Medidata Solutions, Inc.
10/31/12

Medidata Solutions Reports Third 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 third quarter of 2012, and provided detailed financial guidance for the fourth quarter and full year 2012.

"Medidata's sales execution, healthy top-line growth and robust fourth quarter pipeline are proof that the aggressive investment strategy we initiated earlier this year, focused on expanding our product footprint and our sales coverage and capabilities, is paying off," said Tarek Sherif, Medidata's chief executive officer. "This quarter, we signed significant commitments with several top 25 life sciences companies, including Sanofi and Otsuka Pharmaceutical. In combination with accelerating multi-product adoption by new and existing customers, it is clear that life sciences companies are increasingly relying on the Medidata Clinical Cloud to achieve improved productivity and competitive advantage in their clinical development efforts."

Third Quarter and Year to Date Highlights

Mr. Sherif continued, "We have been investing to extend our cloud-based platform, expand our addressable market from $2 billion around the time of our IPO to $6 billion today and drive our continued momentum. Given the fundamentals in our industry, our proven ability to execute and accelerating customer commitments, and despite a challenging economic environment, Medidata is well positioned for strong revenue growth in the fourth quarter and in 2013."

Financial Highlights

Revenues for the third quarter of 2012 increased 21% to a record $55.8 million, compared with $46.3 million in the third quarter of 2011. Application services revenues for the third quarter of 2012 increased 22% year over year and 6% sequentially to $44.0 million.

Gross margins in the third quarter of 2012 were 72%, an increase of one percentage point over gross margins of 71% a year ago.

Operating expenses in the third quarter increased 3% sequentially to $33.1 million and 31% compared to the third quarter last year, primarily due to growth related initiatives. These include increased staffing-related costs in R&D, higher sales compensation and sales-related expense, and certain charges in G&A related to higher professional fees and miscellaneous charges.

GAAP operating income for the third quarter of 2012 increased 20% sequentially to $6.8 million, compared with $5.7 million in the second quarter. Non-GAAP operating income* for the quarter increased 7% sequentially to $11.8 million, compared with $11.0 million in the second quarter.

GAAP net income for the third quarter of 2012 increased 12% sequentially to $4.1 million, or $0.16 per diluted share, compared with $3.6 million, or $0.14 per diluted share, in the second quarter. Non-GAAP net income* for the third quarter of 2012 increased 2% sequentially to $7.5 million, or $0.29 per diluted share, compared with $7.3 million, or $0.29 per diluted share, in the second quarter. Adjusted non-GAAP net income* for the third quarter of 2012 increased 5% sequentially to $6.1 million, or $0.24 per diluted share, compared with $5.8 million, or $0.23 per diluted share, in the second quarter.

Total cash, cash equivalents and marketable securities were $123.6 million at the end of the third quarter, an increase of $15.9 million from the beginning of 2012. Year to date, the company generated cash flow from operations of $16.7 million, including $8.5 million in the third quarter.

Financial Outlook

For the full year 2012, the company expects:

Application services backlog for the remainder of the year, as of September 30, 2012, was $44 million, an increase of 31% over the comparable period a year ago. This compares with a 5% increase in remaining application services backlog as of September 30, 2011 over the comparable period in 2010. 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 fourth quarter of 2012, the company expects:

"During the quarter we hired ahead of plan in R&D and incurred higher sales compensation expense due to our sales organization's outperformance. Our revenue growth in excess of our long-term growth target for the remainder of the year clearly supports our investment strategy. We now expect 23-27% year over year top line growth in the fourth quarter," said Cory Douglas, Medidata's chief financial officer.

