PRINCETON, N.J., July 29 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported GAAP earnings for its second quarter
ended June 30, 2009 of $0.67 per diluted share, inclusive of a
$0.01 per share gain related to the sale of its centralized ECG
business in 2007. Excluding the gain on sale, earnings were $0.66
per diluted share. "On a consolidated basis, second quarter net
revenues grew 6.7% year-on-year (13.1% excluding the impact of
foreign exchange), operating margin expanded sequentially to 12.9%,
and EPS of $0.66 exceeded our second quarter expectation," said Joe
Herring, Chairman and Chief Executive Officer. "In Early
Development, revenues grew 3.8% from the first quarter and
operating margins were 13.6%, despite toxicology results declining
sequentially as we previously forecasted. Toxicology results are on
track for sequential improvement in the third quarter, based upon
scheduled backlog. In Late-Stage Development, very strong demand
led to accelerated revenue growth of 19.0% in the quarter (26.4%
excluding the impact of foreign exchange) and operating margin of
24.6%, a 200 basis point increase above last quarter's record high.
"On the commercial front, adjusted net orders in the second quarter
were $516 million, representing an adjusted book-to-bill ratio of
1.11 to 1. On a trailing twelve month basis, our Late-Stage
Development adjusted book-to-bill was 1.5 to 1. Consolidated
backlog grew 55% year on year to $4.66 billion. The $145 million
minimum contract commitment associated with the pending acquisition
of Merck's genomics laboratory is included in backlog, but is
excluded from adjusted net orders. "To reflect the weakening of the
US dollar and a slightly lower tax rate, we are upwardly adjusting
our 2009 revenue growth target to the mid- to upper-single digits
and our earnings per share target to a range of $2.60 to $2.80 per
share (excluding gains on the sales of our centralized ECG and IVRS
service lines and using June 30 exchange rates), versus our
previous targets of single-digit revenue growth and earnings of
$2.50 to $2.70 per share." Consolidated Results ($in millions
except EPS) 2Q09 2Q08 Change 1H09 1H08 Change ---- ---- ------ ----
---- ------ Total Revenues $489.2 $461.8 $957.7 $895.9 Less:
Reimbursable Out-of-Pockets $23.2 $24.9 $50.4 $46.5 Net Revenues
$466.0 $436.9 6.7% $907.3 $849.4 6.8% Operating Income $60.0 $67.5
(11.1)% $115.9 $130.2 (10.9)% Operating Margin % 12.9% 15.4% 12.8%
15.3% Net Income $43.0 $50.9 (15.5)% $83.3 $100.0 (16.7)% Diluted
EPS $0.67 $0.80 (16.0)% $1.30 $1.56 (16.7)% ----- ----- ------
----- ----- ------ Gain on Sale, net of tax $0.4 $0.6 $0.4 $2.6 Net
Income Excluding Gain on Sale $42.6 $50.3 (15.3)% $82.9 $97.4
(14.9)% Diluted EPS Excluding Gain on Sale $0.66 $0.79 (15.9)%
$1.29 $1.52 (14.9)% ----- ----- ------ ----- ----- ------ Operating
Segment Results Early Development ($in millions) 2Q09 2Q08 Change
1H09 1H08 Change ---- ---- ------ ---- ---- ------ Net Revenues
$199.8 $213.1 (6.3)% $392.3 $415.2 (5.5)% Operating Income $27.1
$54.2 (50.0)% $54.2 $104.8 (48.2)% Margin % 13.6% 25.4% 13.8% 25.2%
---- ---- ---- ---- The Company's Early Development segment
includes preclinical toxicology, analytical chemistry, clinical
pharmacology services, and research products. Early Development net
revenues for the second quarter of 2009 were $199.8 million
compared to $213.1 million in the second quarter of 2008 and $192.5
million in the first quarter of 2009. Lower demand in toxicology
drove the year-on-year decline in revenue. Sequential growth was
driven by a rebound in demand for clinical pharmacology, analytical
chemistry, and research products. In the quarter, foreign exchange
negatively impacted year-on-year revenue growth by 540 basis
points. Operating income for the second quarter of 2009 declined
50.0% year-over-year to $27.1 million, compared to $54.2 million in
the second quarter of last year. Operating margins for the second
quarter of 2009 were 13.6% compared to 25.4% in the second quarter
of 2008 and 14.1% last quarter. Second quarter operating margins
were impacted by a lower level of study activity, costs related to
the staffing and validating of the new preclinical drug development
facility in Chandler, and severance related to the retirement of a
building on the Vienna, Virginia campus. In addition, the company
continued to maintain staffing levels above current needs at our
five other preclinical campuses to support expected increases in
revenue generation in the second half of the year. Late-Stage
Development ($in millions) 2Q09 2Q08 Change 1H09 1H08 Change ----
---- ------ ---- ---- ------ Net Revenues $266.3 $223.8 19.0%
$515.0 $434.2 18.6% Operating Income $65.5 $43.0 52.4% $121.8 $81.9
48.8% Margin % 24.6% 19.2% 23.7% 18.9% ---- ---- ---- ---- 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 second quarter of 2009 grew 19.0%
to $266.3 million compared to $223.8 million in the second quarter
of 2008. Sequentially, revenues grew $17.6 million, or 7.1% from
last quarter. The sequential and year-on-year growth was led by the
continued exceptional performance of our central laboratory as well
as strong performances in our Clinical Development and
Commercialization services. Foreign exchange negatively impacted
year-on-year revenue growth in the quarter by 740 basis points.
