- Net Revenue Growth Accelerates to 16.0%; Backlog Grows 26.5% to $2.6B;
Record OM of 15.2% -
PRINCETON, N.J., Oct. 24 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported earnings for its third quarter ended September 30,
2007 of $0.69/diluted share, representing 17.0% growth on a GAAP basis and
25.0% on a pro forma basis, after excluding an income tax gain of $0.04 per
diluted share in the third quarter of 2006.
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"In the third quarter, our business model continued to deliver strong
results as we accelerated net revenue growth to 16.0%, expanded operating
margins to a record 15.2%, and produced EPS growth of 25.0%. We also
delivered strong net orders of $493 million in the quarter and 26.5% growth in
backlog to $2.6 billion, as demand for our broad portfolio of services
continued to be robust," said Joe Herring, Chairman and Chief Executive
Officer. "Early Development net revenue growth was again very strong at 19.2%
and operating margins increased both year-on-year and sequentially to 26.0%.
In Late-Stage Development, year-on-year net revenue growth accelerated to
12.9% and operating margins expanded to 17.5%, marking the second consecutive
quarter of increased profitability in the segment.
"Even as we deliver on our near-term financial targets and client
projects, we are accelerating investments in capacity, talent, and IT systems
to support future growth. During the third quarter we opened four new Covance
facilities across three continents. In North America, we added a preclinical
ABSL-2 facility to support the growth in vaccine research services. In
Europe, we opened yet another expansion at our Muenster, Germany preclinical
facility. In Asia, we opened two facilities -- a state-of-the-art central
laboratory in Shanghai to support global clinical trials and a nutritional
chemistry laboratory in Singapore to provide food safety testing services.
"Our strong financial performance over the first three quarters of this
year leads us to raise our full-year 2007 earnings target to $2.65 per diluted
share. Looking forward to 2008, based upon our strong performance again this
quarter and our expanding backlog, we are again targeting revenue growth in
the low- to mid-teens range and diluted earnings per share growth of 20%."
Selected Consolidated Results
($ in millions except EPS)
3Q07 3Q06 Change 2007 YTD 2006 YTD Change
Total Revenues $414.7 $356.2 $1,195.8 $1,047.0
Less: Reimbursable
Out-of-Pockets $18.7 $14.7 $60.4 $49.8
Net Revenues $396.0 $341.5 16.0% $1,135.4 $997.2 13.9%
Operating Income $60.1 $49.0 22.6% $167.7 $141.9 18.1%
Operating Margin % 15.2% 14.4% 14.8% 14.2%
Net Income $44.6 $38.3 16.6% $125.0 $106.7 17.2%
Diluted EPS $0.69 $0.59 17.0% $1.93 $1.65 17.2%
Income Tax Gain $2.5 $2.5
Net Income Excluding
Tax Gain $44.6 $35.8 24.6% $125.0 $104.2 20.0%
Diluted EPS Excluding
Tax Gain $0.69 $0.55 25.0% $1.93 $1.61 20.0%
Operating Segment Results
Early Development
($ in millions) 3Q07 3Q06 Change 2007 YTD 2006 YTD Change
Net Revenues $199.5 $167.4 19.2% $569.8 $465.6 22.4%
Operating Income $51.8 $40.3 28.4% $144.4 $115.0 25.6%
Margin % 26.0% 24.1% 25.4% 24.7%
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 2007 grew 19.2% to
$199.5 million, compared to $167.4 million in the third quarter of 2006. Net
revenue growth in the quarter was driven by strong performances in toxicology,
chemistry, and clinical pharmacology. Year-to-date, net revenues are up 22.4%
to $569.8 million compared to $465.6 million in the first nine months of the
prior year.
Operating income for the third quarter of 2007 increased 28.4% to $51.8
million compared to $40.3 million for the third quarter of last year.
Operating margins for the third quarter of 2007 expanded to 26.0% versus 24.1%
in the third quarter of the prior year and 25.6% last quarter. Strength in
operating margin was driven by continued strong performances in toxicology,
chemistry services, and clinical pharmacology. Year-to-date, operating
margins increased to 25.4% versus 24.7% in the first nine months of the prior
year.
Late-Stage Development
($ in millions) 3Q07 3Q06 Change 2007 YTD 2006 YTD Change
Net Revenues $196.5 $174.1 12.9% $565.6 $531.7 6.4%
Operating Income $34.4 $30.4 13.1% $95.5 $90.9 5.0%
Margin % 17.5% 17.5% 16.9% 17.1%
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 revenue for the third quarter of 2007 grew 12.9% to $196.5
million compared to $174.1 million in the third quarter of 2006. This
accelerated growth rate was driven by another very strong performance in
clinical development and improved year-on-year growth in central labs. Year-
to-date, net revenues are up 6.4% to $565.6 million compared to $531.7 million
in the first nine months of 2006.
Operating income for the third quarter of 2007 increased 13.1% to $34.4
million compared to $30.4 million in the third quarter of the prior year.
Operating margins for the third quarter of 2007 was 17.5% versus 17.5% in the
third quarter of 2006 and 16.8% last quarter. Year-on-year improvements in
clinical development and increased central laboratory operating margins were
offset by a decline in market access services operating margin. Year-to-date,
operating margins were 16.9% compared to 17.1% in the first nine months of
2006.
Corporate Information
The Company's backlog at September 30, 2007 grew 26.5% year-over-year to
$2.6 billion compared to $2.1 billion at September 30, 2006. Net orders in
the third quarter of 2007 were $492.6 million versus $432.0 million reported
in the third quarter of 2006.
Corporate expenses totaled $26.1 million in the third quarter of 2007
compared to $25.4 million last quarter and $21.7 million in the third quarter
of last year, as we continue to make investments in infrastructure to enhance
our ability to manage future growth.
