Medidata Solutions, Inc.
08/09/11

Medidata Solutions Reports Second Quarter 2011 Results

Revenues increased 25% year on year

Cash flows from operations increased 290% year to date compared with 2010

Reiterates full year revenues and profitability guidance

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 second quarter 2011, as well as provided financial guidance for the third quarter and full year 2011.

Highlights

"We delivered another excellent quarter, highlighting our strong execution, the financial leverage of our business model and our ability to meet customers' expectations for operational excellence," said Tarek Sherif, Medidata's chief executive officer. "The Clinical Force acquisition, combined with internally-driven innovation, has dramatically expanded our SaaS platform, reinforcing our position as the leading solutions provider meeting the rapidly evolving needs of the clinical development industry."

Financial Review

Net revenues for the second quarter of 2011 were $50.2 million, an increase of $9.9 million, or 25%, compared with $40.3 million in the second quarter of 2010. Application services revenues increased 21%, or $6.9 million, to $39.0 million, while professional services revenues increased 37%. Professional services revenues increased due to a number of factors, including strong demand and the timing of revenue recognition following the company's adoption of a new GAAP accounting standard at the beginning of 2011.

Net revenues for the quarter include a $3.5 million one-time acceleration of revenue recognition related to two large customer renewals which was not included in guidance. Of the $3.5 million, $2.3 and $1.2 million related to professional services and application services revenue, respectively. Excluding the accounting impact of these two large renewals, net revenues for the quarter were $46.7 million, an increase of $6.3 million, or 16% year on year.

Operating income and net income figures also include approximately $1 million in additional commissions and fees associated with the acceleration of revenues and the Clinical Force acquisition, which were not included in guidance.

Gross margins in the second quarter of 2011 were 73%, an increase of almost 5 percentage points over gross margins of 68% a year ago. Excluding a $3.5 million acceleration of revenue recognition related to two large customer renewals, gross margins were 71%, achieving the company's previously stated long term target range.

Income before taxes increased to $10.7 million in the second quarter of 2011, compared with $4.6 million in the second quarter of 2010.

Non-GAAP operating income* for the second quarter of 2011 increased 81% to $15.0 million, compared with $8.3 million a year ago. GAAP operating income for the quarter increased 143% to $10.7 million, compared with $4.4 million a year ago.

Non-GAAP net income for the second quarter of 2011 increased to $12.6 million, or $0.51 per diluted share, compared with $5.0 million, or $0.21 per diluted share, in the second quarter of 2010. GAAP net income for the second quarter of 2011 increased to $10.0 million, or $0.40 per diluted share, compared with $3.0 million, or $0.13 per diluted share, in the second quarter of 2010.

Total cash, cash equivalents and marketable securities were $94.2 million at the end of the second quarter, an increase of $3.1 million from the first quarter, and compares to $86.2 million at the end of the second quarter 2010 and $85.5 million at the end of the fourth quarter 2010. On a year to date basis, cash flow from operations at the end of the second quarter was $12 million, an increase of $6 million in the quarter and $8.6 million over the same period last year. The increase was driven by the company's improving profitability and changes in working capital. Total remaining backlog for the year was $74 million as of June 30, 2011.

Financial Outlook

For the full year 2011, the company expects revenues to be between $182 and $186 million. Non-GAAP operating income is expected to be between $43 and $47 million. Based on current estimates, this would equate to GAAP operating income between $26 and $30 million. Non-GAAP net income is expected to be between $35 and $39 million. Based on current estimates, this would equate to GAAP net income between $25 and $29 million.

For the third quarter of 2011, the company expects revenues to be between $45 and $46 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 $5.5 and $6.5 million. Non-GAAP net income is expected to be between $8 and $9 million. Based on current estimates, this would equate to GAAP net income of between $5 and $6 million.

While changes in the stock price could change the fully diluted share count, the company is assuming 24.9 million fully diluted shares in the third quarter and full year.

Bruce Dalziel, chief financial officer, noted, "This was another strong, steady quarter of growth for Medidata. We are helping customers drive faster decision making, speed time to market and lower their total cost of clinical development, and this resonates deeply with our client base and fuels our growth."

