- Q4 Revenue Growth Accelerates to 19.9% and Operating Margin Increases to
15.0% -
- Record Q4 Net Orders of $434 Million -
PRINCETON, N.J., Jan. 25 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported fourth quarter earnings of $0.54/diluted share, up
28.6% year-over-year, after adjusting for the impact of a one-time
$4.4 million repatriation-related income tax charge. This income tax charge
of approximately seven cents per share was associated with the repatriation of
$103 million of accumulated foreign earnings under the American Jobs Creation
Act. Full-year earnings on the same basis were $1.94/diluted share, a 27.6%
increase over full-year 2004. GAAP earnings for the fourth quarter ended
December 31, 2005 were $0.47/diluted share and full-year earnings were
$1.88/diluted share.
"I congratulate the entire Covance team for delivering a fifth consecutive
year of at least 25% earnings growth for our shareholders. Outstanding
project delivery for clients led to continued strong repeat work and record
orders of $434 million in the fourth quarter, driving backlog to
$1.67 billion," said Joe Herring, Covance's Chairman and Chief Executive
Officer. "The fourth quarter's robust revenue growth of nearly 20% and record
operating margins of 15.0% were broad-based and featured continued strong
performances by our market-leading toxicology services and central laboratory
services. Our Early Development segment achieved exceptionally strong revenue
growth of 24.1% and operating margin of 25.0%, and our Late-Stage Development
segment grew revenues 16.4% and increased its operating margin 50 basis points
sequentially to 16.2%. Strong order flow over the past two years translated
into a doubling of our full-year top-line growth rate to 16.9%. Fourth
quarter orders included two dedicated capacity contracts totaling
approximately $34 million, consisting of the extension of an existing contract
and a smaller, new contract with a top ten pharmaceutical client."
"Looking forward, we will continue to focus on our three service-based
strategies: delivering operational and service excellence for our clients;
creating integrated drug development solutions that reduce the time and cost
of drug development; and driving more strategic, partner-based outsourcing.
Continued successful execution of these strategies leads us to raise our 2006
earnings target from at least $2.30 per share to at least $2.33 per share
(excluding the impact of expensing stock options under SFAS 123(R), which we
estimate to be approximately $0.16 to $0.18 cents per share in 2006)."
Consolidated Results
($ in millions
except EPS) 4Q05 4Q04 Change FY 2005 FY 2004 Change
Net Revenues $322.3 $268.9 19.9% $1,192.9 $1,020.4 16.9%
Reimbursable
Out-of-Pockets $20.8 $13.5 $57.5 $36.0
Total Revenues $343.1 $282.4 $1,250.4 $1,056.4
Costs and
Expenses $274.1 $230.6 18.9% $1,017.8 $879.9 15.7%
Reimbursable
Out-of-Pockets $20.8 $13.5 $57.5 $36.0
Total Costs
and Expenses $294.9 $244.1 $1,075.3 $915.9
Operating Income $48.2 $38.3 26.0% $175.1 $140.5 24.7%
Operating
Margin % 15.0% 14.2% 14.7% 13.8%
Net Income $30.0 $27.3 $119.6 $97.9
Diluted EPS $0.47 $0.42 $1.88 $1.52
Tax on Repatriated
Earnings $4.4 n/a $4.4 n/a
Net Income
excluding
tax charge $34.4 $27.3 25.9% $124.0 $97.9 26.6%
Diluted EPS
excluding
tax charge $0.54 $0.42 28.6% $1.94 $1.52 27.6%
Operating Segment Results
Early Development
The Company's Early Development segment includes preclinical toxicology,
analytical chemistry, and clinical pharmacology services. Early Development
net revenues for the fourth quarter of 2005 grew an exceptionally strong 24.1%
to $150.9 million compared to $121.7 million in the fourth quarter of 2004 on
robust performances across our broad portfolio of services. Full-year net
revenues grew 17.4% to $562.2 million compared to $478.7 million in the prior
year.
Operating income for the fourth quarter of 2005 increased 35.8% to
$37.8 million compared to $27.8 million for the fourth quarter of last year.
Operating margin for the fourth quarter of 2005 increased 210 basis points to
25.0%, from the 22.9% recorded in the fourth quarter of the prior year.
