9 million and $116.1 million for 2019 and 2018, respectively. The increase in cash paid for property and equipment was primarily due to the timing of payments and year over year growth in the business. The decrease in cash received from investments resulted from distributions received from investments in 2019 that were $27.3 million lower than the prior year. The distributions received from investments will vary from period to period based on the timing and amount of distributions received, if any.
2018 compared to 2017
The decrease in cash used during 2018 was primarily due to the net cash paid for the acquisition of Optimal Research of $24.2 million in 2017 and an increase in net cash proceeds from the sale of business of $8.0 million in 2018. The decrease in cash used was partially offset by (i) an increase in net cash used for property and equipment, (ii) cash used for a new investment in an unconsolidated affiliate and (iii) a decrease in cash received from investments.
Cash paid for property and equipment was $116.1 million and $105.1 million for 2018 and 2017, respectively. The increase in cash paid for property and equipment was primarily due to the timing of payments. Cash paid for a new investment in an unconsolidated affiliate was $9.0 million in 2018. The decrease in cash received from investments resulted from distributions received from investments in 2018 that were $8.6 million lower than the prior year. The distributions received from investments will vary from period to period based on the timing and amount of distributions received, if any.




61


Cash flows from financing activities
 
 
Years Ended December 31,
(in thousands)
 
2019
 
2018
 
2017
Net cash used in financing activities
 
$
(422,039
)
 
$
(166,942
)
 
$
(249,393
)
2019
During 2019, the use of cash was primarily due to special cash dividends paid to our stockholders, partially offset by the cash proceeds received from additional long-term borrowings. During the second quarter of 2019, we borrowed $891.0 million net cash under the Additional HoldCo Notes to fund, along with cash on hand, a special cash dividend of $1,086.0 million to our stockholders. Additionally, in the fourth quarter of 2019, we paid a special cash dividend of $160.0 million to our stockholders with the use of cash on hand. The use of cash also included $30.1 million in payments for debt issuance and debt modification costs associated with the issuance of the Additional HoldCo Notes and modification of the Initial HoldCo Notes. During 2019, payments on long-term debt and finance leases was $37.4 million, which includes quarterly principal payments on the term loan. The cash used for financing activities was partially offset by cash proceeds of $4.5 million from the exercise of stock options.
2018
During 2018, the use of cash was primarily due to the distribution of $108.3 million for the recapitalization tax benefit liability, quarterly principal payments on the term loan of $32.4 million, a recapitalization investment portfolio liability distribution of $16.0 million and the use of $8.6 million for the purchase of treasury stock.
2017
During 2017, the use of cash was primarily due to the effects of the recapitalization of the Company. The use of cash for the recapitalization of the Company included $3.3 billion in payments for redemption of shares of common stock, $194.5 million for the cash settlement of options and $7.3 million in payments for transaction costs. The use of cash also included $11.9 million in payments for debt issuance costs associated with the issuance of the Initial HoldCo Notes, a recapitalization investment portfolio liability distribution of $10.5 million and the purchase of a portion of the noncontrolling interest held in our majority-owned consolidated subsidiary, PPD-SNBL K.K., for $7.1 million. The source of cash included $550.0 million in proceeds from the issuance of the Initial HoldCo Notes and $2.8 billion in proceeds from the issuance of shares of common stock in connection with the recapitalization of the Company. Additionally, the source of cash included $7.5 million from employee purchases of shares of common stock. Cash used for quarterly principal payments on our term loan was $32.4 million in 2017.
Indebtedness
The following table details our borrowings outstanding as of December 31, 2019 and the associated interest expense, including amortization of debt issuance and modification costs and debt discounts and the average effective interest rates for such borrowings for the year ended December 31, 2019:
 
 
Principal Balance
 
 
 
Interest Expense
(dollars in thousands)
 
December 31, 2019
 
Average Effective
Interest Rate
 
For Year
Ended December 31,
2019
Term Loan
 
$
3,096,429

 
4.51%
 
$
156,257

Revolving Credit Facility
 

 
 
1,715

OpCo Notes
 
1,125,000

 
6.61%
 
73,761

Initial HoldCo Notes
 
550,000

 
8.92%
 
46,294

Additional HoldCo Notes
 
900,000

 
8.90%
 
49,116

Other debt
 
5,707

 
1.13%
 
86

Finance lease obligations
 
28,726

 
Various
 
2,075

Total
 
$
5,705,862

 
 
