- 4Q EPS Grows 21.8% to $0.72 on 19.8% Revenue Growth -
PRINCETON, N.J., Jan. 30 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported earnings for its fourth quarter ended December 31,
2007 of $0.78 per diluted share and full-year EPS of $2.71; both periods
include a $0.06 per share gain from the sale of its centralized ECG business.
Excluding the gain on sale, earnings were $0.72 per diluted share in the
fourth quarter, representing 21.8% year-over-year EPS growth, and $2.65 per
diluted share for the full-year, representing annual EPS growth of 20.5% over
2006 EPS of $2.20 (which excludes a $0.04 per share tax gain from the 2006
results).
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"I congratulate the entire Covance team for another year of outstanding
achievement for our clients and shareholders. Increasing levels of client
satisfaction led to strong repeat work resulting in more than $500 million in
net orders for the quarter and a 20.6% growth in our backlog to $2.7 billion,"
said Joe Herring, Chairman and Chief Executive Officer. "In the fourth
quarter, revenue growth was robust at 19.8% and operating margins remained
solid at 14.8%. Performance reflected strong demand for both our early- and
late-stage development service offerings. In addition, we significantly
reduced our DSO to 36 days, the lowest level in more than 5 years, helping to
drive strong free cash flow for the quarter and the year.
"In 2007, our capital expenditures exceeded $200 million, with a
substantial portion allocated to investments in capacity expansion and IT
infrastructure to support our future growth. Covance's consistent history of
generating strong returns on capital combined with the increasing demand for
our drug development services, leads us to increase strategic capital
investment in 2008 in order to support our long-term growth opportunity.
"Our ongoing success with productivity enhancements made a significant
contribution again in 2007, as evidenced by a 4.3% increase in revenue per
FTE, incremental Six Sigma benefits of $12 million, and a 40 basis point
expansion in operating margin for the year. In 2008, we continue to target
low- to mid-teens revenue growth and a 20% year-over-year growth in EPS to
$3.18 per diluted share."
Consolidated Results
($ in millions except 4Q07 4Q06 Change FY 2007 FY 2006 Change
EPS)
Total Revenues $435.7 $359.1 $1,631.5 $1,406.1
Less: Reimbursable
Out-of-Pockets $24.7 $16.1 $85.1 $65.9
Net Revenues $411.0 $343.0 19.8% $1,546.4 $1,340.2 15.4%
Operating Income $61.0 $51.3 18.9% $228.6 $193.2 18.3%
Operating Margin % 14.8% 15.0% 14.8% 14.4%
Net Income $50.9 $38.3 32.9% $175.9 $145.0 21.3%
Diluted EPS $0.78 $0.59 32.7% $2.71 $2.24 21.3%
Income Tax Gain - - - $ 2.5
Gain on Sale, net of
tax $4.1 - $4.1 -
Net Income Excluding
Gain on Sale and Tax
Tax Gain $46.8 $38.3 22.0% $171.8 $142.5 20.5%
Diluted EPS Excluding
Gain on Sale
and Tax Gain $0.72 $0.59 21.8% $2.65 $2.20 20.5%
Operating Segment Results
Early Development
($ in millions) 4Q07 4Q06 Change FY 2007 FY 2006 Change
Net Revenues $207.9 $167.2 24.3% $777.7 $632.8 22.9%
Operating
Income $51.5 $38.6 33.3% $195.9 $153.6 27.6%
Margin % 24.8% 23.1% 25.2% 24.3%
The Company's Early Development segment includes preclinical toxicology,
analytical chemistry, clinical pharmacology services, and research products.
Early Development net revenues for the fourth quarter of 2007 grew 24.3% year-
on-year to $207.9 million, compared to $167.2 million in the fourth quarter of
2006, representing exceptionally strong performances across the segment's
service offerings. For the full year 2007, net revenues increased 22.9% to
$777.7 million compared to $632.8 million in 2006.
Operating income for the fourth quarter of 2007 increased 33.3% to $51.5
million compared to $38.6 million for the fourth quarter of last year.
Operating margins for the fourth quarter of 2007 grew 170 basis points to
24.8% versus 23.1% in the fourth quarter of the prior year on the strong
performances across the segment. Full year operating margins grew 90 basis
points to 25.2% compared to 24.3% in the prior year. We expect continued
expansion in Early Development operating margin in 2008 on a full-year basis.