Operating income for the second quarter of 2009 increased 52.4% to
$65.5 million compared to $43.0 million in the second quarter of
the prior year. Record profitability in central laboratory and
clinical development services led to exceptional operating margins
of 24.6% for the second quarter of 2009 compared to 19.2% in the
second quarter of last year and 22.6% last quarter. Operating
margin in Late-Stage Development is expected to moderate closer to
first quarter 2009 levels in the back half of the year. Corporate
Information The Company's backlog at June 30, 2009 grew 54.7%
year-over-year to $4.66 billion compared to $3.01 billion at June
30, 2008 and $4.42 billion at March 31, 2009. Foreign exchange
positively impacted sequential backlog growth by $85 million.
Adjusted net orders (net orders adjusted for dedicated capacity
contracts) were $516 million in the second quarter of 2009.
Corporate expenses totaled $32.6 million in the second quarter of
2009 compared to $27.5 million last quarter and $29.8 million in
the second 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 June 30, 2009 were $204 million compared to $190
million at March 31, 2009 and $196 million at June 30, 2008. At
June 30, 2009, short-term debt totaled $58 million, a reduction of
$22 million from last quarter. Free cash flow (defined as operating
cash flow less capital expenditures) for the second quarter of 2009
was $19 million, consisting of operating cash flow of $49 million
less capital expenditures of $30 million. Free cash flow year to
date was negative $12 million, consisting of operating cash flow of
$59 million less capital expenditures of $71 million. In 2009, we
now expect free cash flow to be approximately $85 million,
consisting of operating cash flow of approximately $255 million
less capital expenditures of approximately $170 million. The free
cash flow target for 2009 assumes net Days Sales Outstanding (DSO)
at 40 days. Net Days Sales Outstanding (DSO) were 41 days at June
30, 2009 compared to 39 days at both March 31, 2009 and June 30,
2008. The effective tax rate in the second quarter was 27.0%, down
from the 29.0% rate last quarter, due primarily to a shift in the
geographic mix of our earnings. We expect that the effective tax
rate will be in the 28.0% range on a prospective basis. The
Company's investor conference call will be webcast on July 30 at
9:00 am ET. 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
closings of the acquisition of Merck's genomics laboratory and the
divestiture of the company's IVRS service offering, 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 AND SIX
MONTHS ENDED JUNE 30, 2009 AND 2008 (Dollars in thousands, except
per share data) (UNAUDITED) Three Months Ended June 30 Six Months
Ended June 30 -------------------------- ------------------------
2009 2008 2009 2008 ---- ---- ---- ---- Net revenues $466,049
$436,912 $907,285 $849,344 Reimbursable out-of-pockets 23,226
24,911 50,447 46,516 ------ ------ ------ ------ Total revenues
489,275 461,823 957,732 895,860 ------- ------- ------- -------
Costs and expenses: Cost of revenue 313,210 286,884 614,935 560,214
Reimbursable out-of-pocket expenses 23,226 24,911 50,447 46,516
Selling, general and administrative 69,569 65,242 133,523 124,259
Depreciation and amortization 23,273 17,331 42,887 34,679 ------
------ ------ ------ Total costs and expenses 429,278 394,368
841,792 765,668 ------- ------- ------- ------- Income from
operations 59,997 67,455 115,940 130,192 Other expense (income),
net: Interest expense (income), net 160 (1,501) 77 (4,097) Foreign
exchange transaction loss (gain), net 1,241 (481) 795 (1,546) Gain
on sale of business (655) (949) (655) (3,927) ---- ---- ---- ------
Other expense (income), net 746(a) (2,931)(b) 217(a) (9,570)(c) ---
------ --- ------ Income before taxes and equity investee earnings
59,251(a) 70,386(b) 115,723(a) 139,762(c) Taxes on income 16,051(a)
20,330(b) 32,400(a) 41,053(c) Equity investee (loss) earnings (210)
817 (38) 1,266 ------- ------- ------- ------- Net income
$42,990(a) $50,873(b) $83,285(a) $99,975(c) ======= ======= =======
======= Basic earnings per share $0.67(a) $0.81(b) $1.31(a)
$1.59(c) Weighted average shares outstanding - basic 63,823,792
62,825,444 63,705,105 63,069,018 Diluted earnings per share
$0.67(a) $0.80(b) $1.30(a) $1.56(c) Weighted average shares
outstanding - diluted 64,193,664 63,756,789 64,024,143 64,058,649
(a) Includes the impact of a $655 gain on sale of Cardiac Safety
Services ($426 net of tax) during the second quarter of 2009. (b)
Includes the impact of a $949 gain on sale of Cardiac Safety
Services ($617 net of tax) during the second quarter of 2008. (c)
Includes the impact of a $3,927 gain on sale of Cardiac Safety
Services ($2,553 net of tax) during the first six months of 2008.