Conference Call

The company plans to host its investor conference call today at 8:00 a.m. Eastern. 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, August 23, 2011 by dialing 855-859-2056 domestically or 404-537-3406 internationally, with the passcode 86844695. 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 is a leading global provider of SaaS clinical development solutions that enhance the efficiency of customers' clinical trials. Medidata's advanced solutions lower the total cost of clinical development by optimizing clinical trials from concept to conclusion: from study and protocol design, trial planning and budgeting, site negotiation, clinical portal, trial management, randomization and trial supply management, clinical data capture and management, safety events capture, medical coding to business analytics. Our diverse life science 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, 2010. 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 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. 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 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 Six Months Ended
June 30, June 30,
2011 2010 2011 2010
 
Revenues
Application services $ 39,027 $ 32,162 $ 72,432 $ 61,892
Professional services   11,175     8,151     18,527     16,063  
Total revenues 50,202 40,313 90,959 77,955
 
Cost of revenues
Application services 7,050 6,327 14,192 12,394
Professional services   6,306     6,492     12,252     13,001  
Total cost of revenues 13,356 12,819 26,444 25,395
 
Gross profit 36,846 27,494 64,515 52,560
 
Operating costs and expenses:
Research and development 7,043 6,680 14,205 13,014
Sales and marketing 9,784 7,927 17,731 15,420
General and administrative   9,296     8,479     18,382     16,774  
 
Total operating costs and expenses   26,123     23,086     50,318     45,208  
 
Operating income 10,723 4,408 14,197 7,352
 
Interest and other income (expense):
Interest expense (31 ) (67 ) (67 ) (147 )
Interest income 75 100 163 193
Other (expense) income, net   (30 )   164     (2 )   133  
 
Total interest and other income (expense), net   14     197     94     179  
 
Income before income taxes 10,737 4,605 14,291 7,531
 
Provision for income taxes   740     1,640     1,108     2,702  
 
Net income $ 9,997   $ 2,965   $ 13,183   $ 4,829  
 
Earnings per share:
Basic $ 0.42   $ 0.13   $ 0.56   $ 0.21  
Diluted $ 0.40   $ 0.13   $ 0.53   $ 0.20  
 
Weighted average common shares outstanding:
Basic 23,571 22,881 23,491 22,807
Diluted 24,790 23,686 24,798 23,664
 

 
MEDIDATA SOLUTIONS, INC.
       
Reconciliation of GAAP Operating Income and GAAP Net Income to
Non-GAAP Operating Income and Non-GAAP Net Income
(unaudited)
(Amounts in thousands, except per share data)
 
Three Months Ended Six Months Ended
June 30,   June 30,
2011 2010 2011 2010
 
Operating income:
GAAP operating income $ 10,723 $ 4,408 $ 14,197 $ 7,352
GAAP operating margins 21.4 % 10.9 % 15.6 % 9.4 %
 
Depreciation and amortization 1,940 2,218 3,962 4,811
Stock-based compensation   2,296   1,658   4,036   2,808
 
Non-GAAP operating income $ 14,959 $ 8,284 $ 22,195 $ 14,971
Non-GAAP operating margins   29.8 %   20.5 %   24.4 %   19.2 %
 
Net income:
GAAP net income $ 9,997 $ 2,965 $ 13,183 $ 4,829
 
Stock-based compensation 2,296 1,658 4,036 2,808
Amortization   339   365   700   730
 
Non-GAAP net income $ 12,632 $ 4,988 $ 17,919 $ 8,367
 
 
GAAP basic earnings per share $ 0.42 $ 0.13 $ 0.56 $ 0.21
GAAP diluted earnings per share $ 0.40 $ 0.13 $ 0.53 $ 0.20
 
Non-GAAP basic earnings per share $ 0.54 $ 0.22 $ 0.76 $ 0.37
Non-GAAP diluted earnings per share $ 0.51 $ 0.21 $ 0.72 $ 0.35
 

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 and six months ended June 30, 2011. 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.

