Medidata Solutions, Inc.
05/01/12

Medidata Solutions Reports First Quarter 2012 Results

NEW YORK--(BUSINESS WIRE)-- Medidata Solutions (NASDAQ: MDSO), a leading global provider of cloud-based clinical technology solutions that enhance the efficiency of clinical development, today announced its financial results for the first quarter of 2012, and provided detailed financial guidance for the second quarter and full year 2012.

"We started 2012 with outstanding execution, exceeding our expectations and building on last year's momentum," said Tarek Sherif, Medidata's chief executive officer. "Our growth is being driven by a combination of competitive wins and takeaways, expanding relationships with our CRO partners and growing interest in the Medidata clinical cloud."

First Quarter Highlights

Mr. Sherif continued, "We are helping to shape the future of clinical development, as Medidata's platform increasingly becomes a standard in the life sciences industry. Given the changes happening in our industry, it is clear that we are in the early stages of a multi-year adoption cycle for our comprehensive cloud-based solution. Our ability to innovate and our team's great execution are driving our success and that of our customers, while building value for our shareholders."

Financial Highlights

Net revenues for the first quarter of 2012 were $50.4 million, compared with $40.8 million in the first quarter of 2011. The 24% increase in net revenues was due to a $5.0 million, or 15%, increase in revenues from application services and a $4.6 million, or 63%, increase in revenues from professional services.

Gross margins in the first quarter of 2012 were 71%, an increase of almost 3 percentage points over gross margins of 68% a year ago.

Non-GAAP operating income* for the first quarter of 2012 increased 43% to $10.3 million, compared with $7.2 million a year ago. GAAP operating income for the quarter increased 76% to $6.1 million, compared with $3.5 million a year ago.

Non-GAAP net income* for the first quarter of 2012 increased 22% to $6.5 million, or $0.26 per diluted share, compared with $5.3 million, or $0.21 per diluted share, in the first quarter of 2011. Adjusted non-GAAP net income* for the first quarter of 2012 was $5.4 million, or $0.22 per diluted share, compared with $5.3 million, or $0.21 per diluted share, in the first quarter of 2011. GAAP net income for the first quarter of 2012 increased to $3.8 million, or $0.15 per diluted share, compared with $3.2 million, or $0.13 per diluted share, in the first quarter of 2011.

Total cash, cash equivalents and marketable securities were $111.2 million at the end of the first quarter, an increase of $3.5 million from the fourth quarter. The company generated cash flow from operations of $2.5 million.

Financial Outlook

For the full year 2012, the company now expects revenues to be between $213 and $217 million. Professional services revenues are expected to be in the mid $40 million range. Non-GAAP operating income is now expected to be between $51.5 and $54.5 million. Based on current estimates, this would equate to GAAP operating income between $32.0 and $35.0 million. Non-GAAP net income is now expected to be between $32.5 and $35.5 million. Based on current estimates, this would equate to GAAP net income between $19.5 and $22.5 million. The company now expects adjusted non-GAAP net income, which includes tax impact, primarily on stock-based compensation and amortization at a 40% effective tax rate, to be between $27.0 and $30.0 million.

Remaining application services backlog as of March 31, 2012 increased 34% to $107 million over the comparable period a year ago. This compares with a 2% decline in remaining application services backlog as of March 31, 2011 over the comparable prior period. The difference between the application services backlog and the balance of revenue guidance for the remainder of the year includes professional services revenue guidance and expected additional business from new and existing customers.

For the second quarter of 2012, the company expects revenues to be between $51.5 and $52.5 million. The company expects non-GAAP operating income to be between $10.0 and $11.0 million. Based on current estimates this would equate to GAAP operating income of $5.0 and $6.0 million. Non-GAAP net income is expected to be between $6.0 and $7.0 million. Based on current estimates, this would equate to GAAP net income of between $3.0 and $4.0 million. The company expects adjusted non-GAAP net income, which includes tax impact, primarily on stock-based compensation and amortization at a 40% effective tax rate, to be between $5.0 and $6.0 million.

While changes in the stock price could change the fully diluted share count, the company is assuming 25.3 and 25.4 million fully diluted shares in the second quarter and full year, respectively.

