Medidata Solutions, Inc.
Medidata Solutions, Inc. (Form: 10-Q, Received: 05/03/2013 16:43:52)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-Q
  _____________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-34387
_____________________________________
Medidata Solutions, Inc.
(Exact name of registrant as specified in its charter)
  _____________________________________
Delaware
13-4066508
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
79 Fifth Avenue, 8th Floor
New York, New York
10003
(Address of principal executive offices)
(Zip Code)
(212) 918-1800
(Registrant’s telephone number, including area code)
  _____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     ý   Yes     ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý   Yes     ¨   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
 
Accelerated filer
ý
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     ý   No
A s of April 30, 2013 , the registrant had 26,589,408 shares of common stock outstanding.


Table of Contents

MEDIDATA SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 31, 2013
Table of Contents
 
 
 
Page
PART I
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 


- i -

Table of Contents

PART I FINANCIAL INFORMATION
Item 1.     Financial Statements (Unaudited)
MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands, except per share data)
 
March 31,
2013
 
December 31,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
37,291

 
$
32,683

Marketable securities
83,086

 
89,871

Accounts receivable, net of allowance for doubtful accounts of $1,130 and $747, respectively
48,398

 
42,359

Prepaid commission expense
3,113

 
2,281

Prepaid expenses and other current assets
7,717

 
8,042

Deferred income taxes
6,731

 
7,465

Total current assets
186,336

 
182,701

Restricted cash

 
388

Marketable securities – long-term
3,655

 

Furniture, fixtures and equipment, net
10,542

 
10,474

Goodwill
15,081

 
15,382

Intangible assets, net
1,230

 
1,708

Deferred income taxes – long-term
10,752

 
11,055

Other assets
2,823

 
2,923

Total assets
$
230,419

 
$
224,631

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,319

 
$
2,998

Accrued payroll and other compensation
7,716

 
14,140

Accrued expenses and other
7,134

 
6,674

Deferred revenue
53,213

 
50,348

Capital lease obligations
55

 
55

Total current liabilities
69,437

 
74,215

Noncurrent liabilities:
 
 
 
Deferred revenue, less current portion
3,722

 
4,323

Deferred tax liabilities
293

 
624

Capital lease obligations, less current portion
86

 
100

Other long-term liabilities
2,739

 
3,278

Total noncurrent liabilities
6,840

 
8,325

Total liabilities
76,277

 
82,540

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; 100,000 shares authorized, 26,946 and 26,405 shares issued; 26,570 and 26,039 shares outstanding, respectively
269

 
264

Additional paid-in capital
168,102

 
160,637

Treasury stock, 376 and 366 shares, respectively
(5,752
)
 
(5,626
)
Accumulated other comprehensive loss
(1,056
)
 
(63
)
Accumulated deficit
(7,421
)
 
(13,121
)
Total stockholders’ equity
154,142

 
142,091

Total liabilities and stockholders’ equity
$
230,419

 
$
224,631

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 2 -

Table of Contents

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share data)
 
Three Months Ended March 31,
 
2013
 
2012
Revenues
 
 
 
Application services
$
50,652

 
$
38,396

Professional services
12,607

 
11,963

Total revenues
63,259

 
50,359

Cost of revenues (1)(2)
 
 
 
Application services
9,025

 
7,484

Professional services
8,104

 
7,131

Total cost of revenues
17,129

 
14,615

Gross profit
46,130

 
35,744

Operating costs and expenses:
 
 
 
Research and development (1)
11,905

 
9,955

Sales and marketing (1)(2)
14,489

 
10,383

General and administrative (1)
12,644

 
9,290

Total operating costs and expenses
39,038

 
29,628

Operating income
7,092

 
6,116

Interest and other income (expense):
 
 
 
Interest expense
(18
)
 
(21
)
Interest income
76

 
71

Other income, net
154

 

Total interest and other income, net
212

 
50

Income before income taxes
7,304

 
6,166

Provision for income taxes
1,604

 
2,396

Net income
$
5,700

 
$
3,770

Earnings per share:
 
 
 
Basic
$
0.23

 
$
0.16

Diluted
$
0.22

 
$
0.15

Weighted average common shares outstanding:
 
 
 
Basic
25,120

 
24,017

Diluted
26,261

 
24,842

(1)    Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues
$
487

 
$
295

Research and development
458

 
192

Sales and marketing
1,222

 
564

General and administrative
3,038

 
1,103

Total stock-based compensation
$
5,205

 
$
2,154

(2)    Amortization of intangible assets included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues
$
281

 
$
318

Sales and marketing
113

 
129

Total amortization of intangible assets
$
394

 
$
447

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 3 -

Table of Contents

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Amounts in thousands)
 
 
Three Months Ended March 31,
 
2013
 
2012
Net income
$
5,700

 
$
3,770

Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustments
(986
)
 
255

Unrealized (loss) gain on marketable securities
(12
)
 
11

Other comprehensive (loss) income:
(998
)
 
266

Income tax benefit (expense) related to unrealized gains and losses on marketable securities
5

 
(4
)
Other comprehensive (loss) income, net of tax
(993
)
 
262

Comprehensive income, net of tax
$
4,707

 
$
4,032

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 4 -

Table of Contents

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
 
Three Months Ended March 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
5,700

 
$
3,770

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,851

 
1,994

Stock-based compensation
5,205

 
2,154

Amortization of discounts or premiums on marketable securities
504

 
317

Deferred income taxes
718

 
272

Amortization of debt issuance costs
15

 
15

Excess tax benefit associated with equity awards
(610
)
 
(1,264
)
Contingent consideration adjustment
60

 
80

Provision for doubtful accounts
657

 
51

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(4,249
)
 
(5,809
)
Prepaid commission expense
(917
)
 
(321
)
Prepaid expenses and other current assets
684

 
(97
)
Other assets
(73
)
 
(133
)
Accounts payable
(1,558
)
 
(1,438
)
Accrued payroll and other compensation
(6,643
)
 
(4,048
)
Accrued expenses and other
1,518

 
2,107

Deferred revenue
(287
)
 
4,941

Other long-term liabilities
322

 
(43
)
Net cash provided by operating activities
2,897

 
2,548

Cash flows from investing activities:
 
 
 
Purchases of furniture, fixtures and equipment
(2,947
)
 
(1,821
)
Purchases of available-for-sale securities
(27,416
)
 
(20,440
)
Proceeds from sale of available-for-sale securities
30,030

 
29,757

Decrease in restricted cash
388

 

Net cash provided by investing activities
55

 
7,496

Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
1,655

 
2,216

Excess tax benefit associated with equity awards
610

 
1,264

Payment of acquisition-related earn-out
(380
)
 
(251
)
Repayment of obligations under capital leases
(14
)
 
(56
)
Repayment of notes payable
(38
)
 

Acquisition of treasury stock
(126
)
 
(50
)
Net cash provided by financing activities
1,707

 
3,123

Net increase in cash and cash equivalents
4,659

 
13,167

Effect of exchange rate changes on cash and cash equivalents
(51
)
 
6

Cash and cash equivalents – Beginning of period
32,683

 
45,214

Cash and cash equivalents – End of period
$
37,291

 
$
58,387

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
14

 
$
12

Income taxes
$
918

 
$
940

Noncash activities:
 
 
 
Furniture, fixtures and equipment acquired through capital lease obligations
$

 
$
26

Furniture, fixtures, and equipment acquired but not yet paid for at period-end
$
509

 
$
137

Issuance of notes payable in connection with acquisition-related earn-out payments
$
341

 
$
171

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 5 -


MEDIDATA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
1.    ORGANIZATION
Medidata Solutions, Inc. (the “Company”) provides cloud-based solutions for the life sciences industry that optimize the efficiency of its customers’ clinical development processes. The Company’s solutions allow its customers to increase the value of their clinical development by more efficiently and effectively designing, planning and managing key aspects of the clinical trial process, including 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, clinical business analytics, and data flow and interoperability among multiple trial applications.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except to the extent updated or described below, the Company’s significant accounting policies as of March 31, 2013 are the same as those at December 31, 2012 , which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2013 .
Basis of Presentation — The accompanying interim condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012 , the condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012 , the condensed consolidated statements of comprehensive income for the three months ended March 31, 2013 and 2012 , and the condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC for interim financial reporting. Accordingly, certain information and footnote disclosures have been condensed or omitted pursuant to SEC rules that would ordinarily be required by GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2013 .
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments consisting of normal recurring accruals considered necessary to present fairly the Company’s financial position as of March 31, 2013 , results of its operations for the three months ended March 31, 2013 and 2012 , comprehensive income for the three months ended March 31, 2013 and 2012 , and cash flows for the three months ended March 31, 2013 and 2012 . The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 .
On the condensed consolidated statements of cash flows, an immaterial reclassification of a prior period amount has been made to conform to the current presentation.
Stock-Based Compensation — The Company follows Accounting Standards Codification ("ASC") 718, Compensation—Stock Compensation to account for all of its stock-based compensation plans. The fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model. The Company uses stock price volatility of a group of peer companies as a basis for determining the expected volatility, together with the closing prices of the Company's publicly-traded stock. Management believes this is the best estimate of the expected volatility over the weighted-average expected life of its option grants. The Company has increased and will continue to increase the weight of its own stock price volatility within the weighted average over time as sufficient trading history is established. As the Company does not have sufficient historical exercise data in the period since its stock began being publicly traded to provide a reasonable basis upon which to estimate the expected life, the Company uses the simplified method as allowed under Securities and Exchange Commission Staff Accounting Bulletin No. 110 for estimating the expected life of options as all of its options qualify as "plain-vanilla" options. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of the option grant with a maturity tied to the expected life of the options. No dividends are expected to be declared by the Company at this time. The fair value of each nonvested restricted stock award and performance based restricted stock unit is measured as if the nonvested restricted stock award or unit was vested and issued on the grant date. Compensation expense for stock options and restricted stock awards is recognized, net of estimated forfeitures, on a straight-line basis over the vesting period. Compensation expense for performance based restricted stock units is based on the fair value of the units at the grant date, adjusted each reporting period for expected performance relative to the associated goals, and is recognized, net of estimated forfeitures, on a straight-line basis over the vesting period.

- 6 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

Income Taxes — The Company uses the asset and liability method of accounting for income taxes, as prescribed by ASC 740, Income Taxes , which recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
All of the taxes accrued on the Company's undistributed earnings from its foreign subsidiaries are included in U.S. current income taxes under Internal Revenue Code Section 956. As a result, no deferred income tax liability associated with the Company's undistributed earnings was recorded.
In addition, the Company follows ASC 740-10 for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
For the provision for income taxes at interim periods, the Company follows ASC 740-270, Income Taxes — Interim Reporting , and has developed an estimate of the annual effective tax rate based upon the facts and circumstances known at the time. The Company’s effective tax rate is based on expected income, statutory rates and permanent differences applicable to the Company in the various jurisdictions in which the Company operates.
Accounts Receivable — Accounts receivable are recorded at original invoice amount less an allowance that management believes will be adequate to absorb estimated losses on existing accounts receivable. The allowance is based on an evaluation of the collectability of accounts receivable and prior bad debt experience. Accounts receivable are written off when deemed uncollectible. Unbilled receivables consist of revenue recognized in excess of billings, substantially all of which is expected to be billed and collected within one year. As of March 31, 2013 and December 31, 2012 , unbilled accounts receivable of $6.0 million and $3.1 million , respectively, are included in accounts receivable on the Company's consolidated balance sheets.
Segment Information — As defined by ASC 280, Segment Reporting , the Company operates as a single segment, as the chief operating decision maker makes operating decisions and assesses performance based on one single operating unit. The Company recorded revenues in the following geographic areas for the three months ended March 31, 2013 and 2012 (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Revenues:
 
 
 
United States of America
$
44,854

 
$
32,902

Japan
7,833

 
7,317

Switzerland
2,921

 
2,891

United Kingdom
2,866

 
2,141

Other
4,785

 
5,108

Total
$
63,259

 
$
50,359

Revenues by geographic area are presented based upon the country in which revenues were generated. No individual country other than the United States, Japan, the United Kingdom and Switzerland represented 5% or more of net revenues for any of the periods presented.

