Medidata Solutions, Inc.
11/09/10

Medidata Solutions Reports Record Third Quarter 2010 Results

Net revenue increased 17% year over year

Application services revenue increased 33% year over year

Gross and non-GAAP operating margins increased to 68% and 25%, respectively

GAAP diluted earnings per share (EPS) increased 233% year over year

Provides fourth quarter guidance and raises full year profitability outlook for 2010

NEW YORK--(BUSINESS WIRE)-- Medidata Solutions (NASDAQ: MDSO), a leading global provider of SaaS-based clinical technology solutions that enhance the efficiency of clinical development, today announced its financial results for the third quarter 2010 and provided financial guidance for the fourth quarter and full year 2010.

"Customer focus and good execution led to another outstanding quarter for Medidata, highlighted by strong revenue growth and record profitability," said Tarek Sherif, chairman and chief executive officer of Medidata. "By continuing to realize our vision of bringing new efficiencies to resource-intensive clinical research processes, we generated another quarter of strong customer demand. Medidata's business model of providing Software-as-a-Service tools, matched with the highest quality professional services, is generating industry-leading gross margins, while significant operating leverage is resulting in excellent earnings growth."

Business Highlights

Financial Highlights

Net revenues for the third quarter of 2010 were $41.1 million, an increase of $5.9 million, or 17%, compared with $35.2 million in the third quarter of 2009. The increase in revenues was due to an $8.6 million, or 33%, increase in revenues from application services, partially offset by a decline in revenues from professional services, which continues to represent a smaller portion of the company's total revenue. Medidata's changing business mix reflects the company's strategy to lower the total cost of ownership for its clients by reducing the total amount of follow-on professional services they incur.

Gross margins in the third quarter of 2010 were 68%, an increase of 3 percentage points over gross margins of 65% a year ago. Medidata's margin expansion continues to be fueled by the accelerating market acceptance of Medidata's product and professional services strategy, as well as its focus on effectively managing its cost of revenues.

"Medidata's market execution and operating leverage continue to drive our financial performance. Our applications services revenue growth and margin expansion compare favorably to SaaS peers, and there is further opportunity for us to scale profitably going forward," noted Bruce Dalziel, Medidata's chief financial officer.

Income before taxes increased to $6.1 million in the third quarter of 2010, compared with $1.8 million in the third quarter of 2009.

Non-GAAP operating income* for the third quarter of 2010 increased 49% to $10.1 million, compared with $6.8 million in the third quarter of 2009. GAAP operating income for the quarter increased 131% to $6.1 million, compared with $2.6 million a year ago.

Non-GAAP net income for the third quarter of 2010 increased 96% to $6.9 million, or $0.29 per diluted share, compared with $3.5 million, or $0.15 per diluted share, in the third quarter of 2009. This compares with previous non-GAAP net income guidance of between $3.5 and $4.5 million, which excludes any tax impact on stock-based compensation and amortization. Including the tax impact on stock-based compensation and amortization at a 30% effective tax rate, adjusted non-GAAP net income for the third quarter of 2010 increased 82% to $6.4 million, or $0.27 per diluted share, compared with $3.5 million, or $0.15 per diluted share, in 2009.

GAAP net income for the quarter increased 201% to $4.7 million, or $0.20 per diluted share, compared with $1.6 million, or $0.06 per diluted share, in the third quarter of 2009.

Income tax expense increased $1.2 million to $1.5 million in the third quarter of 2010 from $0.2 million in the comparable period. The increase was primarily driven by domestic income tax incurred in 2010.

Total cash, cash equivalents and marketable securities were $89 million at the end of the third quarter, an increase of $3 million from the second quarter and compares to $89 million at the end of the fourth quarter 2009. Year-to-date cash flow was primarily impacted by a decrease in deferred revenue due to changing customer payment terms consistent with our evolution as a Software-as-a-Service provider.

