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Basis of Presentation (Policies) | 3 Months Ended
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Mar. 31, 2018
Accounting Policies [Abstract] |
Unaudited Interim Financial Information | Unaudited Interim Financial Information The interim condensed consolidated financial statements include the accounts of the Company, are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), and are unaudited. In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The preparation of the interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from management’s estimates and assumptions. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Revenue Recognition | Revenue Recognition We generally enter into contracts with customers to provide services ranging in duration from a few months to several years. The contract terms generally provide for payments based on a fixed-fee or unit-of-service arrangement. We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018. Revenue on contracts is recognized when or as we satisfy the contract performance obligations, at the amount that reflects our cumulative progress toward delivery of the performance obligation. This progress assessment is applied to the amount of consideration to which we expect to be paid for delivery of the performance obligation. Our performance obligations are generally satisfied over time and related revenue is recognized as services are provided to meet these obligations. Contract Assumptions An arrangement is accounted for as a contract within the scope of ASC 606 when the Company and its customers approve the contract, are committed to perform their respective obligations, each party can identify its rights regarding the goods or services to be transferred, commercial substance is present, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. For our services to meet this criteria, contracts generally need to be written, pending regulatory hurdles required to commence work must be cleared, the study protocol must be completed, the customer must have adequate funding or reasonable path to funding to execute the contracted portion of the study, and the study must be actively moving forward. Once these criteria have been met, it is deemed that the Company and its customers are committed to perform their respective obligations. Depending on the timing of when these criteria are met, revenue recognition may vary significantly on a period over period basis. Accounting for contracts performed over a period of time involves the use of various assumptions to estimate total contract revenue and costs. We estimate expected costs to complete a contract and recognize contracted revenue over the life of the contract as those costs are incurred. Cost estimates are based on a detailed project budget and are developed based on many variables, including, but not limited to, the scope of the work, the complexity of the study, the participating geographic locations and the Company’s historical experience. To assist with the estimation of costs expected at completion over the life of a project, regular contract reviews are performed in which performance to date is compared to the most current estimate to complete assumptions. The reviews include an assessment of costs incurred to date compared to expectations based on budget assumptions and other circumstances specific to the project. The total estimated costs necessary to complete is updated and any revisions to the existing cost estimate results in cumulative adjustments to the amount of revenue recognized in the period in which the revisions are identified. In the case of cost estimates related to activities legally contracted as reimbursable in nature, including but not limited to investigator fee activity, these estimates also influence our assumed contract value and assumed remaining performance obligations. Because of the uncertainties inherent in estimating the costs necessary to fulfill contractual obligations, it is possible that estimates may change in the near term, resulting in a material change in revenue reported. Contracts generally provide for pricing modifications upon scope of work changes. We recognize revenue, at an amount to which we expect to be entitled, related to work performed in connection with scope changes when the underlying services are performed and a binding contractual commitment has been established with the customer. If our customers do not agree to contract changes upon changes in our scope of work, we could be exposed to cost overruns and reduced contract profitability. Costs are not deferred in anticipation of contracts being awarded or amendments being finalized, but are expensed as incurred. Most contracts are terminable by the customer, either immediately or according to advance notice terms specified within the contracts. These contracts require payment of fees for services rendered through the date of termination and may require payment for subsequent services necessary to conclude the study or close out the contract. Final settlement amounts are agreed to with the customer based on remaining work to be performed. These amounts are included in revenue when we believe the amount can be estimated reliably and its realization is probable. In evaluating the probability of recognition, we consider the contractual basis for the settlement amount and the objective evidence available to support the amount. Certain contracts contain volume rebate arrangements with our customers that provide for rebates if certain specified spending thresholds are met. These obligations are considered as a reduction in revenue when it appears probable that the arrangement thresholds will be met, which can be at contract inception. We occasionally enter into incentive fee arrangements with customers that provide for additional compensation if certain defined contractual milestones or performance thresholds are met. These additional fees are included in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee and when achievement of the incentive milestone is deemed probable. These estimates are based on anticipated performance, our best judgement at the time or ultimately, upon achievement of the threshold or milestone. We record revenue net of any tax assessments by governmental authorities that are imposed and concurrent with specific revenue generating transactions. Performance Obligations Substantially all of our contracts consist of a single performance obligation, as the promise to transfer the individual services described in the contracts are not separately identifiable from other promises in the contracts, and therefore not distinct. Revenue recognition is determined by assessing the progress of performance completed or delivered to date compared to total services to be delivered under the terms of the arrangement. The measures utilized to assess progress on the satisfaction of performance are specific to the performance obligation identified in the contract. For the majority of our contract performance obligations, we utilize the input method of cost to cost to measure progress, as the Company has determined that it is the most consistent measure of progress among contract tasks and represents the most faithful depiction of the transfer of services over the contract life. Under this method, the Company determines cost incurred to date for the services it provides compared to the total estimated costs at completion. For certain other contractual performance obligations, the Company has determined that an output method is the best measure of progress. These relate to certain unitized contracts, and the Company recognizes revenue in the period in which the unit is delivered compared to total contracted units. On March 31, 2018, we had approximately $915 million of performance obligations remaining to be performed for active projects.