- 7 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

The following table summarizes long-term assets by geographic area as of March 31, 2013 and December 31, 2012 (in thousands):
 
March 31,
2013
 
December 31,
2012
Long-term assets:
 
 
 
United States of America
$
34,589

 
$
32,102

United Kingdom
9,173

 
9,454

Japan
321

 
374

Total
$
44,083

 
$
41,930

Recently Issued Accounting Pronouncements — In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income , which removes the presentation options contained in ASC 220, Comprehensive Income , and requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the format of statement of operations used today, and the second statement would include components of other comprehensive income. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to defer indefinitely the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of ASU No. 2011-05 are effective for interim and annual periods beginning after December 15, 2011, and must be applied retrospectively for all periods presented in the financial statements. The Company adopted the applicable provisions of ASU No. 2011-05 on January 1, 2012. The adoption did not have a material impact on its consolidated financial statements other than a change in their presentation. In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which supersedes and replaces the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05 and ASU No. 2011-12. ASU No. 2013-02 is effective for reporting periods beginning after December 15, 2012. The Company adopted ASU No. 2013-02 on January 1, 2013, and the adoption did not have a material impact on its consolidated financial statements.
3.    MARKETABLE SECURITIES
The Company manages its cash equivalents and marketable securities as a single investment portfolio that is intended to be available to meet the Company’s current cash requirements. Cash equivalents consist primarily of investments in money market funds. Marketable securities, which the Company classifies as available-for-sale securities, primarily consist of high quality commercial paper, corporate bonds, and U.S. government debt obligations. Marketable securities with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term; otherwise, they are classified as long-term on the consolidated balance sheet.
The following table provides the Company’s marketable securities by security type as of March 31, 2013 and December 31, 2012 (in thousands):
 
As of March 31, 2013
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Commercial paper and corporate bonds
$
45,299

 
$

 
$
(18
)
 
$
45,281

U.S. Treasury and U.S. government agency debt securities
41,452

 
8

 

 
41,460

Total
$
86,751

 
$
8

 
$
(18
)
 
$
86,741

 
 
As of December 31, 2012
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Commercial paper and corporate bonds
$
63,682

 
$
4

 
$
(11
)
 
$
63,675

U.S. Treasury and U.S. government agency debt securities
26,186

 
10

 

 
26,196

Total
$
89,868

 
$
14

 
$
(11
)
 
$
89,871


- 8 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

Contractual maturities of the Company’s marketable securities as of March 31, 2013 and December 31, 2012 are summarized as follows (in thousands):
 
As of March 31, 2013
 
As of December 31, 2012
 
Cost
 
Estimated
Fair
Value
 
Cost
 
Estimated
Fair
Value
Due in one year or less
$
83,092

 
$
83,086

 
$
89,868

 
$
89,871

Due in one to five years
3,659

 
3,655

 

 

 
$
86,751

 
$
86,741

 
$
89,868

 
$
89,871

The following table provides the fair market value and the gross unrealized losses of the Company’s marketable securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by security type as of March 31, 2013 and December 31, 2012 (in thousands):
 
In Loss Position for Less than 12 Months
 
As of March 31, 2013
 
As of December 31, 2012
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Commercial paper and corporate bonds
$
34,330

 
$
(18
)
 
$
42,167

 
$
(11
)
None of the Company’s marketable securities has been in a continuous unrealized loss position for more than twelve months as of March 31, 2013 and December 31, 2012 .
At March 31, 2013 , the Company had an insignificant amount of gross unrealized losses primarily due to a decrease in the fair value of certain corporate bond securities. The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include:
the length of time and extent to which fair value has been lower than the cost basis;
the financial condition, credit quality and near-term prospects of the investee; and
whether it is more likely than not that the Company will be required to sell the security prior to recovery.
As the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company has determined that the gross unrealized losses on such investments at March 31, 2013 are temporary in nature. Accordingly, the Company did not consider that its investments in marketable securities were other-than-temporarily impaired as of March 31, 2013 .
During the three months ended March 31, 2013 and 2012 , the Company did not record any net realized gains or losses from the sale of marketable securities.

4.    FAIR VALUE
ASC 820-10, Fair Value Measurements and Disclosures , establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and enhances disclosure requirements for fair value measurements. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820-10 are described as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, include:
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that are not active;

- 9 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

inputs other than quoted prices that are observable for the asset or liability;
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the full term of the asset or liability.
Level 3 - Unobservable inputs to the valuation methodology and significant to the fair value measurement for the asset or liability.
Financial assets (excluding cash balances) measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 are summarized as follows (in thousands):
 
As of March 31, 2013
 
As of December 31, 2012
 
Fair Value Measurement Using
 
Fair Value Measurement Using
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
23,276

 
$

 
$

 
$
23,276

 
$
17,815

 
$

 
$

 
$
17,815

Corporate bonds

 
1,002

 

 
1,002

 

 
3,313

 

 
3,313

Total cash equivalents
23,276

 
1,002

 

 
24,278

 
17,815

 
3,313

 

 
21,128

Commercial paper and corporate bonds

 
45,281

 

 
45,281

 

 
63,675

 

 
63,675

U.S. Treasury and U.S. government agency debt securities

 
41,460

 

 
41,460

 

 
26,196

 

 
26,196

Total marketable securities

 
86,741

 

 
86,741

 

 
89,871

 

 
89,871

Total financial assets
$
23,276

 
$
87,743

 
$

 
$
111,019

 
$
17,815

 
$
93,184

 

 
$
110,999

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
861

 
$
861

 
$

 
$

 
$
801

 
$
801

The Company’s financial assets that are measured at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy. Investments in money market funds have been classified as Level 1 since these securities are valued based upon $1.00 net asset value per share or unadjusted quoted prices in active markets. Investments in commercial paper, corporate bonds, and U.S. government agency debt securities have been classified as Level 2 since these securities are valued based on quoted prices in less active markets or significant inputs which are directly or indirectly observable. The valuation techniques used to measure the fair values of corporate bonds and U.S. government agency debt securities were derived from the inputs of market prices from multiple sources at each reporting period. The fair value was then determined based on a consensus price or a weighted average price for each security. For the remaining financial assets classified as Level 2, substantially all of the securities had a short maturity within one year with high credit ratings. Therefore, the valuation techniques used to measure the fair values were primarily derived from accretion of purchase price to its face value over the term of maturity or quoted market prices for similar instruments if available. During the three months ended March 31, 2013 and 2012 , there were no transfers of financial assets between Level 1 and Level 2.
The contingent consideration, associated with earn-out payments related to the acquisition of Clinical Force Limited ("Clinical Force") in July 2011, is classified as Level 3. The fair value of the contingent consideration was estimated by applying the income approach. That measure is based on significant inputs that are not observable in the market. The significant inputs in the Level 3 measurement not supported by market activity included the Company’s probability assessments of expected future cash flows associated with its related acquisition during the earn-out payments measurement period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the purchase agreement. Significant assumptions include a discount rate of 11% , which is derived from the Company’s estimated weighted average cost of capital of 16% net of a 5% risk adjustment. Changes in the Company’s expectations related to the achievement of the performance-based criteria specified in the purchase agreement may affect these assumptions, resulting in an increase or decrease in the fair value of the contingent consideration liability.

- 10 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)


The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities during the first three months of 2013 (in thousands):
 
Contingent
Consideration
 
 
Balance at January 1, 2013 (included in other long-term liabilities)
$
801

Change in fair value
60

Balance at March 31, 2013 (included in accrued expenses and other)
$
861

For the three months ended March 31, 2013 and 2012 , the Company recorded adjustments of $0.1 million and $0.1 million , respectively, to the contingent consideration obligation as a result of the recurring measurement of its fair value at each reporting period using the income approach. The fair value adjustments were recorded in general and administrative expenses in the Company's consolidated financial statements.
The carrying amounts of all other current financial assets and current financial liabilities reflected in the consolidated balance sheets approximate fair value due to their short-term nature. The Company does not have non-financial assets or liabilities that have been measured at fair value on a nonrecurring basis as of March 31, 2013 .

5.    GOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill during the first three months of 2013 is as follows (in thousands):
Balance as of January 1, 2013
$
15,382

Foreign currency translation adjustments
(301
)
Balance as of March 31, 2013
$
15,081

Intangible assets are summarized as follows (in thousands):
 
As of March 31, 2013
 
As of December 31, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Acquired technology
$
3,993

 
$
(3,097
)
 
$
896

 
$
4,094

 
$
(2,935
)
 
$
1,159

Database
1,900

 
(1,900
)
 

 
1,900

 
(1,821
)
 
79

Customer relationships
2,036

 
(1,702
)
 
334

 
2,064

 
(1,594
)
 
470

Total
$
7,929

 
$
(6,699
)
 
$
1,230

 
$
8,058

 
$
(6,350
)
 
$
1,708

Annual amortization for the next five years is expected to be as follows (in thousands):
Remainder of year ending December 31, 2013
$
397

Years ending December 31,
 
2014
507

2015
265

2016
44

2017
17

2018



- 11 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

6.    STOCK-BASED COMPENSATION
The Company accounts for the stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation . For the three months ended March 31, 2013 and 2012 , the components of stock-based compensation expense were summarized in the following table (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Stock options
$
962

 
$
946

Restricted stock awards
3,182

 
1,208

Performance based restricted stock units
1,061

 

Total stock-based compensation
$
5,205

 
$
2,154

In April 2013, the Company amended and restated the 2009 Long-Term Incentive Plan (the "2009 Plan") to increase the number of shares of common stock that the Company may issue under the 2009 Plan by 1.5 million shares, to a total of 5.5 million shares.
Stock Options
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions:
 
Three Months Ended March 31,
 
2013
 
2012
Expected volatility

 
45
%
Expected life

 
6 years

Risk-free interest rate

 
1.17
%
Dividend yield

 

The following table summarizes the activity under the stock option plans as of March 31, 2013 , and changes during the three months then ended (in thousands, except per share data):
 
Number of
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(years)
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2013
1,789

 
$
19.39

 
 
 
 
Granted

 

 
 
 
 
Exercised
(120
)
 
13.84

 
 
 
 
Forfeited
(6
)
 
22.38

 
 
 
 
Expired
(1
)
 
24.28

 
 
 
 
Outstanding at March 31, 2013
1,662

 
$
19.78

 
7.27
 
$
63,512

Exercisable at March 31, 2013
960

 
$
16.34

 
6.30
 
$
39,982

Vested and expected to vest at March 31, 2013
1,625

 
$
19.63

 
7.23
 
$
62,331

The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2013 and 2012 was none and $8.89 , respectively. The total intrinsic value of stock options exercised during the three months ended March 31, 2013 and 2012 was $4.4 million and $5.7 million , respectively. As of March 31, 2013 , there was a total of $7.7 million of unrecognized compensation cost related to all non-vested stock options granted, as recorded in accordance with ASC 718. This cost is expected to be recognized over a weighted-average remaining period of 2.66 years . The total fair value of stock options vested during the three months ended March 31, 2013 and 2012 was $0.9 million and $0.9 million , respectively.