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 Wednesday, November 14, 2012 by dialing 800-585-8367 domestically or 404-537-3406 internationally, with the passcode 40140106. 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
September 30,
Nine Months Ended
September 30,
  2012     2011     2012     2011  
 
Revenues
Application services $ 43,973 $ 35,940 $ 123,910 $ 108,372
Professional services   11,872     10,365     35,807     28,892  
Total revenues 55,845 46,305 159,717 137,264
 
Cost of revenues (1)(2)
Application services 8,402 7,279 24,099 21,471
Professional services   7,497     6,224     22,190     18,476  
Total cost of revenues 15,899 13,503 46,289 39,947
 
Gross profit 39,946 32,802 113,428 97,317
 
Operating costs and expenses:
Research and development(1) 11,239 7,306 31,822 21,511
Sales and marketing (1)(2) 12,147 8,788 34,793 26,519
General and administrative (1)   9,721     9,140     28,170     27,522  
Total operating costs and expenses   33,107     25,234     94,785     75,552  
 
Operating income 6,839 7,568 18,643 21,765
 
Interest and other (expense) income:
Interest expense (71 ) (30 ) (120 ) (97 )
Interest income 65 64 196 227
Other (expense) income, net   (7 )   244     (17 )   242  
Total interest and other (expense) income, net   (13 )   278     59     372  
 
Income before income taxes 6,826 7,846 18,702 22,137
 
Provision for income taxes   2,773     364     7,275     1,472  
 
Net income $ 4,053   $ 7,482   $ 11,427   $ 20,665  
 
Earnings per share:
Basic $ 0.16   $ 0.32   $ 0.47   $ 0.88  
Diluted $ 0.16   $ 0.31   $ 0.45   $ 0.84  
 
Weighted average common shares outstanding:
Basic 24,773 23,752 24,400 23,579
Diluted 25,682 24,491 25,292 24,683
 
(1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues $ 483 $ 361 $ 1,292 $ 922
Research and development 289 226 787 523
Sales and marketing 761 553 2,128 1,464
General and administrative   1,318     1,297     3,956     3,564  
Total stock-based compensation $ 2,851   $ 2,437   $ 8,163   $ 6,473  
 
(2) Amortization expense of intangible assets included in costs of revenues and operating costs and expenses is as follows:
Cost of revenues $ 318 $ 318 $ 955 $ 770
Sales and marketing   129     126     387     374  
Total amortization of intangible assets $ 447   $ 444   $ 1,342   $ 1,144  

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,
  2012     2011     2012     2011  
 
Operating income:
GAAP operating income $ 6,839 $ 7,568 $ 18,643 $ 21,765
GAAP operating margins 12.3 % 16.4 % 11.7 % 15.8 %
Stock-based compensation 2,851 2,437 8,163 6,473
Depreciation and amortization 1,969 1,940 5,997 5,902
Contingent consideration adjustment (1)   117     -     277     -  
 
Non-GAAP operating income $ 11,776   $ 11,945   $ 33,080   $ 34,140  
Non-GAAP operating margins   21.1 %   25.8 %   20.7 %   24.9 %
 
Net income:
GAAP net income $ 4,053 $ 7,482 $ 11,427 $ 20,665
Stock-based compensation 2,851 2,437 8,163 6,473
Amortization 447 444 1,342 1,144
Contingent consideration adjustment (1)   117     -     277     -  
 
Non-GAAP net income 7,468 10,363 21,209 28,282
 
Tax impact on add-back items (2)   (1,366 )   -     (3,913 )   -  
 
Adjusted non-GAAP net income $ 6,102   $ 10,363   $ 17,296   $ 28,282  
 
GAAP basic earnings per share $ 0.16   $ 0.32   $ 0.47   $ 0.88  
GAAP diluted earnings per share $ 0.16   $ 0.31   $ 0.45   $ 0.84  
 
Non-GAAP basic earnings per share $ 0.30   $ 0.44   $ 0.87   $ 1.20  
Non-GAAP diluted earnings per share $ 0.29   $ 0.42   $ 0.84   $ 1.15  
 
Adjusted Non-GAAP basic earnings per share $ 0.25   $ 0.44   $ 0.71   $ 1.20  
Adjusted Non-GAAP diluted earnings per share $ 0.24   $ 0.42   $ 0.68   $ 1.15  
 
(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 nine months ended September 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 SHEETS (Unaudited)
 
(Amounts in thousands, except per share data)
 