The Company reported $259.8 million in cash and cash equivalents at
September 30, 2007, up from $208.0 million at June 30, 2007.
Free cash flow for the third quarter was $41.3 million, consisting of
operating cash flow of $84.3 million and capital expenditures of $43.0
million. Free cash flow year-to-date was $71.3 million, consisting of
operating cash flow of $176.1 million and capital expenditures of $104.8
million. We now expect full year 2007 capital spending to be at least $165
million and free cash flow to be approximately $80 million, including
significant expenditures for the new Arizona preclinical facility.
Net Days Sales Outstanding (DSO) was 47 days at September 30, 2007, versus
46 days at June 30, 2007, and 55 days at September 30, 2006.
The Company's investor conference call will be webcast on October 25 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
revenues over the last twelve months of approximately $1.5 billion, global
operations in more than 20 countries, and approximately 8,700 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.
COVANCE INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Dollars in thousands, except per share data)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
Net revenues $395,989 $341,478 $1,135,453 $997,227
Reimbursable out-of-pockets 18,712 14,681 60,361 49,744
Total revenues 414,701 356,159 1,195,814 1,046,971
Costs and expenses:
Cost of revenue 258,355 223,662 743,812 660,045
Reimbursed out-of-pocket
expenses 18,712 14,681 60,361 49,744
Selling, general and
administrative 61,089 54,196 174,972 153,794
Depreciation and
amortization 16,447 14,584 49,015 41,468
Total costs and expenses 354,603 307,123 1,028,160 905,051
Income from operations 60,098 49,036 167,654 141,920
Other (income) expense, net:
Interest income, net (2,298) (1,693) (6,771) (5,188)
Foreign exchange transaction
(gain) loss, net (284) (95) (238) (28)
Other income, net (2,582) (1,788) (7,009) (5,216)
Income before taxes and
equity investee earnings 62,680 50,824 174,663 147,136
Taxes on income 18,469 12,726 51,326 41,389
Equity investee earnings 403 178 1,683 938
Net income $44,614 $38,276 $125,020 $106,685
Basic earnings per share $0.70 $0.60 $1.96 $1.68
Weighted average shares
outstanding - basic 63,711,628 63,827,555 63,718,720 63,542,002
Diluted earnings per share $0.69 $0.59 $1.93 $1.65
Weighted average shares
outstanding - diluted 64,728,253 64,965,380 64,758,890 64,758,456
Excluding the impact of the $2.5 million income
tax gain recorded in Q3'06:
Taxes on income n/a $15,193 n/a $43,856
Net income n/a $35,809 n/a $104,218
Basic earnings per share n/a $0.56 n/a $1.64
Diluted earnings per share n/a $0.55 n/a $1.61
COVANCE INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007 and DECEMBER 31, 2006
(Dollars in thousands)
September 30 December 31
2007 2006
(UNAUDITED)
ASSETS
Current Assets:
Cash & cash equivalents $259,831 $219,810
Accounts receivable, net 222,480 205,473
Unbilled services 104,990 89,139
Inventory 54,789 49,628
Deferred income taxes 4,523 4,320
Prepaid expenses and other current assets 74,145 71,196
Total Current Assets 720,758 639,566
Property and equipment, net 577,507 500,057
Goodwill, net 119,725 119,725
Other assets 41,937 38,330
Total Assets $1,459,927 $1,297,678
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $42,442 $35,479
Accrued payroll and benefits 91,729 76,657
Accrued expenses and other current liabilities 51,710 50,855
Unearned revenue 122,175 109,559
Income taxes payable 11,499 17,154
Total Current Liabilities 319,555 289,704
Deferred income taxes 30,028 31,052
Other liabilities 63,311 53,627
Total Liabilities 412,894 374,383
Stockholders' Equity:
Common stock 743 734
Paid-in capital 476,952 426,806
Retained earnings 882,197 757,809
Other Comprehensive Income:
Cumulative translation adjustment 45,927 35,170
FAS 158 adjustment (23,389) (23,389)
Treasury stock (335,397) (273,835)
Total Stockholders' Equity 1,047,033 923,295
Total Liabilities and Stockholders' Equity $1,459,927 $1,297,678
COVANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Dollars in thousands)
(UNAUDITED)
Nine Months Ended September 30
2007 2006
Cash flows from operating activities:
Net income $125,020 $106,685
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49,015 41,468
Non-cash compensation expense associated
with employee benefit and stock
compensation plans 21,472 21,990
Deferred income tax (benefit) provision (2,475) (658)
(Gain) loss on sale of property and equipment (1,740) (187)
Equity investee earnings (1,683) (938)
Changes in operating assets and liabilities,
net of businesses acquired:
Accounts receivable (17,007) (998)
Unbilled services (15,851) (7,364)
Inventory (5,161) (4,087)
Accounts payable 6,963 725
Accrued liabilities 18,901 10,003
Unearned revenue 12,616 1,978
Income taxes payable (749) 8,274
Other assets and liabilities, net (13,222) (11,558)
Net cash provided by operating activities 176,099 165,333
Cash flows from investing activities:
Capital expenditures (104,820) (71,755)
Acquisition of businesses - (74,561)
Other, net 111 699
Net cash used in investing activities (104,709) (145,617)
Cash flows from financing activities:
Stock issued under employee stock purchase
and option plans 25,948 34,901
Purchase of treasury stock (61,562) (8,705)
Net cash (used in) provided by financing
activities (35,614) 26,196
Effect of exchange rate changes on cash 4,245 3,451
Net change in cash and cash equivalents 40,021 49,363
Cash and cash equivalents, beginning of period 219,810 160,717
Cash and cash equivalents, end of period $259,831 $210,080