- Record Adjusted Net Orders of $623 Million; 1.31 Adjusted
Book-to-Bill - PRINCETON, N.J., Oct. 21 /PRNewswire-FirstCall/ --
Covance Inc. (NYSE: CVD) today reported GAAP earnings for its third
quarter ended September 30, 2009 of $0.79 per diluted share,
inclusive of a $0.09 per share gain related to the sale of its IVRS
business and $0.03 cents from favorable income tax resolutions.
Excluding the gain on sale and tax items in the quarter, earnings
were $0.67 per diluted share. "On a consolidated basis, third
quarter net revenues grew 8.0% year-on-year and EPS was $0.67. In
addition, adjusted net orders grew approximately 20% both
year-on-year and sequentially and free-cash-flow was strong at $88
million," said Joe Herring, Chairman and Chief Executive Officer.
"In Early Development, results were below our expectations, as
revenues and operating margins declined sequentially, primarily due
to weaker performance in clinical pharmacology and some of our
chemistry services. Toxicology revenue was up modestly from the
second quarter with lower operating margin. In Late-Stage
Development, better than expected performances in central
laboratory and clinical development led to accelerated revenue
growth of 24.1% and record operating margin of 24.7%. "On the
commercial front, continued strong business awards in clinical
development and central laboratory led to record adjusted net
orders in the third quarter of $623 million, representing an
adjusted book-to-bill ratio of 1.31 to 1. For the first time this
year, Early Development recorded a quarterly adjusted book-to-bill
greater than 1.0 to 1. On a trailing twelve month basis, our
Late-Stage Development adjusted book-to-bill remained at 1.5 to 1.
"We are encouraged by the exceptional strength of our Late-Stage
Development segment, which represented 59% of Covance's third
quarter revenues. In Early Development, overall demand has been
lower and the timing of study starts has been less predictable. We
are projecting relatively flat Early Development results until we
see a sustained recovery in demand. Accordingly, using September 30
exchange rates, we expect consolidated fourth quarter earnings per
share to be in the $0.64 to $0.67 range, which would bring
full-year earnings per share to the low end of our previous
targeted range of $2.60 to $2.80 (excluding gains on sales and
favorable income tax resolutions)." Consolidated Results ($in
millions except EPS) 3Q09 3Q08 Change 2009YTD 2008YTD Change Total
Revenues 493.7 $467.4 $1,451.5 $1,363.2 Less: Reimbursable
Out-of-Pockets $18.4 $27.3 $68.9 $73.8 Net Revenues $475.3 $440.1
8.0% $1,382.6 $1,289.4 7.2% Operating Income $57.8 $70.0 (17.4)%
$173.7 $200.2 (13.2)% Operating Margin % 12.2% 15.9% 12.6% 15.5%
Net Income $51.1 $51.1 (0.1)% $134.3 $151.1 (11.1)% Diluted EPS
$0.79 $0.80 (0.8)% $2.09 $2.36 (11.4)% Gain on Sale, net of tax
$5.9 - $6.3 $2.6 Favorable Income Tax Resolutions $2.1 - $2.1 - Net
Income ex Gain on Sale and Favorable Income Tax Resolutions $43.1
$51.1 (15.6)% $126.0 $148.5 (15.2)% Diluted EPS Excluding Gain on
Sale and Favorable Income Tax Resolut. $0.67 $0.80 (16.3)% $1.96
$2.32 (15.4)% Operating Segment Results Early Development ($in
millions) 3Q09 3Q08 Change 2009 YTD 2008 YTD Change Net Revenues
$196.4 $215.4 (8.8)% $588.7 $630.6 (6.6)% Operating Income $22.4
$54.8 (59.1)% $76.7 $159.6 (52.0)% Margin % 11.4% 25.5% 13.0% 25.3%
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 2009 were $196.4 million compared to $215.4 million in
the third quarter of 2008. Reduced demand for Early Development
service offerings led to the 8.8% year-on-year decline in revenues.
In the quarter, foreign exchange negatively impacted year-on-year
revenue growth by 330 basis points. Clinical pharmacology revenue
and operating income in the quarter were down from the second
quarter level and are expected to decline further in the fourth
quarter primarily due to lower market demand. Operating income for
the third quarter of 2009 declined 59.1% year-over-year to $22.4
million, compared to $54.8 million in the third quarter of last
year. Operating margins for the third quarter of 2009 were 11.4%
compared to 25.5% in the third quarter of 2008 and 13.6% last
quarter. Year-over-year, operating margins were impacted by a lower
level of study activity, delays of scheduled study starts, start-up
losses in our new Chandler facility, lower early development
pricing, and staffing levels above current demand. Late-Stage
Development ($in millions) 3Q09 3Q08 Change 2009 YTD 2008 YTD
Change Net Revenues $278.9 $224.7 24.1% $793.9 $658.9 20.5%
Operating Income $68.9 $44.3 55.6% $190.7 $126.1 51.2% Margin %
24.7% 19.7% 24.0% 19.1% The Late-Stage Development segment includes
central laboratory, Phase II-III clinical development, and
commercialization services (periapproval and market access
services). Late-Stage Development net revenues for the third
quarter of 2009 grew 24.1% to $278.9 million compared to $224.7
million in the third quarter of 2008. Sequentially, revenues grew
$12.6 million, or 4.7%. The sequential and year-on-year growth was
led by the continued exceptional performances of central laboratory
and clinical development. Foreign exchange negatively impacted
year-on-year revenue growth in the quarter by 290 basis points.
