Medidata Solutions, Inc.
10/28/14

Medidata Reports Record Third Quarter 2014 Revenues

NEW YORK--(BUSINESS WIRE)-- Medidata (NASDAQ: MDSO), the leading global provider of cloud-based solutions for clinical research in life sciences, today announced its financial results for the third quarter of 2014 and revised its 2014 guidance.

"In the third quarter, our execution led to good revenue growth, profitability, cash flow and healthy margin expansion. We also continue to win market share. However, we didn't achieve the revenue level we had targeted due to timing delays on deals in our pipeline. It's important to keep this in context given all of the positive developments during the quarter and year to date," said Tarek Sherif, Medidata's chairman and chief executive officer. "Our clinical cloud platform, which we enhanced with a strategic acquisition after the close of the quarter, is seeing strong interest as clients globally look to transform clinical development and drive more value from their R&D investments. Our sales pipeline remains at record levels and we are making good progress on opportunities that will contribute to our future growth."

Third Quarter 2014 Results

Additional Highlights

"The third quarter marked our 9th consecutive quarter of year-over-year total revenue growth in excess of 20% and was within our long-term total revenue growth target of 20 to 25%," said Cory Douglas, Medidata's chief financial officer. "We remain focused on delivering a strong finish to the year and continue to make strategic investments according to plan while generating significant profitability and cash flow."

Financial Outlook

For the full year 2014, the company now expects:

***The current estimated GAAP equivalents to our non-GAAP outlook include the impact of a pre-tax charge of $4.9 million associated with a previously announced international wire transfer fraud committed against the company and the related investigation costs at the end of the third quarter.

Conference Call

The company plans to host its investor conference call today at 8:00 a.m. Eastern time. 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 11, 2014, by dialing 800-585-8367 domestically or 404-537-3406 internationally, with the passcode 17067662. 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

Medidata is the leading global provider of cloud-based solutions for clinical research in life sciences, transforming clinical development through its advanced applications and intelligent data analytics. The Medidata Clinical Cloud™ brings new levels of productivity and quality to the clinical testing of promising medical treatments, from study design and planning through execution, management and reporting. We are committed to advancing the competitive and scientific goals of global customers, which include over 90% of the top 25 global pharmaceutical companies; innovative biotech, diagnostic and device firms; leading academic medical centers; and contract research organizations.

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, 2013. 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.

*For the third quarter of 2014, GAAP results and cash flow from operations include a pre-tax charge of $4.9 million associated with a previously announced international wire transfer fraud committed against the company and related investigation costs. For additional details, refer to our Current Report on Form 8-K filed on September 25, 2014.

**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, wire transaction loss, and an 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, wire transaction loss, an adjustment to the fair value of contingent consideration, and non-cash interest expense on convertible senior notes. 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, amortization and other non-cash charges, such as share-based compensation, and management believes, based on discussions with investors, that these non-GAAP measures enhance investors' ability to assess Medidata's historical and projected 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,
2014   2013 2014   2013
Revenues
Subscription $ 71,547 $ 57,946 $ 204,305 $ 164,944
Professional services 14,449   13,000   41,554   37,330  
Total revenues 85,996 70,946 245,859 202,274
Cost of revenues (1)(2)
Subscription 11,413 9,344 33,720 27,318
Professional services 9,582   7,918   29,048   23,993  
Total cost of revenues 20,995 17,262 62,768 51,311
Gross profit 65,001 53,684 183,091 150,963
Operating costs and expenses:
Research and development (1) 17,677 13,130 52,777 37,140
Sales and marketing (1)(2) 21,004 15,445 62,161 46,187
General and administrative (1) 17,865 15,633 52,284 42,232
Wire transaction loss (3) 4,880     4,880    
Total operating costs and expenses 61,426   44,208   172,102   125,559  
Operating income 3,575 9,476 10,989 25,404
Interest and other income (expense):
Interest expense (3,849 ) (2,133 ) (11,457 ) (2,178 )
Interest income 465 109 1,280 244
Other (expense) income, net   (226 ) 6   (82 )
Total interest and other expense, net (3,384 ) (2,250 ) (10,171 ) (2,016 )
Income before income taxes 191 7,226 818 23,388
Provision for income taxes 30   1,953   176   7,309  
Net income $ 161   $ 5,273   $ 642   $ 16,079  
Earnings per share:
Basic (4) $ 0.00   $ 0.10   $ 0.01   $ 0.32  
Diluted (4) $ 0.00   $ 0.10   $ 0.01   $ 0.30  
Weighted average common shares outstanding:
Basic (4) 52,772 51,448 52,448 50,850
Diluted (4) 55,069 54,000 55,064 53,504
(1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues $ 1,072 $ 665 $ 3,171 $ 1,990
Research and development 988 454 2,717 1,539
Sales and marketing 2,200 1,597 5,611 4,541
General and administrative 5,845   4,400   16,935   11,375  
Total stock-based compensation $ 10,105   $ 7,116   $ 28,434   $ 19,445  
(2) Amortization of intangible assets included in costs of revenues and operating costs and expenses is as follows:
Cost of revenues $ 109 $ 102 $ 328 $ 484
Sales and marketing 30   33   90   179  
Total amortization of intangible assets $ 139   $ 135   $ 418   $ 663  

