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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2021
or
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: 001-36732 
PRA Health Sciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware    46-3640387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
 
4130 ParkLake Avenue, Suite 400, Raleigh, NC 27612
(Address of principal executive offices) (Zip Code)
(919786-8200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each className of exchange on which registeredTrading symbol
Common Stock $0.01 par valueNasdaq Global Select MarketPRAH
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   No  
 
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 such files). Yes   No  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):
 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
 
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.   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class     Number of Shares Outstanding
Common Stock $0.01 par value 64,795,400
shares outstanding as of April 26, 2021


Table of Contents
PRA HEALTH SCIENCES, INC.
FORM 10-Q
FOR QUARTERLY PERIOD ENDED March 31, 2021
TABLE OF CONTENTS
 
Item Number Page
   
  
 
 
 
 
 
 
   
  
Item 6. 
Exhibits

2

Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share amounts)
 March 31,December 31,
 20212020
ASSETS  
Current assets:  
Cash and cash equivalents$690,259 $506,303 
Accounts receivable and unbilled services, net of allowance for credit losses of $3,103 and $3,064 as of March 31, 2021, and December 31, 2020, respectively
779,346 843,905 
Other current assets126,156 110,306 
Total current assets1,595,761 1,460,514 
Fixed assets, net192,462 194,620 
Operating lease right-of-use assets170,091 178,144 
Goodwill1,690,464 1,691,007 
Intangible assets, net581,170 599,885 
Other assets52,797 54,331 
Total assets$4,282,745 $4,178,501 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Current portion of borrowings under credit facilities$91,300 $91,300 
Current portion of long-term debt25,000 25,000 
Accounts payable46,478 56,935 
Accrued expenses and other current liabilities388,361 320,375 
Current portion of operating lease liabilities38,771 39,631 
Advanced billings732,641 732,782 
Total current liabilities1,322,551 1,266,023 
Long-term debt, net1,152,663 1,158,668 
Long-term portion of operating lease liabilities150,551 158,983 
Deferred tax liabilities48,324 63,451 
Other long-term liabilities52,134 52,191 
Total liabilities2,726,223 2,699,316 
Commitments and contingencies (Note 13)
Stockholders' equity:  
Preferred stock (100,000,000 authorized shares; $0.01 par value)
Issued and outstanding -- none
  
Common stock (1,000,000,000 authorized shares; $0.01 par value)
Issued and outstanding -- 64,765,369 and 64,538,729 at March 31, 2021 and December 31, 2020, respectively
648 645 
Additional paid-in capital1,174,096 1,137,028 
Accumulated other comprehensive loss(115,487)(98,813)
Retained earnings497,265 440,325 
Total stockholders' equity1,556,522 1,479,185 
Total liabilities and stockholders' equity$4,282,745 $4,178,501 
The accompanying notes are an integral part of the consolidated condensed financial statements.
3

Table of Contents
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
 
 Three Months Ended March 31,
 20212020
Revenue$933,775 $783,708 
Operating expenses:  
Direct costs (exclusive of depreciation and amortization)472,010 403,862 
Reimbursable expenses223,352 176,841 
Selling, general and administrative expenses122,778 106,957 
Transaction-related costs13,436 609 
Depreciation and amortization expense32,568 32,278 
Loss (gain) on disposal of fixed assets, net123 (19)
Income from operations69,508 63,180 
Interest expense, net(5,212)(13,487)
Foreign currency gains, net12,388 7,842 
Other expense, net(48)(4)
Income before income taxes
76,636 57,531 
Provision for income taxes19,696 16,871 
Net income$56,940 $40,660 
Net income per share attributable to common stockholders:  
Basic$0.89 $0.65 
Diluted$0.86 $0.63 
Weighted average common shares outstanding:  
Basic64,147 62,933 
Diluted66,170 64,339 
 
The accompanying notes are an integral part of the consolidated condensed financial statements.

4

Table of Contents
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
 
 Three Months Ended March 31,
 20212020
Net income$56,940 $40,660 
Other comprehensive loss:  
Foreign currency translation adjustments, net of income tax of $(608) and $4,041
(16,674)(42,756)
Unrealized losses on derivative instruments, net of income tax of $0 and $(1,157)
 (3,377)
Reclassification adjustments:  
Losses on derivatives included in net income, net of income taxes of $0 and $679
 1,981 
Comprehensive income (loss)$40,266 $(3,492)
 
The accompanying notes are an integral part of the consolidated condensed financial statements.
5

Table of Contents


PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
   Accumulated Other Comprehensive
Loss (Note 15)
Retained
Earnings
 
