PRINCETON, N.J., April 29 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported earnings for its first quarter ended
March 31, 2009 of $0.63 per diluted share versus $0.76 per diluted
share in the first quarter of 2008 (or $0.73 per diluted share
after excluding the centralized ECG gain on sale). "On a
consolidated basis, first quarter net revenues grew 7.0% (13.8%
excluding the impact of foreign exchange), operating margin was
12.7%, and diluted EPS of $0.63 met our first quarter expectation,"
said Joe Herring, Chairman and Chief Executive Officer. "First
quarter results were impacted by reduced market demand in Early
Development, resulting in year-on-year and sequential declines in
revenue and profitability, offset by record results in Late-Stage
Development. Our forecast for Early Development results is to be
sequentially flat in the second quarter, followed by sequential
growth in the third and fourth quarters. In Late-Stage Development,
increased demand led to accelerated revenue growth of 18.2% in the
quarter (25.0% excluding the impact of foreign exchange) and
exceptional operating margins of 22.6% (a 290 basis point increase
above our previous record high). "On the commercial front, adjusted
net orders in the first quarter were $589 million, representing an
adjusted book-to-bill ratio of 1.34 to 1. Central laboratory and
clinical development services each delivered record adjusted net
orders in the quarter, leading to a trailing twelve month
book-to-bill for Late-Stage Development greater than 1.5 to 1. "In
December we released our initial financial targets for 2009,
including revenue growth of 5% to 10% over 2008 and earnings per
share in the range of $3.00 to $3.20. As previously outlined, these
targets assumed foreign exchange rates would remain at budgeted
levels throughout the year, Late-Stage backlog would continue to
convert to revenue at historical rates, and demand for early
development services would remain flat coming into the year and
would begin to pick up between the second and third quarters of
2009. Relative to these assumptions, the dollar has remained close
to our budget assumption and first quarter Late-Stage Development
performance exceeded our expectations. However, first quarter
results in Early Development were well below our expectations and,
while we believe a bottoming of demand is underway, we expect
growth to return later and slower than originally projected and
from a lower base of revenue. As a result, we are now lowering our
2009 revenue growth rate expectation to the single-digit range and
our earnings per share target to $2.50 to $2.70." Consolidated
Results ($in millions except EPS) 1Q09 1Q08 Change Total Revenues
$468.4 $434.0 Less: Reimbursable Out-of-Pockets $27.2 $21.6 Net
Revenues $441.2 $412.4 7.0% Operating Income $55.9 $62.7 (10.8%)
Operating Margin % 12.7% 15.2% Net Income $40.3 $49.1 (17.9%)
Diluted EPS $0.63 $0.76 (17.4%) Gain on Sale, net of tax - $1.9 Net
Income Excluding Gain on Sale $40.3 $47.2 (14.6%) Diluted EPS
Excluding Gain on Sale $0.63 $0.73 (14.1%) Operating Segment
Results Early Development ($in millions) 1Q09 1Q08 Change Net
Revenues $192.5 $202.0 (4.7%) Operating Income $27.2 $50.6 (46.3%)
Margin % 14.1% 25.0% 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 2009 were $192.5 million compared
to $202.0 million in the first quarter of 2008 and $214.2 million
in the fourth quarter of 2008. Lower demand across most of the
segment's service offerings led to the sequential and year-on-year
declines in revenue. In addition, foreign exchange negatively
impacted revenue growth in the quarter by approximately 670 basis
points. Operating income for the first quarter of 2009 declined
46.3% year-over-year to $27.2 million, compared to $50.6 million in
the first quarter of last year. Operating margins for the first
quarter of 2009 were 14.1% compared to 25.0% in the first quarter
of 2008 and 21.4% last quarter. First quarter operating margins
were impacted by a lower level of study activity, costs related to
the staffing and validating of the new preclinical drug development
facility in Chandler, and costs incurred for the consolidation of
two small clinical pharmacology sites. In addition, the company
maintained staffing levels to support expected increases in revenue
generation in the second half of the year. Late-Stage Development
($in millions) 1Q09 1Q08 Change Net Revenues $248.7 $210.4 18.2%
Operating Income $56.3 $38.9 44.9% Margin % 22.6% 18.5% 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 first quarter of 2009 grew 18.2%
to $248.7 million compared to $210.4 million in the first quarter
of 2008. Sequentially, revenues grew 10.8% compared to $224.4
million last quarter. The sequential and year-on-year growth was
led by both central laboratory and clinical development. Foreign
exchange negatively impacted revenue growth in the quarter by
approximately 680 basis points. Revenue growth, excluding the
impact of foreign exchange, is expected to be approximately 20% for
the balance of the year. Operating income for the first quarter of
2009 increased 44.9% to $56.3 million compared to $38.9 million in
the first quarter of the prior year. Exceptional profitability in
central laboratory services and clinical development led to
operating margins of 22.6% for the first quarter of 2009 compared
to 18.5% in the first quarter of last year and 19.6% last quarter.