- 12 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

Restricted Stock Awards
The following table summarizes the status of the Company’s nonvested restricted stock awards ("RSAs") as of March 31, 2013 , and changes during the three months then ended (in thousands, except per share data):
 
Number of
Shares
 
Weighted-
Average
Grant-Date
Fair Value
Nonvested at January 1, 2013
973

 
$
23.08

Granted
422

 
49.97

Vested
(6
)
 
26.98

Forfeited
(7
)
 
26.88

Nonvested at March 31, 2013
1,382

 
$
31.25

As of March 31, 2013 , there was a total of $36.0 million of unrecognized compensation cost related to all non-vested RSAs granted, as recorded in accordance with ASC 718. This cost is expected to be recognized over a weighted-average remaining period of 2.69 years . The total fair value of RSAs vested during the three months ended March 31, 2013 and 2012 was $0.2 million and $0.1 million , respectively.
Performance Based Restricted Stock Units
In February 2013, the Company began granting performance based restricted stock units ("PBRSUs") to certain employees including executives. These PBRSUs are earned upon the achievement of certain targets over a specified performance period. Each PBRSU represents a contingent right to receive one share of the Company's common stock and its fair value is based on the closing price of the Company's stock on the date of grant. The number of PBRSUs ultimately earned can range from zero to a specified multiple of the original award, based upon the level of performance achieved during the associated performance period in relation to the predetermined performance goals. At each reporting period, management estimates the probable number of PBRSUs that will be earned, until the final achievement is determined at the close of the respective performance periods. The resulting compensation cost is amortized net of expected forfeitures over the associated vesting period.
Of the original target number of PBRSUs granted during the three months ended March 31, 2013 , which assumes performance at 100% of targeted levels, (1) 113,538 PBRSUs have performance conditions based on revenue for the year ending December 31, 2013 relative to the Company's revenue guidance and a minimum profitability condition, vesting annually over three years commencing on the first anniversary of the grant date, with the number of PBRSUs ultimately earned ranging from zero to 200% of the original award ; (2) 56,769 PBRSUs have performance conditions based on the Company's total stockholder return ("TSR") relative to that of the NASDAQ Composite Index for the year ending December 31, 2013, vesting annually over three years commencing on the first anniversary of the grant date, with the number of PBRSUs ultimately earned ranging from zero to 200% of the original award ; and (3) 305,414 PBRSUs have performance conditions based on the Company's compound annual growth rate of revenue ("CAGR"), as defined in the grant agreement, and the Company's absolute TSR over the three-year performance period ending December 31, 2015, vesting in full on December 31, 2015, with the number of PBRSUs ultimately earned ranging from zero to 300% of the original award .
The following table summarizes the status of the Company’s nonvested PBRSUs based upon expected performance as of March 31, 2013 , and changes during the three months then ended (in thousands, except per share data):
 
Number of
Shares
 
Weighted-
Average
Grant-Date
Fair Value
Nonvested at January 1, 2013

 
$

Granted
476

 
49.63

Increase due to expected performance
34

 
49.63

Vested

 

Forfeited

 

Nonvested at March 31, 2013
510

 
$
49.63


- 13 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

As of March 31, 2013 , there was a total of $24.2 million of unrecognized compensation cost related to all non-vested PBRSUs granted, as recorded in accordance with ASC 718. This cost is expected to be recognized over a weighted-average remaining period of 2.80 years .

7.    ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in the balances of each component of accumulated other comprehensive loss during the first three months of 2013 are as follows:
 
Foreign currency translation adjustments
 
Unrealized gains (losses) on available for sale securities
 
Total
Balance as of January 1, 2013
$
(53
)
 
$
(10
)
 
$
(63
)
Other comprehensive loss
(986
)
 
(7
)
 
(993
)
Balance as of March 31, 2013
$
(1,039
)
 
$
(17
)
 
$
(1,056
)
For the three months ended March 31, 2013 , reclassifications of items from accumulated other comprehensive loss to net income were insignificant.

8.    EARNINGS PER SHARE
The Company follows ASC 260, Earnings Per Share , in calculating earnings per share. Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted-average number of shares outstanding during the period. The holders of unvested restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents and therefore, such unvested awards do not qualify as participating securities and are excluded from the basic earnings per share calculation. Diluted earnings per share includes the determinants of basic net income per share and, in addition, gives effect to the potential dilution that would occur if securities or other contracts to issue common stock are exercised, vested or converted into common stock unless they are anti-dilutive.
A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for the three months ended March 31, 2013 and 2012 are shown in the following table (in thousands, except per share data):
 
Three Months Ended March 31,
 
2013
 
2012
Numerator
 
 
 
Net income
$
5,700

 
$
3,770

Denominator
 
 
 
Denominator for basic earnings per share:
 
 
 
Weighted average common shares outstanding
25,120

 
24,017

Denominator for diluted earnings per share:
 
 
 
Dilutive potential common shares:
 
 
 
Stock options
721

 
584

Restricted stock awards
415

 
241

Performance based restricted stock units
5

 

Weighted average common shares outstanding with assumed conversion
26,261

 
24,842

Basic earnings per share
$
0.23

 
$
0.16

Diluted earnings per share
$
0.22

 
$
0.15

Total number of anti-dilutive shares of stock options and nonvested stock excluded from calculation of diluted earnings per share
67

 
475



- 14 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

9.    INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2013 was 22% and differed from the federal statutory rate of 35% primarily due to state and local income taxes, stock-based compensation, research and development tax credits, and limitations on officers' compensation.
In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, reinstating the research and development tax credit retroactively from January 1, 2012 to December 31, 2013. As a result, in the first quarter of 2013 the Company recognized as a favorable discrete item a research and development tax credit of $1.2 million related to 2012. Research and development tax credits generated in 2013 are being recognized pro rata as a component of the overall 2013 effective tax rate.
The Company’s effective tax rate for the three months ended March 31, 2012 was 39% and differed from the federal statutory rate of 35% primarily due to state and local income taxes, stock-based compensation, and benefit associated with domestic production activities deduction.
The Company had approximately $2.9 million of gross unrecognized tax benefits as of December 31, 2012 . For the three months ended March 31, 2013 , there was no change relating to the Company’s tax positions. During the first quarter of 2013, the Company was informed by the Internal Revenue Service ("IRS") that the examination of its 2010 Federal income tax return was completed, and no adjustment to the tax return was proposed by the IRS.

10.    COMMITMENTS AND CONTINGENCIES
Legal Matters — The Company is subject to legal proceedings and claims that arise in the ordinary course of business. From time to time, third parties have asserted and may in the future assert intellectual property rights to technologies that are important to the Company’s business and have demanded and may in the future demand that the Company license their technology. The Company records an estimated liability for these matters when an adverse outcome is considered to be probable and can be reasonably estimated. Although the outcome of the litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, which could materially and adversely affect its financial condition or results of operations, the Company does not believe that it is currently a party to any material legal proceedings.
On March 4, 2011, DataTrak International, Inc. filed a complaint for alleged patent infringement against the Company in DataTrak International v. Medidata Solutions, C.A. No. 1:11-cv-00458 in the U.S. District Court for the Northern District of Ohio. The complaint asserts infringement of U.S. Patent No. 7,464,087 (the “’087 Patent”), which claims a method and system for unifying data from a variety of sources. The complaint asserts that the Company infringes upon the patent owned without providing any details concerning the alleged infringement, and it seeks unspecified damages and injunctive relief. On October 28, 2011, the Company filed an application for ex parte reexamination of the ’087 Patent with the U.S. Patent and Trademark Office (the “PTO”). On December 16, 2011, the PTO issued a non-final rejection of the validity of all claims of the ’087 Patent. On the same date, the district court granted the Company’s motion to stay the case pending reexamination of the patent-in-suit. On April 6, 2012, the PTO issued its final office action rejecting all asserted claims of the ’087 Patent. In July 2012, DataTrak filed a notice of appeal to the Board of Patent Appeals and Interferences. If this appeal is not successful and the decision is ultimately upheld, it will result in the elimination of the litigation. The Company believes that it has valid defenses to the lawsuit and intends to defend itself vigorously in the event the stay of the case is lifted. The probability of a favorable or unfavorable outcome to the Company in the event the stay of the case is lifted is unknown nor can the liability that could potentially result from a negative outcome be reasonably estimated. As a result, the Company has not recorded any accrual associated with this litigation. Additionally, given the status of the proceedings, the complexities of the facts in dispute and the multiple claims involved, the Company is unable to estimate a range of loss related to this litigation.
On July 31, 2012, DataTrak was issued U.S. Patent No. 8,234,294 (the “’294 Patent”), which is closely related to the ’087 Patent previously asserted against the Company. On July 31, 2012, the Company filed a lawsuit against DataTrak in the U.S. District Court for the District of New Jersey seeking a declaratory judgment of patent invalidity and non-infringement concerning the ’294 Patent. The Company intends to vigorously pursue its claims and defenses concerning the ’294 Patent. The ultimate outcome of this litigation cannot presently be determined, nor can the liability that could potentially result from a negative outcome be reasonably estimated. As a result, the Company has not recorded any accrual associated with this litigation. Additionally, given the status of the proceedings, the complexities of the facts in dispute and the multiple claims involved, the Company is unable to estimate a range of loss related to this litigation.

- 15 -

MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited)

Contractual Warranties — The Company typically provides contractual warranties to its customers covering its product and services. To date, any refunds provided to customers have been immaterial.
Change in Control Agreements — In January 2009, the Company entered into change in control agreements with its chief executive officer and certain other executive officers. These agreements provide for payments to be made to such officers upon involuntary termination of their employment by the Company without cause or by such officers for good reason as defined in the agreements, within a period of 2 years following a change in control. The agreements provide that, upon a qualifying termination event, such officers will be entitled to (a) a severance payment equal to the officer’s base salary plus target bonus amount; (b) continuation of health benefits for 12 months ; and (c) immediate vesting of any remaining unvested equity awards, unless otherwise specified in the equity award agreements. In March 2012, the Company amended the agreements with its named executive officers to eliminate tax gross-up payments.


- 16 -


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences include, but are not limited to the factors discussed under the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission, or SEC, on March 8, 2013.
The following is a discussion and analysis of our financial condition and results of operations and should be read together with our condensed consolidated financial statements and related notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes to audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Overview
We are a leading global provider of cloud-based solutions for the life sciences industry that optimize the efficiency of our customers’ clinical development processes from concept to conclusion, optimizing their research and development investments. Our customers are pharmaceutical, biotechnology, and medical device companies, academic institutions, contract research organizations, or CROs, and other organizations engaged in clinical trials to bring medical products and treatments to market and explore new indications for existing medical products. Our solutions allow our customers to increase the value of their development programs by more efficiently and effectively designing, planning, and managing key aspects of the clinical trial process, including 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, clinical business analytics, and data flow and interoperability among multiple trial applications. Our customers rely on our solutions to safely accelerate the clinical development process, enhancing decision-making and saving resources in the development life cycle.
The demand for electronic clinical solutions, such as those provided by us, has been driven by the increasing complexity and cost associated with paper-based trials and inefficiencies with early generation electronic data capture, or EDC, solutions. Paper-based trials may delay the clinical development process, impair data quality and prevent real-time decision making, while traditional EDC solutions have faced challenges with integration, site requirements, customization and scalability.
We have grown our revenues significantly since inception by expanding our customer base, increasing penetration with existing customers, selling multiple solutions under our clinical cloud-based platform, enhancing our solutions and services and growing our indirect channel. In order to achieve and sustain our growth objectives, we have invested and will continue to invest in key areas, including: new personnel, particularly in direct domestic and international sales activities; resources to support our product development, including new and expanded product capabilities; marketing programs to build brand awareness; and infrastructure to support growth.
We derive a majority of our application services revenues through multi-study arrangements for a predetermined number of studies. We also offer our application services on a single-study basis that allows customers to use our platform for a limited number of studies or to evaluate it prior to committing to multi-study arrangements. We invest heavily in training our customers, their investigators and other third parties to configure clinical trials independently. We believe this knowledge transfer accelerates customer adoption of our solutions. We also invest in training and enabling a network of implementation partners, primarily CROs, who can provide implementation support to customers who outsource data management and other activities to third parties.