 Common StockAdditional
Paid-in
Capital
 
 Shares AmountTotal
Balance at January 1, 202164,539 $645 $1,137,028 $(98,813)$440,325 $1,479,185 
Exercise of common stock options and stock award distribution226 3 18,296 — — 18,299 
Stock-based compensation— — 18,772 — — 18,772 
Net income— — — — 56,940 56,940 
Other comprehensive loss, net of tax— — — (16,674)— (16,674)
Balance at March 31, 202164,765 $648 $1,174,096 $(115,487)$497,265 $1,556,522 


   Accumulated
Other Comprehensive
Loss (Note 15)
Retained
Earnings
 
 Common StockAdditional
Paid-in
Capital
 
 Shares AmountTotal
Balance at January 1, 202063,492 $635 $1,006,182 $(160,108)$243,282 $1,089,991 
Exercise of common stock options and stock award distribution90 1 2,907 — — 2,908 
Stock-based compensation— — 15,425 — — 15,425 
Net income— — — — 40,660 40,660 
Issuance of restricted stock for acquisition44 — 2,585 — — 2,585 
Other comprehensive loss, net of tax— — — (44,152)— (44,152)
Balance at March 31, 202063,626 $636 $1,027,099 $(204,260)$283,942 $1,107,417 
 
The accompanying notes are an integral part of the consolidated condensed financial statements.
6

Table of Contents
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net income$56,940 $40,660 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization expense32,568 32,278 
Amortization of debt issuance costs419 421 
Amortization of terminated interest rate swaps 1,565 
Stock-based compensation expense18,772 15,425 
Change in fair value of acquisition-related contingent consideration 574 
Unrealized foreign currency gains, net(18,158)(4,788)
Deferred income tax benefit(14,830)(18,524)
Other reconciling items(766)135 
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:  
Accounts receivable, unbilled services, and advanced billings68,921 (7,600)
Other operating assets and liabilities48,339 436 
Net cash provided by operating activities192,205 60,582 
Cash flows from investing activities:  
Purchase of fixed assets(18,734)(21,460)
Cash paid for interest on interest rate swap, net (780)
Proceeds from the sale of fixed assets3 26 
Acquisition of Care Innovations, Inc., net of cash acquired (159,078)
Net cash used in investing activities(18,731)(181,292)
Cash flows from financing activities:  
Borrowings on line of credit 100,000 
Repayments of line of credit (55,000)
Repayments of long-term debt(6,250)(6,250)
Proceeds from stock option exercises18,299 2,908 
Payments for debt issuance costs (470)
Net cash provided by financing activities12,049 41,188 
Effects of foreign exchange changes on cash, cash equivalents, and restricted cash(1,567)(5,908)
Change in cash, cash equivalents, and restricted cash183,956 (85,430)
Cash, cash equivalents, and restricted cash, beginning of period506,303 236,270 
Cash, cash equivalents, and restricted cash, end of period$690,259 $150,840 

 The accompanying notes are an integral part of the consolidated condensed financial statements.

7

Table of Contents
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 
(1) Basis of Presentation
 
The Company
 
PRA Health Sciences, Inc. and its subsidiaries, or the Company, is a full-service global contract research organization providing a broad range of product development and data solution services to pharmaceutical and biotechnology companies around the world. The Company’s integrated services include data management, statistical analysis, clinical trial management, and regulatory and drug development consulting.

On February 24, 2021, the Company entered into the a definitive merger agreement with ICON plc (ICON), ICON US Holdings Inc. (US Holdco) and Indigo Merger Sub, Inc. (Merger Sub). Under the terms of the merger agreement, Merger Sub will merge with and into PRA, with PRA surviving as a wholly owned subsidiary of ICON and US HoldCo. Upon successful completion of the merger, the Company's stockholders will receive $80.00 per share in cash and 0.4125 ICON ordinary shares for each share of the Company's common stock.

The merger, which is currently expected to close in July 2021, is subject to the satisfaction or waiver of certain customary closing conditions, including, among others, receipt of the required vote of the Company's stockholders and the required vote of ICON shareholders, and obtaining all required approvals under antitrust and foreign direct investment laws of certain jurisdictions. The merger agreement contains certain termination rights for both the Company and ICON. If the merger agreement is terminated under certain specified circumstances, the Company will be required to pay ICON and ICON US Holdings Inc., a Delaware corporation and wholly owned subsidiary of ICON (“US Holdco”), a termination fee of $277.0 million (including in connection with the Company's entry into an agreement with respect to a superior proposal, as defined in the merger agreement, if certain conditions are met).

