Covance Reports First Quarter Revenue of $502M, GAAP EPS of $0.54, and Pro Forma EPS of $0.60
PRINCETON, N.J., May 4, 2011 /PRNewswire via COMTEX/ -- Covance Inc. (NYSE: CVD) today reported GAAP earnings for its first quarter ended March 31, 2011 of $0.54 per diluted share. Included in first quarter results is $0.06 per diluted share in costs from the previously-announced restructuring actions. Excluding these costs, earnings per diluted share were $0.60 in the quarter.
"Covance began 2011 with revenue growth of 4.2% to $502 million, operating margin (after excluding $5.9 million in costs from the previously-announced restructuring actions) of 9.5%, and pro forma EPS of $0.60, which was above the high-end of our targeted earnings range for the quarter," said Joe Herring, Chairman and Chief Executive Officer. "Early Development revenues grew by 9.3% year-on-year and pro forma operating margin increased 60 basis points from the first quarter of last year to 11.8%. Toxicology performance improved for the second consecutive quarter, and this positive trend continued in April. In Late-Stage Development, revenue grew 2.6% sequentially and 0.4% year-on-year, as strong performance in clinical development was partially offset by lower revenues in central laboratories. Pro forma operating margin in the segment was 20.2%.
"On the commercial front, adjusted net orders in the first quarter were $564 million, representing an adjusted book-to-bill of 1.12 to 1. As evidence of our success in strategic partnering, nearly 20% of our revenue in the first quarter was earned from contractual minimum volume (CMV) commitments. Looking forward, we are encouraged by the increasing demand for our toxicology services, as well as a robust pipeline of clinical development proposals.
"Covance continues to expect single-digit percentage revenue growth and pro forma earnings per share to be in the range of $2.50 to $2.90 per diluted share, excluding costs associated with ongoing restructuring activities. This range assumes no new strategic alliances with clients and foreign exchange rates remain at March 31, 2011 levels. In the second quarter, we are expecting a continued sequential increase in net revenues and pro forma earnings per share to be approximately $0.65."
Operating Segment Results
The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, discovery support, and research products. Net revenues in the first quarter of 2011 grew 9.3% year-on-year to $224.0 million driven by the addition of the Alnwick, UK and Porcheville, France sites, as well as growth in North American toxicology (excluding Vienna, Virginia), chemistry, and discovery support services. Sequentially, revenues increased $3.4 million driven primarily by inclusion of three full months of results from our Alnwick and Porcheville sites, as well as improvement in our toxicology services, partially offset by the wind-down of Vienna and lower revenues in discovery support services.
Operating income for the first quarter was $23.6 million and included $2.9 million in costs associated with our restructuring actions. Operating income, excluding these costs, was $26.5 million, compared to $26.6 million last quarter and $22.9 million in the first quarter of last year. Operating margins for the first quarter, excluding restructuring costs, were 11.8% compared to 12.0% last quarter and 11.2% in the first quarter of 2010. Sequentially, improved profitability in toxicology was offset by higher operating losses associated with the wind-down of our Vienna operations and transition to Greenfield, higher incentive compensation accruals, and lower levels of operating income in chemistry and discovery support services.
The Late-Stage Development segment includes central laboratory, Phase II-IV clinical development, and market access services. Net revenues for the first quarter of 2011 grew 0.4% year-on-year to $278.0 million and increased $7.0 million sequentially as growth in clinical development services was partially offset by a revenue decline in central laboratories.
Operating income for the first quarter was $55.2 million and included $1.0 million in costs associated with our restructuring actions. Operating income, excluding these costs, was $56.2 million, compared to $54.7 million last quarter and $66.2 million in the first quarter of the prior year. Pro forma operating margins were 20.2% for the first quarter of 2011 compared to 20.2% last quarter and 23.9% in the first quarter of last year. The year-on-year profitability decline was due primarily to lower revenues and operating income in central labs.
The Company's backlog at March 31, 2011 grew 31.3% year-over-year to $6.29 billion compared to $4.79 billion at March 31, 2010 and $6.19 billion at year-end. Foreign exchange positively impacted sequential backlog growth by approximately $127 million. Adjusted net orders (net orders adjusted for dedicated capacity contracts) were $564 million in the first quarter of 2011.
Corporate expenses totaled $36.9 million in the first quarter of 2011 (including $2.0 million in restructuring costs) compared to $39.9 million last quarter (including $5.8 million in restructuring costs) and $36.3 million in the first quarter of last year. We expect corporate expenses as a percent of revenue, excluding restructuring costs, to trend lower during 2011 as more of the savings from the ongoing restructuring actions are realized.
Cash and cash equivalents at March 31, 2011 were $368 million compared to $377 million at December 31, 2010 and $268 million at March 31, 2010. The Company has $130 million in debt outstanding resulting from borrowings related to the fourth quarter accelerated share repurchase.
Free cash flow (defined as operating cash flow less capital expenditures) for the first quarter of 2011 was a negative $21 million, consisting of operating cash flow of negative $1 million (which includes the payment of 2010 annual bonuses) less capital expenditures of $20 million.
Net DSO were 37 days at March 31, 2011 compared to 31 days at December 31, 2010 and 42 days at March 31, 2010.
The Company's investor conference call will be webcast on May 5 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 $1.9 billion, global operations in more than 25 countries, and more than 10,500 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 or delay of large studies, 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, testing mix and geographic mix of kit receipts in central laboratories, fluctuations in currency exchange rates, 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
SOURCE Covance Inc.