Operating income for the third quarter of 2009 increased 55.6% to
$68.9 million compared to $44.3 million in the third quarter of the
prior year. Central laboratory and clinical development services
drove the record operating margins of 24.7% for the third quarter
of 2009 compared to 19.7% in the third quarter of last year and
24.6% last quarter. Operating margin in Late-Stage Development is
expected to moderate slightly in the fourth quarter. Corporate
Information The Company's backlog at September 30, 2009 grew 12.8%
year-over-year to $4.79 billion compared to $4.25 billion at
September 30, 2008 and $4.66 billion at June 30, 2009. Foreign
exchange positively impacted sequential backlog growth by $51
million. Adjusted net orders (net orders adjusted for dedicated
capacity contracts) were $623 million in the third quarter of 2009.
Corporate expenses totaled $33.5 million in the third quarter of
2009 compared to $32.6 million last quarter and $29.2 million in
the third quarter of last year. We continue to make investments
that will improve our ability to provide strategic partnering and
integrated services as well as investments in infrastructure to
enhance our ability to manage future growth. Cash and cash
equivalents at September 30, 2009 were $266 million compared to
$204 million at June 30, 2009 and $209 million at September 30,
2008. At September 30, 2009, short-term debt totaled $25 million, a
reduction of $33 million from last quarter. Free cash flow (defined
as operating cash flow less capital expenditures) for the third
quarter of 2009 was $88 million, consisting of operating cash flow
of $115 million less capital expenditures of $27 million. Free cash
flow year to date was $76 million, consisting of operating cash
flow of $174 million less capital expenditures of $98 million. In
2009, we now expect free cash flow to be approximately $120
million, consisting of operating cash flow of approximately $260
million less capital expenditures of approximately $140 million.
The free cash flow target for 2009 assumes net Days Sales
Outstanding (DSO) at 40 days. Net Days Sales Outstanding (DSO) were
42 days at September 30, 2009 compared to 41 days at both June 30,
2009 and September 30, 2008. The third quarter effective tax rate
was 24.6% and included the tax impact of the gain on sale of
business, which unfavorably impacted the effective tax rate by 100
basis points, and a $2.1 million tax benefit from favorable income
tax resolutions, which favorably impacted the effective tax rate by
300 basis points. Excluding these items, the effective tax rate was
26.6% in the quarter and 27.5% on a YTD basis. The effective tax
rate is expected to remain approximately 27.5% going forward. The
Company's investor conference call will be webcast on October 22 at
9:00 am EDT. Management's commentary and presentation slides will
be available through http://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 $1.7 billion, global operations
in more than 25 countries, and more than 10,000 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/. 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 AND NINE MONTHS ENDED SEPTEMBER 30,
2009 AND 2008 (Dollars in thousands, except per share data)
(UNAUDITED) Three Months Ended Nine Months Ended September 30
September 30 ------------------ ----------------- 2009 2008 2009
2008 ---- ---- ---- ---- Net revenues $475,284 $440,109 $1,382,569
$1,289,453 Reimbursable out-of-pockets 18,440 27,263 68,887 73,779
------ ------ ------ ------ Total revenues 493,724 467,372
1,451,456 1,363,232 ------- ------- --------- --------- Costs and
expenses: Cost of revenue 324,311 287,804 939,246 848,018
Reimbursable out-of-pocket expenses 18,440 27,263 68,887 73,779
Selling, general and administrative 69,526 64,850 203,049 189,109
Depreciation and amortization 23,649 17,493 66,536 52,172 ------
------ ------ ------ Total costs and expenses 435,926 397,410
1,277,718 1,163,078 ------- ------- --------- --------- Income from
operations 57,798 69,962 173,738 200,154 Other (income) expense,
net: Interest expense (income), net 181 (1,531) 258 (5,628) Foreign
exchange transaction (gain) loss, net (903) 730 (108) (816) Gain on
sale of businesses (9,026) - (9,681) (3,927) ------ --- ------
------ Other income, net (9,748)(a) (801) (9,531)(b) (10,371)(c)
------ ---- ------ ------- Income before taxes and equity investee
earnings 67,546 (a) 70,763 183,269 (b) 210,525 (c) Taxes on income
16,650 (a) 20,167 49,050 (b) 61,220 (c) Equity investee earnings
166 511 128 1,777 ------- ------- -------- -------- Net income
$51,062 (a) $51,107 $134,347 (b) $151,082 (c) ======= =======
======== ======== Basic earnings per share $0.80 (a) $0.81 $2.11
(b) $2.40 (c) Weighted average shares outstanding - basic
63,895,975 63,055,229 63,768,728 63,065,488 Diluted earnings per
