Covance
Covance Reports 2Q07 Earnings of $0.64 Per Share

-Net Revenue Growth Accelerates to 13.7%; Backlog Grows 25.9% to $2.5 Billion-

PRINCETON, N.J., July 25 /PRNewswire-FirstCall/ -- Covance Inc. (NYSE: CVD) today reported earnings for its second quarter ended June 30, 2007 of $0.64/diluted share, representing 18.9% year-over-year EPS growth.

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"Covance delivered another strong financial performance, including an increase in net revenue growth to 13.7% and an expansion in operating margins to 14.6%. Continued robust net orders of $481 million helped drive our backlog up 25.9% year-on-year to $2.5 billion which positions us for accelerated growth," said Joe Herring, Chairman and Chief Executive Officer. "Early Development net revenue growth was again very strong at 22.7% and operating margins increased both year-on-year and sequentially to 25.6%, as demand for our toxicology and chemistry services remains buoyant. The eight clinical pharmacology sites we purchased a year ago delivered another quarter of outstanding sequential growth in revenue and profit and were solidly accretive to our earnings. In Late-Stage Development, revenue grew 5.9% year- on-year and 6.1% from last quarter, and operating margins expanded both year- on-year and sequentially. Late-Stage Development results were led by exceptional year-over-year revenue growth in clinical development. In addition, a substantial increase in central laboratory kit volumes led to a 10.5% sequential growth in its revenues. Given its continued strong orders, as evidenced by a net book-to-bill of 1.5:1 in the second quarter, we expect central laboratory revenues to continue to increase throughout the year.

"Our relentless focus on operational and service excellence continues to deliver substantial benefits. Six Sigma, which is being utilized across more than two-thirds of the company, delivered approximately $5 million in incremental profitability in the first half of 2007. More importantly, Six Sigma reduces process variation, which improves project delivery, increases client satisfaction, and helps drive repeat business. By this time next year, we expect all of Covance's service offerings globally to have deployed Six Sigma. In addition, we continue to make strategic infrastructure investments in facilities, information technology, and talent to support our ability to capitalize on the extremely favorable, long-term outsourcing trend in drug development.

"Continued strong order performance furthers our confidence in achieving our full-year targets of low- to mid-teens revenue growth and diluted earnings per share of at least $2.63, reflecting acceleration in EPS growth in the second half of the year."

    Selected Consolidated Results

    ($ in millions        2Q07     2Q06    Change  2007 YTD  2006 YTD   Change
     except EPS)
    Total Revenues       $404.1   $357.1            $781.1    $690.8
    Less: Reimbursable
     Out-of-Pockets       $23.0    $21.9             $41.6     $35.1
    Net Revenues         $381.1   $335.2   13.7 %   $739.5    $655.7    12.8 %
    Operating Income      $55.5    $47.0   18.0 %   $107.6     $92.9    15.8 %



     Operating Margin %    14.6 %   14.0 %            14.5 %    14.2 %
    Net Income            $41.5    $35.0   18.5 %    $80.4     $68.4    17.5 %
     Diluted EPS          $0.64    $0.54   18.9 %    $1.24     $1.06    17.3 %


    Operating Segment Results

    Early Development

    ($ in millions)       2Q07     2Q06    Change  2007 YTD  2006 YTD   Change
    Net Revenues         $191.1   $155.7   22.7 %   $370.3    $298.2    24.2 %
    Operating Income      $49.0    $39.1   25.2 %    $92.7     $74.6    24.2 %
    Margin %               25.6 %   25.1 %            25.0 %    25.0 %

The Company's Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, and research products. Early Development net revenues for the second quarter of 2007 grew 22.7% to $191.1 million, compared to $155.7 million in the second quarter of 2006. Net revenue growth in the quarter included strong performances in toxicology, chemistry, and clinical pharmacology. Year-to-date, net revenues are up 24.2% to $370.3 million compared to $298.2 million in the first half of the prior year.

Operating income for the second quarter of 2007 increased 25.2% to $49.0 million compared to $39.1 million for the second quarter of last year. Operating margins for the second quarter of 2007 expanded to 25.6% versus 25.1% in the second quarter of the prior year and 24.4% last quarter. Strength in operating margin included strong performances in toxicology and chemistry services as well as a significant improvement in profitability from the eight clinical pharmacology sites acquired in 2006. Year-to-date, operating margins were 25.0%.