(3) Operating costs and expenses for the three and nine months ended September 30, 2014 include a pre-tax charge of $4.9 million associated with a previously announced international wire transfer fraud committed against the company and the related investigation costs. For additional details, refer to our Current Report on Form 8-K filed September 25, 2014.

(4) Prior period results have been adjusted to reflect the two-for-one stock split which was effected in the form of a stock dividend in December 2013.

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

Non-GAAP Operating 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,
2014   2013 2014   2013
Operating income:
GAAP operating income $ 3,575 $ 9,476 $ 10,989 $ 25,404
GAAP operating margins 4.2 % 13.4 % 4.5 % 12.6 %
Stock-based compensation 10,105 7,116 28,434 19,445
Depreciation and amortization 2,640 1,564 7,784 4,888
Wire transaction loss (1) 4,880 4,880
Contingent consideration adjustment (2)   60     180  
Non-GAAP operating income $ 21,200   $ 18,216   $ 52,087   $ 49,917  
Non-GAAP operating margins 24.7 % 25.7 % 21.2 % 24.7 %
Net income:
GAAP net income $ 161 $ 5,273 $ 642 $ 16,079
Stock-based compensation 10,105 7,116 28,434 19,445
Amortization 139 135 418 663
Wire transaction loss (1) 4,880 4,880
Contingent consideration adjustment (2) 60 180
Non-cash interest expense on convertible senior notes (3) 3,111 1,696 9,273 1,696
Tax impact on add-back items (4) (7,294 ) (3,603 ) (17,202 ) (8,794 )
Adjusted non-GAAP net income $ 11,102   $ 10,677   $ 26,445   $ 29,269  
GAAP basic earnings per share (5) $ 0.00   $ 0.10   $ 0.01   $ 0.32  
GAAP diluted earnings per share (5) $ 0.00   $ 0.10   $ 0.01   $ 0.30  
Adjusted Non-GAAP basic earnings per share (5) $ 0.21   $ 0.21   $ 0.50   $ 0.58  
Adjusted Non-GAAP diluted earnings per share (5) $ 0.20   $ 0.20   $ 0.48   $ 0.55  

(1) Amount represents a pre-tax charge of $4.9 million associated with a previously announced international wire transfer fraud committed against the company and the related investigation costs. We exclude this amount for the purposes of calculating non-GAAP operating income and adjusted non-GAAP net income. We believe that excluding this loss from our non-GAAP measures is useful to investors because it is not indicative of our continuing operations or meaningful when comparing current results to past results.

(2) Amount represents the effect of changes in fair value of contingent consideration liability.
(3) Amount represents non-cash interest expense, including amortization of debt discount and issuance costs, on our 1.00% convertible senior notes issued during the third quarter of 2013. We exclude this incremental non-cash interest expense for purposes of calculating adjusted non-GAAP net income. We believe that excluding these expenses from our non-GAAP measures is useful to investors because such incremental non-cash interest expense does not generate a cash outflow for the company and the debt issuance costs do not represent a cash outflow for the company except in the period the notes were issued; therefore both are not indicative of our continuing operations.
(4) Tax impact calculated using a 40% tax rate.
(5) Prior period results have been adjusted to reflect the two-for-one stock split which was effected in the form of a stock dividend in December 2013.
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, 2014 and 2013. Non-GAAP operating income excludes the impact of depreciation, amortization of intangible assets associated with acquisitions, stock-based compensation expense, wire transaction loss, 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, wire transaction loss, adjustment to the fair value of contingent consideration, and non-cash interest expense on convertible senior notes.