During the three months ended March 31, 2021, the Company incurred $12.6 million of costs in connection with the proposed merger. These costs related primarily to investment banking and legal fees and are included in transaction-related costs in the consolidated condensed statement of operations. The Company has not recognized any transaction-related costs that are contingent upon the consummation of the proposed merger, including contingent investment banking fees, legal costs, management retention bonuses, acceleration of stock compensation costs, and other costs.
 
Unaudited Interim Financial Information
 
The interim consolidated condensed financial statements include the accounts of the Company and variable interest entities where the Company is the primary beneficiary. These financial statements are prepared in conformity with U.S. generally accepted accounting principles, or 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 accompanying interim consolidated condensed financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as amended.
 
The preparation of the interim consolidated condensed 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 consolidated condensed financial statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates.

Recently Implemented Accounting Pronouncements
 
In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes". The provisions of ASU 2019-12 include eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for the reporting period beginning after December 15, 2020, and the interim periods therein. The Company adopted this standard effective January 1, 2021 and the application of ASU 2019-12 did not have a material impact on the Company's consolidated condensed financial statements.
 
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(2) Significant Accounting Policies
Significant accounting policies are detailed in "Note 3: Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2020, as amended.
Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated condensed balance sheets that sum to the total of the same amounts shown in the consolidated condensed statements of cash flows (in thousands):
 March 31,December 31,
 2021202020202019
Cash and cash equivalents$690,259 $150,804 $506,303 $236,232 
Restricted cash 36  38 
Total cash, cash equivalents, and restricted cash$690,259 $150,840 $506,303 $236,270 

(3) Business Combinations

Care Innovations, Inc.
    
In January 2020, the Company acquired all of the outstanding equity interests of Care Innovations, Inc., or Care Innovations, an entity that provides digital health services. The purchase price was $208.6 million, which consisted of $161.5 million of cash, $2.6 million of restricted stock, and $44.5 million of estimated contingent consideration in the form of a potential earn-out payment. With this acquisition, the Company expanded its ability to serve customers with technologies that deliver enhancements to the Company’s mobile health platform and provide expanded remote patient monitoring support to expand the Company's ability to deliver virtual and decentralized trials.

The earn-out payment, which was capped at $50.0 million, was contingent on the achievement of two 2020 financial targets. The fair value of the contingent consideration was based on significant inputs not observed in the market and thus represented a Level 3 fair value measurement. During the third quarter of 2020, as a result of changes in market conditions within the earn-out period, the Company determined that the two 2020 financial targets would not be met; therefore the Company released the contingent consideration liability.

The acquisition of Care Innovations was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed were recorded at their respective fair values as of the acquisition date. The consideration paid was allocated as follows: (i) $33.5 million to definite-lived intangible assets primarily consisting of developed technology with a weighted average amortization period of five years, (ii) $175.3 million to goodwill, and (iii) $(0.2) million to other net assets. The acquisition costs were included in transaction-related costs in the consolidated condensed statement of operations for the three months ended March 31, 2020 and were immaterial.

Since the acquisition date, goodwill increased by $1.0 million, primarily as a result of adjustments to acquired income tax balances. The Company has not disclosed post-acquisition or pro-forma revenue and earnings attributable to Care Innovations as they did not have a material effect on the Company’s consolidated results.

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(4) Fair Value Measurements
 
The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
 
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, unbilled services, contract assets, accounts payable, and advanced billings approximate fair value due to the short maturities of these instruments.

Recurring Fair Value Measurements
 
There were no financial assets or liabilities that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.
 
Non-recurring Fair Value Measurements
 
Certain assets and liabilities are carried on the accompanying consolidated condensed balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include finite-lived intangible assets that are tested for impairment when a triggering event occurs and goodwill and identifiable indefinite-lived intangible assets that are tested for impairment annually on October 1 or when a triggering event occurs.
 
As of March 31, 2021, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaled approximately $2,271.6 million and are identified as Level 3 assets. These assets are comprised of goodwill of $1,690.5 million and identifiable intangible assets, net of $581.2 million.
 
Refer to "Note 9 - Revolving Credit Facilities and Long-Term Debt" for additional information regarding the fair value of long-term debt balances.

(5) Concentration of Credit Risk and Expected Credit Losses
 
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, unbilled services, and derivatives. As of March 31, 2021, substantially all of the Company’s cash and cash equivalents were held in or invested with large financial institutions.

Accounts receivable primarily include amounts due from pharmaceutical and biotechnology companies under credit terms that generally do not extend beyond 90 days. The Company maintains an allowance for expected credit losses resulting from the inability of its customers to make required payments. The Company performs credit reviews of each customer, monitors collections and payments from customers, and determines the allowance based upon historical experience and specific customer collection issues. The Company ages billed accounts receivable and assesses exposure by customer type, by aged category, and by specific identification. After all attempts to collect a receivable have failed, the receivable is written off against the allowance or, to the extent unreserved, to bad debt expense within selling, general and administrative expenses in the consolidated condensed statements of operations. There were no material changes in the provision for credit loss in the three months ended March 31, 2021.

