IRGI Inveresk Research Grp. (MM)

Inveresk Research Reports Third Quarter 2003 Earnings Results Third Quarter Revenues Increase 26.2% to $70.6 Million CARY, N.C., Oct. 28 /PRNewswire-FirstCall/ -- Inveresk Research Group, Inc. today announced results for the quarterly period ended September 30, 2003. Net service revenue for the third quarter was $70.6 million, an increase of 26.2% compared with the same period in 2002. Income from operations in the quarter was $11.9 million, compared with income from operations of $11.7 million for the same period in 2002. Net income in the third quarter of 2003 was $10.0 million, or $0.25 per share on a diluted basis. On a pro forma basis, income from operations totaled $12.7 million in the third quarter or 17.9% of net service revenue. Pro forma net income in the third quarter of 2003 was $10.8 million, equivalent to $0.29 per share on a diluted basis. "Inveresk Research recorded another strong quarter's results in terms of profits and cash flows. Year-on-year growth in our European pre-clinical and Phase I operations has been highly creditable, although offset partially by the challenging environment relative to 2002 faced by our North American pre-clinical operations" said Walter Nimmo, President and Chief Executive Officer of Inveresk Research Group, Inc. "As anticipated, the quarter also saw a positive contribution to both revenues and earnings from the recently acquired PharmaResearch business." Net cash provided by operating activities totaled $32.8 million in the nine months ended September 30, 2003 ($17.4 million in the first nine months of 2002). Capital expenditure totaled $18.1 million during the same period. During the third quarter new business signings totaled $67 million, $213 million for the first nine months of 2003. "Enquiry levels remain strong across the whole of Inveresk. During the third quarter, new business signings in our pre-clinical business segment exceeded management's targets but signings in our clinical business were impacted in the short-term by the PharmaResearch acquisition. However, significant new business awards in the clinical business soon after the quarter-end gives us confidence that clinical signings are recovering and will achieve our target by the end of the next quarter" said Walter Nimmo. At September 30, 2003 backlog amounted to approximately $259 million. Net days sales outstanding were 31 days. Specific factors influencing third quarter 2003 results included: (i) continued strength in the European pre-clinical business offset by difficult trading conditions for CTBR, our North American pre-clinical business, (ii) accelerated growth in our Phase I clinical business, together with a first time contribution by PharmaResearch, (iii) beneficial exchange rate movements positively impacting US dollar equivalent revenues and profits of our European and Canadian operations, (iv) a foreign exchange translation gain of $0.3 million (compared with a gain of $0.6 million in Q3, 2002), (v) a charge of $0.8 million relating to the restructuring and integration of the PharmaResearch acquisition, and (vi) a gain of $0.4 million on the mark-to-market valuation at September 30, 2003 of swaps entered into to limit our exposure to interest rate fluctuations. Walter Nimmo said: "the integration of the PharmaResearch acquisition is progressing to plan. We have also now completed Stage I of the current expansion at our Edinburgh pre-clinical facility and are pleased to say that the new toxicology suites are now fully occupied." Nimmo added: "Demand for the services of our European pre-clinical operations remains very strong. The situation is now much stronger in the North American pre-clinical market, although our fourth quarter results will be impacted by sub-optimal business mix. Current enquiry levels and strong new business signings give us confidence that we will see a rebound in growth and profitability at CTBR in 2004." Nimmo concluded: "For 2003 we would forecast diluted EPS, on a pro forma basis, of $1.07 to $1.08." Conference Call and Webcast Information Inveresk Research will host a live conference call and webcast tomorrow, October 29, 2003 at 10.00 a.m. EST to discuss its second quarter performance. To access the webcast, please visit http://www.inveresk.com/. A replay of the webcast will be available shortly after the call until 5.00 p.m. EST on Wednesday, November 5, 2003. Information on Inveresk Research Inveresk Research is a leading provider of drug development services to companies in the pharmaceutical and biotechnology industries. Through its Pre-clinical and Clinical