- 15.1% Revenue Growth; Record Operating Margin of 15.2%;
20.1% Backlog Growth -
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PRINCETON, N.J., April 28 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported earnings for its first quarter ended March 31, 2008
of $0.76 per diluted share, inclusive of an additional $0.03 per share gain
from the sale of its centralized ECG business in 2007. Excluding the gain on
sale, earnings were $0.73 per diluted share, representing 22.3% year-over-year
EPS growth.
"In the first quarter, we delivered strong revenue growth of 15.1% and a
record operating margin performance," said Joe Herring, Chairman and Chief
Executive Officer. "Early Development segment revenues grew 12.7% and
operating margins increased both year-on-year and sequentially to 25.0%.
Toxicology room renovations in North America are progressing as scheduled and
additional capacity will come online in the second quarter. In Late-Stage
Development, revenue growth was strong at 17.5% and operating margins expanded
more than 200 basis points year-on-year and sequentially to 18.5%. In
particular, we were pleased with the very strong revenue growth in central
labs of more than 30%.
"First quarter net orders of $469 million were solid, although not
indicative of the robust business environment we are currently experiencing.
As an example, early in the second quarter, we were awarded a three-year,
dedicated capacity toxicology agreement with a minimum contract commitment of
$66 million. We were also selected as the primary provider of clinical
development services by a top-ten pharmaceutical company and we expect
significant 2008 orders from this agreement. Beyond these examples, our
pipeline of opportunities is larger and more strategic than at any time in
company history. Some of these opportunities are unprecedented in scope,
combining multiple service lines in both our Early and Late-Stage Development
segments. Our broad-based portfolio of services uniquely positions us to work
with these clients to accelerate drug development timelines and make their
cost structures more flexible. These favorable market conditions also give us
increased confidence in our ability to deliver low- to mid-teens revenue
growth and a 20% annual growth in EPS to $3.18 per diluted share in 2008,
excluding the gain on sale from both periods."
Consolidated Results
($ in millions except EPS) 1Q08 1Q07 Change
Total Revenues $434.0 $376.9
Less: Reimbursable Out-of-Pockets $21.6 $18.6
Net Revenues $412.4 $358.3 15.1%
Operating Income $62.7 $52.0 20.6%
Operating Margin % 15.2% 14.5%
Net Income $49.1 $38.9 26.2%
Diluted EPS $0.76 $0.60 27.4%
Gain on Sale, net of tax $1.9 -
Net Income Excluding Gain on Sale $47.2 $38.9 21.3%
Diluted EPS Excluding Gain on Sale $0.73 $0.60 22.3%
Operating Segment Results
Early Development
($ in millions) 1Q08 1Q07 Change
Net Revenues $202.0 $179.2 12.7%
Operating Income $50.6 $43.7 15.8%
Margin % 25.0% 24.4%
The Company's Early Development segment includes preclinical toxicology,
analytical chemistry, clinical pharmacology services, and research products.
Early Development net revenues for the first quarter of 2008 grew 12.7% year-
over-year to $202.0 million, compared to $179.2 million in the first quarter
of 2007 and $207.9 million last quarter. Year-over-year revenue growth was led
by toxicology and chemistry services. The sequential $5.8 million decline in
revenue is attributable to a soft quarter in clinical pharmacology (as some
studies slipped out of the first quarter), the negative impact of foreign
exchange (from a decline of the British pound against the US dollar), and
capacity constraints in North America toxicology (as rooms were taken off-line
for renovation). We expect strong sequential revenue growth in the second
quarter as new toxicology capacity is brought online in Madison, Wisconsin and
as volume increases in clinical pharmacology.
Operating income for the first quarter of 2008 increased 15.8% to $50.6
million, compared to $43.7 million for the first quarter of last year.
Operating margins for the first quarter of 2008 increased to 25.0% from 24.4%
in the first quarter of 2007 and 24.8% last quarter. We expect expansion in
Early Development operating margin in 2008 on a full-year basis.
Late-Stage Development
($ in millions) 1Q08 1Q07 Change
Net Revenues $210.4 $179.1 17.5%
Operating Income $38.9 $29.2 33.1%
Margin % 18.5% 16.3%
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 first quarter of 2008 grew a strong 17.5% to $210.4
million compared to $179.1 million in the first quarter of 2007. Excluding the
impact of the sale of our ECG business, which was divested in November 2007
but remains in the comparison year, Late-Stage Development revenue growth was
21.3%. Growth was led by outstanding performances in central laboratory
(which delivered revenue growth in excess of 30% in the quarter due to an
increase in kit volumes and a strengthening of the Swiss franc) and clinical
development.
Operating income for the first quarter of 2008 was $38.9 million compared
to $29.2 million in the first quarter of the prior year. Operating margins
for the first quarter of 2008 increased substantially to 18.5% from 16.3% in
the first quarter of 2007 and 16.0% last quarter. Central laboratory
experienced significant operating margin expansion on both a year-over-year
and sequential basis, while margins in clinical development rebounded strongly
sequentially. We expect operating margin expansion in Late-Stage Development
in 2008 on a full-year basis.
Corporate Information
The Company's backlog at March 31, 2008 grew 20.1% year-over-year to $2.86
billion compared to $2.38 billion at March 31, 2007. Sequential backlog
growth of 6.6% was driven by first quarter net orders of $469 million coupled
with a $121 million impact from the weakening of the US dollar (primarily
against the Swiss franc and Euro).
Corporate expenses totaled $26.7 million in the first quarter of 2008
compared to $23.0 million last quarter and $20.8 million in the first quarter
of last year. We expect corporate expenses to average approximately 6.5% of
revenue as we continue to make investments in infrastructure to enhance our
ability to manage future growth.