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Accounts receivable and unbilled services from individual customers that were equal to or greater than 10% of consolidated accounts receivable and unbilled services at the respective dates were as follows:
 March 31,December 31,
 20212020
Customer A11.3 %10.1 %
Customer B*14.1 %
Customer C14.3 %11.4 %

Revenue from individual customers greater than 10% of consolidated revenue in the respective periods was as follows:

 Three Months Ended March 31,
 20212020
Customer D*10.6 %

*Less than 10%



(6) Accounts Receivable, Unbilled Services and Advanced Billings

Accounts receivable and unbilled services were as follows (in thousands):
 March 31,December 31,
 20212020
Accounts receivable$588,672 $661,036 
Unbilled services193,777 185,933 
Total accounts receivable and unbilled services782,449 846,969 
Less allowance for credit losses(3,103)(3,064)
Total accounts receivable and unbilled services, net$779,346 $843,905 

Unbilled services as of March 31, 2021 and December 31, 2020 includes $85.7 million and $93.2 million, respectively, of contract assets where the Company’s right to bill is conditioned on criteria other than the passage of time. Impairment losses on contract assets were immaterial in the three months ended March 31, 2021 and 2020.

Advanced billings were as follows (in thousands):
 March 31,December 31,
 20212020
Advanced billings$732,641 $732,782 

The $0.1 million decrease in advanced billings from December 31, 2020 to March 31, 2021 was primarily due to the timing of billings to customers. During the three months ended March 31, 2021 and 2020, the Company recognized revenue of $359.4 million and $307.7 million related to advanced billings recorded as of January 1, 2021 and 2020, respectively.

Performance Obligations
Revenue recognized for the three months ended March 31, 2021 and 2020 from reimbursable expenses and services completed in prior periods was $10.3 million and $7.7 million, respectively. This primarily relates to adjustments attributable to changes in estimates such as estimated total contract costs, and from contract modifications on long-term fixed price contracts executed in the current period, which results in changes to the transaction price.

The Company does not disclose the value of the transaction price allocated to unsatisfied performance obligations on contracts that have an original contract term of less than one year. These contracts are short in duration and revenue recognition generally follows the delivery of the promised services. The total transaction price for the undelivered performance obligation on contracts with an original initial contract term greater than one year is $6.4 billion as of March 31, 2021. This amount
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includes reimbursement revenue. The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one to five years.

(7) Leases

The Company’s material lease obligations are operating leases for office and other facilities in which the Company conducts business. The facility leases generally provide an initial lease term ranging from three to 20 years and include one or more optional extensions. The Company's leases have remaining lease terms of one year to 20 years. The leases typically include rent escalation clauses and for some markets the leases frequently include periodic market adjustments to the base rent over the term of the lease. In certain instances, the Company subleases space that has been exited or is no longer required. The Company’s sublease income is immaterial.

The components of lease cost were as follows (in thousands):
Three Months Ended March 31,
20212020
Lease cost:
   Operating lease cost$11,793 $11,164 
   Short-term lease cost161 570 
   Variable lease cost2,060 1,968 
   Lease income(51)(47)
   Net lease cost $13,963 $13,655 
    
Supplemental cash flow information related to leases was as follows (in thousands):
Three Months Ended March 31,
20212020
Cash paid for amounts included in the measurements of lease liabilities, all included in operating cash flows$12,714 $11,674 
Right-of-use assets obtained in exchange for lease obligations4,857 10,865 

Other supplemental information related to leases was as follows:
As of March 31,As of December 31,
20212020
Weighted average remaining lease term8.0 years8.1 years
Weighted average discount rate4.2%4.1%

Maturities of operating lease liabilities were as follows as of March 31, 2021 (in thousands):
2021 (remaining) $33,205 
202241,787 
202333,153 
202421,597 
202516,376 
Thereafter74,621 
Total lease payments220,739 
Less imputed interest(31,417)
Total$189,322 

As of March 31, 2021, the Company has no material non-cancelable operating leases that have not yet commenced.

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(8) Goodwill and Intangible Assets
 
Goodwill
 
The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):
Clinical ResearchData SolutionsConsolidated
Balance at December 31, 2020$1,214,148 $476,859 $1,691,007 
Currency translation(543) (543)
Balance at March 31, 2021$1,213,605 $476,859 $1,690,464 
 
There are no accumulated impairment charges as of March 31, 2021 and December 31, 2020.

