Covance
Covance Reports Third Quarter Revenue of $475M and EPS of $0.67 Per Share

- Record Adjusted Net Orders of $623 Million; 1.31 Adjusted Book-to-Bill -



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PRINCETON, N.J., Oct 21, 2009 /PRNewswire-FirstCall via COMTEX/ -- Covance Inc. (NYSE: CVD) today reported GAAP earnings for its third quarter ended September 30, 2009 of $0.79 per diluted share, inclusive of a $0.09 per share gain related to the sale of its IVRS business and $0.03 cents from favorable income tax resolutions. Excluding the gain on sale and tax items in the quarter, earnings were $0.67 per diluted share.

"On a consolidated basis, third quarter net revenues grew 8.0% year-on-year and EPS was $0.67. In addition, adjusted net orders grew approximately 20% both year-on-year and sequentially and free-cash-flow was strong at $88 million," said Joe Herring, Chairman and Chief Executive Officer. "In Early Development, results were below our expectations, as revenues and operating margins declined sequentially, primarily due to weaker performance in clinical pharmacology and some of our chemistry services. Toxicology revenue was up modestly from the second quarter with lower operating margin. In Late-Stage Development, better than expected performances in central laboratory and clinical development led to accelerated revenue growth of 24.1% and record operating margin of 24.7%.

"On the commercial front, continued strong business awards in clinical development and central laboratory led to record adjusted net orders in the third quarter of $623 million, representing an adjusted book-to-bill ratio of 1.31 to 1. For the first time this year, Early Development recorded a quarterly adjusted book-to-bill greater than 1.0 to 1. On a trailing twelve month basis, our Late-Stage Development adjusted book-to-bill remained at 1.5 to 1.

"We are encouraged by the exceptional strength of our Late-Stage Development segment, which represented 59% of Covance's third quarter revenues. In Early Development, overall demand has been lower and the timing of study starts has been less predictable. We are projecting relatively flat Early Development results until we see a sustained recovery in demand. Accordingly, using September 30 exchange rates, we expect consolidated fourth quarter earnings per share to be in the $0.64 to $0.67 range, which would bring full-year earnings per share to the low end of our previous targeted range of $2.60 to $2.80 (excluding gains on sales and favorable income tax resolutions)."

Consolidated Results

    ($in millions
     except EPS)        3Q09    3Q08    Change    2009YTD    2008YTD    Change

    Total Revenues     493.7   $467.4            $1,451.5   $1,363.2
    Less: Reimbursable
     Out-of-Pockets    $18.4    $27.3               $68.9      $73.8
    Net Revenues      $475.3   $440.1     8.0%   $1,382.6   $1,289.4     7.2%
    Operating Income   $57.8    $70.0   (17.4)%    $173.7     $200.2   (13.2)%
    Operating Margin %  12.2%    15.9%              12.6%      15.5%
    Net Income         $51.1    $51.1    (0.1)%    $134.3     $151.1   (11.1)%
    Diluted EPS        $0.79    $0.80    (0.8)%     $2.09      $2.36   (11.4)%

    Gain on Sale,
     net of tax         $5.9        -                $6.3       $2.6
    Favorable Income
     Tax Resolutions    $2.1        -                $2.1          -
    Net Income ex Gain
     on Sale and
     Favorable Income
     Tax Resolutions   $43.1    $51.1    (15.6)%   $126.0     $148.5   (15.2)%
    Diluted EPS
     Excluding Gain
     on Sale and
     Favorable Income
     Tax Resolut.      $0.67    $0.80     (16.3)%   $1.96      $2.32   (15.4)%

Operating Segment Results

    Early Development

    ($in millions)     3Q09      3Q08    Change  2009 YTD  2008 YTD    Change
    Net Revenues     $196.4    $215.4    (8.8)%    $588.7    $630.6    (6.6)%
    Operating Income  $22.4     $54.8   (59.1)%     $76.7    $159.6   (52.0)%
    Margin %           11.4%     25.5%               13.0%     25.3%

The Company's Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, and research products. Early Development net revenues for the third quarter of 2009 were $196.4 million compared to $215.4 million in the third quarter of 2008. Reduced demand for Early Development service offerings led to the 8.8% year-on-year decline in revenues. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 330 basis points. Clinical pharmacology revenue and operating income in the quarter were down from the second quarter level and are expected to decline further in the fourth quarter primarily due to lower market demand.

