Medidata Solutions, Inc.
07/31/12

Medidata Solutions Reports Second Quarter 2012 Results

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

The company also announced a significant contract with a division of a top ten pharmaceutical company, an existing customer, which selected Medidata's clinical cloud for its global clinical technology needs. The largest contract in Medidata's history, the contract is worth in excess of $100 million over five years inclusive of a multi-year adoption ramp and assuming certain options are exercised. This milestone transaction provides Medidata's customer with access to its entire platform, enabling operational innovation in clinical development across all business processes and roles.

"Medidata's stellar second quarter results clearly demonstrate the value of our cloud-based platform, evidenced by significant customer growth and a landmark nine-figure contract. Our execution is reshaping the competitive landscape and in the process building sustainable competitive advantage for Medidata," said Tarek Sherif, Medidata's chief executive officer. "We are in the early stages of an adoption cycle for cloud-based solutions and will continue to invest in our mission to become the technology backbone of the clinical development process. Our business model, platform interoperability and customer responsiveness underpin our business goals of enabling life science companies to bring their drugs to market with shorter timelines, lower cost and less risk, while supporting our ability to innovate and build value. We are transforming clinical development operations and ultimately creating competitive advantage for our customers."

Second Quarter Highlights

Mr. Sherif continued, "Sales were strong across the board this quarter, providing solid backlog as we enter the second half of the year. This, combined with our large pipeline of opportunities, is driving our accelerating momentum despite current macroeconomic headwinds, positioning us well for the remainder of 2012."

Financial Highlights

Revenues for the second quarter of 2012 were a record $53.5 million, compared with $50.2 million in the second quarter of 2011. Year to date, revenues increased 19% over the comparable period, excluding the one-time $3.5 million acceleration of revenue in the second quarter of 2011. Application services revenues for the second quarter of 2012 increased approximately $2.5 million year over year or 8% sequentially to $41.5 million.

Gross margins in the second quarter of 2012 of 71% were flat versus a year ago, adjusted for the one-time acceleration of revenue.

Second quarter 2012 operating and net income figures reflect increased investments in R&D and sales and marketing. Second quarter 2012 net income figures also reflect increased income taxes resulting from a higher effective tax rate. Second quarter 2011 operating income and net income figures include the one-time acceleration of revenue.

GAAP operating income for the second quarter of 2012 was $5.7 million, compared with $10.7 million a year ago. Non-GAAP operating income* for the quarter was $11.0 million, compared with $15.0 million a year ago.

GAAP net income for the second quarter of 2012 was $3.6 million, or $0.14 per diluted share, compared with $10.0 million, or $0.40 per diluted share, in the second quarter of 2011. Non-GAAP net income* for the second quarter of 2012 was $7.3 million, or $0.29 per diluted share, compared with $12.6 million, or $0.51 per diluted share, in the second quarter of 2011. Adjusted non-GAAP net income* for the second quarter of 2012 was $5.8 million, or $0.23 per diluted share, compared with $12.6 million, or $0.51 per diluted share, in the second quarter of 2011.

Total cash, cash equivalents and marketable securities were $113.9 million at the end of the second quarter, an increase of $6.2 million from the fourth quarter 2011. Year to date, the company generated cash flow from operations of $8.2 million.

Financial Outlook

For the full year 2012, the company expects revenues to be between $217 and $219 million, compared with prior guidance of $213 and $217 million. Professional services revenues are expected to be in the high $40.0 million range. Non-GAAP operating income is now expected to be between $52.0 and $54.5 million, compared with prior guidance of between $51.5 and $54.5 million. Based on current estimates, this would equate to GAAP operating income between $32.5 and $35.0 million. Non-GAAP net income is now expected to be between $33.0 and $35.5 million, compared with prior guidance of between $32.5 and $35.5 million. Based on current estimates, this would equate to GAAP net income between $20.0 and $22.5 million. The company now expects adjusted non-GAAP net income, which includes tax impact, primarily from stock-based compensation and amortization at a 40% effective tax rate, to be between $27.5 and $30.0 million, compared with prior guidance of between $27.0 and $30.0 million.

Remaining application services backlog as of June 30, 2012 increased to $80 million, an increase of 28% over the comparable period a year ago. This compares with a 4% increase in remaining application services backlog as of June 30, 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 third quarter of 2012, the company expects revenues to be between $55.5 and $56.5 million. The company expects non-GAAP operating income to be between $14.0 and $15.0 million. Based on current estimates this would equate to GAAP operating income of between $9.0 and $10.0 million. Non-GAAP net income is expected to be between $8.5 and $9.5 million. Based on current estimates, this would equate to GAAP net income of between $5.0 and $6.0 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 $7.5 and $8.5 million.