business segments, the Company offers a broad range of drug development services, including pre-clinical safety and pharmacology evaluation services, laboratory sciences services and clinical development services. Inveresk Research is one of a small number of drug development services companies currently providing a comprehensive range of pre-clinical and clinical development services on a world-wide basis. The Company's client base includes major pharmaceutical companies in North America, Europe and Japan, as well as many biotechnology and speciality pharmaceutical companies. For more information on Inveresk Research, visit our Web site at http://www.inveresk.com/. Statements contained in this press release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. Factors that might cause such a difference include, but are not limited to, risks associated with: the reduction in research and development activities by pharmaceutical and biotechnology clients, changes in government regulations, the effects of interest and foreign exchange rate fluctuations, our ability to attract and retain employees, the loss or delay of contracts due to economic uncertainty or other factors, our ability to efficiently manage backlog, our ability to expand our business through strategic acquisitions, competition within the industry and the potential adverse impact of health care reform. Further information about these risks and uncertainties can be found in the information included in the company's recent filings with the Securities and Exchange Commission, including the company's Registration Statement on Form S-3 and Form 10-K. This press release includes supplemental financial information which may contain references to non-GAAP financial measures as defined in Regulation G of SEC rules. Consistent with Regulation G, a reconciliation of this supplemental financial information to our generally accepted accounting principles (GAAP) information follows. We present this non-GAAP supplemental financial information because we believe it is of interest to the investment community and provides additional meaningful methods of evaluating certain aspects of the Company's operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be viewed in addition to, not in lieu of, the Company's consolidated statements of operations for the three and nine month periods ended September 30, 2003 and 2002. Inveresk Research Group, Inc. Condensed Consolidated Statements of Operations ($ in thousands, except per share and share data) (Unaudited) Nine Nine Quarter Quarter months months ended ended ended ended September September September September 30, 30, 30, 30, 2003 2002 2003 2002 Net service revenue $70,571 $55,923 $195,290 $164,635 Direct costs excluding depreciation (37,372) (27,780) (100,729) (81,977) 33,199 28,143 94,561 82,658 Selling, general and administrative expenses: Compensation expense in respect of stock options and - - - (53,020) management equity incentives Stamp duty arising on change of ultimate parent company. - - - (1,545) Share offering expenses - - (658) - Restructuring and integration costs arising from business acquisitions (798) - (798) - Other selling, general and administrative expenses (17,260) (13,759) (50,414) (41,533) Depreciation (3,045) (2,689) (9,083) (7,510) Amortization of intangibles (232) - (232) - Income (loss) from operations 11,864 11,695 33,376 (20,950) Interest income 126 83 292 283 Write off of deferred debt issue and other costs related to (671) (2,031) (671) (2,031) our former bank facilities Interest expense (528) (989) (2,509) (10,206) Income (loss) before income taxes 10,791 8,758 30,488 (32,904) Provision for income taxes (1,227) (1,419) (3,388) (4,508) Net income (loss) $ 9,564 $ 7,339 $ 27,100 $ (37,412) Earnings (loss) per share: Basic $ 0.26 $ 0.21 $ 0.75 $ (1.30) Diluted $ 0.25 $ 0.20 $ 0.72 $ (1.30) Number of shares and common stock equivalents used in computing loss per share: Basic 36,505,169 35,570,449 36,314,648 27,637,956 Diluted 37,720,565 37,385,219 37,530,044 27,637,956 Inveresk Research Group, Inc. Pro Forma Consolidated Statements of Operations (Note) ($ in thousands, except per share and share data) (Unaudited) Pro Forma Nine Nine Quarter Quarter months months ended ended ended ended September September September September 30, 30, 30, 30, 2003 2002 2003 2002 Net service revenue $70,571 $55,923 $195,290 $164,635 Direct costs excluding depreciation (37,372) (27,780) (100,729) (81,977) 33,199 28,143 94,561 82,658 Selling, general and administrative expenses (17,260) (13,759) (50,414) (41,533) Depreciation (3,045) (2,689) (9,083) (7,510) Amortization