Excluding the impact of the gain on sale of business:
----------------------------------------------------- Income before
taxes and equity investee earnings $58,596 $69,437 $115,068
$135,835 Taxes on income $15,822 $19,998 $32,171 $39,679 Net income
$42,564 $50,256 $82,859 $97,422 Basic earnings per share $0.67
$0.80 $1.30 $1.54 Diluted earnings per share $0.66 $0.79 $1.29
$1.52 COVANCE INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 2009 and
DECEMBER 31, 2008 (Dollars in thousands) June 30 December 31 2009
2008 ---- ---- (UNAUDITED) ASSETS Current Assets: Cash & cash
equivalents $204,351 $221,334 Accounts receivable, net 281,362
228,951 Unbilled services 105,417 112,719 Inventory 75,962 68,206
Deferred income taxes 16,767 15,029 Prepaid expenses and other
current assets 102,735 91,451 ------- ------ Total Current Assets
786,594 737,690 Property and equipment, net 907,185 860,957
Goodwill, net 123,663 105,486 Other assets 49,654 48,955 ------
------ Total Assets $1,867,096 $1,753,088 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities: Accounts
payable $31,940 $41,887 Accrued payroll and benefits 80,664 104,607
Accrued expenses and other current liabilities 79,389 86,521
Unearned revenue 174,552 162,556 Short-term debt 58,000 50,000
Income taxes payable 29,693 14,224 ------ ------ Total Current
Liabilities 454,238 459,795 Deferred income taxes 52,121 51,385
Other liabilities 50,746 47,059 ------ ------ Total Liabilities
557,105 558,239 ------- ------- Stockholders' Equity: Common stock
761 754 Paid-in capital 570,243 551,598 Retained earnings 1,212,854
1,129,569 Accumulated other comprehensive income (loss) 1,546
(13,975) Treasury stock (475,413) (473,097) -------- -------- Total
Stockholders' Equity 1,309,991 1,194,849 --------- --------- Total
Liabilities and Stockholders' Equity $1,867,096 $1,753,088
========== ========== COVANCE INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (Dollars in
thousands) (UNAUDITED) Six Months Ended June 30 ----------------
2009 2008 ---- ---- Cash flows from operating activities: Net
income $83,285 $99,975 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 42,887 34,679 Non-cash compensation expense associated
With employee benefit and stock compensation plans 13,238 12,540
Deferred income tax benefit (1,387) (2,277) Gain on sale of
business (655) (3,927) Loss on sale of property and equipment 264
253 Equity investee loss (earnings) 38 (1,266) Changes in operating
assets and liabilities, net of business acquired: Accounts
receivable (51,478) (6,775) Unbilled services 8,468 (17,914)
Inventory (7,756) (6,544) Accounts payable (10,040) (5,512) Accrued
liabilities (32,000) (12,331) Unearned revenue 11,111 (942) Income
taxes payable 15,694 2,565 Other assets and liabilities, net
(13,033) (6,676) ------- ------ Net cash provided by operating
activities 58,636 85,848 ------ ------ Cash flows from investing
activities: Capital expenditures (70,911) (143,163) Acquisition of
business, net of cash acquired (18,620) - Proceeds from sale of
business 655 3,927 Other, net 15 96 -- -- Net cash used in
investing activities (88,861) (139,140) ------- -------- Cash flows
from financing activities: Net borrowings under revolving credit
facility 8,000 35,000 Payment of debt assumed upon acquisition of
business (5,431) - Stock issued under employee stock purchase and
option plans 5,189 14,691 Purchase of treasury stock (2,316)
(130,427) ------ -------- Net cash provided by (used in) financing
activities 5,442 (80,736) ----- ------- Effect of exchange rate
changes on cash 7,800 10,198 ----- ------ Net change in cash and
cash equivalents (16,983) (123,830) Cash and cash equivalents,
beginning of period 221,334 319,485 ------- ------- Cash and cash
equivalents, end of period $204,351 $195,655 ======== ========
DATASOURCE: Covance Inc. CONTACT: Paul Surdez of Covance,
+1-609-452-4807, http://www.covance.com/ Web Site:
http://www.covance.com/
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