While changes in the stock price could change the fully diluted share count, the company is assuming 25.7 and 25.4 million fully diluted shares in the third quarter and full year, respectively.

"The Medidata team continued its outstanding execution this quarter with our record-setting results serving as the latest proof points," said Cory Douglas, Medidata's chief financial officer. "We expect to continue to drive revenue growth through strategic investments in innovation and in our global sales organization while maintaining our historic focus on strong margins and cash generation. Reflecting the increased momentum we see in our business, we are pleased to once again raise our full year revenue outlook."

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 14, 2012 by dialing 800-585-8367 domestically or 404-537-3406 internationally, with the passcode 97331788. 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

June 30,

Six Months Ended

June 30,

  2012     2011     2012     2011  
 
Revenues
Application services $ 41,541 $ 39,027 $ 79,937 $ 72,432
Professional services   11,972     11,175     23,935     18,527  
Total revenues 53,513 50,202 103,872 90,959
 
Cost of revenues(1)(2)
Application services 8,213 7,050 15,697 14,192
Professional services   7,562     6,306     14,693     12,252  
Total cost of revenues 15,775 13,356 30,390 26,444
 
Gross profit 37,738 36,846 73,482 64,515
 
Operating costs and expenses:
Research and development(1) 10,628 7,043 20,583 14,205
Sales and marketing(1)(2) 12,263 9,784 22,646 17,731
General and administrative(1)   9,159     9,296     18,449     18,382  
 
Total operating costs and expenses   32,050     26,123     61,678     50,318  
 
Operating income 5,688 10,723 11,804 14,197
 
Interest and other income (expense):
Interest expense (28 ) (31 ) (49 ) (67 )
Interest income 60 75 131 163
Other expense, net   (10 )   (30 )   (10 )   (2 )
 
Total interest and other income, net   22     14     72     94  
 
Income before income taxes 5,710 10,737 11,876 14,291
 
Provision for income taxes   2,106     740     4,502     1,108  
 
Net income $ 3,604   $ 9,997   $ 7,374   $ 13,183  
 
Earnings per share:
Basic $ 0.15   $ 0.42   $ 0.30   $ 0.56  
Diluted $ 0.14   $ 0.40   $ 0.29   $ 0.53  
 
Weighted average common shares outstanding:
Basic 24,406 23,571 24,212 23,491
Diluted 25,277 24,790 25,082 24,798
 
(1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
 
Cost of revenues $ 514 $ 325 $ 809 $ 561
Research and development 307 177 498 297
Sales and marketing 803 496 1,367 911
General and administrative   1,534     1,298     2,638     2,267  
Total stock-based compensation $ 3,158   $ 2,296   $ 5,312   $ 4,036  
 
(2) Amortization expense of intangible assets included in cost of revenues and operating costs and expenses is as follows:
 
Cost of revenues $ 319 $ 215 $ 637 $ 452
Sales and marketing   129     124     258     248  
Total amortization of intangible assets $ 448   $ 339   $ 895   $ 700  

 
 
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

June 30,

Six Months Ended

June 30,

2012   2011   2012   2011  
 
Operating income:
GAAP operating income $ 5,688 $ 10,723 $ 11,804 $ 14,197
GAAP operating margins 10.7 % 21.4 % 11.4 % 15.6 %
 
Stock-based compensation 3,158 2,296 5,312 4,036
Depreciation and amortization 2,034 1,940 4,028 3,962
Contingent consideration adjustment(1)   80     -     160     -  
 
Non-GAAP operating income $ 10,960   $ 14,959   $ 21,304   $ 22,195  
Non-GAAP operating margins   20.5 %   29.8 %   20.5 %   24.4 %
 
Net income:
GAAP net income $ 3,604 $ 9,997 $ 7,374 $ 13,183
 
Stock-based compensation 3,158 2,296 5,312 4,036
Amortization 448 339 895 700
Contingent consideration adjustment(1)   80     -     160     -  
 
Non-GAAP net income 7,290 12,632 13,741 17,919
 
 
Tax impact on add-back items(2)   (1,475 )   -     (2,547 )   -  
 
Adjusted non-GAAP net income $ 5,815   $ 12,632   $ 11,194   $ 17,919  
 
GAAP basic earnings per share $ 0.15   $ 0.42   $ 0.30   $ 0.56  
GAAP diluted earnings per share $ 0.14   $ 0.40   $ 0.29   $ 0.53  
 