"Medidata's strong start to the year and record quarterly revenues reinforce our belief that we are well positioned to achieve our long-term top line growth targets," said Cory Douglas, chief financial officer. "Our business momentum continues to build based on our record remaining application services backlog, growing market leadership and our team's great progress delivering the Medidata clinical cloud."

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, May 15, 2012 by dialing 800-585-8367 domestically or 404-537-3406 internationally, with the passcode 71377444. 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 cloud-based 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, 2011. 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 intangible assets associated with acquisitions, stock-based compensation expense, and adjustment to the fair value of contingent consideration. Non-GAAP net income excludes the impact of amortization of intangible assets associated with acquisitions, stock-based compensation expense, and adjustment to the fair value of contingent consideration. Adjusted non-GAAP net income excludes the impact of tax affected amortization of intangible assets associated with acquisitions, stock-based compensation expense and adjustment to the fair value of contingent consideration. 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

March 31,

  2012     2011  
 
Revenues
Application services $ 38,396 $ 33,405
Professional services   11,963     7,352  
Total revenues 50,359 40,757
 
Cost of revenues(1)(2)
Application services 7,484 7,142
Professional services   7,131     5,946  
Total cost of revenues 14,615 13,088
 
Gross profit 35,744 27,669
 
Operating costs and expenses:
Research and development(1) 9,955 7,162
Sales and marketing(1)(2) 10,383 7,947
General and administrative(1)   9,290     9,086  
 
Total operating costs and expenses   29,628     24,195  
 
Operating income 6,116 3,474
 
Interest and other income (expense):
Interest expense (21 ) (36 )
Interest income 71 88
Other income (expense), net   -     28  
 
Total interest and other income (expense), net   50     80  
 
Income before income taxes 6,166 3,554
 
Provision for income taxes   2,396     368  
 
Net income $ 3,770   $ 3,186  
 
Earnings per share:
Basic $ 0.16   $ 0.14  
Diluted $ 0.15   $ 0.13  
 
Weighted average common shares outstanding:
Basic 24,017 23,411
Diluted 24,842 24,799
 
(1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues

$

295

$

236
Research and development 192 120
Sales and marketing 564 415
General and administrative   1,103     969  
Total stock-based compensation $ 2,154   $ 1,740  
 
(2) Amortization expense of intangible assets included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues

$

318

$

237
Sales and marketing   129     124  
Total amortization of intangible assets $ 447   $ 361  

 
 
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

March 31,

2012 2011
 
Operating income:
GAAP operating income $ 6,116 $ 3,474
GAAP operating margins 12.1 % 8.5 %
 
Stock-based compensation 2,154 1,740
Depreciation and amortization 1,994 2,022
Contingent consideration adjustment(1)   80     -  
 
Non-GAAP operating income $ 10,344   $ 7,236  
Non-GAAP operating margins   20.5 %   17.8 %
 
 
Net income:
GAAP net income $ 3,770 $ 3,186
 
Stock-based compensation 2,154 1,740
Amortization 447 361
Contingent consideration adjustment(1)   80     -  
 
Non-GAAP net income 6,451 5,287
 
Tax impact on add-back items(2)   (1,072 )   -  
 
Adjusted non-GAAP net income $ 5,379   $ 5,287  
 
GAAP basic earnings per share $ 0.16   $ 0.14  
GAAP diluted earnings per share $ 0.15   $ 0.13  
 
Non-GAAP basic earnings per share $ 0.27   $ 0.23  
Non-GAAP diluted earnings per share $ 0.26   $ 0.21  
 
Adjusted non-GAAP basic earnings per share $ 0.22   $ 0.23  
Adjusted non-GAAP diluted earnings per share $ 0.22   $ 0.21  
 
(1) Amount represents the effect of changes in fair value of contingent consideration liability.
(2) Tax impact calculated using a 40% tax rate.

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 ended March 31, 2012 and 2011. Non-GAAP operating income excludes the impact of depreciation, amortization of intangible assets associated with acquisitions, stock-based compensation expense, and adjustment to the fair value of contingent consideration. Non-GAAP net income excludes the impact of amortization of intangible assets associated with acquisitions, stock-based compensation expense, and adjustment to the fair value of contingent consideration. Adjusted non-GAAP net income excludes the impact of tax affected amortization of intangible assets associated with acquisitions, stock-based compensation expense, and adjustment to the fair value of contingent consideration.