Financial Outlook

For the full year 2010, the company expects revenues to be between $162 and $163 million. Non-GAAP operating income is now expected to be between $35 and $36 million, compared to previous guidance of between $31 and $33 million. Based on current estimates, this would equate to GAAP operating income between $19.5 and $20.5 million. Non-GAAP net income is now expected to be between $21 and $22 million, compared to previous guidance of between $17.5 and $19.5 million. Based on current estimates, this would equate to GAAP net income between $13.5 and $14.5 million. The company now expects adjusted non-GAAP net income, which includes the tax impact on stock-based compensation and amortization at a 30% effective tax rate, to be between $19 and $20 million, compared to previous guidance of between $15 and $17 million.

The company will be providing both non-GAAP net income and adjusted non-GAAP net income for the balance of the year for convenience in comparing its operating performance over time.

Total remaining backlog for 2010 was $41 million at the end of the third quarter. Remaining year backlog represents the amount of contractual revenue already booked, which is expected to be recognized during the remainder of the year.

For the fourth quarter of 2010, the company expects revenues to be between $43 and $44 million. The company expects non-GAAP operating income to be between $10 and $11 million. Based on current estimates this would equate to GAAP operating income of $6 and $7 million. Non-GAAP net income is expected to be between $6 and $7 million. Adjusted non-GAAP net income, which includes the tax impact on stock-based compensation and amortization at a 30% effective tax rate, is expected to be between $5.5 and $6.5 million. Based on current estimates, this would equate to GAAP net income of between $4 and $5 million.

While changes in the stock price could change the fully diluted share count, the company is assuming 24.1 and 23.9 million fully diluted shares in the fourth quarter and full year, respectively.

Mr. Sherif concluded, "We ended the first nine months of 2010 in a strong market position, having delivered exceptional financial results. Our focus on product innovation, customer and partner enablement and our ability to articulate an overall vision of helping customers improve productivity throughout the clinical development process is driving our continued success. We are excited about the solutions we are bringing to market and are enthusiastic about our opportunities and prospects."

Conference Call

The company plans to host its investor conference call today at 5:00 p.m. Eastern Time to discuss its financial results for the third quarter and its outlook for the fourth quarter and full year 2010. The investor conference call will be available via live webcast on the "Investor" section of Medidata's web site at http://investor.mdsol.com. To participate by telephone, domestic participants may dial 877-303-2528 and international participants may dial 847-829-0023. Those interested in participating in the conference call should dial in at least 10 minutes prior to the call to register. Participants can also join the call via a simultaneous live audio webcast, which will be made available on the "Investor" section of Medidata's web site at http://investor.mdsol.com. A replay of the conference call can be accessed until Tuesday, November 23, 2010 by dialing 800-642-1687 domestically or 706-645-9291 internationally, with the passcode 18376284. An archive of the call will also be hosted on the "Investor" section of Medidata's web site, http://investor.mdsol.com, for a limited period of time.

About Medidata Solutions Worldwide

Medidata Solutions (www.mdsol.com) is a leading global provider of SaaS-based clinical development solutions that enhance the efficiency of customers' clinical trials. For over 10 years, Medidata has consistently brought next-generation innovation to the life science industry to lower the total cost of clinical development through informed trial design, planning and management, optimized clinical processes and platform interoperability. Medidata's advanced solutions address key functions throughout the clinical development process including protocol development (Medidata Designer®), trial planning and management (Medidata Grants Manager®, Medidata CRO Contractor®), user and learning management (iMedidata™), randomization and trial supply management (Medidata Balance™), monitoring (Medidata Rave Monitor, Medidata Rave Targeted SDV), Serious Adverse Events capture (Medidata Rave Safety Gateway) and clinical data capture, management and reporting (Medidata Rave®). Our diverse customer base spans biopharmaceutical companies, medical device and diagnostic companies, academic and government institutions, CROs and other research organizations, and includes more than 20 of the top 25 global pharmaceutical companies as well as organizations of all sizes developing life-enhancing medical treatments and diagnostics.