Intangible Assets
 
Intangible assets consist of the following (in thousands):
 March 31, 2021December 31, 2020
 Gross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount
Customer relationships$567,050 $(181,856)$385,194 $568,081 $(173,902)$394,179 
Trade names (finite-lived)27,885 (18,435)9,450 27,889 (17,639)10,250 
Developed technology and other intangibles50,774 (25,063)25,711 50,774 (22,617)28,157 
Database137,100 (94,295)42,805 137,100 (87,811)49,289 
Total finite-lived intangible assets782,809 (319,649)463,160 783,844 (301,969)481,875 
Trade names (indefinite-lived)118,010 — 118,010 118,010 — 118,010 
Total intangible assets$900,819 $(319,649)$581,170 $901,854 $(301,969)$599,885 
 
Amortization expense was $17.9 million and $19.1 million for the three months ended March 31, 2021 and 2020, respectively.
 
The estimated future amortization expense of finite-lived intangible assets is expected to be as follows (in thousands):
2021 (remaining)$53,205 
202256,487 
202344,259 
202435,048 
202526,456 
2026 and thereafter247,705 
Total$463,160 
 
(9) Revolving Credit Facilities and Long-Term Debt
 
The Company had the following debt outstanding as of March 31, 2021 and December 31, 2020 (in thousands):
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Principal amount
 Interest rate as ofMarch 31,December 31,
 March 31, 202120212020Maturity Date
Senior Secured Credit Facility:
First Lien Term Loan
1.35 %$968,750 $975,000 October 2024
Revolver
1.35 %91,300 91,300 October 2024
Accounts Receivable Financing Agreement1.39 %212,500 212,500 December 2022
Total debt1,272,550 1,278,800 
Less current portion of Revolver(1)
(91,300)(91,300)
Less current portion of long-term debt(25,000)(25,000)
Total long-term debt1,156,250 1,162,500 
Less debt issuance costs(3,587)(3,832)
Total long-term debt, net$1,152,663 $1,158,668 

(1) The Company assesses its ability and intent to repay the outstanding borrowings on the Revolver at the end of each reporting period in order to determine the proper balance sheet classification. Outstanding borrowings on the Revolver that the Company intends to repay in less than 12 months are classified as current. The table below reflects the contractual maturity of the Revolver.

As of March 31, 2021, the contractual maturities of the Company's debt obligations were as follows (in thousands):
Current maturities of long-term debt:
2021 (remaining)$18,750 
2022237,500 
202325,000 
2024991,300 
2025 and thereafter 
Total$1,272,550 
 
The Company's primary financing arrangements are its senior secured credit facility (the "Senior Secured Credit Facility"), which consists of a first lien term loan ("First Lien Term Loan") and a revolving credit facility (the "Revolver"), and its Accounts Receivable Financing Agreement.

Senior Secured Credit Facility
 
The Senior Secured Credit Facility has an overall capacity of $1.75 billion (consisting of a $1.0 billion First Lien Term Loan and a $750.0 million Revolver) and a maturity date of October 2024. As collateral for borrowings under the Senior Secured Credit Facility, the Company granted a pledge on primarily all of its assets, the interests of wholly-owned U.S. restricted subsidiaries, and a portion of the interests of wholly-owned non-U.S. restricted subsidiaries. The Company is subject to certain financial covenants, which require the Company to maintain certain debt-to-EBITDA and interest expense-to-EBITDA ratios. The Senior Secured Credit Facilities also contain covenants that, among other things, restrict the Company’s ability to create any liens, make investments and acquisitions, incur or guarantee additional indebtedness,  enter into mergers or consolidations and other fundamental changes, conduct sales and other dispositions of property or assets, enter into sale-leaseback transactions or hedge agreements, prepay subordinated debt, pay dividends or make other payments in respect of capital stock, change the line of business, enter into transactions with affiliates, enter into burdensome agreements with negative pledge clauses, and make subsidiary distributions. After giving effect to the applicable restrictions on the payment of dividends under the Senior Secured Credit Facilities, subject to compliance with applicable law, as of March 31, 2021 and December 31, 2020, all amounts in retained earnings were free of restriction and were available for the payment of dividends. The Senior Secured Credit Facility also contains customary representations, warranties, affirmative covenants, and events of default. The variable interest rate is a rate equal to the London Interbank Offered Rate, or LIBOR, or the adjusted base rate, or ABR, at the election of the Company, plus a margin based on the ratio of total indebtedness to EBITDA. The margin ranges from 1.0% to 2.0% in the case of LIBOR loans, and 0.0% to 1.0% in the case of ABR loans. The Company has the option of one-, two-, three-, or six-month base interest rates. The credit agreement governing the Senior Secured Credit Facility includes provisions that allow the agreement to be amended to replace the LIBOR rate with a comparable or successor floating rate.