Operating income for the third quarter of 2009 declined 59.1% year-over-year to $22.4 million, compared to $54.8 million in the third quarter of last year. Operating margins for the third quarter of 2009 were 11.4% compared to 25.5% in the third quarter of 2008 and 13.6% last quarter. Year-over-year, operating margins were impacted by a lower level of study activity, delays of scheduled study starts, start-up losses in our new Chandler facility, lower early development pricing, and staffing levels above current demand.

    Late-Stage Development

    ($in millions)    3Q09      3Q08    Change   2009 YTD  2008 YTD    Change
    Net Revenues     $278.9    $224.7     24.1%    $793.9    $658.9     20.5%
    Operating Income  $68.9     $44.3     55.6%    $190.7    $126.1     51.2%
    Margin %          24.7%     19.7%                24.0%     19.1%


The Late-Stage Development segment includes central laboratory, Phase II-III clinical development, and commercialization services (periapproval and market access services). Late-Stage Development net revenues for the third quarter of 2009 grew 24.1% to $278.9 million compared to $224.7 million in the third quarter of 2008. Sequentially, revenues grew $12.6 million, or 4.7%. The sequential and year-on-year growth was led by the continued exceptional performances of central laboratory and clinical development. Foreign exchange negatively impacted year-on-year revenue growth in the quarter by 290 basis points.

Operating income for the third quarter of 2009 increased 55.6% to $68.9 million compared to $44.3 million in the third quarter of the prior year. Central laboratory and clinical development services drove the record operating margins of 24.7% for the third quarter of 2009 compared to 19.7% in the third quarter of last year and 24.6% last quarter. Operating margin in Late-Stage Development is expected to moderate slightly in the fourth quarter.

Corporate Information

The Company's backlog at September 30, 2009 grew 12.8% year-over-year to $4.79 billion compared to $4.25 billion at September 30, 2008 and $4.66 billion at June 30, 2009. Foreign exchange positively impacted sequential backlog growth by $51 million. Adjusted net orders (net orders adjusted for dedicated capacity contracts) were $623 million in the third quarter of 2009.

Corporate expenses totaled $33.5 million in the third quarter of 2009 compared to $32.6 million last quarter and $29.2 million in the third quarter of last year. We continue to make investments that will improve our ability to provide strategic partnering and integrated services as well as investments in infrastructure to enhance our ability to manage future growth.

Cash and cash equivalents at September 30, 2009 were $266 million compared to $204 million at June 30, 2009 and $209 million at September 30, 2008. At September 30, 2009, short-term debt totaled $25 million, a reduction of $33 million from last quarter.

Free cash flow (defined as operating cash flow less capital expenditures) for the third quarter of 2009 was $88 million, consisting of operating cash flow of $115 million less capital expenditures of $27 million. Free cash flow year to date was $76 million, consisting of operating cash flow of $174 million less capital expenditures of $98 million. In 2009, we now expect free cash flow to be approximately $120 million, consisting of operating cash flow of approximately $260 million less capital expenditures of approximately $140 million. The free cash flow target for 2009 assumes net Days Sales Outstanding (DSO) at 40 days.

Net Days Sales Outstanding (DSO) were 42 days at September 30, 2009 compared to 41 days at both June 30, 2009 and September 30, 2008.

The third quarter effective tax rate was 24.6% and included the tax impact of the gain on sale of business, which unfavorably impacted the effective tax rate by 100 basis points, and a $2.1 million tax benefit from favorable income tax resolutions, which favorably impacted the effective tax rate by 300 basis points. Excluding these items, the effective tax rate was 26.6% in the quarter and 27.5% on a YTD basis. The effective tax rate is expected to remain approximately 27.5% going forward.

The Company's investor conference call will be webcast on October 22 at 9:00 am EDT. Management's commentary and presentation slides will be available through 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 $1.7 billion, global operations in more than 25 countries, and more than 10,000 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at 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, 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.