Cautionary Statement

Certain statements made in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve significant risks and uncertainties about Medidata Solutions, Inc. ("Medidata"), including but not limited to statements about Medidata's forecast of financial performance, products and services, business model, strategy and growth opportunities, and competitive position. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. In particular, the risks and uncertainties include, among other things, risks associated with possible fluctuations in our financial and operating results; errors, interruptions or delays in our service or our Web hosting; the financial impact of any future acquisitions; our ability to continue to release, and gain customer acceptance of, new and improved versions of our products; changes in our sales and implementation cycles; competition; our ability to retain and expand our customer base or increase new business from those customers; our ability to hire, retain and motivate our employees and manage our growth; regulatory developments; litigation; and general developments in the economy. For additional disclosure regarding these and other risks faced by the company, see disclosures contained in Medidata's public filings with the Securities and Exchange Commission including, the "Risk Factors" section of Medidata's Annual Report on Form 10-K for the year ended December 31, 2009. You should consider these factors in evaluating the forward-looking statements included in this press release and not place undue reliance on such statements. The forward-looking statements are made as of the date hereof, and Medidata undertakes no obligation to update such statements as a result of new information.

*Non-GAAP Financial Information

Medidata provides Non-GAAP operating income, net income, adjusted net income and net income per share applicable to common stockholders data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from Non-GAAP measures used by other companies. Non-GAAP operating income excludes the impact of depreciation, amortization of purchased intangible assets and acquisition-related charges and stock-based compensation expense. Non-GAAP net income excludes the impact of amortization of intangible assets associated with acquisitions and stock-based compensation expense. There was no material tax benefit to stock based compensation and amortization prior to December 2009 when calculating non-GAAP net income because the company's net operating loss carry-forwards were available to fully offset its taxable income. Adjusted non-GAAP net income excludes the impact of tax affected amortization of intangible assets associated with acquisitions and stock-based compensation expense. Management uses these Non-GAAP measures to evaluate its financial results, develop budgets, manage expenditures, and as an important factor in determining variable compensation. In addition, investors frequently have requested information from management regarding depreciation and amortization (tax and non tax affected) and non-cash, share-based compensation charges and management believes, based on discussions with investors, that these Non-GAAP measures enhance investor's ability to assess Medidata's historical and project future financial performance. While management believes these Non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of Non-GAAP financial measures. One limitation of Non-GAAP operating income is that it excludes depreciation and amortization, which represents the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Medidata compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the Non-GAAP financial measures to their most comparable GAAP financial measures. Investors are encouraged to review the reconciliations of these Non-GAAP financial measures to the comparable GAAP results, which are attached to this press release.

 
MEDIDATA SOLUTIONS, INC.
                           
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share data)
 
Three Months Ended

September 30,

  Nine Months Ended

September 30,

  2010     2009     2010     2009  
 
Revenues
Application services $ 34,522 $ 25,957 $ 96,414 $ 74,145
Professional services   6,580     9,260     22,643     28,702  
Total revenues 41,102 35,217 119,057 102,847
 
Cost of revenues
Application services 6,738 6,006 19,132 17,521
Professional services   6,470     6,458     19,471     19,910  
Total cost of revenues 13,208 12,464 38,603 37,431
 
Gross profit 27,894 22,753 80,454 65,416
 
Operating costs and expenses:
Research and development 6,450 5,608 19,464 16,894
Sales and marketing 7,493 6,709 22,913 20,167
General and administrative   7,905     7,814     24,679     22,672  
 
Total operating costs and expenses   21,848     20,131     67,056     59,733  
 
Operating income 6,046 2,622 13,398 5,683
 
Interest and other income (expense):
Interest expense (48 ) (908 ) (195 ) (1,747 )
Interest income 95 10 288 73
Other income (expense), net   25     44     158     36  
 