share $0.79 (a) $0.80 $2.09 (b) $2.36 (c) Weighted average shares
outstanding -diluted 64,472,572 63,994,532 64,235,983 64,052,224
(a) Includes the impact of a $9,026 gain on sale of Interactive
Voice & Web Response Services ($5,867 net of tax) and favorable
income tax resolutions totaling $2,072 during the third quarter of
2009. (b) Includes the impact of a $9,026 gain on sale of
Interactive Voice & Web Response Services ($5,867 net of tax)
and the impact of a $655 gain on sale of Cardiac Safety Services
($426 net of tax) and favorable income tax resolutions totaling
$2,072 during the first nine months of 2009. (c) Includes the
impact of a $3,927 gain on sale of Cardiac Safety Services ($2,553
net of tax) during the first nine months of 2008. Excluding the
impact of the gain on sale of businesses and favorable income tax
resolutions:
--------------------------------------------------------------------
Income before taxes and equity investee earnings $58,520 $70,763
$173,588 $206,598 Taxes on income $15,563 $20,167 $47,734 $59,846
Net income $43,123 $51,107 $125,982 $148,529 Basic earnings per
share $0.67 $0.81 $1.98 $2.36 Diluted earnings per share $0.67 0.80
$1.96 $2.32 COVANCE INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30,
2009 and DECEMBER 31, 2008 (Dollars in thousands) September 30
December 31 2009 2008 ---- ---- (UNAUDITED) ASSETS Current Assets:
Cash & cash equivalents $266,248 $221,334 Accounts receivable,
net 291,225 228,951 Unbilled services 111,919 112,719 Inventory
79,276 68,206 Deferred income taxes 17,604 15,029 Prepaid expenses
and other current assets 92,532 91,451 ------ ------ Total Current
Assets 858,804 737,690 Property and equipment, net 919,170 860,957
Goodwill, net 126,999 105,486 Other assets 50,081 48,955 ------
------ Total Assets $1,955,054 $1,753,088 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities: Accounts
payable $36,554 $41,887 Accrued payroll and benefits 103,564
104,607 Accrued expenses and other current liabilities 76,283
86,521 Unearned revenue 181,436 162,556 Short-term debt 25,000
50,000 Income taxes payable 45,440 14,224 ------ ------ Total
Current Liabilities 468,277 459,795 Deferred income taxes 51,854
51,385 Other liabilities 52,689 47,059 ------ ------ Total
Liabilities 572,820 558,239 ------- ------- Stockholders' Equity:
Common stock 762 754 Paid-in capital 579,414 551,598 Retained
earnings 1,263,916 1,129,569 Accumulated other comprehensive income
(loss) 13,748 (13,975) Treasury stock (475,606) (473,097) --------
-------- Total Stockholders' Equity 1,382,234 1,194,849 ---------
--------- Total Liabilities and Stockholders' Equity $1,955,054
$1,753,088 ========== ========== COVANCE INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2009 AND 2008 (Dollars in thousands) (UNAUDITED) Nine Months Ended
September 30 ----------------- 2009 2008 ---- ---- Cash flows from
operating activities: Net income $134,347 $151,082 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 66,536 52,172 Non-cash compensation
expense associated with employee benefit and stock compensation
plans 20,295 19,190 Deferred income tax benefit (2,981) (5,623)
Gain on sale of businesses (9,681) (3,927) Loss on sale of property
and equipment 838 795 Equity investee earnings (128) (1,777)
Changes in operating assets and liabilities, net of businesses
acquired and sold: Accounts receivable (61,341) (23,104) Unbilled
services 1,342 (15,125) Inventory (11,070) (12,856) Accounts
payable (5,426) 12,425 Accrued liabilities (12,518) (5,818)
Unearned revenue 18,770 831 Income taxes payable 31,494 11,322
Other assets and liabilities, net 3,658 (6,361) ----- ------ Net
cash provided by operating activities 174,135 173,226 -------
------- Cash flows from investing activities: Capital expenditures
(98,020) (206,179) Acquisition of businesses, net of cash acquired
(28,370) - Proceeds from sale of businesses 10,373 3,927 Other, net
26 366 -- --- Net cash used in investing activities (115,991)
(201,886) -------- -------- Cash flows from financing activities:
Net (repayments) borrowings under revolving credit facility
(25,000) 23,000 Payment of debt assumed upon acquisition of
business (5,431) - Stock issued under employee stock purchase and
option plans 7,251 29,158 Purchase of treasury stock (2,509)
(130,604) ------ -------- Net cash used in financing activities
(25,689) (78,446) ------- ------- Effect of exchange rate changes
on cash 12,459 (3,285) ------ ------ Net change in cash and cash
equivalents 44,914 (110,391) Cash and cash equivalents, beginning
of period 221,334 319,485 ------- ------- Cash and cash
equivalents, end of period $266,248 $209,094 ======== ========
DATASOURCE: Covance Inc. CONTACT: Paul Surdez of Covance,
+1-609-452-4807 Web Site: http://www.covance.com/
Copyright