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Syneos Health (SYNH) Tops Q1 Earnings, Announces Merger Plan

Syneos Health Inc. SYNH reported first-quarter 2023 adjusted earnings per share (EPS) of 75 cents, which exceeded the Zacks Consensus Estimate by 11.9%. However, the metric declined 25.7% from the year-ago figure.

The GAAP diluted loss was 70 cents per share compared to the GAAP EPS of 44 cents in the prior-year quarter.

Revenues in Detail

Revenues in the quarter totaled $1.36 billion. The top line was up 1.5% year over year on a reported basis (up 2.4% at the constant exchange rate or CER). It exceeded the Zacks Consensus Estimate by 6.3%.

Syneos Health, Inc. Price, Consensus and EPS Surprise

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

Segmental Details

The Clinical Solutions segment recorded revenues of $1.01 billion in the first quarter, down 0.5% year over year on a reported basis and up 0.2% at CER.

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Commercial Solutions revenues were $343.1 million in the reported quarter, up 7.9% year over year and 9.4% at CER.

Margin Details

Direct costs (excluding depreciation and amortization) rose 4.2% to $1.09 billion in the quarter. The gross margin contracted 207 basis points (bps) to 19.8%.

SG&A expenses increased 15.2% year over year to $161.5 million.

The adjusted operating margin (excluding depreciation, amortization and restructuring and other expenses) contracted 348 bps from the year-ago quarter to 7.9%.

Financial Details

Syneos Health exited the first quarter of 2023 with cash and cash equivalents and restricted cash of $111.1 million compared with $112 million at the end of 2022. The long-term debt at the end of the first quarter was $2.61 billion, almost similar to the reported figure at the end of 2022.

In the first quarter of 2023, SYNH did not repurchase any common stock. The company still has $350 million available for share repurchase under its current plan.

The cumulative net cash provided by operating activities at the end of the first quarter of 2023 was $30.4 million compared with $70.9 million in the year-ago period.

Key Announcement

On the date of the 2023 first-quarter earnings release, Syneos Health separately announced that it is to be acquired by a group of private equity firms in an all-cash transaction of approximately $7.1 billion. The consortium comprises Elliott Investment Management, Patient Square Capital and Veritas Capital.

The transaction is expected to be completed in the second half of 2023, subject to the approval of Syneos Health’s shareholders and the satisfaction of other customary closing conditions, including regulatory approvals.

Following completion, Syneos Health will become a private company and the shares of Syneos Health Class A common stock will no longer trade on the Nasdaq stock exchange.

In light of this pending transaction, SYNH has not provided any guidance for the full-year 2023.

Our Take

Syneos Health ended the first quarter of 2023 with better-than-expected earnings and revenues. The robust performance of the Commercial Solutions business contributed to the quarter’s top line.

SYNH’s enhanced clinical operating model and differentiated strategy continued to receive positive feedback from customers. The company has been prioritizing strategic long-term growth through accelerated investments in transformation and profitability initiatives and relentless customer focus.

Recently, Syneos Health partnered with KX to accelerate clinical trial execution by leveraging Data Analytics and AI.  The strategic multi-year agreement with Microsoft will allow SYNH to collaborate with Microsoft Research, leveraging its AI-ready technology to speed asset development and optimize performance.

Syneos Health is benefitting from these technology investments to deploy “fit for purpose” solutions specific to each customer’s needs.

Meanwhile, the contraction of margins does not bode well.

Zacks Rank & 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 Edwards Lifesciences Corporation EW, Intuitive Surgical, Inc. ISRG and Johnson & Johnson JNJ.

Edwards Lifesciences, carrying a Zacks Rank #2 (Buy), reported a first-quarter 2023 adjusted EPS of 62 cents, beating the Zacks Consensus Estimate by 1.6%. Revenues of $1.46 billion outpaced the consensus mark by 4.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Edwards Lifesciences has a long-term estimated growth rate of 6.8%. EW’s earnings surpassed estimates in two of the trailing four quarters, missed the same in one and broke even in the other, the average being 1.2%.

Intuitive Surgical, having a Zacks Rank #2, reported a first-quarter 2023 adjusted EPS of $1.23, which beat the Zacks Consensus Estimate by 3.4%. Revenues of $1.70 billion outpaced the consensus mark by 6.9%.

Intuitive Surgical has a long-term estimated growth rate of 13%. ISRG’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 1.9%.

Johnson & Johnson reported first-quarter 2023 adjusted earnings of $2.68 per share, beating the Zacks Consensus Estimate by 6.8%. Revenues of $24.75 billion surpassed the Zacks Consensus Estimate by 5%. It currently carries a Zacks Rank #2.

Johnson & Johnson has a long-term estimated growth rate of 5.5%. JNJ’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 3.9%.

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