Operating margin growth was led by continued strong performance in toxicology,
chemistry, and North American clinical pharmacology. Full-year operating
margin expanded to 24.9% from 23.3% in the prior year.
($ in millions) 4Q05 4Q04 Change FY 2005 FY 2004 Change
Net Revenues $150.9 $121.7 24.1% $562.2 $478.7 17.4%
Operating Income $37.8 $27.8 35.8% $140.1 $111.6 25.6%
Margin % 25.0% 22.9% 24.9% 23.3%
Late-Stage Development
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. Fourth quarter net
revenues were $171.4 million, up 16.4% from the $147.2 million in the fourth
quarter of 2004. Net revenue growth of 16.4% year-on-year and 10.7%
sequentially was broad-based across the segment. Full-year revenues grew
16.4% to $630.8 million compared to $541.7 million in the prior year.
Operating income for the fourth quarter of 2005 grew to $27.8 million
compared to $25.2 million in the fourth quarter of the prior year. Central
laboratories, commercialization services, and cardiac safety services were the
strongest contributors to the solid margin performance in the quarter.
Operating margins increased 50 basis points sequentially to 16.2%, primarily
as a result of improved profitability in clinical development. Full-year
operating margin was 16.6% compared to 15.7% in the prior year.
($ in millions) 4Q05 4Q04 Change FY 2005 FY 2004 Change
Net Revenues $171.4 $147.2 16.4% $630.8 $541.7 16.4%
Operating Income $27.8 $25.2 10.3% $ 104.7 $84.9 23.3%
Margin % 16.2% 17.1% 16.6% 15.7%
Corporate Information
During the year, the Company's backlog increased $210 million, or 14.4%,
to a record $1.67 billion at December 31, 2005, despite a $63 million negative
impact from the strengthening of the US dollar. Backlog increased on a
year-over-year and sequential basis in both Early Development and Late-Stage
Development.
The Company reported an increase of $20.3 million in cash and cash
equivalents in the fourth quarter to $160.7 million at December 31, 2005 from
$140.4 million at September 30, 2005.
Capital expenditures for the fourth quarter were $58.8 million and totaled
$153.1 million for full year 2005. Free cash flow (cash from operations less
capital spending) was $28.9 million for full year 2005. We expect 2006
capital spending to be approximately $125 million and 2006 free cash flow to
be approximately $90 million.
Net Days Sales Outstanding (DSO) improved to 56 days at December 31, 2005
from 63 days at September 30, 2005.
The Company's investor conference call will be webcast on Thursday,
January 26 at 9:00 am EST. The CEO commentary and presentation slides are
available through http://www.covance.com. In addition, on January 26 at
approximately 6:20 am EST, Joe Herring will be interviewed on Bloomberg
Radio; at approximately 6:50 am EST, Joe Herring will be interviewed on
Bloomberg Television's Morning Call.
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 more than 20 countries,
and more than 7,300 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.
Use of Non-GAAP Financial Information
This Press Release contains non-GAAP earnings per share information
adjusted to exclude the impact of a one-time income tax charge for the
repatriation of accumulated foreign earnings under the American Jobs Creation
Act. This information is provided because management believes that this tax
charge is not indicative of Covance's operational results and, as this
non-GAAP financial measure is used by management as a basis for evaluating
Company performance, investors' understanding of Covance's performance is
enhanced by such disclosure.