    Late-Stage Development

    ($ in millions)       2Q07     2Q06    Change  2007 YTD  2006 YTD   Change
    Net Revenues         $190.0   $179.5    5.9 %   $369.1    $357.6     3.2 %
    Operating Income      $31.9    $28.5   11.8 %    $61.1     $60.5     1.0
    Margin %               16.8 %   15.9 %            16.6 %    16.9 %

The Late-Stage Development segment includes central laboratory, Phase II- III clinical development, commercialization services (periapproval services and market access services), and cardiac safety services. Late-Stage Development net revenues for the second quarter of 2007 grew 5.9% to $190.0 million compared to $179.5 million in the second quarter of 2006, driven by another very strong performance in clinical development. Sequentially, revenue grew $10.9 million or 6.1%, primarily on an increase in central laboratory revenue. Year-to-date, net revenues are up 3.2% to $369.1 million compared to $357.6 million in the first half of 2006.

Operating income for the second quarter of 2007 increased 11.8% to $31.9 million compared to $28.5 million in the second quarter of the prior year. Operating margins for the second quarter of 2007 expanded to 16.8% from 15.9% in the second quarter of 2006 and 16.3% last quarter. Strong year-on-year improvement in clinical development operating margin drove the 90 basis point increase in operating margin. Central laboratories operating margin grew sequentially on a significant increase in kit volume over first quarter levels. Year-to-date, operating margins were 16.6% compared to 16.9% in the first half of 2006.

Corporate Information

The Company's backlog at June 30, 2007 grew 25.9% year-over-year to $2.5 billion compared to $2.0 billion at June 30, 2006. Net orders in the second quarter of 2007 were $481.1 million versus $554.8 million reported in the second quarter of 2006 (which included a $154 million dedicated space contract).

Corporate expenses totaled $25.4 million in the second quarter of 2007 compared to $20.9 million last quarter and $20.6 million in the second quarter of last year. This higher level of corporate spending reflects increases in compensation-related expenses and investments in infrastructure to support the higher levels of growth we have experienced and to sustain our ability to manage future growth.

The Company reported $208.0 million in cash and cash equivalents at June 30, 2007, up from $181.5 million at March 31, 2007. The company repurchased 196,200 shares of its common stock for $13.2 million during the quarter.

Free cash flow for the second quarter was $26.9 million, consisting of operating cash flow of $56.9 million and capital expenditures of $30.0 million. Free cash flow year-to-date was $30.0 million, consisting of operating cash flow of $91.8 million and capital expenditures of $61.8 million. We continue to expect full year 2007 capital spending to be approximately $160 million and free cash flow to be approximately $75 million, including significant expenditures for the new Arizona preclinical facility.

Net Days Sales Outstanding (DSO) was 46 days at June 30, 2007, unchanged from March 31, 2007, and an 11 day improvement compared to June 30, 2006.

The Company's investor conference call will be webcast on July 26 at 9:00 am EDT. Management's commentary and presentation slides will be available through http://www.covance.com .

Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $1.3 billion, global operations in more than 20 countries, and more than 8,400 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at http://www.covance.com .

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss of large contracts, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, difficulties or delays in integrating the business of Radiant and achieving anticipated efficiencies and synergies, and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward looking statement to conform the statement to actual results or changes in the Company's expectations.



                                 COVANCE INC.

                        CONSOLIDATED INCOME STATEMENTS

          FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

                (Dollars in thousands, except per share data)

                                 (UNAUDITED)


                                    Three Months             Six Months



                                    Ended June 30           Ended June 30
                                  2007        2006        2007        2006

    Net revenues                 $381,145    $335,240    $739,464    $655,749
    Reimbursable out-of-pockets    23,029      21,934      41,649      35,063
       Total revenues             404,174     357,174     781,113     690,812

    Costs and expenses:
     Cost of revenue              251,078     222,723     485,457     436,383
     Reimbursed out-of-pocket
      expenses                     23,029      21,934      41,649      35,063
     Selling, general and
      administrative               58,092      51,312     113,883      99,598
     Depreciation and
      amortization                 16,457      14,165      32,568      26,884
       Total costs and expenses   348,656     310,134     673,557     597,928

    Income from operations         55,518      47,040     107,556      92,884

    Other (income) expense, net:
      Interest income, net         (1,993)     (1,682)     (4,473)     (3,495)
      Foreign exchange
       transaction (gain) loss,
       net                           (103)       (195)         46          67
         Other income, net         (2,096)     (1,877)     (4,427)     (3,428)