September 30, 2012 December 31, 2012
ASSETS
 
Current assets:
Cash and cash equivalents $ 37,404 $ 45,214
Marketable securities 86,230 62,463
Accounts receivable, net of allowance for doubtful accounts of $688 and $882, respectively 31,627 22,970
Prepaid commission expense 2,032 1,743
Prepaid expenses and other current assets 7,853 4,380
Deferred income taxes   5,401     10,896  
 
Total current assets 170,547 147,666
 
Restricted cash 388 388
Furniture, fixtures and equipment, net 9,233 9,825
Goodwill 15,386 15,164
Intangible assets, net 2,159 3,425
Deferred income taxes, long-term 11,563 11,581
Other assets   2,929     1,786  
 
Total assets $ 212,205   $ 189,835  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 3,640 $ 3,861
Accrued payroll and other compensation 10,833 9,854
Accrued expenses and other 5,806 5,886
Deferred revenue 49,926 51,225
Capital lease obligations   57     114  
 
Total current liabilities   70,262     70,940  
 
Noncurrent liabilities:
Deferred revenue, less current portion 11,488 12,037
Deferred tax liabilities 627 629
Capital lease obligations, less current portion 114 136
Other long-term liabilities   1,004     1,976  
 
Total noncurrent liabilities   13,233     14,778  
 
Total liabilities   83,495     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, 26,247 and 25,053 shares
  issued; 25,890 and 24,888 shares outstanding, respectively

262 250
Additional paid-in capital 153,639 137,556
Treasury stock, 357 and 165 shares, respectively (5,626 ) (2,186 )
Accumulated other comprehensive income (loss) 149 (362 )
Accumulated deficit   (19,714 )   (31,141 )
 
Total stockholders' equity   128,710     104,117  
 
Total liabilities and stockholders' equity $ 212,205   $ 189,835  

MEDIDATA SOLUTIONS, INC.
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
(Amounts in thousands)
Nine Months Ended September 30,
 
  2012     2011  
Cash flows from operating activities:
Net income $ 11,427 $ 20,665
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,997 5,902
Stock-based compensation 8,163 6,473
Amortization of discounts or premiums on marketable securities 1,032 944
Deferred income taxes 5,493 (113 )
Amortization of debt issuance costs 45 45
Excess tax benefit associated with equity awards (957 ) -
Contingent consideration adjustment 277 -
Changes in operating assets and liabilities:
Accounts receivable (5,689 ) 14,949
Prepaid commission expense (841 ) 785
Prepaid expenses and other current assets (2,538 ) 318
Other assets (1,525 ) (509 )
Accounts payable (646 ) (251 )
Accrued payroll and other compensation 979 (2,920 )
Accrued expenses and other 388 (26 )
Deferred revenue (4,652 ) (19,963 )
Other long-term liabilities   (251 )   (43 )
 
Net cash provided by operating activities   16,702     26,256  
 
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (3,923 ) (2,896 )
Purchase of available-for-sale marketable securities (84,758 ) (93,918 )
Proceeds from sale of available-for-sale marketable securities 60,007 85,712
Acquisition of business, net of cash acquired - (5,166 )
Decrease in restricted cash   -     144  
 
Net cash used in investing activities   (28,674 )   (16,124 )
 
Cash flows from financing activities:
Proceeds from exercise of stock options 6,975 2,202
Excess tax benefit associated with equity awards 957 -
Payment of acquisition-related earn-out (251 ) -
Repayment of obligations under capital leases (105 ) (605 )
Acquisition of treasury stock   (3,440 )   (1,712 )
 
Net cash provided by (used in) financing activities   4,136     (115 )
 
Net (decrease) increase in cash and cash equivalents (7,836 ) 10,017
Effect of exchange rate changes on cash and cash equivalents 26 7
Cash and cash equivalents - Beginning of period   45,214     16,025  
Cash and cash equivalents - End of period $ 37,404   $ 26,049  

Medidata Solutions
Investor Contact:
Hulus Alpay, 212-419-1025
halpay@mdsol.com
or
Media Contact:
Lineene Krasnow, 212-918-1761
lkrasnow@mdsol.com

Source: Medidata Solutions

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