Costs and Expenses | Costs and Expenses Total direct costs The Company incurs costs associated with service delivery including direct labor and related employee benefits, laboratory supplies, and other expenses. These costs are recorded in Direct service costs, excluding depreciation and amortization as a component of Total direct costs in the accompanying condensed consolidated statements of operations. In addition, the Company incurs expenses on behalf of its customers for various project expenditures including, but not limited to, investigator site payments, travel, meetings, printing, and shipping and handling fees that are reimbursed by our customers at cost. These costs are included in Reimburseable out-of-pocket expenses as a component of Total direct costs in the accompanying condensed consolidated statements of operations. Total direct costs are expensed as incurred and are not deferred in anticipation of contracts being awarded or finalization of changes in scope.
Recently Adopted and Issued Accounting Standards | Recently Adopted Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09 ‘‘Revenue from Contracts with Customers,’’ (ASC 606) to clarify the principles of recognizing revenue and create common revenue recognition guidance between US GAAP and International Financial Reporting Standards. The new standard became effective for the Company in the first quarter 2018. Under ASC 606, the majority of the Company’s contracts will have a single performance obligation that is satisfied over time, with revenue recognized based on overall project progress measured as of the financial statement date. This represents a change in the Company’s previous revenue accounting methodology, Accounting Standards Codification Topic 605, Revenue Recognition (“ASC 605”), as a majority of contracts were accounted for under the multiple element arrangement guidance. Under the previous revenue recognition accounting methodology, certain revenue related to reimbursable expenses was presented either as a separate line item within Reimbursable out-of-pocket revenue or net of related expenses within Service revenue, net in the condensed consolidated statements of operations. As a result of having a single performance obligation, the Company accounts for all revenue related to reimbursable expenses on a gross basis within a single revenue line item. Measurement of progress on contracts with customers will generally be based on the input measurement of cost incurred relative to the total expected costs to satisfy the performance obligation. The Company elected to utilize the modified retrospective implementation method for its transition to ASC 606 as of January 1, 2018 (the “Implementation Date”). Under this implementation method, the Company recognized the cumulative effect of initially applying the ASC 606 revenue recognition guidance to contracts that were not completed at the Implementation Date. At the Implementation Date, the Company elected to reflect the aggregate effect of all contract modifications that occurred before January 1, 2018 in determining the satisfied and unsatisfied performance obligations and determination of the transaction price. The cumulative effect adjustment was recorded to the opening balance of Accumulated deficit in the condensed consolidated balance sheets in the amount of $(9.7) million, with offsetting amounts of $9.8 million to Accounts receivable and unbilled, net, $3.3 million to Deferred income taxes, $34.5 million to Accrued expenses, $(57.4) million to Pre-funded study costs and $45.7 million to Advanced billings, respectively. The amounts recorded to Accounts receivable and unbilled, net, Deferred income taxes, Accrued expenses, Pre-funded study costs, and Advanced billings reflect differences between revenue recognized and billings to customers by project as well as costs incurred but not settled as of the Implementation Date. In connection with the implementation of ASC 606 on the modified retrospective method, we are presenting additional information to assist with the comparability of select line items of the current and prior period year to date reporting in our Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Operations. Below we have presented the amount by which each financial statement line item is affected in the current reporting period by the application of ASC 606 as compared with the guidance that was in effect before the change (ASC 605).