- 17 -

Table of Contents

We use a number of metrics to evaluate and manage our business. These metrics include revenue growth, customer growth, customer retention rate, revenues from lost customers, geographic contribution, and application services backlog.
Our customer base has grown from 173 at January 1, 2010 to 358 at March 31, 2013 . Our relationships with some of these customers include multiple divisions and business units at various domestic and international locations. We generate revenues from sales to new customers as well as sales and renewals from our existing customers. Our global direct sales organization represents our primary source of sales, with an increasing volume of sales generated through our CRO relationships. Our customer retention rate was 98.0% and 98.2% for the three months ended March 31, 2013 and 2012 , respectively. We calculate customer retention based upon the number of customers that existed both at the beginning and end of the relevant period. Revenues from lost customers accounted for 0.1% of total prior year revenues for each of the three month periods ended March 31, 2013 and 2012 . To calculate the impact of customers lost during the period, we consider the revenues recognized from lost customers during the most recent prior fiscal year as a percentage of total company revenues from the same period. Traditionally, we maintain a high percentage of customer retention and hence the revenue impact from lost customers is insignificant to our total revenues. We believe revenues from lost customers coupled with customer retention rate give the best sense of volume and scale of customer loss and retention. Our presentation of customer retention and revenues from lost customers may differ from other companies in our industry.
We manage our business as one reportable segment. Historically, we have generated most of our revenues from sales to customers located in the United States. However, revenues generated from customers located in Europe and Asia (including Australia) represent a significant portion of overall revenues. Revenues generated from customers located in Europe increased 2% year-over-year, representing approximately 15% and 19% of total revenues for the three months ended March 31, 2013 and 2012 , respectively. Revenues generated from customers in Asia increased 8% year-over-year, representing approximately 13% and 16% of total revenues for the three months ended March 31, 2013 and 2012 , respectively. We expect sales to customers in Europe and Asia to continue to represent a significant portion of total sales as we continue to serve existing and new customers in these markets.
Currently, the majority of our professional services revenues are recognized as services our delivered; only an insignificant portion of professional services revenues continues to be recognized ratably over the term of the corresponding application services component, as required under current accounting standards until such multiple-element arrangements expire. Thus, our professional services no longer contribute to total backlog or deferred revenue in a significant manner. Consequently, we now monitor application services backlog as an indicator of the underlying health of our business.
Application services backlog solely relates to our cloud-based offerings, representing the total future contract value of outstanding multi-study and single-study arrangements, billed and unbilled, at a point in time. Application services revenues generated in any given period is a function of revenue recognized from the beginning of period application services backlog, contract renewals, and new customer contracts. For this reason, application services backlog at the beginning of any period is not necessarily indicative of long-term future performance. We monitor the amount of revenues expected to be recognized from application services backlog over the current fiscal year while updating application services backlog each quarter to indicate how much remains to be recognized within the year. As of January 1, 2013, we had full year application services backlog of approximately $186 million . The remaining amount of revenue to be recognized from application services backlog in the current year, or remaining application services backlog, as of March 31, 2013 is approximately $156 million .
We consider the global adoption of clinical development technologies to be essential to our future growth. Our future growth will also depend on our ability to sustain the high levels of customer satisfaction and our ability to increase sales to existing customers. In addition, the market for our solutions is often characterized by rapid technological change and evolving regulatory standards. Our future growth is dependent on the successful development and introduction of new products and enhancements. To address these challenges, we will continue to expand our direct and indirect sales channels in domestic and international markets, pursue research and development as well as acquisition opportunities to expand and enhance our product offerings, expand our marketing efforts, and drive customer adoption through our knowledge transfer professional services offerings. Our success in these areas will depend upon our abilities to execute on our operational plans, interpret and respond to customer and regulatory requirements, and retain key staff.

Sources of Revenues
We derive revenues from application services and professional services. Application services consist of multi-study or single-study arrangements, which give our customers the right to use our software solutions, hosting and site support, as well as clinical trial planning software solutions, which enable our customers to effectively manage their trial planning. Professional services consist of assisting our customers and partners with the design, workflow, implementation and management of their clinical trials.

- 18 -

Table of Contents

Our application services are principally provided through multi-study arrangements, which grant customers the right to manage up to a predetermined number of clinical trials for a term generally ranging from one to five years, as well as single-study arrangements that allow customers to use application services for an individual study and/or to evaluate our application services prior to committing to multi-study arrangements. Many of our customers have migrated from single-study arrangements to multi-study arrangements which represent the majority of our application services revenues. We also offer other applications under our cloud-based platform that improve efficiencies for clinical trials from concept to conclusion.
Our professional services provide our customers with reliable, repeatable and cost-effective implementation and training in the use of our application services. We also offer consulting services to advise customers on ways to optimize their clinical development process from trial concept to conclusion. Professional services revenues have represented a smaller portion of overall revenues in recent years. Over the long term, we expect professional services revenues to decline slightly as a percentage of total revenues as our customers and partners become more adept at the management and configuration of our technology for their clinical trials as part of our knowledge transfer efforts.

Cost of Revenues
Cost of revenues consists primarily of costs related to hosting, maintaining and supporting our application suite and delivering our professional services and support. These costs include salaries, benefits, bonuses and stock-based compensation for our data center and professional services staff. Cost of revenues also includes costs associated with our data center, including networking and related depreciation expense; as well as outside service provider costs, amortization expense and general overhead. We allocate general overhead, such as applicable shared rent and utilities, to cost of revenues based on relative headcount. The costs associated with providing professional services are recognized as such costs are incurred. Over the long term, we believe that cost of revenues as a percentage of total revenues will decrease.

Operating Costs and Expenses
Research and Development . Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation, the cost of certain third-party service providers and allocated overhead. We have focused our research and development efforts on expanding the functionality and ease of use of our applications. We expect research and development costs to increase in absolute dollars in the future as we intend to release new features and functionality designed to maximize the efficiency and effectiveness of the clinical development process for our customers. Over the long term, we believe that research and development expenses as a percentage of total revenues will decrease.
Sales and Marketing . Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses and stock-based compensation, commissions, travel costs, and marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. Our sales and marketing expenses have increased in absolute dollars primarily due to our ongoing substantial investments in customer acquisition and sales incentive costs as a result of our revenue growth. We expect sales and marketing expenses to continue to increase in absolute dollars. Over the long term, we believe that sales and marketing expenses as a percentage of total revenues will decrease.
General and Administrative . General and administrative expenses consist primarily of personnel and related expenses for executive, legal, quality assurance, finance and human resource departments, including salaries, benefits, bonuses and stock-based compensation, professional fees, insurance premiums, allocated overhead and other corporate expenses. On an ongoing basis, we expect general and administrative expenses to increase modestly in absolute dollars as we continue to add administrative personnel and incur additional professional fees and other expenses resulting from continued growth and the compliance requirements of operating as a public company. Over the long term, we believe that general and administrative expenses as a percentage of total revenues will decrease.
Income Tax Expense
We are subject to tax in the United States as well as other tax jurisdictions in which we conduct business. In 2013, we expect that our effective income tax rate will range from 36 to 40 percent. We have U.S. Federal and state net operating loss carryforwards, or NOLs, available to offset future taxable income, which do not fully expire until 2028 and are subject to limitations under Section 382 of the Internal Revenue Code, or Section 382. We expect our overall income tax expense to increase in absolute dollars.

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Critical Accounting Policies
Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Our critical accounting policies, including the assumptions and judgments underlying them, require the application of significant judgment in the preparation of our financial statements, and as a result they are subject to a greater degree of uncertainty. In applying these policies, we use our judgment to determine the appropriate assumptions to be used in calculating estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates. Our critical accounting policies consist of revenue recognition, stock-based compensation, goodwill and intangibles and income taxes. Except to the extent updated or described below, our critical accounting policies as of March 31, 2013 are the same as those at December 31, 2012, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Stock-Based Compensation
We currently follow Accounting Standards Codification, or ASC, 718, Compensation—Stock Compensation , to account for all of our stock-based compensation plans. According to ASC 718, all forms of share-based payments to employees, including employee stock options, nonvested restricted stock awards and employee stock purchase plans, are treated the same as any other form of compensation by recognizing the related cost in the statement of operations.
Under ASC 718, stock-based compensation expense is measured at the grant date based on the fair value of the award, and the expense is recognized ratably over the award’s vesting period. For all grants, we recognize compensation cost under the straight-line method, net of estimated forfeitures. Forfeiture assumptions used in amortizing stock-based compensation expense are based on an analysis of historical data.
We measure the fair value of stock options on the date of grant using the Black-Scholes pricing model which requires the use of several estimates, including:
the expected volatility of our stock price;
the expected life of the option;
risk free interest rates; and
expected dividend yield.
The use of different assumptions in the Black-Scholes pricing model would result in different amounts of stock-based compensation expense. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.
We use stock price volatility of our peer group of companies as a basis for determining the expected volatility together with the closing prices of our publicly-traded sock. We have increased and will continue to increase the weight of our own stock price volatility within the weighted average over time as sufficient trading history of our stock is established, with the intent of relying completely upon our own stock's volatility by 2014. In addition, as we do not have sufficient historical exercise data in the period since our stock began being publicly traded to provide a reasonable basis upon which to estimate the expected life, we use the simplified method as allowed under SEC Staff Accounting Bulletin No. 110 for estimating the expected life of options as all of our options qualify as "plain-vanilla" options.
The risk-free interest rate is based on the United States Treasury yield curve with a maturity tied to the expected life of the option. We have not paid and do not expect to pay dividends on our common stock. Thus, no expected dividend yield is factored into our Black-Scholes pricing model.
The fair value of each nonvested restricted stock award and performance based restricted stock unit is measured as if the nonvested restricted stock award or unit was vested and issued on the grant date.
Compensation expense for stock options and restricted stock awards is recognized, net of estimated forfeitures, on a straight-line basis over the vesting period. Compensation expense for performance based restricted stock units is based on the fair value of the units at the grant date, adjusted each reporting period for expected performance relative to the associated goals, and is recognized, net of estimated forfeitures, on a straight-line basis over the vesting period.