Non-GAAP basic earnings per share $ 0.30   $ 0.54   $ 0.57   $ 0.76  
Non-GAAP diluted earnings per share $ 0.29   $ 0.51   $ 0.55   $ 0.72  
 
Adjusted non-GAAP basic earnings per share $ 0.24   $ 0.54   $ 0.46   $ 0.76  
Adjusted non-GAAP diluted earnings per share $ 0.23   $ 0.51   $ 0.45   $ 0.72  
 
(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 and six months ended June 30, 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)
 
June 30,

2012

December 31,

2011

ASSETS
 
Current assets:
Cash and cash equivalents $ 58,723 $ 45,214
Marketable securities 55,177 62,463
Accounts receivable, net of allowance for doubtful accounts of $928 and $882, respectively 36,067 22,970
Prepaid commission expense 2,013 1,743
Prepaid expenses and other current assets 7,664 4,380
Deferred income taxes   7,563     10,896  
 
Total current assets 167,207 147,666
 
Restricted cash 388 388
Furniture, fixtures and equipment, net 9,183 9,825
Goodwill 15,214 15,164
Intangible assets, net 2,552 3,425
Deferred income taxes- long-term 11,582 11,581
Other assets   2,569     1,786  
Total assets $ 208,695   $ 189,835  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 2,324 $ 3,861
Accrued payroll and other compensation 9,146 9,854
Accrued expenses and other 5,346 5,886
Deferred revenue 58,723 51,225
Capital lease obligations   63     114  
 
Total current liabilities   75,602     70,940  
 
Noncurrent liabilities:
Deferred revenue, less current portion 11,385 12,037
Deferred tax liabilities 622 629
Capital lease obligations, less current portion 128 136
Other long-term liabilities   1,911     1,976  
 
Total noncurrent liabilities   14,046     14,778  
 
Total liabilities   89,648     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, 26,000 and 25,053
shares issued; 25,667 and 24,888 shares outstanding, respectively 260 250
Additional paid-in capital 148,171 137,556
Treasury stock, 333 and 165 shares, respectively (5,314 ) (2,186 )
Accumulated other comprehensive loss (303 ) (362 )
Accumulated deficit   (23,767 )   (31,141 )
 
Total stockholders' equity   119,047     104,117  
 
Total liabilities and stockholders' equity $ 208,695   $ 189,835  

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

June 30,

  2012     2011  
 
Cash flows from operating activities:
Net income $ 7,374 $ 13,183
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,028 3,962
Stock-based compensation 5,312 4,036
Amortization of discounts or premiums on marketable securities 601 583
Excess tax benefit associated with equity awards (677 ) -
Deferred income taxes 3,328 (128 )
Amortization of debt issuance costs 30 30
Contingent consideration adjustment 160 -
Changes in operating assets and liabilities:
Accounts receivable (10,667 ) 6,428
Prepaid commission expense (245 ) 455
Prepaid expenses and other current assets (2,670 ) 257
Other assets (1,406 ) (508 )
Accounts payable (1,238 ) (1,319 )
Accrued payroll and other compensation (708 ) (4,327 )
Accrued expenses and other 656 1,268
Deferred revenue 4,570 (12,326 )
Other long-term liabilities   (225 )   (43 )
 
Net cash provided by operating activities   8,223     11,551  
 
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (3,245 ) (1,878 )
Purchases of available-for-sale marketable securities (36,323 ) (70,273 )
Proceeds from sale of available-for-sale marketable securities 43,007 66,723
Decrease in restricted cash   -     144  
 
Net cash provided by (used in) investing activities   3,439     (5,284 )
 
Cash flows from financing activities:
Proceeds from exercise of stock options 4,636 1,576
Excess tax benefit associated with equity awards 677 -
Payment of acquisition-related earn-out (251 ) -
Acquisition of treasury stock (3,128 ) (1,624 )
Repayment of obligations under capital leases   (85 )   (471 )
 
Net cash provided by (used in) financing activities   1,849     (519 )
 
Net increase in cash and cash equivalents 13,511 5,748
 
Effect of exchange rate changes on cash and cash equivalents (2 ) 10
 
Cash and cash equivalents — Beginning of period   45,214     16,025  
 
Cash and cash equivalents — End of period $ 58,723   $ 21,783  

Investor Contact:
Medidata Solutions
Hulus Alpay, 212-419-1025
halpay@mdsol.com
or
Media Contact:
Lois Paul and Partners
Brittany Cusick, 617-986-5833
brittany_cusick@lpp.com

Source: Medidata Solutions

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