Cash and cash equivalents at March 31, 2008 were $233 million compared to
$319 million at December 31, 2007 and $182 million at March 31, 2007. At
March 31, 2008, short-term debt totaled $43 million. The reduction in cash
balance and use of debt compared to year-end is primarily attributable to the
Company's repurchase of 1.5 million shares of its common stock for $127
million.
Free cash flow for the first quarter was negative $27 million, consisting
of operating cash flow of $36 million (which includes the payment of annual
bonuses) less capital expenditures of $63 million. We continue to expect
full-year 2008 capital spending to be approximately $250 million, including
significant expenditures for the new Arizona preclinical facility and
investments in information technology infrastructure, and free cash flow to be
approximately $40 million.
Net Days Sales Outstanding (DSO) were 39 days at March 31, 2008 compared
to 36 days at December 31, 2007 and 46 days at March 31, 2007.
The Company's investor conference call will be webcast on April 29 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 8,900 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 ENDED MARCH 31, 2008 AND 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
Three Months Ended March 31
2008 2007
Net revenues $412,432 $358,319
Reimbursable out-of-pockets 21,605 18,620
Total revenues 434,037 376,939
Costs and expenses:
Cost of revenue 273,330 234,379
Reimbursed out-of-pocket expenses 21,605 18,620
Selling, general and administrative 59,017 55,791
Depreciation and amortization 17,348 16,111
Total costs and expenses 371,300 324,901
Income from operations 62,737 52,038
Other (income) expense, net:
Interest income, net (2,596) (2,480)
Foreign exchange transaction (gain) loss,
net (1,065) 149
Gain on sale of business (2,978) -
Other income, net (6,639)(a) (2,331)
Income before taxes and equity investee
earnings 69,376 (a) 54,369
Taxes on income 20,723 (a) 16,041
Equity investee earnings 449 566
Net income $49,102 (a) $38,894
Basic earnings per share $0.78 (a) $0.61
Weighted average shares outstanding - basic 63,312,592 63,845,710
Diluted earnings per share $0.76 (a) $0.60
Weighted average shares outstanding - diluted 64,322,979 64,895,239
(a) Includes the impact of a $2,978 gain on sale of Cardiac Safety
Services ($1,936 net of tax) during the first quarter of 2008.
Excluding the impact of the gain on sale of business in Q1'08:
Income before taxes and equity investee earnings $66,398 n/a
Taxes on income $19,681 n/a
Net income $47,166 n/a
Basic earnings per share $0.75 n/a
Diluted earnings per share $0.73 n/a
COVANCE INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 and DECEMBER 31, 2007
(Dollars in thousands)
March 31 December 31
2008 2007
(UNAUDITED)
ASSETS
Current Assets:
Cash & cash equivalents $232,624 $319,485
Accounts receivable, net 220,189 217,657
Unbilled services 96,115 88,835
Inventory 58,839 54,788
Deferred income taxes 7,960 7,825
Prepaid expenses and other current assets 90,538 81,467
Total Current Assets 706,265 770,057
Property and equipment, net 699,498 646,040
Goodwill, net 105,486 105,486
Other assets 38,866 38,602
Total Assets $1,550,115 $1,560,185
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $33,467 $32,252
Accrued payroll and benefits 74,004 95,313
Accrued expenses and other current liabilities 68,605 66,838
Unearned revenue 139,331 144,870
Short-term debt 43,000 -
Income taxes payable 29,327 18,887
Total Current Liabilities 387,734 358,160
Deferred income taxes 31,918 32,562
Other liabilities 60,888 59,275
Total Liabilities 480,540 449,997
Stockholders' Equity:
Common stock 749 746
Paid-in capital 507,612 492,373
Retained earnings 982,208 933,106
Other Comprehensive Income:
Cumulative translation adjustment 69,978 45,328
FAS 158 adjustment (21,174) (21,174)
Treasury stock (469,798) (340,191)
Total Stockholders' Equity 1,069,575 1,110,188
Total Liabilities and
Stockholders' Equity $1,550,115 $1,560,185
COVANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Dollars in thousands)
(UNAUDITED)
Three Months Ended March 31
2008 2007
Cash flows from operating activities:
Net income $49,102 $38,894
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,348 16,111
Non-cash compensation expense associated
with employee benefit and stock
compensation plans 6,044 8,256
Deferred income tax (benefit) provision (779) (1,037)
Gain on sale of business (2,978) -
Loss on sale of property and equipment 13 240
Equity investee earnings (449) (566)
Changes in operating assets and liabilities:
Accounts receivable (2,532) (152)
Unbilled services (7,280) (13,108)
Inventory (4,051) 1,342
Accounts payable 1,215 (6,042)
Accrued liabilities (19,542) (15,875)
Unearned revenue (5,539) 16,091
Income taxes payable 11,177 8,618
Other assets and liabilities, net (5,957) (17,866)
Net cash provided by operating activities 35,792 34,906
Cash flows from investing activities:
Capital expenditures (62,576) (31,800)
Proceeds from sale of business 2,978 -
Other, net 77 -
Net cash used in investing activities (59,521) (31,800)
Cash flows from financing activities:
Net borrowings under revolving credit facility 43,000 -
Stock issued under employee stock purchase
and option plans 8,461 6,438
Purchase of treasury stock (129,607) (48,142)
Net cash used in financing activities (78,146) (41,704)
Effect of exchange rate changes on cash 15,014 336
Net change in cash and cash equivalents (86,861) (38,262)
Cash and cash equivalents, beginning of period 319,485 219,810
Cash and cash equivalents, end of period $232,624 $181,548