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Results of Operations
We recognize revenues from application services arrangements ratably over the terms of these arrangements. As a result, a substantial majority of our application services revenues in each quarter are generated from arrangements entered into in prior periods. Consequently, an increase or a decrease in application services arrangements in a particular quarter may not significantly affect results of operations in that quarter.
Our typical practice is to sell application services and professional services in a multiple-element arrangement. In connection with our adoption of ASU No. 2009-13 on January 1, 2011, we began to recognize revenues from professional services as delivered for any multiple-element arrangements entered into or materially modified subsequent to 2011. Concurrently, as required by ASU No. 2009-13, we continue to recognize revenues from professional services ratably over the term of the multiple-element arrangements entered into prior to 2011 under the pre-amended Accounting Standards Codification, or ASC, 605-25, Revenue Recognition — Multiple-Element Arrangements , until such arrangements expire. Regardless of revenue recognition, we recognize expenses related to our professional services in the period in which the expenses are incurred.
We now expect professional services revenues and gross margins to be more reflective of the services delivered during each reporting period. The revenue impact of multiple-element arrangements entered into prior to 2011 continues to decline significantly as those arrangements expire and more professional services revenues are recognized on an as delivered basis.
The following table sets forth our consolidated results of operations as a percentage of total revenues for the periods shown:
 
Three Months Ended
March 31,
 
 
2013
 
2012
Revenues:
 
 
 
Application services
80.1
%
 
76.2
%
Professional services
19.9
%
 
23.8
%
Total revenues
100.0
%
 
100.0
%
Cost of revenues:
 
 
 
Application services
14.3
%
 
14.9
%
Professional services
12.8
%
 
14.2
%
Total cost of revenues
27.1
%
 
29.1
%
Gross profit
72.9
%
 
70.9
%
Operating costs and expenses:
 
 
 
Research and development
18.8
%
 
19.8
%
Sales and marketing
22.9
%
 
20.6
%
General and administrative
20.0
%
 
18.4
%
Total operating costs and expenses
61.7
%
 
58.8
%
Operating income
11.2
%
 
12.1
%

Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012
Revenues
 
Three Months Ended March 31,
 
2013
 
2012
 
Change
 
Amount
 
% of
Revenues
 
Amount
 
% of
Revenues
 
Amount
 
%
 
(Amount in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Application services
$
50,652

 
80.1
%
 
$
38,396

 
76.2
%
 
$
12,256

 
31.9
%
Professional services
12,607

 
19.9
%
 
11,963

 
23.8
%
 
644

 
5.4
%
Total revenues
$
63,259

 
100.0
%
 
$
50,359

 
100.0
%
 
$
12,900

 
25.6
%

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Total revenues . Total revenues increased $12.9 million , or 25.6% , to $63.3 million for the three months ended March 31, 2013 from $50.4 million for the same period in 2012 . The increase in revenues was primarily due to a $12.3 million increase in revenues from application services and a $0.6 million increase in revenues from professional services. During the first quarter of 2013, we added 17 new customers to reach a total of 358 customers as of March 31, 2013 . At the start of 2013, we had approximately $186 million of 2013 full year application services backlog. As of March 31, 2013 , the total 2013 remaining application services backlog was approximately $156 million .
Application services revenues . Revenues from application services increased $12.3 million , or 31.9% , to $50.7 million for the three months ended March 31, 2013 from $38.4 million for the same period in 2012 . The majority of the increase in application services revenues was derived from increased activity among our existing large customers and midmarket customers, primarily resulting from new studies and renewals. We also benefited from strong demand from both new and existing customers for multiple products. The revenues from products other than, Medidata Rave, or non-Rave revenues, grew 125% compared with prior period. Revenues from new customers accounted for 18% of the total increase in application services revenues. Application services revenues also increased significantly from both international and domestic customers compared with the prior period. Revenues from customers based in North America and Asia grew 42% and 17% , respectively, whereas revenues from customers based in Europe grew 10% .
Professional services revenues . Revenues from professional services increased $0.6 million , or 5.4% , to $12.6 million for the three months ended March 31, 2013 from $12.0 million for the same period in 2012 . The increase in professional services revenues was due to high demand for servicing of new products.
Cost of Revenues
 
Three Months Ended March 31,
 
2013
 
2012
 
Change
 
Amount
 
% of
Revenues
 
Amount
 
% of
Revenues
 
Amount
 
%
 
(Amount in thousands)
Cost of revenues:
 
 
 
 
 
 
 
 
 
 
 
Application services
$
9,025

 
14.3
%
 
$
7,484

 
14.9
%
 
$
1,541

 
20.6
%
Professional services
8,104

 
12.8
%
 
7,131

 
14.2
%
 
973

 
13.6
%
Total cost of revenues
$
17,129

 
27.1
%
 
$
14,615

 
29.1
%
 
$
2,514

 
17.2
%
Total cost of revenues . Total cost of revenues increased $2.5 million , or 17.2% , to $17.1 million for the three months ended March 31, 2013 from $14.6 million for the same period in 2012 .
Cost of application services revenues . Cost of application services revenues increased $1.6 million, or 20.6% , to $9.0 million for the three months ended March 31, 2013 from $7.4 million for the same period in 2012 . The increase was driven by the rise in hosting costs resulting from increased headcount and higher external costs, including third-party cloud hosting services and outside consultants, to support our business growth. The increase was also due to higher technology-related expenses associated with our multi-year software-related licenses and service contracts entered into during the second quarter of 2012.
Cost of professional services revenues . Cost of professional services revenues increased $1.0 million , or 13.6% , to $8.1 million for the three months ended March 31, 2013 from $7.1 million for the same period in 2012 . The increase was mainly driven by higher personnel-related costs resulting from an increase in headcount to support our high demand for servicing of new products as well as demand from our new customers.

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Operating Costs and Expenses  
 
Three Months Ended March 31,
 
2013
 
2012
 
Change
 
Amount
 
% of
Revenues
 
Amount
 
% of
Revenues
 
Amount
 
%
 
(Amount in thousands)
Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Research and development
$
11,905

 
18.8
%
 
$
9,955

 
19.8
%
 
$
1,950

 
19.6
%
Sales and marketing
14,489

 
22.9
%
 
10,383

 
20.6
%
 
4,106

 
39.5
%
General and administrative
12,644

 
20.0
%
 
9,290

 
18.4
%
 
3,354

 
36.1
%
Total operating costs and expenses
$
39,038

 
61.7
%
 
$
29,628

 
58.8
%
 
$
9,410

 
31.8
%

Total operating costs and expenses . Total operating costs and expenses increased $9.4 million , or 31.8% , to $39.0 million for the three months ended March 31, 2013 from $29.6 million for the same period in 2012 . Costs increased in each department with the larger increases in sales and marketing and general and administrative expenses.
Research and development expenses . Research and development expenses increased $2.0 million , or 19.6% , to $11.9 million for the three months ended March 31, 2013 from $9.9 million for the same period in 2012 . The increase was primarily due to an increase in personnel-related costs of $1.3 million, which was attributable to significant increases in staffing levels in order to accelerate the enhancement and broadening of our product offerings. In addition, the increase in research and development expenses was also driven by our investments in big data initiatives beginning in 2013. Higher rent expense was also a contributor to the overall increase. We believe our investments in research and development position us to capitalize on the opportunities we see in our markets.
Sales and marketing expenses . Sales and marketing expenses increased $4.1 million , or 39.5% , to $14.5 million for the three months ended March 31, 2013 from $10.4 million for the same period in 2012 . The increase was primarily due to higher personnel-related costs of $3.5 million, driven by higher sales incentive compensation costs as a result of higher sales performance versus a year ago. In addition, we continued to increase our staffing levels in association with the expansion of the reach and capability of our global sales organization in support of our overall growth initiatives. Higher stock-based compensation expenses were impacted by our equity awards granted in prior and current years.
General and administrative expenses . General and administrative expenses increased $3.3 million, or 36.1% , to $12.6 million for the three months ended March 31, 2013 from $9.3 million for the same period in 2012 . The increase was primarily due to higher stock-based compensation costs of $1.9 million as a result of our equity awards granted to our executives and employees in prior and current years. An increase in our provision for doubtful accounts also impacted expenses.
Income Tax Expense
Income tax expense decreased $0.8 million to $1.6 million for the three months ended March 31, 2013 from $2.4 million for the same period in 2012 . The decrease was the result of a lower effective tax rate at 22% versus 39% a year ago, related to federal and state research and development tax credits, partially offset by limits on deductible executive compensation under Section 162(m) of the Internal Revenue Code. With regard to research and development tax credits, we recognized a one-time catch-up tax benefit of $1.2 million associated with the 2012 tax year in the first quarter of 2013 as a result of the American Taxpayer Relief Act of 2012, or ATRA, which was signed into law in January 2013. ATRA reinstated the research and development tax credit retroactively from January 1, 2012 to December 31, 2013.
Liquidity and Capital Resources
Our principal sources of liquidity were cash, cash equivalents and marketable securities of $124.0 million at March 31, 2013 and $122.6 million at December 31, 2012 . Cash and cash equivalents increased $4.6 million during the first three months of 2013 primarily impacted by strong collections from our accounts receivable, increased billings from our strong sales activities, net proceeds from marketable securities, and our annual bonus payments. We manage our cash equivalents and marketable securities as a single investment portfolio that is intended to be available to meet our current cash requirements. Cash equivalents substantially consist of investment in money market funds. Marketable securities, which we classify as available-for-sale securities, primarily consist of high quality commercial paper, corporate bonds, and U.S. government debt obligations. Marketable securities with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term; otherwise, they are classified as long-term on the consolidated balance sheet.

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We have a $10.0 million revolving line of credit under our senior secured credit facility, as amended, that matures in September 2013. Except for the $3.9 million reduction of the available amount due to standby letters of credit issued in connection with the office leases executed under our credit agreement, the revolving line of credit remains undrawn. As of March 31, 2013 , approximately $6.1 million of the revolving line of credit was still available for future borrowings. Due to the structure of the credit agreement, any future borrowings under the revolving line of credit will be classified as a current liability. As of March 31, 2013 , the effective interest rate for our senior secured credit facility, as amended, was 2.70% , if borrowing under the U.S. London Interbank Offer Rate, or LIBOR, option. We are in compliance with all covenants under our senior secured credit facility, as amended, as of March 31, 2013 .
We believe that our cash flows from operations, existing cash and cash equivalents and highly liquid marketable securities and our availability under our existing revolving line of credit will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for the foreseeable future. For the remainder of 2013 , we expect to make approximately $29 to $30 million in capital expenditures, primarily related to leasehold improvements in our new corporate headquarters in New York City. We also plan to enhance our infrastructure and increase the capacity in our Houston data center, as well as to enhance our computer equipment across various corporate functions. We expect to acquire out capital equipment through purchases as opposed to capital lease arrangements.
Cash Flows Provided By Operating Activities
Cash flows provided by operating activities during the three months ended March 31, 2013 were $2.9 million , which consisted primarily of net income of $5.7 million , non-cash adjustments, including stock-based compensation of $5.2 million , depreciation and amortization of $1.9 million and deferred income taxes of $0.7 million , as well as changes in working capital. The change in working capital includes a decline in accrued payroll and other compensation of $6.6 million and an increase in accounts receivable of $4.2 million . The fluctuation in accounts receivable was primarily due to higher billing activities, partially offset by our strong customer collections. The decrease in accrued payroll and other compensation was related to our payment of annual bonuses.
Cash flows provided by operating activities during the three months ended March 31, 2012 were $2.5 million, which consisted primarily of net income of $3.8 million, non-cash adjustments, including stock-based compensation of $2.2 million, depreciation and amortization of $2.0 million and excess tax benefit of $1.3 million, as well as changes in working capital. The change in working capital includes increases in accounts receivable and deferred revenue of $5.8 million and $4.9 million, respectively, and a decrease in accrued payroll and other compensation of $4.0 million. The fluctuation within accounts receivable and deferred revenue was primarily due to higher billing activities, partially offset by our strong customer collections, as well as the timing of associated revenue recognition. The decrease in accrued payroll and other compensation was the result of our payment of annual bonuses.
Cash Flows Provided by Investing Activities
Cash flows provided by investing activities during the three months ended March 31, 2013 were $0.1 million , which was related to $30.0 million in proceeds from sale and maturity of marketable securities and decrease in restricted cash of $0.4 million , partially offset by $27.4 million in purchases of marketable securities and $2.9 million in purchases of furniture, fixtures and equipment. For the three months ended March 31, 2013 we did not acquire any furniture, fixtures, and equipment through capital lease arrangements.
Cash flows provided by investing activities during the three months ended March 31, 2012 were $7.5 million, which was related to $29.8 million in proceeds from the sale and maturity of marketable securities, partially offset by $20.4 million in purchases of marketable securities and $1.8 million in purchases of furniture, fixtures and equipment. For the three months ended March 31, 2012 we acquired an insignificant amount of equipment through capital lease arrangements.
Cash Flows Provided by Financing Activities
Cash flows provided by financing activities during the three months ended March 31, 2013 were $1.7 million , which was primarily due to $1.7 million in proceeds from stock option exercises and $0.6 million of excess tax benefit realized from equity awards, partially offset by $0.4 million in acquisition-related earn-out payments and $0.1 million relating to the acquisition of treasury stock in connection with the vesting of restricted stock awards.
Cash flows provided by financing activities during the three months ended March 31, 2012 were $3.1 million, which was primarily due to $2.2 million in proceeds from stock option exercises and $1.3 million of excess tax benefit realized from equity awards, partially offset by $0.3 million in acquisition-related earn-out payments.