Late-Stage Development
($ in millions) 4Q07 4Q06 Change FY 2007 FY 2006 Change
Net Revenues $203.1 $175.8 15.6% $768.8 $707.4 8.7%
Operating
Income $32.6 $32.7 -0.4% $128.1 $123.6 3.6%
Margin % 16.0% 18.6% 16.7% 17.5%
The Late-Stage Development segment includes central laboratory, Phase II-
III clinical development, and commercialization services (periapproval
services and market access services). Late-Stage Development net revenues for
the fourth quarter of 2007 grew 15.6% to $203.1 million compared to $175.8
million in the fourth quarter of 2006. Central laboratory and clinical
development services each delivered revenue growth in excess of 20% in the
quarter. Full year Late-Stage Development net revenues grew 8.7% to $768.8
million compared to $707.4 million in 2006. The sale of the centralized ECG
business, which will remain in the base of the comparison year, will impact
revenue growth in 2008 by approximately 350 basis points.
Operating income for the fourth quarter of 2007 was $32.6 million compared
to $32.7 million in the fourth quarter of the prior year. Operating margins
for the fourth quarter of 2007 were 16.0% versus 18.6% in the fourth quarter
of 2006 and 17.5% last quarter. Late-Stage Development margins were impacted
by an issue within a large clinical development study. Excluding this impact,
operating margin would have expanded on a sequential basis. Full year
operating margins were 16.7% compared to 17.5% in the prior year. We expect
operating margin expansion in Late-Stage Development in 2008 on a full-year
basis.
Corporate Information
The Company's backlog at December 31, 2007 grew 20.6% year-over-year to
$2.68 billion compared to $2.23 billion at December 31, 2006. Net orders were
$502 million in the fourth quarter of 2007 and $1.99 billion for the full
year.
Corporate expenses totaled $23.0 million in the fourth quarter of 2007
compared to $26.1 million last quarter and $20.0 million in the fourth quarter
of last year. Looking forward to 2008, we expect corporate expenses, as a
percent of revenue, to return to the range of 6.5% as we continue to make
investments in infrastructure to enhance our ability to manage future growth.
Cash and cash equivalents at December 31, 2007 grew to a record $319
million compared to $260 million at September 30, 2007 and $220 million at the
end of last year, due to strong cash generation from business operations and
$35 million in proceeds from the sale of Cardiac Safety Services.
Free cash flow for the fourth quarter was $21 million, consisting of
operating cash flow of $117 million less capital expenditures of $96 million,
which included a $20 million site purchase in Virginia. Full-year free cash
flow was a robust $93 million, consisting of operating cash flow of $294
million less capital expenditures of $201 million. We expect full year 2008
capital spending to increase to approximately $250 million and free cash flow
to be approximately $40 million, including significant expenditures for the
new Arizona preclinical facility and investments in information technology
infrastructure.
Net Days Sales Outstanding (DSO) decreased significantly to 36 days at
December 31, 2007 compared to 47 days at September 30, 2007 and 49 days at
December 31, 2006.
The Company's investor conference call will be webcast on January 31 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 $1.5 billion, global operations in more than 20
countries, and more than 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.
Financial Exhibits Follow
COVANCE INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2007 AND 2006
(Dollars in thousands, except per share data)
Three Months Ended Years Ended
December 31 December 31
2007 2006 2007 2006
(UNAUDITED)
Net revenues $410,966 $342,976 $1,546,419 $1,340,203
Reimbursable out-of-
pockets 24,736 16,111 85,097 65,855
Total revenues 435,702 359,087 1,631,516 1,406,058
Costs and expenses:
Cost of revenue 273,874 222,145 1,017,686 882,190
Reimbursed out-of-
pocket expenses 24,736 16,111 85,097 65,855
Selling, general
and administrative 58,918 53,594 233,890 207,388
Depreciation and
amortization 17,182 15,920 66,197 57,388
Total costs and
expenses 374,710 307,770 1,402,870 1,212,821
Income from operations 60,992 51,317 228,646 193,237
Other (income) expense,
net:
Interest income, net (3,030) (2,376) (9,801) (7,564)
Foreign exchange
transaction
(gain) loss, net (1,137) 240 (1,375) 212
Gain on sale of
business (6,590) - (6,590) -
Other income, net (10,757)(a) (2,136) (17,766)(a) (7,352)
Income before taxes
and equity investee
earnings 71,749(a) 53,453 246,412(a) 200,589
Taxes on income 21,608(a) 15,790 72,934(a) 57,179(b)
Equity investee
earnings 768 650 2,451 1,588
Net income $50,909(a) $38,313 $175,929(a) $144,998(b)
Basic earnings per
share $0.80(a) $0.60 $2.76(a) $2.28(b)
Weighted average
shares outstanding
- basic 63,834,768 63,716,880 63,747,732 63,585,722
Diluted earnings per
share $0.78(a) $0.59 $2.71(a) $2.24(b)
Weighted average
shares outstanding
- diluted 64,921,515 64,795,375 64,820,406 64,782,212
(a) Includes the impact of a $6,590 gain on sale of Cardiac Safety
Services ($4,152 net of tax) during the fourth quarter of 2007.