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 MONTHS AND YEARS ENDED DECEMBER 31, 2005 AND 2004
(Dollars in thousands, except per share data)
Three Months Ended December 31 Years Ended December 31
2005 2004 2005 2004
(UNAUDITED)
Net revenues $322,354 $268,857 $1,192,950 $1,020,429
Reimbursable out-of-
pockets 20,778 13,487 57,504 35,968
Total revenues 343,132 282,344 1,250,454 1,056,397
Costs and expenses:
Cost of revenue 214,345 179,995 791,654 677,945
Reimbursed out-of-
pocket expenses 20,778 13,487 57,504 35,968
Selling, general
and administrative 47,069 38,663 178,368 155,656
Depreciation and
amortization 12,729 11,943 47,821 46,354
Total costs
and expenses 294,921 244,088 1,075,347 915,923
Income from
operations 48,211 38,256 175,107 140,474
Other (income)
expense, net:
Interest income, net (927) (865) (3,637) (2,290)
Foreign exchange
transaction loss
(gain), net 124 (476) 1,073 238
Other (income)
expense, net (803) (1,341) (2,564) (2,052)
Income before taxes
and equity investee
earnings 49,014 39,597 177,671 142,526
Taxes on income 19,342 (a) 12,464 58,786 (a) 45,532
Equity investee earnings 301 177 734 953
Net income $29,973 (a) $27,310 $119,619 (a) $97,947
Basic earnings per
share $0.48 (a) $0.44 $1.91 (a) $1.57
Weighted average
shares outstanding
- basic 62,649,863 62,382,374 62,602,454 62,474,345
Diluted earnings per
share $0.47 (a) $0.42 $1.88 (a) $1.52
Weighted average
shares outstanding
- diluted 63,749,470 64,406,413 63,773,188 64,644,149
(a) Includes the impact of a one-time $4.4 million income tax charge
associated with the repatriation of $103 million of accumulated foreign
earnings under the American Jobs Creation Act.
Excluding the impact of the $4.4 million repatriation related one-time tax
charge:
Taxes on income 14,942 n/a 54,386 n/a
Net income $34,373 n/a $124,019 n/a
Basic earnings per
share $0.55 n/a $1.98 n/a
Diluted earnings per
share $0.54 n/a $1.94 n/a
COVANCE INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 and 2004
(Dollars in thousands)
December 31 December 31
2005 2004
ASSETS
Current Assets:
Cash & cash equivalents $160,717 $177,712
Accounts receivable, net 206,098 178,518
Unbilled services 88,297 63,220
Inventory 40,293 40,999
Deferred income taxes 2,062 8,042
Prepaid expenses and other current assets 49,243 40,463
Total Current Assets 546,710 508,954
Property and equipment, net 410,665 319,747
Goodwill, net 61,262 56,876
Other assets 37,966 39,108
Total Assets $1,056,603 $924,685
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $26,975 $24,346
Accrued payroll and benefits 64,226 63,143
Accrued expenses and other current
liabilities 48,298 39,722
Unearned revenue 96,987 87,325
Income taxes payable 16,242 4,590
Total Current Liabilities 252,728 219,126
Deferred income taxes 45,545 46,104
Other liabilities 26,559 21,769
Total Liabilities 324,832 286,999
Stockholders' Equity:
Common stock 718 700
Paid-in capital 350,678 289,952
Retained earnings 612,811 493,192
Cumulative translation adjustment 13,367 41,451
Treasury stock (245,803) (187,609)
Total Stockholders' Equity 731,771 637,686
Total Liabilities and
Stockholders' Equity $1,056,603 $924,685
COVANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(Dollars in thousands)
Years Ended December 31
2005 2004
Cash flows from operating activities:
Net income $119,619 $97,947
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 47,821 46,354
Non-cash compensation expense
associated with employee benefit
and stock compensation plans 16,595 13,473
Deferred income tax provision 5,421 7,516
Other (80) (420)
Changes in operating assets and
liabilities, net of businesses acquired:
Accounts receivable (24,569) (21,719)
Unbilled services (25,077) (19,167)
Inventory 763 (1,073)
Accounts payable 2,114 4,217
Accrued liabilities 9,082 15,397
Unearned revenue 9,662 5,098
Income taxes payable 23,384 20,789
Other assets and liabilities, net (2,686) (5,326)
Net cash provided by operating activities 182,049 163,086
Cash flows from investing activities:
Capital expenditures (153,138) (72,887)
Acquisition of businesses (7,110) -
Equity method investment - (20,741)
Other, net 158 142
Net cash used in investing activities (160,090) (93,486)
Cash flows from financing activities:
Stock issued under employee stock
purchase and option plans 32,417 60,783
Purchase of treasury stock (58,194) (134,188)
Net cash used in financing activities (25,777) (73,405)
Effect of exchange rate changes on cash (13,177) 9,917
Net change in cash and cash equivalents (16,995) 6,112
Cash and cash equivalents, beginning
of period 177,712 171,600
Cash and cash equivalents, end of period $160,717 $177,712