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Contractual Obligations, Commitments and Contingencies
There was no material change in our contractual obligations during the first three months of 2013 .
In January 2009, we entered into agreements with certain of our executive officers that provide them with certain benefits upon the termination of their employment following a change of control in our company. The agreements provide that, upon a qualifying event, such officers will be entitled to (a) a severance payment equal to the officer’s base salary plus target bonus amount; (b) continuation of health benefits for 12 months; and (c) immediate vesting of any remaining unvested equity awards, unless otherwise specified in the equity award agreements. In March 2012, we amended the agreements with our named executive officers to eliminate the tax gross-up payments.
On March 4, 2011, DataTrak International, Inc. filed a complaint for alleged patent infringement against us in DataTrak International v. Medidata Solutions, C.A. No. 1:11-cv-00458 in the U.S. District Court for the Northern District of Ohio. The complaint asserts infringement of U.S. Patent No. 7,464,087, or the ’087 Patent, which claims a method and system for unifying data from a variety of sources. The complaint asserts that we infringe upon the patent owned without providing any details concerning the alleged infringement, and it seeks unspecified damages and injunctive relief. On October 28, 2011, we filed an application for ex parte reexamination of the ’087 Patent with the U.S. Patent and Trademark Office, or PTO. On December 16, 2011, the PTO issued a non-final rejection of the validity of all claims of the ’087 Patent. On the same date, the district court granted our motion to stay the case pending reexamination of the patent-in-suit. On April 6, 2012, the PTO issued its final office action rejecting all asserted claims of the ’087 Patent. In July 2012, DataTrak filed a notice of appeal to the Board of Patent Appeals and Interferences. If this appeal is not successful and the decision is ultimately upheld, it will result in the elimination of the litigation. We believe that we have valid defenses to the lawsuit and intend to defend it vigorously in the event the stay of the case is lifted. The probability of a favorable or unfavorable outcome to us in the event the stay of the case is lifted is unknown nor can the liability that could potentially result from a negative outcome be reasonably estimated. As a result, we have not recorded an accrual associated with this litigation. Additionally, given the status of the proceedings, the complexities of the facts in dispute and the multiple claims involved, we are unable to estimate a range of loss related to this litigation.
On July 31, 2012, DataTrak was issued U.S. Patent No. 8,234,294, or the ’294 Patent, which is closely related to the ’087 Patent previously asserted against us. On July 31, 2012, we filed a lawsuit against DataTrak in the U.S. District Court for the District of New Jersey seeking a declaratory judgment of patent invalidity and non-infringement concerning the ’294 Patent. We intend to vigorously pursue our claims and defenses concerning the ’294 Patent. The ultimate outcome of this litigation cannot presently be determined, nor can the liability that could potentially result from a negative outcome be reasonably estimated. As a result, we have not recorded an accrual associated with this litigation. Additionally, given the status of the proceedings, the complexities of the facts in dispute and the multiple claims involved, we are unable to estimate a range of loss related to this litigation.

Effects of Recently Issued Accounting Standards
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income , which removes the presentation options contained in ASC 220, Comprehensive Income , and requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the format of statement of operations used today, and the second statement would include components of other comprehensive income. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to defer indefinitely the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of ASU No. 2011-05 are effective for interim and annual periods beginning after December 15, 2011, and must be applied retrospectively for all periods presented in the financial statements. We adopted the applicable provisions of ASU No. 2011-05 on January 1, 2012. The adoption did not have a material impact on our consolidated financial statements other than a change in their presentation. In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which supersedes and replaces the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05 and ASU No. 2011-12. ASU No. 2013-02 is effective for reporting periods beginning after December 15, 2012. We adopted ASU No. 2013-02 on January 1, 2013 and the adoption did not have a material impact on our consolidated financial statements.
Dividends
We currently expect to retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock.

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Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities of financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space and computer equipment, we do not engage in off-balance sheet financing arrangements.

Item 3.     Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
We had unrestricted cash and cash equivalents totaling $37.3 million at March 31, 2013 . The majority of our cash equivalents is invested in money market funds. We also had investments in marketable securities, which we classify as available-for-sale securities, totaling $86.7 million at March 31, 2013 . Substantially all of our marketable securities are fixed income securities, which primarily consist of high quality commercial paper, corporate bonds, and U.S. government debt obligations. The unrestricted cash and cash equivalents as well as marketable securities are held for working capital purposes. We manage our cash equivalents and marketable securities as a single investment portfolio that is intended to be available to meet our current cash requirements. We do not enter into investments for trading or speculative purposes. Due to the short-term nature and high credit ratings of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.
We have a floating rate revolving line of credit under our senior secured credit facility, as amended, which is currently undrawn. Accordingly, we will be exposed to fluctuations in interest rates if such revolving line of credit is drawn. Assuming the maximum available amount of our revolving line of credit was drawn as of March 31, 2013 , each hundred basis point change in prime rate or LIBOR would result in a change in interest expense by an average of approximately $0.1 million annually.
Exchange Rate Sensitivity
We have two separate exposures to currency fluctuation risk: subsidiaries outside the United States that use a foreign currency as their functional currency that are translated into U.S. dollars for consolidation and non-U.S. dollar-invoiced revenues.
Changes in foreign exchange rates for our subsidiaries that use a foreign currency as their functional currency are translated into U.S. dollars and result in cumulative translation adjustments, which are included in accumulated other comprehensive income (loss). We have translation exposure to various foreign currencies, including the Euro, British Pound Sterling and Japanese Yen. The potential translation loss resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounts to $1.4 million estimated for the three months ended March 31, 2013 .
We generally invoice our customers in U.S. dollars. However, we invoice a portion of customers in foreign currencies, the majority of which is denominated in the Euro, British Pound Sterling, Australian Dollar, and Canadian Dollar. As such, the fluctuations in such currencies could impact our operating results.
Impact of Inflation
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we might not be able to offset these higher costs fully through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.
Fair Value of Financial Instruments
ASC 825-10, Financial Instruments , requires disclosure about fair value of financial instruments. The carrying amounts of our financial instruments, which consist of cash and cash equivalents, receivables, accounts payable and accrued liabilities, approximate fair value because of the short maturity of these instruments. Fair values of marketable securities are based on unadjusted quoted market prices or pricing models using current market data that are observable either directly or indirectly. The fair value of contingent consideration is determined based on the likelihood of contingent earn-out payments. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.


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Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2013 , an evaluation was performed with the participation of our Disclosure Committee and our management, including the Chief Executive Officer, or CEO, and the Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon such evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2013 .
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II OTHER INFORMATION
 
Item 1.        Legal Proceedings
See Note 10, “Commitments and Contingencies – Legal Matters,” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of current legal proceedings.

Item 1A.    Risk Factors
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 are those which we believe are the material risks we face. There have been no material changes in our risk factors since our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 . Any of those disclosed risk factors or additional risks and uncertainties not presently known to us, or that we currently deem immaterial, could have a material adverse effect on our business, financial condition and results of operations.

Item 2.         Unregistered Sale of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers
From time to time, we grant restricted stock awards to our employees pursuant to the terms of our Amended 2009 Long-Term Incentive Plan, or 2009 Plan. Under the provisions of our 2009 Plan, the plan participants are allowed to cover their income tax withholding obligation through net shares upon the vesting of their restricted shares. On the date of vesting of restricted shares, we determine the number of vested shares to be withheld based on their fair value at closing price of our common stock on the vesting date, which equals to the amount of plan participants’ income tax withholding obligation.

A summary of our repurchases of shares of our common stock for the three months ended March 31, 2013 was as follows:
 
 
Total Number
of Shares
Purchased(1)
 
Average
Price Paid
per Share
 
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
 
Maximum
Number of
Shares that
May Yet be
Purchased
under the  Plans
or Programs
January 1 – January 31, 2013

 
$

 

 

February 1 – February 28, 2013
2,600

 
48.34

 

 

March 1– March 31, 2013

 

 

 

Total
2,600

 
$
48.34

 

 

 
(1)
Represents the number of shares acquired as payment by employees of applicable statutory minimum withholding taxes owed upon vesting of restricted stock granted under our 2009 Plan.

Item 3.        Defaults Upon Senior Securities
None.

Item 4.        Mine Safety Disclosures
Not applicable.

Item 5.         Other Information
None.

Item 6.        Exhibits
The information required by this Item 6 is set forth on the exhibit index that follows the signature page of this report.

- 28 -

Table of Contents

Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

MEDIDATA SOLUTIONS, INC.
 
 
 

By:
/s/ C ORY  D OUGLAS
 
 
Cory Douglas
Chief Financial Officer (Principal Financial and Chief Accounting Officer)
Date: May 3, 2013

- 29 -

Table of Contents

EXHIBIT INDEX
Exhibit
No.
  
Description
10.1*
 
Form of Medidata Solutions, Inc. Restricted Stock Agreement
 
 
 
10.2*
 
Form of Medidata Solutions, Inc. Performance-Based Restricted Stock Unit Agreement
 
 
 
10.3*
 
Form of Medidata Solutions, Inc. Long-Term Performance-Based Restricted Stock Unit Agreement
 
 
 
31.1*
  
Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act.
 
 
 
31.2*
  
Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act.
 
 
 
32.1**
  
Certification of CEO pursuant to Rules 13a-14(b) or 15d-14(b) under the Exchange Act and 18 U.S.C. 1350.
 
 
 
32.2**
  
Certification of CFO pursuant to Rules 13a-14(b) or 15d-14(b) under the Exchange Act and 18 U.S.C. 1350.
 
 
 
101.INS***
  
XBRL Instance Document
 
 
 
101.SCH***
  
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL***
  
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF***
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB***
  
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE***
  
XBRL Taxonomy Extension Presentation Linkbase Document
 
*
Filed herewith.
**
Furnished herewith.
***
In accordance with Rule 406T of Regulation S-T, the information in Exhibit 101 is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.