(b) Includes the impact of a $2,467 income tax gain from the resolution of
several income tax matters during the third quarter of 2006.
Excluding the impact of the $6.6 million pre-tax gain on sale of business
in Q4'07 and the $2.5 million income tax gain recorded in Q3'06:
Income before taxes and
equity investee
earnings $65,159 n/a $239,822 n/a
Taxes on income $19,170 n/a $70,496 $59,646
Net income $46,757 n/a $171,777 $142,531
Basic earnings per
share $0.73 n/a $2.69 $2.24
Diluted earnings per
share $0.72 n/a $2.65 $2.20
COVANCE INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 and 2006
(Dollars in thousands)
December 31 December 31
2007 2006
ASSETS
Current Assets:
Cash & cash equivalents $319,485 $219,810
Accounts receivable, net 217,657 205,473
Unbilled services 88,835 89,139
Inventory 54,788 49,628
Deferred income taxes 7,825 4,320
Prepaid expenses and other current
assets 81,467 71,196
Total Current Assets 770,057 639,566
Property and equipment, net 646,040 500,057
Goodwill, net 105,486 119,725
Other assets 38,602 38,330
Total Assets $1,560,185 $1,297,678
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $32,252 $35,479
Accrued payroll and benefits 95,313 76,657
Accrued expenses and other current
liabilities 66,838 50,855
Unearned revenue 144,870 109,559
Income taxes payable 18,887 17,154
Total Current Liabilities 358,160 289,704
Deferred income taxes 32,562 31,052
Other liabilities 59,275 53,627
Total Liabilities 449,997 374,383
Stockholders' Equity:
Common stock 746 734
Paid-in capital 492,373 426,806
Retained earnings 933,106 757,809
Other Comprehensive Income:
Cumulative translation
adjustment 45,328 35,170
FAS 158 adjustment (21,174) (23,389)
Treasury stock (340,191) (273,835)
Total Stockholders' Equity 1,110,188 923,295
Total Liabilities and
Stockholders' Equity $1,560,185 $1,297,678
COVANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Dollars in thousands)
Years Ended December 31
2007 2006
Cash flows from operating activities:
Net income $175,929 $144,998
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 66,197 57,388
Non-cash compensation expense
associated with employee benefit
and stock compensation plans 26,508 30,397
Deferred income tax (benefit)
provision (4,903) 561
Gain on sale of business (6,590) -
(Gain) loss on sale of property
and equipment (1,346) 11
Equity investee earnings (2,451) (1,588)
Changes in operating assets and
liabilities, net of businesses
acquired and sold:
Accounts receivable (16,847) 6,332
Unbilled services 304 (842)
Inventory (5,336) (8,921)
Accounts payable (2,836) 8,380
Accrued liabilities 37,153 12,547
Unearned revenue 35,392 10,544
Income taxes payable 9,310 6,754
Other assets and liabilities, net (16,954) (12,392)
Net cash provided by operating
activities 293,530 254,169
Cash flows from investing activities:
Capital expenditures (201,037) (136,800)
Proceeds from sale of business 35,200 -
Acquisition of businesses - (75,668)
Other, net 322 806
Net cash used in investing activities (165,515) (211,662)
Cash flows from financing activities:
Stock issued under employee stock
purchase and option plans 33,423 39,905
Purchase of treasury stock (66,356) (28,032)
Net cash (used in) provided by
financing activities (32,933) 11,873
Effect of exchange rate changes on cash 4,593 4,713
Net change in cash and cash equivalents 99,675 59,093
Cash and cash equivalents, beginning
of period 219,810 160,717
Cash and cash equivalents, end of
period $319,485 $219,810