 
 
MEDIDATA SOLUTIONS, INC.
         
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Amounts in thousands, except per share data)
 
March 31,

2012

December 31,

2011

 
ASSETS
 
Current assets:
Cash and cash equivalents $ 58,387 $ 45,214
Marketable securities 52,840 62,463

Accounts receivable, net of allowance for doubtful accounts of $1,015
   and $882, respectively

30,727 22,970
Prepaid commission expense 2,011 1,743
Prepaid expenses and other current assets 4,761 4,380
Deferred income taxes   10,612     10,896  
 
Total current assets 159,338 147,666
 
Restricted cash 388 388
Furniture, fixtures and equipment, net 9,370 9,825
Goodwill 15,330 15,164
Intangible assets, net 3,040 3,425
Deferred income taxes- long-term 11,578 11,581
Other assets   1,673     1,786  
 
Total assets $ 200,717   $ 189,835  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 1,994 $ 3,861
Accrued payroll and other compensation 5,806 9,854
Accrued expenses and other 6,337 5,886
Deferred revenue 56,834 51,225
Capital lease obligations   78     114  
 
Total current liabilities   71,049     70,940  
 
Noncurrent liabilities:
Deferred revenue, less current portion 13,168 12,037
Deferred tax liabilities 612 629
Capital lease obligations, less current portion 142 136
Other long-term liabilities   2,013     1,976  
 
Total noncurrent liabilities   15,935     14,778  
 
Total liabilities   86,984     85,718  
 
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, 25,374 and 25,053
   shares issued; 25,205 and 24,888 shares outstanding, respectively

253 250
Additional paid-in capital 143,187 137,556
Treasury stock, 169 and 165 shares, respectively (2,236 ) (2,186 )
Accumulated other comprehensive loss (100 ) (362 )
Accumulated deficit   (27,371 )   (31,141 )
 
Total stockholders' equity   113,733     104,117  
 
Total liabilities and stockholders' equity $ 200,717   $ 189,835  

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

Three Months Ended
March 31,

  2012     2011  
 
Cash flows from operating activities:
Net income $ 3,770 $ 3,186
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,994 2,022
Stock-based compensation 2,154 1,740
Amortization of discounts or premiums on marketable securities 317 245
Excess tax benefit associated with equity awards (1,264 ) -
Deferred income taxes 272 14
Amortization of debt issuance costs 15 15
Contingent consideration adjustment 80 -
Changes in operating assets and liabilities:
Accounts receivable (5,758 ) 4,586
Prepaid commission expense (321 ) (23 )
Prepaid expenses and other current assets (97 ) 162
Other assets (133 ) (446 )
Accounts payable (1,438 ) 68
Accrued payroll and other compensation (4,048 ) (6,946 )
Accrued expenses and other 2,107 466
Deferred revenue 4,941 700
Other long-term liabilities   (43 )   (29 )
 
Net cash provided by operating activities   2,548     5,760  
 
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (1,821 ) (495 )
Purchases of available-for-sale marketable securities (20,440 ) (21,909 )
Proceeds from sale of available-for-sale marketable securities   29,757     36,567  
 
Net cash provided by investing activities   7,496     14,163  
 
Cash flows from financing activities:
Proceeds from exercise of stock options 2,216 824
Excess tax benefit associated with equity awards 1,264
Payment of acquisition-related earn-out (251 ) -
Acquisition of treasury stock (50 ) -
Repayment of obligations under capital leases   (56 )   (282 )
 
Net cash provided by financing activities   3,123     542  
 
Net increase in cash and cash equivalents 13,167 20,465
 
Effect of exchange rate changes on cash and cash equivalents 6 29
 
Cash and cash equivalents — Beginning of period   45,214     16,025  
 
Cash and cash equivalents — End of period $ 58,387   $ 36,519  

Investor Contact:
Medidata Solutions
Hulus Alpay, 212-419-1025
halpay@mdsol.com
or
Media Contact:
Lois Paul and Partners
Susan McCarron, 617-986-5767
susan_mccarron@lpp.com

Source: Medidata Solutions

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