Covance
Covance Reports Strong Earnings Growth Of 28% To $0.46 Per Share
Princeton, New Jersey, July 20, 2005 — Covance Inc. ( NYSE: CVD ) today reported earnings for its second quarter ended June 30, 2005 of $0.46/diluted share and net revenue of $294.0 million.

"Covance again delivered strong financial results highlighted by acceleration in revenue growth to 17.1%, backlog growth of 19.6%, and EPS growth of 27.8%," said Joe Herring , President and Chief Executive Officer. "Our market-leading laboratory-based service offerings — toxicology in Early Development and central laboratory in Late-Stage Development — each achieved strong revenue and margin growth during the second quarter. Early Development net revenue grew 15.8% and Late-Stage Development net revenue grew 18.3% over last year. Both segments also reported strong profitability as Early Development operating margins remained above the 24% level for the second consecutive quarter and Late-Stage Development margins grew to 17.4%, a 240 basis point increase from last year."

"Overall company productivity, as measured by revenue per employee and operating margin per employee, again increased on both a year-over-year and sequential basis. Operating margins remain strong at 14.3%. On the business development front, we are very pleased to report second quarter net orders of $356 million. This was our second highest net order quarter, driving our backlog to a record high $1.5 billion. We continue to target 2005 earnings of at least $1.88 per share."

Consolidated Results

($ in millions except EPS) 2Q05 2Q04 Change 2005 YTD 2004 YTD Change
Net Revenues $294.0 $251.0 17.1% $575.2 $495.2 16.2%
  Reimbursable Out-of-Pockets $13.4 $7.6 $25.0 $14.9
Total Revenues $307.4 $258.6 $600.2 $510.1
Costs and Expenses $252.1 $217.0 16.2% $492.4 $429.1 14.8%
  Reimbursable Out-of-Pockets $13.4 $7.6 $25.0 $14.9
  Total Costs and Expenses $265.5 $224.6 $517.4 $444.0
Operating Income $41.9 $34.0 23.2% $82.8 $66.1 25.2%
Operating Margin % 14.3% 13.6% 14.4% 13.3%
Net Income $29.6 $23.3 26.9% $58.4 $45.5 28.5%
Diluted EPS $0.46 $0.36 27.8% $0.92 $0.70 31.4%


Net revenues for the second quarter of 2005 increased 17.1% to $294.0 million compared to $251.0 million in the second quarter of 2004. Year-to-date net revenues increased 16.2% to $575.2 million compared to $495.2 million in the prior year.

Costs and expenses for the second quarter of 2005 increased 16.2% to $252.1 million compared to $217.0 million in the second quarter of 2004. Year-to-date, costs and expenses increased 14.8% to $492.4 million compared to $429.1 million in the prior year.

Consolidated operating income for the second quarter of 2005 increased 23.2% to $41.9 million compared to $34.0 million in the second quarter of 2004. Operating margin for the second quarter of 2005 was 14.3% compared to 13.6% for the second quarter of last year. Year-to-date, operating income increased 25.2% to $82.8 million compared to $66.1 million in the prior year.

Net income for the second quarter of 2005 increased 26.9% to $29.6 million or $0.46/diluted share compared to $23.3 million or $0.36/diluted share for the second quarter of last year. Year-to-date, net income increased 28.5% to $58.4 million or $0.92/diluted share compared to $45.5 million or $0.70/diluted share for the same period in 2004.

Operating Segment Results

Early Development
($ in millions) 2Q05 2Q04 Change 2005 YTD 2004 YTD Change
Net Revenues $139.8 $120.7 15.8% $270.7 $236.0 14.7%
Operating Income $33.7 $27.9 20.8% $65.7 $54.8 19.8%
Margin % 24.1% 23.1% 24.3% 23.2%


The Company's Early Development segment includes preclinical toxicology, analytical chemistry, and Phase I clinical trial services. Early Development net revenues for the second quarter of 2005 were up a strong 15.8% to $139.8 million compared to $120.7 million in the second quarter of 2004, led by global toxicology and our North American Phase I clinic. Our European Phase I clinic experienced both year-over-year and sequential growth as the impact of the European Clinical Trial Directive continues to diminish. Year-to-date, net revenues grew 14.7% to $270.7 million compared to $236.0 million in the prior year.

Operating income for the second quarter of 2005 increased 20.8% to $33.7 million compared to $27.9 million for the second quarter of last year. Operating margin for the second quarter of 2005 was 24.1%, up 100 basis points from the 23.1% in the second quarter of the prior year. Operating margin strength was broad-based, reflecting continued strong performances in our toxicology, chemistry and Phase I services. Year-to-date, operating margins were 24.3% compared to 23.2% in the prior year.

Late-Stage Development
($ in millions) 2Q05 2Q04 Change 2005 YTD 2004 YTD Change
Net Revenues $154.2 $130.3 18.3% $304.5 $259.2 17.5%
Operating Income $26.9 $19.5 37.9% $52.5 $38.0 38.4%
Margin % 17.4% 15.0% 17.3% 14.6%

The Late-Stage Development segment includes central laboratory, Phase II-III clinical development, commercialization services (Phase IV studies and market access services), and cardiac safety services. Late-Stage Development net revenues for the second quarter of 2005 grew a strong 18.3% to $154.2 million compared to $130.3 million in the second quarter of 2004, driven primarily by robust performances by our central laboratory and cardiac safety services. Year-to-date, net revenues grew 17.5% to $304.5 million compared to $259.2 million in the prior year.

Operating income for the second quarter of 2005 grew 37.9% to $26.9 million compared to $19.5 million in the second quarter of the prior year. Operating margin for the second quarter of 2005 was 17.4%, up 240 basis points from the 15.0% in the second quarter of the prior year. Operating margin strength was driven by our central laboratory, cardiac safety, and market access services. Year-to-date, operating margins were 17.3% compared to 14.6% in the prior year.

Corporate Information

The Company's backlog at June 30, 2005 grew nearly 20%, or $246 million, to $1.502 billion compared to $1.256 billion at June 30, 2004. Backlog grew $38 million sequentially from the first quarter 2005 level of $1.464 billion despite a foreign exchange impact of $24 million.

The Company reported cash and cash equivalents of $132.5 million at June 30, 2005 versus $162.7 million at March 31, 2005. During the second quarter, Covance repurchased 963,200 shares of its common stock for approximately $42.9 million. Year to date, Covance repurchased 1,195,500 shares of its common stock for approximately $53.2 million.

Capital expenditures for the second quarter were $31.2 million and totaled $54.9 million in the first half of 2005. Free cash flow (cash from operations less capital spending) was $14.1 million in the quarter and -$3.2 million year to date. We now expect 2005 capital spending to be in the range of $140-$150 million, reflecting additional investment opportunities, and 2005 free cash flow (cash from operations less capital spending) to be in the range of $20-$30 million.

Net Days Sales Outstanding (DSO) were 60 days at June 30, 2005 versus 55 days at March 31, 2005 and 52 days at June 30, 2004.



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 billion, global operations in 17 countries, and approximately 7,000 employees worldwide. Much more informtaion about Covance can be found throughout the site, including our products and services, other recent press releases , and SEC filings .

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.