 
MEDIDATA SOLUTIONS, INC.
   
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Amounts in thousands, except per share data)
 
June 30, December 31,
2011 2010
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 21,783 $ 16,025
Marketable securities 72,402 69,473
Accounts receivable, net of allowance for doubtful accounts of $687 and $308, respectively 27,840 34,268
Prepaid commission expense 1,976 3,087
Prepaid expenses and other current assets 5,787 6,297
Deferred income taxes   3,887     3,731  
 
Total current assets 133,675 132,881
 
Restricted cash 388 532
Furniture, fixtures and equipment, net 9,300 10,993
Goodwill 9,799 9,799
Intangible assets, net 2,245 2,945
Other assets   3,220     795  
 
Total assets $ 158,627   $ 157,945  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 1,214 $ 2,797
Accrued payroll and other compensation 7,193 11,520
Accrued expenses and other 5,178 4,058
Deferred revenue 54,825 63,228
Capital lease obligations   300     712  
 
Total current liabilities   68,710     82,315  
 
Noncurrent liabilities:
Deferred revenue, less current portion 17,654 20,540
Deferred tax liabilities 3,447 3,418
Capital lease obligations, less current portion 9 68
Other long-term liabilities   435     478  
 
Total noncurrent liabilities   21,545     24,504  
 
Total liabilities   90,255     106,819  
 
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, 24,802 and 24,141
shares issued; 24,670 and 24,089 shares outstanding, respectively 248 241
Additional paid-in capital 127,620 122,015
Treasury stock, 132 and 52 shares, respectively (2,098 ) (474 )
Accumulated other comprehensive loss (42 ) (117 )
Accumulated deficit   (57,356 )   (70,539 )
 
Total stockholders' equity   68,372     51,126  
 
Total liabilities and stockholders' equity $ 158,627   $ 157,945  
 

   
MEDIDATA SOLUTIONS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
Six Months Ended
June 30,
2011 2010
 
Cash flows from operating activities:
Net income $ 13,183 $ 4,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,962 4,811
Stock-based compensation 4,036 2,808
Amortization of discounts or premiums on marketable securities 583 576
Deferred income taxes (128 ) 29
Amortization of debt issuance costs 30 27
Excess tax benefit associated with equity awards - (549 )
Changes in operating assets and liabilities:
Accounts receivable 6,428 (111 )
Prepaid commission expense 455 (17 )
Prepaid expenses and other current assets 257 (3,412 )
Other assets (508 ) 25
Accounts payable (1,319 ) 481
Accrued payroll and other compensation (4,327 ) (3,508 )
Accrued expenses and other 1,268 (1,103 )
Deferred revenue (12,326 ) (1,932 )
Other long-term liabilities   (43 )   8  
 
Net cash provided by operating activities   11,551     2,962  
 
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (1,878 ) (4,447 )
Purchases of available-for-sale marketable securities (70,273 ) (33,374 )
Proceeds from sale of available-for-sale marketable securities 66,723 15,499
Decrease in restricted cash   144     -  
 
Net cash used in investing activities   (5,284 )   (22,322 )
 
Cash flows from financing activities:
Proceeds from exercise of stock options 1,576 827
Excess tax benefit associated with equity awards - 549
Repayment of obligations under capital leases (471 ) (1,870 )
Acquisition of treasury stock (1,624 ) (331 )
Payment of debt issuance costs   -     (21 )
 
Net cash used in financing activities   (519 )   (846 )
 
Net increase (decrease) in cash and cash equivalents 5,748 (20,206 )
 
Effect of exchange rate changes on cash and cash equivalents 10 (20 )
 
Cash and cash equivalents — Beginning of period   16,025     39,449  
 
Cash and cash equivalents — End of period $ 21,783   $ 19,223  
 

Investors:
Medidata Solutions
Hulus Alpay, 212.419.1025
halpay@mdsol.com
or
Media:
Lois Paul & Partners
Melissa Zipin, 781.782.5726
Melissa_zipin@lpp.com

Source: Medidata Solutions

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