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The First Lien Term Loan requires the Company to repay 2.5% of the original aggregate principal amount per annum in equal quarterly installments through September 30, 2024, with the remaining balance due at maturity. There are no voluntary prepayment penalties and prepayment is required upon the issuance of certain debt or asset sales or other events.

The Revolver requires the Company to pay to the lenders a commitment fee for unused commitments of 0.15% to 0.35% based on the Company’s debt-to-EBITDA ratio. Principal amounts are due and payable in full at maturity. In addition, at March 31, 2021 and December 31, 2020, the Company had $6.0 million and $6.1 million, respectively, in letters of credit outstanding, which are secured by the Revolver.
 
Accounts Receivable Financing Agreement
 
Loans under the Accounts Receivable Financing Agreement accrue interest at either a reserve-adjusted LIBOR or a base rate, plus 1.25%. The Company may prepay loans upon one business day's prior notice and may terminate the Accounts Receivable Financing Agreement with 15 days’ prior notice.
 
The Accounts Receivable Financing Agreement contains various customary representations and warranties and covenants, and default provisions that provide for the termination and acceleration of the commitments and loans under the agreement in circumstances including, but not limited to, failure to make payments when due, breach of representations, warranties or covenants, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.
 
At March 31, 2021 and December 31, 2020, there was $37.5 million of remaining capacity available under the Accounts Receivable Financing Agreement.
 
Fair Value of Debt
 
The estimated fair value of the Company’s debt and outstanding borrowings under its revolving credit facilities was $1,269.6 million and $1,275.6 million at March 31, 2021 and December 31, 2020, respectively. The fair values of the term loans, borrowings under credit facilities, and accounts receivable financing agreement were determined based on Level 2 inputs, which are primarily based on rates at which the debt is traded among financial institutions adjusted for the Company's credit standing.

(10) Stockholders’ Equity
 
Authorized Shares
 
The Company is authorized to issue up to one billion shares of common stock, with a par value of $0.01. The Company is authorized to issue up to one hundred million shares of preferred stock, with a par value of $0.01.

Share Repurchase Program

On August 30, 2019, the Company's Board of Directors, or the Board, approved a share repurchase program, or the Repurchase Program, authorizing the repurchase of up to $500.0 million of the Company's common stock in open market purchases, privately-negotiated transactions, secondary offerings, block trades, or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Repurchase Program does not obligate the Company to repurchase any particular amount of its common stock, and it may be modified, suspended, or terminated at any time at the Board's discretion. The Repurchase Program expires on December 31, 2021.

As of March 31, 2021, the Company has remaining authorization to repurchase up to $200.0 million of its common stock under the Repurchase Program.

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(11) Stock-Based Compensation
 
Stock Option and RSA/RSU Activity

The 2020 Stock Incentive Plan, or the 2020 Plan, was approved by stockholders at the annual meeting on May 18, 2020. The 2020 Plan allows for the issuance of stock options, stock appreciation rights, restricted shares and restricted stock units, other stock-based awards, and performance compensation awards as permitted by applicable laws. The 2020 Plan authorized the issuance of 2,500,000 shares of common stock plus all shares that remained available under the prior plan on May 18, 2020.

The Company granted 24,000 restricted stock units with a total grant date fair value of $3.0 million, during the three months ended March 31, 2021. There were no stock options granted during the three months ended March 31, 2021.
 
Aggregated information regarding the Company’s option plans is summarized below:
 OptionsWtd. Average Exercise PriceWtd. Average Remaining Contractual Life (in years)Intrinsic Value (millions)
Outstanding at December 31, 20204,388,436 $76.52 6.9$214.7 
Granted   
Exercised(225,440)81.17  
Expired or forfeited   
Outstanding at March 31, 20214,162,996 $76.29 6.6$321.0 
Exercisable at March 31, 20212,103,828 $57.50 5.4$201.6 
 
The Company’s restricted stock award and unit activity in 2021 is as follows:
 AwardsWtd. Average Grant-Date Fair ValueIntrinsic Value (millions)
Unvested at December 31, 2020725,234 $97.59 $91.0 
Granted24,000 125.99  
Forfeited(1,620)97.12  
Vested(34,500)90.03 
Unvested at March 31, 2021713,114 $98.92 $109.3 
 
Employee Stock Purchase Plan
 
In April 2017, the Board approved the PRA Health Sciences, Inc. 2017 Employee Stock Purchase Plan, or ESPP, which was approved by the Company’s shareholders on June 1, 2017. The ESPP allows eligible employees to authorize payroll deductions of up to 15% of their base salary or wages to be applied toward the purchase of shares of the Company’s common stock on the last trading day of any offering period. Participating employees will purchase shares of the Company's common stock at a discount of up to 15% on the lesser of the closing price of the Company's common stock on the NASDAQ Global Select Market (i) on the first trading day of the offering period or (ii) the last trading day of any offering period. Offering periods under the ESPP will generally be in six month increments, with the administrator of the ESPP having the right to establish different offering periods. The Company recognized stock-based compensation expense of $1.4 million and $1.1 million associated with the ESPP during the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there have been 514,888 shares issued and 2,485,112 shares reserved for future issuance under the ESPP.