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands, except per share data)
  September 30, 2014   December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 26,654 $ 22,328
Marketable securities 231,460 218,892
Accounts receivable, net of allowance for doubtful accounts of $1,311 and $1,055, respectively 50,898 45,534
Prepaid commission expense 3,325 3,615
Prepaid expenses and other current assets 15,347 13,511
Deferred income taxes 660   665  
Total current assets 328,344 304,545
Restricted cash 5,118 5,118
Furniture, fixtures and equipment, net 39,763 41,229
Marketable securities, long-term 185,890 195,105
Goodwill 15,409 15,487
Intangible assets, net 484 904
Deferred income taxes, long-term 3,435 345
Other assets 8,880   10,620  
Total assets $ 587,323   $ 573,353  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,713 $ 7,524
Accrued payroll and other compensation 14,695 27,773
Accrued expenses and other 9,471 12,265
Deferred revenue 55,158   52,628  
Total current liabilities 83,037   100,190  
Noncurrent liabilities:
1.00% convertible senior notes, net 238,020 229,705
Deferred revenue, less current portion 1,126 1,430
Deferred tax liabilities 136 5,651
Other long-term liabilities 15,867   10,564  
Total noncurrent liabilities 255,149   247,350  
Total liabilities 338,186   347,540  
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; 200,000 and 100,000 shares authorized, 55,962 and 55,018 shares issued; 54,119 and 53,634 shares outstanding, respectively 560 550
Additional paid-in capital 289,962 248,336
Treasury stock, 1,843 and 1,384 shares, respectively (44,899 ) (26,414 )
Accumulated other comprehensive loss (668 ) (199 )
Retained earnings 4,182   3,540  
Total stockholders' equity 249,137   225,813  
Total liabilities and stockholders' equity $ 587,323   $ 573,353  

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
  Nine Months Ended September 30,
2014   2013
Cash flows from operating activities:
Net income $ 642 $ 16,079
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,784 4,888
Stock-based compensation 28,434 19,445
Amortization of discounts or premiums on marketable securities 4,147 1,762
Deferred income taxes (8,501 ) 2,954
Amortization of debt issuance costs 958 258
Amortization of debt discount 8,315 1,483
Excess tax benefit associated with equity awards (7,742 ) (4,386 )
Contingent consideration adjustment 180
Provision for doubtful accounts 441 657
Loss on fixed asset disposal 239
Changes in operating assets and liabilities:
Accounts receivable (16,495 ) 1,640
Prepaid commission expense 834 (723 )
Prepaid expenses and other current assets (1,149 ) (515 )
Other assets 1,221 (1,933 )
Accounts payable 1,437 920
Accrued payroll and other compensation (4,612 ) 522
Accrued expenses and other 6,853 4,933
Deferred revenue 14,328 (286 )
Other long-term liabilities 3,381   1,391  
Net cash provided by operating activities 40,276   49,508  
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (13,900 ) (18,864 )
Purchase of available-for-sale securities (199,425 ) (239,383 )
Proceeds from sale of available-for-sale securities 191,741 91,150
Net decrease (increase) in restricted cash 226   (3,749 )
Net cash used in investing activities (21,358 ) (170,846 )
Cash flows from financing activities:
Proceeds from exercise of stock options 2,985 7,838
Proceeds from employee stock purchase plan 4,021
Excess tax benefit associated with equity awards 7,742 4,386
Payment of acquisition-related earn-out (704 ) (380 )
Repayment of obligations under capital leases (44 ) (41 )
Proceeds from issuance of convertible senior notes 287,500
Payment of costs associated with issuance of convertible senior notes (8,144 )
Acquisition of treasury stock (28,443 ) (10,748 )
Repayment of notes payable (85 ) (48 )
Net cash (used in) provided by financing activities (14,528 ) 280,363  
Effect of exchange rate changes on cash and cash equivalents (64 ) (63 )
Net increase in cash and cash equivalents 4,326 158,962
Cash and cash equivalents - Beginning of period 22,328   32,683  
Cash and cash equivalents - End of period $ 26,654   $ 191,645  

Medidata Solutions
Investor Contact:
Hulus Alpay, 212.419.1025
halpay@mdsol.com
or
Media Contact:
Nicole Pariser, 212.659.1069
npariser@mdsol.com

Source: Medidata Solutions

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