Operating margin in Late-Stage Development is expected to trend
toward approximately 20% in the back half of the year. Corporate
Information The Company's backlog at March 31, 2009 grew 54.4%
year-over-year to $4.42 billion compared to $2.86 billion at March
31, 2008 and $4.33 billion at year-end. Foreign exchange negatively
impacted sequential backlog growth by approximately $30 million.
Adjusted net orders (net orders adjusted for dedicated capacity
contracts) were $589 million in the first quarter of 2009.
Corporate expenses totaled $27.5 million in the first quarter of
2009 compared to $26.3 million last quarter and $26.7 million in
the first quarter of last year. We expect corporate expenses to
average between 6.0% and 7.0% of revenues going forward as we
continue to make investments in infrastructure to enhance our
ability to manage future growth. Cash and cash equivalents at March
31, 2009 were $190 million compared to $221 million at December 31,
2008 and $233 million at March 31, 2008. At March 31, 2009,
short-term debt totaled $80 million. Free cash flow (defined as
operating cash flow less capital expenditures) for the first
quarter of 2009 was negative $31 million, consisting of operating
cash flow of $9 million (which includes the payment of annual
bonuses) less capital expenditures of $40 million. In 2009, we now
expect free cash flow to be approximately $75 million and capital
expenditures to be approximately $180 million. The free cash flow
target for 2009 assumes net Days Sales Outstanding (DSO) at 40
days. Net DSO were 39 days at March 31, 2009 compared to 37 days at
December 31, 2008 and 39 days at March 31, 2008. The Company's
investor conference call will be webcast on April 30 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 20 countries, and more than 9,800 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,
fluctuations in currency exchange rates, 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, 2009 AND 2008 (Dollars in thousands,
except per share data) (UNAUDITED) Three Months Ended March 31
------------------ 2009 2008 ---- ---- Net revenues $441,236
$412,432 Reimbursable out-of-pockets 27,221 21,605 ------ ------
Total revenues 468,457 434,037 ------- ------- Costs and expenses:
Cost of revenue 301,725 273,330 Reimbursed out-of-pocket expenses
27,221 21,605 Selling, general and administrative 63,954 59,017
Depreciation and amortization 19,614 17,348 ------ ------ Total
costs and expenses 412,514 371,300 ------- ------- Income from
operations 55,943 62,737 Other (income) expense, net: Interest
income, net (83) (2,596) Foreign exchange transaction gain, net
(446) (1,065) Gain on sale of business - (2,978) -- ------ Other
income, net (529) (6,639) (a) ---- ------ Income before taxes and
equity investee earnings 56,472 69,376 (a) Taxes on income 16,349
20,723 (a) Equity investee earnings 172 449 ------- ------- Net
income $40,295 $49,102 (a) ======= ======= Basic earnings per share
$0.63 $0.78 (a) Weighted average shares outstanding - basic
63,586,418 63,312,592 Diluted earnings per share $0.63 $0.76 (a)
Weighted average shares outstanding - diluted 63,941,413 64,322,979
(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 $56,472 $66,398
Taxes on income $16,349 $19,681 Net income $40,295 $47,166 Basic
earnings per share $0.63 $0.75 Diluted earnings per share $0.63
$0.73 COVANCE INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 2009 and
DECEMBER 31, 2008 (Dollars in thousands) March 31 December 31 2009