- 30 -

MEDIDATA SOLUTIONS, INC.
RESTRICTED STOCK AGREEMENT
AGREEMENT made as of the __ day of ______________, 20__, by and between MEDIDATA SOLUTIONS, INC. (the “ Company ”), and ___________________ (the “ Participant ”).
1. Award . In accordance with the Medidata Solutions, Inc. 2009 Long-Term Incentive Plan (the “ Plan ”), the Company has made a restricted stock award to the Participant for ______ shares of the Company’s common stock (the “ Shares ”). The award and the Shares are subject to the provisions of the Plan and, to the extent not inconsistent with the Plan, the terms and conditions of this Agreement. Capitalized terms that are used but not defined in this Agreement shall have the meanings ascribed to them by the Plan.
2.      Vesting of Shares . Except as otherwise provided herein or the Plan, the Shares will become vested in _________ equal annual installments commencing on the first anniversary of the date hereof, subject to the Participant’s continuous employment or other service with the Company or a Subsidiary on the applicable vesting date. [Notwithstanding the foregoing, no Shares will become vested hereunder if the Company fails to achieve positive EBITDAO for [insert year]. For this purpose, EBITDAO is defined as the Company’s earnings before interest, taxes, depreciation, amortization and stock based compensation expense, calculated in accordance with GAAP, determined without giving effect to changes in accounting rules, litigation settlement expenses and other extraordinary and nonrecurring items. The determination whether the Company has positive EBITDAO for the year shall be made by the Committee following completion of the Company’s audited financial statements for the year.]
3.      Termination of Employment .
(a)      General . Except as provided in (b) below, unless the Committee, acting in its sole and absolute discretion, determines otherwise, upon the termination of the Participant’s employment and other service with the Company and its Subsidiaries (“ Termination of Employment ”), the Participant will forfeit all right, title and interest in the unvested Shares. If unvested Shares are forfeited, any certificate or book entry for such Shares will be automatically canceled on the books and records of the Company without further action by the Participant.
(b)      Death or Disability . If the Participant’s employment terminates because of the Participant’s death or if the Company terminates the Participant’s employment by reason of “disability” (as defined below), any unvested Shares then held by the Participant will become fully vested and the restrictions thereon shall lapse as of the date of such termination of employment. For the purpose of this Agreement, the term “disability” means the inability of the Participant to perform the essential duties of the Participant’s employment with the Company or a subsidiary for a period of 120 consecutive days or an aggregate of 180 days during any twelve-month period, by reason of a physical or mental illness or injury, as determined in the good faith by the Committee acting in accordance with its discretionary authority under the Plan.
4.      Transfer Restrictions . The Participant may not sell, assign, transfer, pledge, hedge, hypothecate, encumber or dispose of in any way (whether by operation of law or otherwise) any unvested Shares, and unvested Shares shall not be subject to execution, attachment or similar process. Any attempt by the Participant or any other person claiming against, through or under the Participant to cause unvested Shares to be transferred or assigned in any manner and for any purpose not permitted hereunder or under the Plan shall be null and void and without effect upon the Company, the Participant or any other person.
5.      Dividends and Voting Rights . [ No dividends will be payable on unvested Shares; however, the Participant will be credited with dividend equivalents equal to the amount or value of the dividends that would have been paid on the unvested Shares if they were vested. The dividend equivalents, if any, will be credited to a bookkeeping account in the name of the Participant. The “dividend equivalent” amounts will be subject to substantially the same vesting, forfeiture and other terms and conditions applicable to the corresponding unvested Shares. Dividend equivalent amounts credited with respect to unvested Shares that become vested will be payable to the Participant within 90 days after the date the corresponding unvested Shares become vested. ] The Participant will be entitled to exercise voting rights with respect to the unvested Shares.
6.      Issuance of Shares; Removal of Restrictions and Conditions . The Participant is the record owner of the Shares on the Company’s books, subject to the restrictions and conditions set forth in this Agreement. By executing this Agreement, the Participant expressly authorizes the Company to cancel, reacquire, retire or retain, at its election, any unvested Shares if and when they are forfeited in accordance with this Agreement. The Participant will execute and deliver such other documents and take such other actions, if any, as the Company may reasonably request in order to evidence such action with respect to any unvested Shares that are forfeited. If, as and when Shares become vested, and subject to the satisfaction of applicable withholding and other legal requirements, the vested Shares will no longer be subject to the transfer restrictions and other conditions contained in this Agreement and the Company’s books and, as applicable, stock certificates representing the Shares will be updated accordingly.
7.      Withholding . Notwithstanding anything to the contrary contained herein, the vesting of Shares covered by this Agreement shall be subject to and conditioned upon the satisfaction by the Participant of applicable tax withholding obligations. The Company and its Subsidiaries may require the Participant to remit an amount sufficient to satisfy applicable withholding taxes or deduct or withhold such amount from any payments otherwise owed the Participant (whether or not under this Agreement or the Plan). The Participant expressly authorizes the Company to deduct from any compensation or any other payment of any kind due to the Participant, including withholding otherwise vested Shares, for the amount of any federal, state, local or foreign taxes required by law to be withheld in connection with the vesting of Shares; provided, however, that the value of the shares withheld may not exceed the statutory minimum withholding amount required by law.
8.      Provisions of the Plan Control . This Agreement is subject to all the terms, conditions and provisions of the Plan and to such rules, regulations and interpretations as may be established or made by the Committee acting within the scope of its authority and responsibility under the Plan. The Participant acknowledges receipt of a copy of the Plan prior to execution of this Agreement. The applicable provisions of the Plan shall govern in any situation where this Agreement is silent or where the applicable provisions of this Agreement are contrary to or not reconcilable with such Plan provisions.
9.      No Employment Rights . Nothing contained herein or in the Plan shall confer upon the Participant any right with respect to the continuation of the Participant’s employment or other service with the Company or a Subsidiary or interfere in any way with the right of the Company and its Subsidiaries at any time to terminate such employment or other service or to increase or decrease, or otherwise adjust, the Participant’s compensation and any other terms and conditions of the Participant’s employment or other service.
10.      Committee Authority . The Committee under the Plan shall have complete discretion in the exercise of its rights, powers, and duties under this Agreement. Any interpretation or construction of any provision of, and the determination of any question arising under, this Agreement shall be made by the Committee in its discretion and such exercise shall be final, conclusive, and binding. The Committee may designate any individual or individuals to perform any of its functions hereunder.
11.      Successors . This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company, the Participant and any beneficiary of the Participant.
12.      Entire Agreement . This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended, except as provided in the Plan, other than by a written instrument executed by the parties hereto.
13.      Governing Law . All rights and obligations under this Agreement and the Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
MEDIDATA SOLUTIONS, INC.



By: ___________________________



______________________________
Participant

    

FORM OF
MEDIDATA SOLUTIONS, INC.
PERFORMANCE-BASED
RESTRICTED STOCK UNIT AGREEMENT
THIS AGREEMENT is made as of [ ], by and between MEDIDATA SOLUTIONS, INC. (the “ Company ”), and ___________________ (the “ Participant ”).
1. Award . In accordance with the Medidata Solutions, Inc. 2009 Long-Term Incentive Plan (the “ Plan ”), the Company hereby grants to the Participant a target incentive award of [•] performance-based restricted stock units (“ PBRSUs ”). Each PBRSU represents a contingent right to receive one share of the Company’s common stock (a “ Share ”). The number of PBRSUs that can be earned under this Agreement may range from [ insert minimum ]% to [ insert maximum ]% of the target number, and will be determined in accordance with Section 2 below. PBRSUs earned by the Participant will be subject to the terms and conditions of this agreement, including Exhibit A annexed hereto (collectively, the “Agreement”). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them by the Plan.
2.      Earning of PBRSUs .
(a)      General . Except as otherwise provided in this Section 2, the number of PBRSUs earned by the Participant for [ insert year of grant ] will be determined in accordance with performance measures and other conditions set forth in Exhibit A annexed hereto, and will be subject to the time-based vesting conditions of Section 3 below. The determination will be made by the Compensation Committee of the Company’s Board of Directors (the “ Committee ”), acting in its discretion in accordance with this Agreement (including Exhibit A ), as soon as practicable following the expiration of the performance period. The Committee’s determination will be final and binding on the Company, the Participant and any other interested person.
(b)      Termination of Employment .
(i)      General . If the Participant’s employment terminates during [ insert year of grant ], then, except as specified in subpart (ii) below, no PBRSUs will be earned by the Participant and this Agreement will thereupon terminate and be of no further force or effect. For the purposes of this Agreement, the Participant’s employment will be considered terminated if (and only if) the Participant is no longer employed by or providing services to the Company or any of its subsidiaries.
(ii)      Termination Due to Death or Disability . If, prior to the end of the year, the Participant’s employment terminates by reason of the Participant’s death or the Company terminates the Participant’s employment by reason of “Disability” (as defined below), then the Participant will be deemed to have earned a pro-rata portion of the number of PBRSUs, if any, the Participant would have earned under this Agreement (including, if applicable, Section 2(c) below) if the Participant’s employment had not terminated, based upon the ratio of (A) the number of full months elapsed from January 1, [•] to the date the Participant’s employment terminated, to (B) 12. For the purpose of this Agreement, the term “Disability” means the inability of the Participant to perform the essential duties of the Participant’s employment with the Company or a subsidiary for a period of 120




consecutive days or an aggregate of 180 days during any twelve-month period, by reason of a physical or mental illness or injury, as determined in the good faith by the Committee acting in accordance with its discretionary authority under the Plan.
(c)      Effect of a Sale Event . If a Sale Event (as defined in the Plan) occurs during the year, and if the Participant’s employment has not previously terminated, then the Participant will be deemed to have earned the number of PBRSUs that the Participant would have earned under Exhibit A if the performance measuring period had ended on the day preceding the date on which the Sale Event occurs (the “Pre-Sale Date”), except that, for purposes of applying Exhibit A, the Revenue Growth Performance Percentage will be equal to the greater of (1) 100%, or (2) the percentage (not to exceed [ insert maximum ]%) determined under the Revenue Growth Percentage Table in Exhibit A based upon the Short Year Revenue Growth Rate (calculated pursuant to paragraph 4(e) of Exhibit A ). The earned PBRSUs, as so determined, will be fully vested immediately prior to the Sale Event.
3.      Time-Based Vesting Conditions .
(a)      General . Except as otherwise provided herein, (1) the PBRSUs earned by the Participant under Section 2 (a) above will become vested in three equal annual installments commencing on the first anniversary of the date hereof, subject to the Participant’s continuous employment or other service with the Company through the applicable vesting date, and (2) if the Participant’s employment terminates before the last vesting date, any previously earned and unvested PBRSUs shall thereupon be forfeited and canceled.
(b)      Acceleration of Vesting .
(i)      Termination Due to Death or Disability . If the Participant’s employment terminates by reason of death or if the Company terminates the Participant’s employment by reason of Disability after [ insert end date ], then any previously earned and unvested PBRSUs will thereupon become fully vested. If such termination of employment occurs prior to [ insert end date ] , then the number of PBRSUs deemed to have been earned by the Participant in accordance with Section 2(b)(ii) shall be deemed to be fully vested at the time such number is determined by the Committee.
(ii)      Sale Event . If a Sale Event occurs after the end of the year, and the Participant is then still employed, any previously earned and unvested PBRSUs that are still outstanding and that are not assumed and continued on an economically equivalent basis in accordance with and subject to the provisions of Section 11.3 of the Plan will become fully vested immediately prior to the Sale Event. Earned and unvested PBRSUs that are assumed and continued on an economically equivalent basis in connection with such Sale Event will be subject to substantially the same terms and conditions of this Agreement, provided, however, vesting of such PBRSUs will accelerate if, within two years after the Sale Event, (A) the Participant’s employment is terminated by the acquiring or successor company (or a parent thereof) without Cause (as defined in the Plan), or (B) the Participant is covered by an existing change in control agreement with the Company and the Participant’s employment is terminated by the Participant for “good reason” (as defined in the change in control agreement).