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Stock-based Compensation Expense

Stock-based compensation expense related to employee stock plans are summarized below (in thousands):
 Three Months Ended March 31,
 20212020
Direct costs$4,304 $3,853 
Selling, general and administrative14,468 11,572 
Total stock-based compensation expense$18,772 $15,425 

(12) Income Taxes
 
The Company’s effective income tax rate was 25.7% and 29.3% for the three months ended March 31, 2021 and 2020, respectively. The variation between the Company’s effective income tax rate and the U.S. statutory rate of 21% for the three months ended March 31, 2021 is primarily due to (i) geographic distribution of global pre-tax income, (ii) the U.S. inclusion of amounts related to the estimated tax on global intangible low-taxed income, or GILT, and (iii) the impact of state income taxes.

Significant judgment is required related to the application of the recent U.S. tax reform, or the Act, particularly with respect to GILTI and base erosion anti-abuse provisions, or BEAT, provisions. If changes occur in the Company’s tax structure, the structure of its arrangements, interpretations, or regulations that clarify these or other provisions of the Act, these changes could have a material effect on the Company’s tax provision.

GAAP requires a two-step approach when evaluating uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence demonstrates that it is more likely than not that the position will be sustained upon audit, including resolution of any related appeals or litigation processes. The second step is to quantify the amount of tax benefit to recognize as the amount that is cumulatively more than 50% likely to be realized upon ultimate settlement with the taxing authorities. During the three months ended March 31, 2021, there was no significant change in uncertain tax positions.

(13) Commitments and Contingencies
 
Legal Proceedings
 
The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions. Although the outcome of such claims is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

Litigation relating to the merger with ICON

Four securities or stockholder derivative lawsuits have been brought against PRA, its board of directors and, in some cases, ICON by individual PRA stockholders. The complaints generally alleging deficiencies in the preliminary registration statement filed with the SEC on March 31, 2021, related to financial projections the Company and ICON included and previous relationships of the Company's financial advisors. One of the complaints also alleges that the director defendants breached their fiduciary duties of candor and disclosure in connection with these alleged disclosure deficiencies. As the existing lawsuits are in early stages, it is not possible to predict the outcome or to estimate possible loss or range of loss.

(14) Derivatives
 
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk that the Company may seek to manage by using derivative instruments is interest rate risk arising from movement in market interest rates. Accordingly, the Company has instituted an interest rate hedging program that may use interest rate swaps designated as cash flow hedges to mitigate interest rate volatility. The Company swaps the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount, at specified intervals. The Company’s interest rate contracts were designated as hedging instruments.

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As of March 31, 2021 and December 31, 2020, the Company had no interest rate swaps outstanding. Interest rate swaps with notional amounts of $250.0 million and $375.0 million matured on September 6, 2020 and December 6, 2020, respectively.

The Company records the change in the fair value of derivatives designated as hedging instruments under ASC 815 to accumulated other comprehensive loss in the Company's consolidated condensed balance sheet, net of deferred taxes, and will later reclassify into earnings, including the associated tax impact, when the hedged item affects earnings or is no longer expected to occur. For other derivative contracts that do not qualify or no longer qualify for hedge accounting, changes in the fair value of the derivatives are recognized in earnings each period.
 
The table below presents the effect of the Company's derivatives on the consolidated condensed statements of operations and comprehensive income for the three months ended March 31, 2021 and 2020 (in thousands):
 Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)20212020
Amount of pre-tax loss recognized in other comprehensive loss$ $(4,534)
Amount of loss reclassified from accumulated other comprehensive loss into interest expense, net (2,660)
 
The effect of cash flow hedge accounting on the consolidated condensed statements of operations for the three months ended March 31, 2021 and 2020, respectively, is as follows (in thousands):
Three Months Ended March 31,
20212020
Interest expense, net$(5,212)$(13,487)
Loss on cash flow hedging relationships in Subtopic 815-20 (interest contracts):
Loss reclassified from accumulated other comprehensive loss into interest expense, net (2,660)

