Covance Reports Second Quarter Revenue of $518 Million, GAAP EPS of $0.61, and Pro Forma EPS of $0.66
PRINCETON, N.J., July 27, 2011 /PRNewswire via COMTEX/ -- Covance Inc. (NYSE: CVD) today reported GAAP earnings for its second quarter ended June 30, 2011 of $0.61 per diluted share. Included in second quarter results is $0.05 per diluted share in costs from the previously-announced restructuring actions. Excluding these costs, earnings per diluted share were $0.66 in the quarter.
"On a consolidated basis, second quarter net revenues grew 9.1% year-on-year and pro forma operating margin (when excluding $4.6 million of restructuring costs), expanded 80 basis points sequentially to 10.3%," said Joe Herring, Chairman and Chief Executive Officer. "In Early Development, revenues grew 11.4% year-on-year to $231.8 million. Revenues were up sequentially in toxicology, analytical chemistry, clinical pharmacology, and discovery support, driving a $7.8 million increase in revenues and a 240 basis point increase in pro forma operating margin from last quarter to 14.2%. In Late-Stage Development, revenues grew 7.3% year-on-year and 3.0% sequentially driven by the continued strong performance in clinical development coupled with the weakening of the US dollar, which more than offset the impact of continued project delays and cancellations in central laboratories. Pro forma operating margin in the segment was 20.0%.
"On the commercial front, adjusted net orders in the second quarter were $614 million, representing an adjusted book-to-bill of 1.18 to 1 led by continued strong orders across all phases of clinical development. Looking forward, we are encouraged by the increasing demand for our early development services, including toxicology, as well as the continued robust pipeline of clinical development proposals. In order to fully capitalize on the market opportunities we are seeing, several dozen incremental sales and marketing professionals were hired globally in the first half of this year.
"Covance now expects full-year revenue growth in the mid-to-high single digit range and pro forma earnings to be in the range of $2.60 to $2.80 per diluted share, excluding costs associated with previously announced restructuring activities. This range assumes no new strategic alliances with clients and foreign exchange rates remain at June 30, 2011 levels. In the third quarter, we are expecting a continued sequential increase in net revenues and pro forma earnings per share of approximately $0.70."
Operating Segment Results
The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the second quarter of 2011 grew 11.4% year-on-year to $231.8 million, driven by the results from our new Alnwick, UK and Porcheville, France sites, foreign exchange tailwind of 230 basis points, and stronger results in clinical pharmacology, which more than offset a decline in revenue from the wind-down of our Vienna, Virginia toxicology facility. Sequentially, revenues increased $7.8 million on broad-based revenue growth.
GAAP operating income for the second quarter of 2011 was $30.9 million, and included $2.0 million in costs associated with our restructuring actions, while GAAP operating income for the second quarter of 2010 was $22.5 million, which included $6.7 million in cost actions. Pro forma operating income, excluding these costs, was $32.9 million in the current quarter, compared to $26.5 million last quarter and $29.2 million in the second quarter of last year. Pro forma operating margins, excluding restructuring costs, were 14.2% for the second quarter, compared to 11.8% last quarter and 14.0% in the second quarter of 2010. Sequentially, profitability improvement was broad-based across the segment.
The Late-Stage Development segment includes central laboratory, Phase II-IV clinical development, and market access services. Net revenues for the second quarter of 2011 grew 7.3% year-on-year and 3.0% sequentially to $286.4 million; growth over both periods was primarily driven by the continued strong performance in clinical development coupled with the weakening of the US dollar.
GAAP operating income for the second quarter was $56.5 million and included $0.7 million in costs associated with our restructuring actions. Pro forma operating income, excluding these costs, was $57.3 million, compared to $56.2 million last quarter and $56.5 million in the second quarter of the prior year. Pro forma operating margins were 20.0% for the second quarter of 2011 compared to 20.2% last quarter and 21.2% in the second quarter of last year. The year-on-year profitability decline was due to lower revenues and operating income in central laboratory services.
The Company's backlog at June 30, 2011 grew 29.4% year-over-year to $6.25 billion compared to $4.83 billion at June 30, 2010 and $6.29 billion at March 31, 2011. Foreign exchange positively impacted sequential backlog growth by approximately $100 million. Negatively impacting backlog was the removal of $141 million remaining from a contractual minimum volume (CMV) commitment for early development services which is being replaced with a broader, non-CMV relationship with the same client. The CMV contract, which was initiated in 2006, was due to expire at the end of 2015. The client has now committed to place a number of studies in excess of the remaining value of the CMV contract for services spanning both early development and late-stage development. The studies under the new arrangement are expected to be included in future orders as the individual project study documentation is prepared, and are expected to generate revenue of at least $170 million over the next four years.
Corporate expenses totaled $38.7 million in the second quarter of 2011 (including $1.8 million in restructuring costs) compared to $36.9 million last quarter (including $2.0 million in restructuring costs) and $36.5 million in the second quarter of last year (including $0.8 million in cost actions). We expect corporate expenses as a percent of revenue, excluding restructuring costs, to trend lower during 2011 as we realize more of the savings from the ongoing restructuring actions.
Cash and cash equivalents at June 30, 2011 were $406 million compared to $368 million at March 31, 2011 and $291 million at June 30, 2010. Covance repaid $37.5 million in debt during the quarter and now has $92.5 million in debt outstanding, originating from borrowings related to the fourth quarter accelerated share repurchase.
Free cash flow (defined as operating cash flow less capital expenditures) for the second quarter of 2011 was $59 million, consisting of operating cash flow of $89 million less capital expenditures of $30 million. Free cash flow year-to-date was $38 million, consisting of operating cash flow of $89 million less capital expenditures of $51 million.
Net Days Sales Outstanding (DSO) were 38 days at June 30, 2011 compared to 37 days at March 31, 2011 and 47 days at June 30, 2010.
The Company's investor conference call will be webcast on July 28 at 9:00 am ET. 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 $1.9 billion, global operations in more than 30 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.