Total interest and other income (expense), net   72     (854 )   251     (1,638 )
 
Income before income taxes 6,118 1,768 13,649 4,045
 
Provision for income taxes   1,454     219     4,156     602  
 
Net income $ 4,664   $ 1,549   $ 9,493   $ 3,443  
 
Earnings per share:
Basic $ 0.20   $ 0.07   $ 0.41   $ 0.26  
Diluted $ 0.20   $ 0.06   $ 0.40   $ 0.17  
 
Weighted average common shares outstanding:
Basic 23,019 22,364 22,878 12,318
Diluted 23,856 23,846 23,738 19,693

                   
MEDIDATA SOLUTIONS, INC.
 
Reconciliation of GAAP Operating Income and GAAP Net Income to

Non-GAAP Operating Income, Non-GAAP Net Income

and Adjusted Non-GAAP Net Income

(unaudited)

(Amounts in thousands, except per share data)

 
Three Months Ended

September 30,

  Nine Months Ended

September 30,

2010 2009 2010 2009
 
Operating income:
GAAP operating income $ 6,046 $ 2,622 $ 13,398 $ 5,683
GAAP operating margins 14.8 % 7.4 % 11.3 % 5.6 %
 
Depreciation and amortization 2,234 2,669 7,045 7,810
Stock-based compensation   1,847     1,505     4,655     3,428  
 
Non-GAAP operating income $ 10,127   $ 6,796   $ 25,098   $ 16,921  
Non-GAAP operating margins   24.6 %   19.3 %   21.1 %   16.5 %
 
 
Net income:
GAAP net income $ 4,664 $ 1,549 $ 9,493 $ 3,443
 
Stock-based compensation 1,847 1,505 4,655 3,428
Amortization   365     457     1,095     1,370  
 
Non-GAAP net income 6,876 3,511 15,243 8,241
 
Tax impact on stock-based
compensation and amortization (1)   (487 )   -     (1,725 )   -  
 
Adjusted non-GAAP net income $ 6,389   $ 3,511   $ 13,518   $ 8,241  
 
GAAP basic earnings per share $ 0.20   $ 0.07   $ 0.41   $ 0.26  
GAAP diluted earnings per share $ 0.20   $ 0.06   $ 0.40   $ 0.17  
 
Non-GAAP basic earnings per share $ 0.30   $ 0.16   $ 0.67   $ 0.65  
Non-GAAP diluted earnings per share $ 0.29   $ 0.15   $ 0.64   $ 0.42  
 
Adjusted non-GAAP basic earnings per share $ 0.28   $ 0.16   $ 0.59   $ 0.65  
Adjusted non-GAAP diluted earnings per share $ 0.27   $ 0.15   $ 0.57   $ 0.42  
 
(1) The three months ended September 30, 2010 reflects the impact of our revised estimated annual effective tax rate from 35% to 30%.

The table above presents a reconciliation of GAAP to non-GAAP operating income, net income and net income per share applicable to common stockholders for the three months and nine months ended September 30, 2010 and 2009. Non-GAAP operating income excludes the impact of depreciation, amortization of intangible assets associated with acquisitions and stock-based compensation expense. Non-GAAP net income excludes the impact of amortization of intangible assets associated with acquisitions and stock-based compensation expense. Adjusted non-GAAP net income excludes the impact of tax affected amortization of intangible assets associated with acquisitions and stock-based compensation expense.