 
(15) Accumulated Other Comprehensive Loss
 
Below is a summary of the components of accumulated other comprehensive loss (in thousands):
 Foreign
Currency
Translation, Net of Tax
Derivative
Instruments, Net of Tax
Total
Balance at December 31, 2020$(98,813)$ $(98,813)
Other comprehensive loss(16,674) (16,674)
Balance at March 31, 2021$(115,487)$ $(115,487)
 
    Foreign Currency Translation

The change in the Company's foreign currency translation adjustment was due primarily to the movements in the British pound (GBP), Euro (EUR), Canadian dollar (CAD), and Russian ruble (RUB) exchange rates against the U.S. dollar. The U.S. dollar strengthened by 4.4% and 1.7% versus the EUR and RUB, respectively, and weakened by 0.9% and 1.2% versus the GBP and CAD between December 31, 2020 and March 31, 2021. The movement in the EUR and RUB contributed to a $16.7 million and $0.3 million increase in other comprehensive loss, respectively, which was offset by the movement in the GBP and CAD, which contributed to a decrease of $2.6 million and $0.6 million in other comprehensive loss during the three months ended March 31, 2021.

    Derivative Instruments

See "Note 14 - Derivatives" for further information on changes to accumulated other comprehensive loss related to the derivative instruments.

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(16) Net Income Per Share
 
Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding for the applicable period. Diluted net income per share is calculated after adjusting the denominator of the basic net income per share calculation for the effect of all potentially dilutive common shares, which, in the Company’s case, includes shares issuable under the stock option and incentive award plans.

The following table reconciles the basic to diluted weighted average shares outstanding (in thousands): 
 Three Months Ended March 31,
 20212020
Basic weighted average common shares outstanding64,147 62,933 
Effect of dilutive stock options and other awards under share-based compensation programs2,023 1,406 
Diluted weighted average common shares outstanding66,170 64,339 
Anti-dilutive shares1 2,399 
 
The dilutive and anti-dilutive shares disclosed above were calculated using the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of RSAs/RSUs, reduced by the repurchase of shares with the proceeds from the assumed exercises, and unrecognized compensation expense for outstanding awards.

(17) Segments

The Company is managed through two reportable segments: (i) the Clinical Research segment and (ii) the Data Solutions segment. In accordance with the provisions of ASC 280, "Segment Reporting", the Company's chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

Clinical Research Segment: The Clinical Research segment, which primarily serves biopharmaceutical clients, provides outsourced clinical research and clinical trial related services.

Data Solutions Segment: The Data Solutions segment provides data and analytics, technology solutions, and real-world insights and services primarily to the Company’s life science customers.

The Company's chief operating decision-maker uses segment profit as the primary measure of each segment's operating results in order to allocate resources and in assessing the Company's performance. Asset information by segment is not presented, as this measure is not used by the chief operating decision-maker to assess the Company's performance.
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The Company’s reportable segment information is presented below (in thousands):
 Three Months Ended March 31, 2021Three Months Ended March 31, 2020
 Clinical ResearchData SolutionsTotalClinical ResearchData SolutionsTotal
Revenue$866,628 $67,147 $933,775 $726,135 $57,573 $783,708 
Direct costs (exclusive of depreciation and amortization)421,830 50,180 472,010 358,351 45,511 403,862 
Reimbursable expenses223,352  223,352 176,841  176,841 
Segment profit221,446 16,967 238,413 190,943 12,062 203,005 
Less expenses not allocated to segments:
Selling, general and administrative expenses122,778 106,957 
Transaction-related costs13,436 609 
Depreciation and amortization expense32,568 32,278 
Loss (gain) on disposal of fixed assets, net123 (19)
Income from operations69,508 63,180 
Interest expense, net(5,212)(13,487)
Foreign currency gains, net12,388 7,842 
Other expense, net(48)(4)
Income before income taxes$76,636 $57,531 


Revenue by geographic location for each segment is as follows (in thousands):
 Three Months Ended March 31, 2021Three Months Ended March 31, 2020
 Clinical ResearchData SolutionsTotalClinical ResearchData SolutionsTotal
Revenue
Americas:
United States
$557,869 $67,147 $625,016 $466,863 $57,573 $524,436 
Other
6,683  6,683 10,007  10,007 
Total Americas
564,552 67,147 631,699 476,870 57,573 534,443 
Europe, Africa, and Asia-Pacific
United Kingdom
249,756  249,756 199,764  199,764 
Netherlands
35,014  35,014 28,067  28,067 
Other
17,306  17,306 21,434  21,434 
Total Europe, Africa, and Asia-Pacific
302,076  302,076 249,265  249,265 
Total revenue$866,628 $67,147 $933,775 $726,135