Financial Exhibits Follow

                                     COVANCE INC.

                            CONSOLIDATED INCOME STATEMENTS

             FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

                      (Dollars in thousands, except per share data)

                                    (UNAUDITED)

                            Three Months Ended         Nine Months Ended
                               September 30              September 30
                           ------------------         -----------------
                           2009          2008        2009           2008
                           ----          ----        ----           ----

    Net revenues        $475,284     $440,109     $1,382,569    $1,289,453
    Reimbursable
    out-of-pockets        18,440       27,263         68,887        73,779
                          ------       ------         ------        ------
         Total revenues  493,724      467,372      1,451,456     1,363,232
                         -------      -------      ---------     ---------

    Costs and expenses:
      Cost of revenue    324,311      287,804        939,246       848,018
      Reimbursable
       out-of-pocket
       expenses           18,440       27,263         68,887        73,779
      Selling, general
       and administrative 69,526       64,850        203,049       189,109
      Depreciation and
       amortization       23,649       17,493         66,536        52,172
                          ------       ------         ------        ------
          Total costs
           and expenses  435,926      397,410      1,277,718     1,163,078
                         -------      -------      ---------     ---------

    Income from
     operations           57,798       69,962        173,738       200,154

    Other (income)
    expense, net:
      Interest expense
       (income), net         181       (1,531)           258        (5,628)
      Foreign exchange
       transaction
       (gain) loss, net     (903)         730           (108)         (816)
      Gain on sale of
       businesses         (9,026)           -         (9,681)       (3,927)
                          ------          ---         ------        ------
          Other income,
           net            (9,748)(a)     (801)        (9,531)(b)   (10,371)(c)
                           ------        ----         ------       -------

    Income before
     taxes and equity
     investee earnings    67,546 (a)    70,763       183,269 (b)   210,525 (c)

    Taxes on income       16,650 (a)    20,167        49,050 (b)    61,220 (c)

    Equity investee
     earnings                166           511           128         1,777

                          -------       -------     --------      --------
    Net income           $51,062 (a)   $51,107      $134,347 (b)  $151,082 (c)
                          =======       =======     ========      ========

    Basic earnings
     per share             $0.80 (a)     $0.81         $2.11 (b)     $2.40 (c)

    Weighted average
     shares
     outstanding
     - basic          63,895,975    63,055,229    63,768,728    63,065,488

    Diluted earnings
     per share             $0.79 (a)     $0.80         $2.09 (b)     $2.36 (c)

    Weighted average
     shares outstanding
     -diluted         64,472,572    63,994,532    64,235,983    64,052,224


    (a) Includes the impact of a $9,026 gain on sale of Interactive Voice &
        Web Response Services ($5,867 net of tax) and favorable income tax
        resolutions totaling $2,072 during the third quarter of 2009.
    (b) Includes the impact of a $9,026 gain on sale of Interactive Voice &
        Web Response Services ($5,867 net of tax) and the impact of a $655
        gain on sale of Cardiac Safety Services ($426 net of tax) and
        favorable income tax resolutions totaling $2,072 during the first nine
        months of 2009.
    (c) Includes the impact of a $3,927 gain on sale of Cardiac Safety
        Services ($2,553 net of tax) during the first nine months of 2008.



    Excluding the impact of the gain on sale of businesses and favorable
    income tax resolutions:
    --------------------------------------------------------------------

    Income before taxes and
     equity investee
     earnings              $58,520    $70,763    $173,588     $206,598

    Taxes on income        $15,563    $20,167     $47,734      $59,846

    Net income             $43,123    $51,107    $125,982     $148,529

    Basic earnings per
     share                   $0.67      $0.81       $1.98        $2.36

    Diluted earnings
     per share               $0.67       0.80       $1.96        $2.32



                            COVANCE INC.