           
MEDIDATA SOLUTIONS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except per share data)
 

September 30,
2010

 

December 31,
2009

(unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 18,425 $ 39,449
Marketable securities 70,647 36,566
Accounts receivable, net of allowance for doubtful accounts of $305 and $197, respectively 21,868 18,887
Prepaid commission expense 2,846 3,045
Prepaid expenses and other current assets 5,957 3,566
Deferred income taxes   139     139  
 
Total current assets 119,882 101,652
 
Restricted cash 532 532
Marketable securities - long-term - 13,072
Furniture, fixtures and equipment, net 11,288 12,960
Goodwill 9,799 9,799
Intangible assets, net 3,309 4,404
Other assets   1,167     990  
 
Total assets $ 145,977   $ 143,409  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 1,884 $ 3,073
Accrued payroll and other compensation 9,202 10,837
Accrued expenses and other 6,554 7,543
Deferred revenue 72,632 69,842
Capital lease obligations   956     2,735  
 
Total current liabilities   91,228     94,030  
 
Noncurrent liabilities:
Deferred revenue, less current portion 17,763 27,868
Capital lease obligations, less current portion 175 781
Other long-term liabilities   813     498  
 
Total noncurrent liabilities   18,751     29,147  
 
Total liabilities   109,979     123,177  
 
Commitments and contingencies
 
Stockholders' equity:
Preferred stock, par value $0.01 per share; 5,000 shares authorized, none issued and outstanding
- -
Common stock, par value $0.01 per share; 100,000 shares authorized, 23,835 and 22,900 shares issued; 23,797 and 22,895 shares outstanding, respectively
238 229
Additional paid-in capital 120,150 113,674
Treasury stock, 38 and 5 shares, respectively (474 ) (69 )
Accumulated other comprehensive loss (53 ) (246 )
Accumulated deficit   (83,863 )   (93,356 )
 
Total stockholders' equity   35,998     20,232  
 
Total liabilities and stockholders' equity $ 145,977   $ 143,409  

 
MEDIDATA SOLUTIONS, INC.
           
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
Nine Months Ended

September 30,

  2010     2009  
 
Cash flows from operating activities:
Net income $ 9,493 $ 3,443
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,045 7,810
Stock-based compensation 4,655 3,428
Amortization of discounts or premiums on marketable securities 887 -
Excess tax benefit associated with equity awards (827 ) -
Deferred income taxes 44 42
Amortization of debt issuance costs 42 420
Changes in operating assets and liabilities:
Accounts receivable (2,981 ) 5,632
Prepaid commission expense 199 60
Prepaid expenses and other current assets (2,391 ) (212 )
Other assets 2 (54 )
Accounts payable (57 ) (885 )
Accrued payroll and other compensation (1,635 ) 766
Accrued expenses and other 153 632
Deferred revenue (7,315 ) 2,618
Other long-term liabilities   71     7  
 
Net cash provided by operating activities   7,385     23,707  
 
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (5,609 ) (3,442 )
Purchases of available-for-sale marketable securities (65,169 ) -
Proceeds from sale of available-for-sale securities 43,363 -
Decrease in restricted cash   -     13  
 
Net cash used in investing activities   (27,415 )   (3,429 )
 
Cash flows from financing activities:
Proceeds from exercise of stock options 1,003 20
Excess tax benefit associated with equity awards 827 -
Repayment of obligations under capital leases (2,385 ) (3,658 )
Acquisition of treasury stock (405 ) -
Payment of debt issuance costs (21 ) -
Proceeds from initial public offering, net of underwriting discounts and commissions - 82,026
Payment of costs associated with initial public offering - (4,288 )
Payment of preferred stock accumulated accrued dividends - (2,282 )
Repayment of debt obligation   -     (15,000 )
 
Net cash (used in) provided by financing activities   (981 )   56,818  
 
Net (decrease) increase in cash and cash equivalents (21,011 ) 77,096
 
Effect of exchange rate changes on cash and cash equivalents (13 ) 20
 
Cash and cash equivalents — Beginning of period   39,449     9,784  
 
Cash and cash equivalents — End of period $ 18,425   $ 86,900  

Investor Contact:
Medidata Solutions
Hulus Alpay, 212-419-1025
halpay@mdsol.com
or
Media Contact:
Lois Paul & Partners
Susan McCarron, 781-782-5767
susan_mccarron@lpp.com

Source: Medidata Solutions

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