2008 ---- ---- (UNAUDITED) ASSETS Current Assets: Cash & cash
equivalents $190,182 $221,334 Accounts receivable, net 259,035
228,951 Unbilled services 104,077 112,719 Inventory 74,607 68,206
Deferred income taxes 15,877 15,029 Prepaid expenses and other
current assets 101,224 91,451 ------- ------ Total Current Assets
745,002 737,690 Property and equipment, net 883,770 860,957
Goodwill, net 123,663 105,486 Other assets 49,461 48,955 ------
------ Total Assets $1,801,896 $1,753,088 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities: Accounts
payable $42,924 $41,887 Accrued payroll and benefits 73,895 104,607
Accrued expenses and other current liabilities 81,797 86,521
Unearned revenue 171,655 162,556 Short-term debt 80,000 50,000
Income taxes payable 23,544 14,224 ------ ------ Total Current
Liabilities 473,815 459,795 Deferred income taxes 50,684 51,385
Other liabilities 49,459 47,059 ------ ------ Total Liabilities
573,958 558,239 ------- ------- Stockholders' Equity: Common stock
760 754 Paid-in capital 560,714 551,598 Retained earnings 1,169,864
1,129,569 Accumulated Other Comprehensive (Loss) Income (28,200)
(13,975) Treasury stock (475,200) (473,097) -------- -------- Total
Stockholders' Equity 1,227,938 1,194,849 --------- --------- Total
Liabilities and Stockholders' Equity $1,801,896 $1,753,088
========== ========== COVANCE INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (Dollars
in thousands) (UNAUDITED) Three Months Ended March 31
--------------- 2009 2008 ---- ---- Cash flows from operating
activities: Net income $40,295 $49,102 Adjustments to reconcile net
income to net cash provided by operating activities: Depreciation
and amortization 19,614 17,348 Non-cash compensation expense
associated with employee benefit and stock compensation plans 5,879
6,044 Deferred income tax benefit (1,840) (779) Gain on sale of
business - (2,978) Loss on sale of property and equipment 166 13
Equity investee earnings (172) (449) Changes in operating assets
and liabilities, net of business acquired: Accounts receivable
(29,151) (2,532) Unbilled services 9,808 (7,280) Inventory (6,401)
(4,051) Accounts payable 944 1,215 Accrued liabilities (36,361)
(19,542) Unearned revenue 8,214 (5,539) Income taxes payable 9,535
11,177 Other assets and liabilities, net (11,301) (5,957) -------
------ Net cash provided by operating activities 9,229 35,792 -----
------ Cash flows from investing activities: Capital expenditures
(40,302) (62,576) Acquisition of business, net of cash acquired
(18,620) - Proceeds from sale of business - 2,978 Other, net 12 77
-- -- Net cash used in investing activities (58,910) (59,521)
------- ------- Cash flows from financing activities: Net
borrowings under revolving credit facility 30,000 43,000 Payment of
debt assumed upon acquisition of business (5,431) - Stock issued
under employee stock purchase and option plans 3,028 8,461 Purchase
of treasury stock (2,103) (129,607) ------ -------- Net cash
provided by (used in) financing activities 25,494 (78,146) ------
------- Effect of exchange rate changes on cash (6,965) 15,014
------ ------ Net change in cash and cash equivalents (31,152)
(86,861) Cash and cash equivalents, beginning of period 221,334
319,485 ------- ------- Cash and cash equivalents, end of period
$190,182 $232,624 ======== ======== DATASOURCE: Covance Inc.
CONTACT: Paul Surdez of Covance Inc., +1-609-452-4807 Web Site:
http://www.covance.com/
Copyright