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Syneos Health (SYNH) Q3 Earnings Top Estimates, 2021 EPS View Up

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Syneos Health Inc. (SYNH - Free Report) reported third-quarter 2021 adjusted earnings per share (EPS) of $1.22, which exceeded the Zacks Consensus Estimate by 3.4%. The metric increased 17.3% from the year-ago figure.

GAAP EPS was 75 cents, marking a significant improvement from the year-ago figure of 60 cents.

Revenues in Detail

Revenues in the quarter totaled $1.35 billion. The top line surged 22.7% year over year on a reported basis (up 22% at constant exchange rate or CER). Moreover, it surpassed the Zacks Consensus Estimate by 0.2%.

The year-over-year uptick resulted from a strong performance by the Clinical Solutions and Commercial Solutions businesses.

Segmental Details

The Clinical Solutions segment recorded revenues of $1.04 billion in the third quarter, up 23.9% year over year on a reported basis and 23.1% at CER. The upside resulted from growth in the company’s full-service portfolio, including increased reimbursable expenses, ramp in larger pharma relationships and momentum in real-world and late phase business. Further, acquisitions contributed 975 basis points (bps) to total growth, while increasing reimbursable expenses provided a 750-bp tailwind.

Syneos Health, Inc. Price, Consensus and EPS Surprise

Syneos Health, Inc. Price, Consensus and EPS Surprise

Syneos Health, Inc. price-consensus-eps-surprise-chart | Syneos Health, Inc. Quote

Commercial Solutions revenues were $310.8 million in the reported quarter, up 18.7% year over year and 18.4% at CER. The robust growth in this segment was driven by broad double-digit expansion across core Commercial businesses, with particular strength in consulting and a 180-bp tailwind from reimbursable expenses. The divestiture of medication adherence in 2020 resulted in an approximate 310-bp headwind to Commercial Solutions’ reported revenue growth.

Margin Details

Direct cost (excluding depreciation and amortization) rose 25.8% to $1.03 billion in the quarter. Gross margin contracted 190 bps to 23.5%.

Selling, general and administrative expenses were up 18.2% year over year to $139.5 million.

Adjusted operating margin (excluding depreciation, amortization, and restructuring and other expenses) contracted 151 bps from the year-ago quarter to 13.1%.

Financial Details

Syneos Health exited the third quarter of 2021 with cash and cash equivalents, and restricted cash of $122.5 million compared with $261.1 million at the end of second-quarter 2021. Long-term debt at the end of the third quarter of 2021 rose slightly to $2.89 billion compared with $2.86 billion at the end of second-quarter 2021.

The company did not repurchase common stock in the quarter and $182.5 million is still available for share repurchase under the company’s current plan.

Cumulative net cash provided by operating activities at the end of the third quarter of 2021 was $264.3 million compared with net cash inflow of $311.2 million in the year-ago period.

Cumulative capital expenses (in the form of purchases of property and equipment) incurred by the company at the end of the third quarter of 2021 was $29.9 million compared with $38.5 million a year ago. Accordingly, cumulative free cash inflow at the end of the third quarter of 2021 was $234.4 million versus the year-ago free cash inflow of $272.7 million.

2021 Guidance Raised

Syneos Health has updated its revenue and EPS guidance for the year 2021, taking into account the pandemic-led impact, existing backlog, current sales pipeline, trends in cancellations and delays, and the company’s ‘ForwardBound’ initiative.

The company expects full-year revenues in the range of $5,200-$5,280 million compared to the August-announced guidance of $5,180-5,300 million, reflecting growth of 17.8-19.6%. The Zacks Consensus Estimate for the same is currently pegged at $5.25 billion.

The adjusted EPS for the year is expected in the band of $4.35-$4.49, reflecting growth of 27.6-31.7% year over year (up from the earlier range of $4.25-$4.43). The Zacks Consensus Estimate for the same is currently pegged at $4.35.

Our Take

Syneos Health exited the third quarter of 2021 with better-than-expected results. The year-over-year improvement in earnings and revenues looks impressive. Strong performance across the Clinical Solutions and Commercial Solutions segments is encouraging as well. The increased reimbursable expenses and strength in consulting drove the top line in the Commercial Solutions arm. Further, the company has raised its EPS guidance for 2021 to reflect lower-than-expected interest expense and depreciation.

However, the contraction of both margins does not bode well. The rise in operating expenses is an added disadvantage. A narrowed full-year revenue guidance raises concern over the company. Deterioration in short-term cash level is worrisome as well.

Zacks Rank and Key Picks

Syneos Health currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Thermo Fisher Scientific Inc. (TMO - Free Report) , Omnicell, Inc. (OMCL - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .

Thermo Fisher, carrying a Zacks Rank #1 (Strong Buy), reported third-quarter 2021 adjusted EPS of $5.76, which beat the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the consensus mark by 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Omnicell reported third-quarter 2021 adjusted EPS of $1.08, surpassing the Zacks Consensus Estimate by 18.7%. Revenues of $296.5 million surpassed the Zacks Consensus Estimate by 4.4%. It currently carries a Zacks Rank #2 (Buy).

West Pharmaceutical reported third-quarter 2021 adjusted EPS of $2.06, which surpassed the Zacks Consensus Estimate by 13.2%. Revenues of $706.5 million outpaced the Zacks Consensus Estimate by 3.2%. It currently carries a Zacks Rank #2.