 
$
329,304


62


Senior Secured Credit Facilities
On August 18, 2015, Jaguar Holding Company II and Pharmaceutical Product Development, LLC (the “Borrowers”) entered into the senior secured credit facilities (the “Credit Agreement”) consisting of a $2.575 billion senior secured term loan (the “Term Loan”) issued at 99.5% of face value, or a discount of 0.5%, and a $300.0 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Term Loan matures on August 18, 2022 and the Revolving Credit Facility matures on May 15, 2022.
In May and November of 2016, the Borrowers amended the Credit Agreement to borrow $200.0 million issued at 99.0% of face value, or a discount of 1.0% and $460.0 million issued at 99.75% of face value, or a discount of 0.25%, respectively. The incremental Term Loan borrowings had the same terms, including in respect of interest rate and maturity with the existing Term Loan. Additionally, in May of 2017 and March of 2018, the Borrowers amended the Credit Agreement for a reduction of 50 basis points and 25 basis points, respectively, in the margin under the Term Loan. Further, in April 2019, the Company amended the Credit Agreement to extend the maturity date of the Revolving Credit Facility from August 18, 2020 to May 15, 2022. There were no other significant changes to the terms and conditions of the Credit Agreement, Term Loan or the Revolving Credit Facility as a result of each amendment. As of December 31, 2019, we had approximately $3.1 billion of long-term debt outstanding related to our Term Loan. Additionally, we had available $298.4 million of unused credit capacity on our Revolving Credit Facility.
The Term Loan amortizes in equal quarterly installments in an amount equal to 1.0% per annum of the original principal amount thereof, with the balance due at maturity. We may voluntarily prepay loans or reduce commitments under the Credit Agreement, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty.
As of December 31, 2019, the Borrowers are obligated to pay the following fees under the Revolving Credit Facility: (i) an unused line fee of 0.375% per annum of the unused amount of the Revolving Credit Facility, (ii) a letter of credit participation fee of 3.25% per annum on the aggregate stated maximum amount of each letter of credit available to be drawn, (iii) a fronting fee of 0.125% per annum on the maximum daily amount of each letter of credit available to be drawn and (iv) other customary fees and expenses of the letter of credit issuers.
Borrowings under the Term Loan bear interest at a variable rate, at the Company’s option, of either (i) a Eurocurrency rate based on LIBOR for a specific interest period plus an applicable margin, subject to a Eurocurrency rate floor of 1.00%, or (ii) an alternate base rate plus an applicable margin, subject to a base rate floor of 2.00%. The margins for the Term Loan are fixed at 2.50% per annum for Eurocurrency rate loans and 1.50% per annum for base rate loans. As of December 31, 2019, the interest rate on the Term Loan was based on the Eurocurrency loan rate. The Borrowers were in compliance with all covenants under the Credit Agreement as of December 31, 2019.
In February 2020, we entered into three new interest rate swaps with a notional value of $3.5 billion to hedge the exposure to the variability in interest payments on our Term Loan, including any potential refinancing of our Term Loan that may occur in the future. See Note 22, “Subsequent Events,” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
OpCo Notes
On August 18, 2015, Jaguar Holding Company II and Pharmaceutical Product Development, LLC (the “Issuers”) issued in a private placement $1.125 billion of senior unsecured notes at par bearing interest at 6.375% per annum. The OpCo Notes mature on August 1, 2023 and interest is payable semi-annually on February 1 and August 1 of each year. The OpCo Notes do not have registration rights.
The Issuers can redeem the OpCo Notes, at their option, in whole at any time or in part from time to time, upon notice, at the various redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest and additional interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). As of December 31, 2019, no redemptions have been made.
Additionally, upon the occurrence of specific change of control events, the Issuers are required to offer
to repurchase all of the OpCo Notes then outstanding at 101% of their principal amount, plus accrued and unpaid interest. To
date, no OpCo Notes have been redeemed. The Issuers were in compliance with all covenants under the OpCo
Notes indenture at December 31, 2019.


63


Additional and Initial HoldCo Notes
On May 14, 2019, Eagle Holding Company II (“Eagle II”) issued in a private placement $900.0 million of aggregate principal amount of unsecured 7.75%/8.50% Senior PIK Toggle Notes at 99% of face value, or a discount of 1.0% (the “Offering”). The Additional HoldCo Notes were set to mature on May 15, 2022 and interest was payable semi-annually on May 15 and November 15 of each year. We used the net proceeds from the Offering, together with cash on hand, to pay our stockholders a special cash dividend of $1,086.0 million, as well as pay for fees and expenses associated with the Offering.
In connection with the recapitalization of the Company, on May 11, 2017, Eagle II issued in a private placement $550.0 million aggregate principal amount of unsecured 7.625%/8.375% Senior PIK Toggle Notes at par. The Initial HoldCo Notes were set to mature on May 15, 2022 and interest was payable semi-annually on May 15 and November 15 of each year. In May 2019, we amended the Initial HoldCo Notes indenture to permit Eagle II to make special dividends and distributions to its stockholders.
On February 18, 2020, we redeemed the HoldCo Notes at a redemption price of 101% of the aggregate principal amount with the proceeds received from our IPO of our common stock. See Note 22, “Subsequent Events,” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on the IPO and our redemption of the HoldCo Notes.
See Note 10, “Long-term Debt and Finance Lease Obligations,” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the senior secured credit facilities, OpCo Notes and HoldCo Notes.
Contractual Obligations and Commercial Commitments
As of December 31, 2019, future minimum payments on all our contractual obligations and commercial commitments for years subsequent to December 31, 2019 were as follows:
(in thousands)
 
2020
 
2021-2022
 
2023-2024
 
2025-Thereafter
 
Total
Long-term debt, including interest (1)
 
$
278,622

 
$
4,969,686

 
$
1,196,905

 
$
5,772

 
$
6,450,985

Finance leases 
 
4,730

 
9,865

 
8,945

 
12,069

 
35,609

Operating leases
 
55,907

 
84,671

 
44,061

 
58,479

 
243,118

Purchase obligations and commitments (2)
 
91,484

 
24,417

 
9,650

 
1,954

 
127,505

Other liabilities (3)
 
20,787

 
28,436

 

 

 
49,223

Total
 
$
451,530

 
$