of intangibles (232) - (232) - Income from operations 12,662 11,695 34,832 33,615 Interest expense, net (402) (565) (2,217) (2,353) Income before income taxes 12,260 11,130 32,615 31,262 Provision for income taxes (1,428) (1,971) (3,589) (7,229) Net income 10,832 9,159 29,026 24,033 Earnings per share: Basic $0.30 $0.26 $0.80 $0.67 Diluted $0.29 $0.24 $0.77 $0.64 Number of shares and common stock equivalents used in computing earnings per share: Basic 36,505,169 35,831,318 36,314,648 35,696,350 Diluted 37,720,565 37,646,089 37,530,044 37,511,121 Note: Inveresk Research Group, Inc. believes this non-GAAP pro forma financial data more clearly reflects its underlying financial and operational performance and provides a more appropriate basis for comparison (i) to historical and future performance, and (ii) to the reported results of comparable businesses. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. A detailed explanation and reconciliation of actual and pro forma income financial measures is set out on page 8 and 9. Inveresk Research Group, Inc. Pro Forma Segment Analysis ($ in thousands) (Unaudited) Nine Nine Quarter Quarter months months Ended ended ended ended September September September September 30, 30, 30, 30, 2003 2002 2003 2002 Net service revenue: Pre-clinical $41,590 $35,236 $120,150 $106,082 Clinical 28,981 20,687 75,140 58,553 Total 70,571 55,923 195,290 164,635 Net service revenue less direct costs excluding depreciation: Pre-clinical 21,807 19,330 64,267 58,755 Clinical 11,392 8,813 30,294 23,903 Total 33,199 28,143 94,561 82,658 Net service revenue less direct costs, excluding depreciation, as a percentage of net service revenue: Pre-clinical 52.4% 54.9% 53.5% 55.4% Clinical 39.3% 42.6% 40.3% 40.8% Total 47.0% 50.3% 48.4% 50.2% Pro forma income from operations (Note): Pre-clinical 11,668 10,839 32,656 32,577 Clinical 2,980 2,786 8,040 5,937 Pro forma corporate overhead (1,986) (1,930) (5,864) (4,899) Total 12,662 11,695 34,832 33,615 Pro forma income from operations as a percentage of net service revenue (Note): Pre-clinical 28.1% 30.8% 27.2% 30.7% Clinical 10.3% 13.5% 10.7% 10.1% Total 17.9% 20.9% 17.8% 20.4% Note: Inveresk Research Group, Inc. believes this non-GAAP pro forma financial data more clearly reflects its underlying financial and operational performance and provides a more appropriate basis for comparison (i) to historical and future performance, and (ii) to the reported results of comparable businesses. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. A detailed explanation and reconciliation of actual and pro forma income financial measures is set out on page 8 and 9. Inveresk Research Group, Inc. Consolidated Balance Sheet Data ($ in thousands) September December 30, 2003 31, 2002 (Unaudited) Total current assets $112,812 $ 88,327 Total other assets 309,122 244,140 Total current liabilities (103,801) (76,898) Total other liabilities (120,433) (103,166) Total shareholders' equity $197,700 $152,403 Capital Employed September December 30, 2003 31, 2002 (Unaudited) Total shareholders' equity $197,700 $152,403 Current portion of long-term debt 7,684 217 Long-term debt 80,808 67,768 Cash and cash equivalents (22,698) (19,909) Total capital employed $263,494 $200,479 Inveresk Research Group, Inc. Reconciliation of Actual and Pro Forma Results ($ in thousands) (Unaudited) (i) Income (loss) from operations Nine Nine Quarter Quarter months months ended ended ended Ended September September September September 30, 2003 30, 2002 30, 2003 30, 2002 Income (loss) from operations - reported 11,864 11,695 33,376 (20,950) Pro forma adjustments (Note): Compensation expense in respect of amendment and exercise of stock options - - - 4,545 Compensation expense in respect of stock options and management equity incentive - - - 48,475 Stamp duty taxes arising on change of ultimate parent company - - - 1,545 Share offering expenses - - 658 - Restructuring and integration costs arising from business 798 - 798 - acquisitions Pro forma income from operations 12,662 11,695 34,832 33,615 (ii) Interest expense, net Nine Nine Quarter Quarter months months ended ended ended ended September September September September 30, 2003 30, 2002 30, 2003 30, 2002 Interest expense, net - reported (402) (906) (2,217) (9,923) Pro forma adjustments (Note): Interest saving from IPO proceeds - 341 - 7,570 Pro forma interest expense, net (402) (565) (2,217) (2,353) (iii) Income (loss) before income taxes Nine Nine Quarter Quarter months months ended ended ended ended September September September September 30, 2003 30, 2002 30, 2003 30, 