    Income before taxes and
     equity investee earnings      57,614      48,917     111,983      96,312

    Taxes on income                16,816      14,407      32,857      28,663

    Equity investee earnings          714         510       1,280         760

    Net income                    $41,512     $35,020     $80,406     $68,409

    Basic earnings per share        $0.65       $0.55       $1.26       $1.08

    Weighted average shares
     outstanding - basic       63,598,821  63,626,078  63,722,266  63,399,226

    Diluted earnings per share      $0.64       $0.54       $1.24       $1.06

    Weighted average shares
     outstanding - diluted     64,628,294  64,849,638  64,745,006  64,623,847



                                 COVANCE INC.

                         CONSOLIDATED BALANCE SHEETS

                     JUNE 30, 2007 and DECEMBER 31, 2006

                            (Dollars in thousands)


                                                June 30         December 31
                                                  2007              2006
                                              (UNAUDITED)
    ASSETS
    Current Assets:
      Cash & cash equivalents                     $208,008          $219,810
      Accounts receivable, net                     220,327           205,473
      Unbilled services                            103,696            89,139
      Inventory                                     51,583            49,628



      Deferred income taxes                          4,258             4,320
      Prepaid expenses and other current assets     70,779            71,196
        Total Current Assets                       658,651           639,566

    Property and equipment, net                    543,202           500,057
    Goodwill, net                                  119,725           119,725
    Other assets                                    41,584            38,330

         Total Assets                           $1,363,162        $1,297,678

    LIABILITIES and STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                             $32,077           $35,479
      Accrued payroll and benefits                  71,410            76,657
      Accrued expenses and other current
       liabilities                                  48,966            50,855
      Unearned revenue                             134,230           109,559
      Income taxes payable                           6,670            17,154
        Total Current Liabilities                  293,353           289,704

    Deferred income taxes                           30,436            31,052
    Other liabilities                               58,802            53,627
         Total Liabilities                         382,591           374,383

    Stockholders' Equity:
      Common stock                                     742               734
      Paid-in capital                              464,338           426,806
      Retained earnings                            837,583           757,809
      Other Comprehensive Income:
        Cumulative translation adjustment           36,557            35,170
        FAS 158 adjustment                         (23,389)          (23,389)
      Treasury stock                              (335,260)         (273,835)
        Total Stockholders' Equity                 980,571           923,295
        Total Liabilities and Stockholders'
         Equity                                 $1,363,162        $1,297,678



                                 COVANCE INC.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

               FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

                            (Dollars in thousands)

                                 (UNAUDITED)


                                                   Six Months Ended June 30

                                                     2007             2006
    Cash flows from operating activities:
     Net income                                      $80,406          $68,409
     Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation and amortization                   32,568           26,884
      Non-cash compensation expense associated
       with employee benefit and stock compensation
       plans                                          15,817           14,331
      Deferred income tax (benefit) provision         (1,802)            (697)
      Other                                           (2,994)            (713)
      Changes in operating assets and liabilities,
       net of businesses acquired:
       Accounts receivable                           (14,854)           6,466



       Unbilled services                             (14,557)         (12,426)
       Inventory                                      (1,955)          (2,826)
       Accounts payable                               (3,402)           2,223
       Accrued liabilities                            (2,982)          (2,691)
       Unearned revenue                               24,671           (4,121)
       Income taxes payable                           (6,143)            (386)
       Other assets and liabilities, net             (12,909)         (15,658)
    Net cash provided by operating activities         91,864           78,795

    Cash flows from investing activities:
     Capital expenditures                            (61,840)         (49,335)
     Acquisition of businesses                         -              (74,323)
     Other, net                                           85              586
    Net cash used in investing activities            (61,755)        (123,072)

    Cash flows from financing activities:
     Stock issued under employee stock purchase
      and option plans                                19,553           27,603
      Purchase of treasury stock                     (61,425)          (8,701)
    Net cash (used in) provided by financing
      activities                                     (41,872)          18,902

    Effect of exchange rate changes on cash              (39)           2,296

    Net change in cash and cash equivalents          (11,802)         (23,079)

    Cash and cash equivalents, beginning of
     period                                          219,810          160,717

    Cash and cash equivalents, end of period        $208,008         $137,638