| Three Months Ended March 31, 2018 |
| As Reported |  |  | Adjustments |  |  | As Revised under ASC 605 |
Revenue: |  |  |  |  |  |  |  |  |  |  |
Revenue, net | $ | 163,077 |  |  | $ | (163,077 | ) |  | $ | - |
Service revenue, net |  | - |  |  |  | 108,428 |  |  |  | 108,428 |
Reimbursed out-of-pocket revenue |  | - |  |  |  | 15,017 |  |  |  | 15,017 |
Total revenue |  | 163,077 |  |  |  | (39,632 | ) |  |  | 123,445 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Direct service costs, excluding depreciation and amortization |  | 60,341 |  |  |  | - |  |  |  | 60,341 |
Reimbursed out-of-pocket expenses |  | 56,913 |  |  |  | (41,896 | ) |  |  | 15,017 |
Total direct costs |  | 117,254 |  |  |  | (41,896 | ) |  |  | 75,358 |
Total operating expenses |  | 142,958 |  |  |  | (41,896 | ) |  |  | 101,062 |
Income from operations |  | 20,119 |  |  |  | 2,264 |  |  |  | 22,383 |
Income before income taxes |  | 17,657 |  |  |  | 2,264 |  |  |  | 19,921 |
Income tax provision |  | 3,106 |  |  |  | 511 |  |  |  | 3,617 |
Net income | $ | 14,551 |  |  | $ | 1,753 |  |  | $ | 16,304 |
Net income per share attributable to common shareholders: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.41 |  |  | $ | 0.05 |  |  | $ | 0.46 |
Diluted | $ | 0.40 |  |  | $ | 0.05 |  |  | $ | 0.45 |
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |
Basic |  | 35,486 |  |  |  | - |  |  |  | 35,486 |
Diluted |  | 36,449 |  |  |  | - |  |  |  | 36,449 |
ASSETS | As of March 31, 2018 |
Current assets: | As Reported |  |  | Adjustments |  |  | As Revised under ASC 605 |
Accounts receivable and unbilled, net |  | 110,654 |  |  |  | (12,733 | ) |  |  | 97,921 |
Total current assets |  | 153,754 |  |  |  | (12,733 | ) |  |  | 141,021 |
Deferred income taxes |  | 9,970 |  |  |  | (3,347 | ) |  |  | 6,623 |
Total assets | $ | 973,024 |  |  | $ | (16,080 | ) |  | $ | 956,944 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |
Accrued expenses |  | 63,576 |  |  |  | (45,145 | ) |  |  | 18,431 |
Pre-funded study costs |  | - |  |  |  | 57,487 |  |  |  | 57,487 |
Advanced billings |  | 126,387 |  |  |  | (40,356 | ) |  |  | 86,031 |
Other current liabilities |  | 8,105 |  |  |  | 511 |  |  |  | 8,616 |
Total current liabilities |  | 232,492 |  |  |  | (27,503 | ) |  |  | 204,989 |
Total liabilities |  | 461,951 |  |  |  | (27,503 | ) |  |  | 434,448 |
Shareholders’ equity: |  |  |  |  |  |  |  |  |  |  |
Accumulated deficit |  | (115,521 | ) |  |  | 11,423 |  |  |  | (104,098 | )
Total shareholders’ equity |  | 511,073 |  |  |  | 11,423 |  |  |  | 522,496 |
Total liabilities and shareholders’ equity | $ | 973,024 |  |  | $ | (16,080 | ) |  | $ | 956,944 |
CASH FLOWS FROM OPERATING ACTIVITIES: | Three Months Ended March 31, 2018 |
| As Reported |  |  | Adjustments |  |  | As Revised under ASC 605 |
Net income |  | 14,551 |  |  |  | 1,753 |  |  |  | 16,304 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |
Accounts receivable and unbilled, net |  | (17,760 | ) |  |  | 2,980 |  |  |  | (14,780 | )
Accrued expenses |  | 5,268 |  |  |  | (10,664 | ) |  |  | (5,396 | )
Pre-funded study costs |  | - |  |  |  | 50 |  |  |  | 50 |
Advanced billings |  | 6,817 |  |  |  | 5,370 |  |  |  | 12,187 |
Other assets and liabilities, net |  | 3,089 |  |  |  | 511 |  |  |  | 3,600 |
Net cash (used in) provided by operating activities |  | 23,298 |  |  |  | - |  |  |  | 23,298 |
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations. The standard changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The Company, as permitted, early adopted ASU 2017-01 using the prospective method in the second quarter of 2017. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 will be applied on a modified retrospective basis to each prior reporting period presented and is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its condensed consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows for an entity to elect to reclassify the income tax effects on items within accumulated other comprehensive income resulting from U.S. tax reform to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including interim periods within those years. The Company is currently evaluating the effect this standard will have on its condensed consolidated financial statements.

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