2002 Income (loss) before income taxes - reported 10,791 8,758 30,488 (32,904) Pro forma adjustments (Note): Compensation expense in respect of amendment and exercise of stock options - - - 4,545 Compensation expense in respect of stock options and management equity incentive - - - 48,475 Stamp duty taxes arising on change of ultimate parent company - - - 1,545 Interest saving on IPO proceeds - 341 - 7,570 Share offering expenses - - 658 - Restructuring and integration costs arising from business acquisitions 798 - 798 - Write off of deferred debt issue and other costs related to our former bank credit facilities 671 2,031 671 2,031 Pro forma income before income taxes 12,260 11,130 32,615 31,262 Inveresk Research Group, Inc. Reconciliation of Actual and Pro Forma Results (cont) ($ in thousands) (Unaudited) (iv) Net income (loss) Nine Nine Quarter Quarter months months ended ended ended ended September September September September 30, 2003 30, 2002 30, 2003 30, 2002 Net income (loss) - actual 9,564 7,339 27,100 (37,412) Pro forma adjustments, after tax (Note): Compensation expense in respect of amendment and exercise of stock options - - - 4,545 Compensation expense in respect of stock options and management equity incentive - - - 48,475 Stamp duty taxes arising on change of ultimate parent company - - - 1,545 Interest saving on IPO proceeds - 239 - 5,299 Share offering expenses - - 658 - Restructuring and integration costs arising from business acquisitions 798 - 798 - Write off of deferred debt issue and other costs related to our former bank facilities 470 1,581 470 1,581 Pro forma net income 10,832 9,159 29,026 24,033 (v) Forecast earnings per share Forecast pro forma diluted EPS of $1.07 to $1.08 for the year to December 31, 2003 is before deducting (i) expenses of our withdrawn share offering,(ii) expenses relating to the restructuring and integration of the PharmaResearch acquisition, and (iii) expenses relating to the write off of deferred debt costs related to the repayment of our former bank credit facilities, together totaling $1.5 million after tax or approximately $0.04 per share on a fully-diluted basis. Note: Inveresk Research Group, Inc. believes this non-GAAP pro forma financial data more clearly reflects its underlying financial and operational performance and provides a more appropriate basis for comparison (i) to historical and future performance, and (ii) to the reported results of comparable businesses. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. In the current year, the pro forma measures exclude the effect of (i) expenses relating to the restructuring and integration of the PharmaResearch acquisition, and (ii) expenses related to the write off of deferred debt issue costs related to the repayment and cancellation of bank facilities during the quarter ended September 30, 2003. For the nine months ended September 30, 2003, the pro forma measures exclude the effect of (i) expenses relating to our withdrawn share offering in March 2003, (ii) expenses related to the restructuring and integration of PharmaResearch acquisition, and (iii) expenses related to the write off of deferred debt issue costs related to the repayment of bank facilities during the period. For the quarter and nine months ended September 30, 2002, the pro forma measures: (i) adjust interest expense to remove the interest cost arising on our 10% unsecured subordinated loan stock due 2008 and on our pre-IPO bank debt (both of which were full repaid following our IPO in June 2002). It replaces these costs with interest on the $70 million drawn down after our IPO on the bank credit facilities put in place at the time, calculated at 5.0% per annum; and (ii) exclude expenses relating to the write off of deferred debt issue costs related to the repayment and cancellation of our pre-IPO bank credit facilities during the period. In addition to the above, for the nine months ended September 30, 2002, the pro forma measures exclude: (i) the effect of compensation expense in respect of the amendment and exercise of stock options; (ii) compensation expense in respect of stock options and management equity incentives recognized in connection with our IPO; and (iii) stamp duty taxes arising on the change of our ultimate parent company in connection with our IPO. DATASOURCE: Inveresk Research CONTACT: Paul Cowan, Chief Financial Officer of Inveresk Research Group, Inc., +1-919-462-2354, ; or Matt Dallas of Financial Dynamics, +1-212-850-5627, , for Inveresk Research Group, Inc. Web site: http://www.inveresk.com/

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