                     CONSOLIDATED BALANCE SHEETS

              SEPTEMBER 30, 2009 and DECEMBER 31, 2008

                       (Dollars in thousands)


                                      September 30  December 31
                                              2009         2008
                                              ----         ----
                                       (UNAUDITED)
    ASSETS
    Current Assets:
      Cash & cash equivalents             $266,248     $221,334
      Accounts receivable, net             291,225      228,951
      Unbilled services                    111,919      112,719
      Inventory                             79,276       68,206
      Deferred income taxes                 17,604       15,029
      Prepaid expenses and
       other current assets                 92,532       91,451
                                            ------       ------
          Total Current Assets             858,804      737,690

    Property and equipment, net            919,170      860,957
    Goodwill, net                          126,999      105,486
    Other assets                            50,081       48,955
                                            ------       ------
          Total Assets                  $1,955,054   $1,753,088
                                        ==========   ==========

    LIABILITIES and STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                     $36,554      $41,887
      Accrued payroll and benefits         103,564      104,607
      Accrued expenses and
      other current liabilities             76,283       86,521
      Unearned revenue                     181,436      162,556
      Short-term debt                       25,000       50,000
      Income taxes payable                  45,440       14,224
                                            ------       ------
          Total Current Liabilities        468,277      459,795

    Deferred income taxes                   51,854       51,385
    Other liabilities                       52,689       47,059
                                            ------       ------
          Total Liabilities                572,820      558,239
                                           -------      -------

    Stockholders' Equity:
      Common stock                             762          754
      Paid-in capital                      579,414      551,598
      Retained earnings                  1,263,916    1,129,569
      Accumulated other
      comprehensive income (loss)           13,748      (13,975)
      Treasury stock                      (475,606)    (473,097)
                                          --------     --------
          Total Stockholders' Equity     1,382,234    1,194,849
                                         ---------    ---------
          Total Liabilities and
           Stockholders' Equity         $1,955,054   $1,753,088
                                        ==========   ==========



                              COVANCE INC.

                  CONSOLIDATED STATEMENTS OF CASH FLOWS

          FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

                         (Dollars in thousands)

                               (UNAUDITED)

                                                  Nine Months Ended
                                                    September 30
                                                  -----------------

                                                     2009      2008
                                                     ----      ----
    Cash flows from operating activities:
      Net income                                 $134,347  $151,082
      Adjustments to reconcile net income to
       net cash provided by operating activities:
        Depreciation and amortization              66,536    52,172
        Non-cash compensation expense associated
         with employee benefit and stock
         compensation plans                        20,295    19,190
        Deferred income tax benefit                (2,981)   (5,623)
        Gain on sale of businesses                 (9,681)   (3,927)
        Loss on sale of property and equipment        838       795
        Equity investee earnings                     (128)   (1,777)
        Changes in operating assets and
         liabilities, net of businesses
           acquired and sold:
           Accounts receivable                    (61,341)  (23,104)
           Unbilled services                        1,342   (15,125)
           Inventory                              (11,070)  (12,856)
           Accounts payable                        (5,426)   12,425
           Accrued liabilities                    (12,518)   (5,818)
           Unearned revenue                        18,770       831
           Income taxes payable                    31,494    11,322
           Other assets and liabilities, net        3,658    (6,361)
                                                    -----    ------
    Net cash provided by operating activities     174,135   173,226
                                                  -------   -------

    Cash flows from investing activities:
      Capital expenditures                        (98,020) (206,179)
      Acquisition of businesses, net of
       cash acquired                              (28,370)        -
      Proceeds from sale of businesses             10,373     3,927
      Other, net                                       26       366
                                                       --       ---
    Net cash used in investing activities        (115,991) (201,886)
                                                 --------  --------

    Cash flows from financing activities:
      Net (repayments) borrowings under
       revolving credit facility                  (25,000)   23,000
      Payment of debt assumed upon
       acquisition of business                     (5,431)        -
      Stock issued under employee stock
       purchase and option plans                    7,251    29,158
      Purchase of treasury stock                   (2,509) (130,604)
                                                   ------  --------
    Net cash used in financing activities         (25,689)  (78,446)
                                                  -------   -------
    Effect of exchange rate changes on cash        12,459    (3,285)
                                                   ------    ------
    Net change in cash and cash equivalents        44,914  (110,391)

    Cash and cash equivalents,
     beginning of period                          221,334   319,485
                                                  -------   -------

    Cash and cash equivalents, end of period     $266,248  $209,094
                                                 ========  ========