2


4.      Settlement of Vested PBRSUs; Rights as a Shareholder .
(a)      General . As soon as practicable after the Participant’s earned PBRSUs become vested in accordance with the provisions of Section 3 (but in no event later than March 15 of the following calendar year), the Company will issue and deliver to the Participant (or the Participant’s Beneficiary) the Shares covered by such vested PBRSUs in certificated or electronic form. Unless an insider trading blackout period is in effect on the date the PBRSUs become vested and absent other extraordinary circumstances, the Company intends to complete such issuance and delivery promptly after the applicable vesting date. Notwithstanding the foregoing, if a Sale Event occurs, any earned and vested PBRSUs (taking into account any accelerated vesting pursuant to Section 3(b)(ii) above), will be settled in cash or Shares immediately prior to the Sale Event so that the Participant will be able to participate in and/or realize the economic benefit of the Sale Event as if the Shares covered by such vested PBRSUs were then outstanding.
(b)      Tax Withholding . As a condition of the issuance of Shares under this Agreement, the Company shall require the Participant to satisfy any applicable tax withholding obligations. Toward that end, the Company and its Subsidiaries may require the Participant to remit an amount sufficient to satisfy such withholding obligations or deduct or withhold such amount from any payments otherwise owed the Participant (whether or not under this Agreement or the Plan). The Participant expressly authorizes the Company to deduct from any compensation or any other payment of any kind due to the Participant, including (if the Company so consents) withholding Shares that would otherwise be issued to the Participant in settlement of vested PBRSUs, for the amount of any such tax withholding obligations, provided, however, that the value of any Shares withheld may not exceed the statutory minimum withholding amount required by law.
(c)      Rights as a Shareholder . The Participant shall have no voting or other rights of a shareholder with respect to the Shares covered by PBRSUs unless and until such Shares are issued to the Participant in accordance with the provisions hereof.
5.      Transfer Restrictions . The Participant may not sell, assign, transfer, pledge, hedge, hypothecate, encumber or dispose of in any way (whether by operation of law or otherwise) any of the Participant’s rights under this Agreement, and none of such rights shall be subject to execution, attachment or similar process. Any attempt by the Participant or any other person claiming against, through or under the Participant to cause any of the Participant’s rights under this Agreement to be transferred or assigned in any manner shall be null and void and without effect upon the Company, the Participant or any other person. Notwithstanding the foregoing, if the Participant dies on or after the date that any PBRSUs have become vested and before the issuance and delivery of Shares to the Participant in settlement of such vested PBRSUs, such Shares will be issued and delivered to the Participant’s Beneficiary under the Plan.
6.      Provisions of the Plan Control; Effect of Other Agreements . This Agreement shall be subject to the provisions of the Plan and to such rules, regulations and interpretations as may be established or made by the Committee acting within the scope of its authority under the Plan. The Participant acknowledges receipt of a copy of the Plan prior to the execution of this Agreement. If and to the extent that any provision of this Agreement (including the Plan, as it applies to this Agreement) is inconsistent with any provision of any employment, separation, change in control

3


or other agreement between the Company or a subsidiary and the Participant in effect at any time or from time to time, the terms of this Agreement (including the Plan, as it applies to this Agreement) shall govern.
7.      No Employment Rights . Nothing contained herein or in the Plan shall confer upon the Participant any right with respect to the continuation of the Participant’s employment or other service with the Company or a subsidiary or interfere in any way with the right of the Company and its subsidiaries at any time to terminate such employment or other service or to increase or decrease, or otherwise adjust, the Participant’s compensation and any other terms and conditions of the Participant’s employment or other service.
8.      Recoupment . The Participant’s rights with respect to this award shall in all events be subject to (a) any right that the Company may have under any Company recoupment and/or forfeiture policy adopted by the Company at any time, and (b) any right or obligation the Company may have regarding the claw back of “incentive-based compensation” under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable securities law or the listing requirements of any national securities exchange on which the Company’s Shares are listed).
9.      Committee Determinations Final . The Committee shall have complete discretion in the exercise of its authority, powers, and duties under the Plan and this Agreement. Any determination made by the Committee with respect to this Agreement and the Plan shall be final, conclusive, and binding on all interested persons. The Committee may designate any individual or individuals to perform any of its ministerial functions to be performed hereunder.
10.      Successors . This Agreement shall be binding upon and inure to the benefit of the Company any of its successors and assigns, as well as the Participant and, if applicable, the Participant’s surviving spouse or estate.
11.      Entire Agreement . This Agreement (including Exhibit A ) constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended, except as provided in the Plan, other than by a written instrument executed by the parties hereto.
12.      Governing Law . All rights and obligations under this Agreement and the Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws.
13.      Counterparts . This Agreement may be executed in separate counterparts, each of which will be an original and all of which taken together shall constitute one and the same agreement.
[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

4


MEDIDATA SOLUTIONS, INC.



By:_________________________________



____________________________________
Participant


5


EXHIBIT A
DETERMINATION OF EARNED PBRSUS
This Exhibit A is attached to and made a part of the Participant’s Performance-Based Restricted Stock Unit Agreement (the “Agreement”). This Exhibit describes the performance factors and the mechanics used for determining the number of PBRSUs the Participant will earn subject to the time-based vesting conditions of the Agreement. Capitalized terms that are used but not defined in this Exhibit A will have the meanings ascribed to them by the main body of the Agreement. Please note the definitions of capitalized terms used in this Exhibit A with respect to the performance criteria and performance measurements are set forth in Section 4 below.
1.      General . The number of PBRSUs the Participant may earn for [ year of grant ] (subject to time-based vesting) will be expressed as a percentage (from [ insert minimum ]% to [ insert maximum ]%) of the Participant’s target number of PBRSUs specified in Section 1 of the Agreement. In general, that percentage will be based on two performance factors: the Company’s Revenue Growth Rate for [ year of grant ] (weighted at [ insert value ]%) and the Company’s TSR (total shareholder return) for the year relative to the NASDAQ Index TSR for [ year of grant ] (weighted at [ insert value ]%). The actual number of PBRSUs the Participant may earn at the end of the performance period, subject to time-based vesting, will be equal to the sum of A + B, where—
A = The target number of PBRSUs (specified in the first paragraph of the Agreement) x [ insert value ]% x the Revenue Growth Performance Percentage determined under Table 1 in paragraph 2 below; and
B = The target number of PBRSUs x [ insert value ]% x the TSR Performance Percentage determined under the Table 2 in paragraph 3 below.
In order to earn any PBRSU’s based on the Company’s Revenue Growth Rate, the Company’s EBITDAO for the year must be at least $[•] million. If the Company’s EBITDAO is less than $[•] million, the Revenue Growth Performance Percentage will be [ insert minimum ]%, regardless of the Company’s Revenue Growth Rate for the year.
2.      Revenue Growth Performance Percentage Table . The Revenue Growth Performance Percentage is determined in accordance with the following table, based upon the Company’s Revenue Growth Rate for the year. If the Revenue Growth Rate (in the second column of the table) is above one level and below another level, then the Revenue Growth Performance Percentage (in the third column of the table) will be increased accordingly by linear interpolation between the two levels.

[Table 1 follows on next page]

A-1



TABLE 1
REVENUE GROWTH PERFORMANCE
[INSERT REVENUE CAGR TABLE]


A-2



3.      TSR Performance Percentage Table . The TSR Performance Percentage is determined in accordance with the following table, based on the percentage difference between the Company’s TSR and the NASDAQ Index TSR . If the percentage difference (in the first column) is above one level and below another level, then the TSR Performance Percentage (in the second column) will be increased accordingly by linear interpolation between the two levels.
TABLE 2
TSR PERFORMANCE
[INSERT TSR PERFORMANCE TABLE]

4.      Definitions .
(d)      “Company’s TSR” means the cumulative percentage change (positive or negative) in the value per share of the Company’s common stock during the year, based upon a beginning value of $[•] (the closing price on the last trading day of the prior year) and an ending value equal to the closing price per share on the last trading day of the year of grant.
(e)      “EBITDAO” means the Company’s earnings before interest, taxes, depreciation, amortization and stock based compensation expense for the year, calculated in accordance with GAAP, determined without giving effect to changes in accounting rules, litigation settlement expenses and other extraordinary and nonrecurring items.
(f)      “Gross Revenue” means the gross revenue of the Company for a year, determined without regard to the effect of changes in accounting rules.
(g)      “NASDAQ Index TSR” means the cumulative percentage change (positive or negative) in the average per share value of the companies in the NASDAQ Composite Index during the year as reported by NASDAQ, based on a beginning value of the closing value on the last trading day of the prior year, and an ending value equal to the closing price per share for the last trading day of the year.
(h)      “Revenue Growth Rate” means the percentage increase in the Company’s Gross Revenue from the prior year to the year of grant, determined as (A-B) ÷ B, where A equals the Company’s Gross Revenue the year of grant and B equals $[•](the Company’s Gross Revenue for the prior year). If a Change in Control occurs during the year, the “Revenue Growth Rate” will be calculated in accordance with the same formula except that A will be an amount equal to the Company’s Gross Revenue for the period beginning on January 1 of the year of grant and ending on the last day of the calendar quarter that ends prior to the date of the Change in Control (the “Short Year”), and B will be an amount equal to the Company's Gross Revenue for the corresponding period in the prior year.

A-3


(i)      “Revenue Growth Performance Percentage” means the percentage determined under Table 1 above based upon the Company’s Revenue Growth Rate for the year.
(j)      “TSR Performance Percentage” means the percentage determined under Table 2 above based upon the difference between the Company’s TSR and the NASDAQ Index TSR.

A-4

FORM OF
MEDIDATA SOLUTIONS, INC.
LONG-TERM PERFORMANCE-BASED
RESTRICTED STOCK UNIT AGREEMENT
THIS AGREEMENT is made as of ________, by and between MEDIDATA SOLUTIONS, INC. (the “ Company ”), and ___________________ (the “ Participant ”).
1. Award . In accordance with the Medidata Solutions, Inc. 2009 Long-Term Incentive Plan (the “ Plan ”), and subject to the terms and conditions of this agreement (the “Agreement”), the Company hereby grants to the Participant a target long-term incentive award of [•] performance-based restricted stock units (“ PBRSUs ”). Each PBRSU represents a contingent right to receive one share of the Company’s common stock (a “ Share ”). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them by the Plan.
2.      Earning of PBRSUs . The number of PBRSUs earned by the Participant will be expressed as a percentage multiple (the “ Performance Percentage ”) of the target number specified in 1 above. The Performance Percentage may range from [ insert minimum ]% to [ insert maximum ]%. The Performance Percentage will be based upon Company revenue growth and total shareholder return during the Performance Period (as described in 3 below). Unless sooner terminated, the Performance Period is the three-year period beginning [ insert beginning date ] and ending [ insert end date ]. The determination will be made by the Compensation Committee of the Company’s Board of Directors (the “ Committee ”) as soon as practicable following the expiration of the Performance Period. The Committee’s determination will be final and binding on the Company, the Participant and any other interested person.
3.      Determination of Performance Percentage .
(a)      General . Except as otherwise provided, the Performance Percentage will be determined in accordance with the table (the “Revenue CAGR Table”) set forth in the attached appendix, based on the Company’s Revenue CAGR (as defined below). As indicated in the Revenue CAGR Table, the Performance Percentage will be [ insert minimum ]% if the Company’s Revenue CAGR for the Performance Period is less than [•]%. The Performance Percentage will be 100% if Revenue CAGR is [•]% and may go as high as [ insert maximum ]% if Revenue CAGR reaches [•]%. For the purposes of this Agreement and applying the Revenue CAGR Table—
(i)      “Revenue CAGR” is the compound annual growth rate of the Company’s Revenue, calculated with a beginning value of $[•] million (the Company’s Revenue for [ insert year prior to performance period ]) and an ending value equal to the Company’s Revenue (or annualized Revenue) for the last year of the Performance Period; and
(ii)      “Revenue” is the gross revenue (or annualized gross revenue) of the Company for a year, determined without regard to the effect of changes in accounting rules.
(b)      Effect of Total Shareholder Return . The Performance Percentage determined under (a) above is subject to adjustment (up or down) as follows, depending on the Company’s TSR. For

1


this purpose, “TSR” is the cumulative percentage change (positive or negative) in the value per Share, based upon a beginning value of $[•] (the closing price on [ insert last trading day of year prior to performance period ] and an ending value equal to the average closing price per Share for the last 30 consecutive trading days of the Performance Period.
(i)      Negative TSR . If the Company’s TSR is negative, the Performance Percentage will be limited to 100%, regardless of the percentage determined under the Revenue CAGR Table.
(ii)      Extraordinary TSR . If the Company’s TSR doubles during the Performance Period, and if the Performance Percentage from the Revenue CAGR Table is at least 100% (based on Revenue CAGR of at least [•]%), then the Performance Percentage will be increased to [•]%. If, however, the Revenue CAGR is less than [•]%, such that the Performance Percentage from the Revenue CAGR Table is 0%, then the Performance Percentage will remain at 0%.
(c)      [Stockholder Approval of Plan Increase . The Performance Percentage will be subject to an absolute limit of 100% if the Company’s stockholders do not approve an increase in the number of Shares that may be issued under the Plan by at least 638,461 Shares before the end of the Performance Period. ]
4.      Termination of Employment During the Performance Period .
(a)      General . If the Participant’s employment terminates during the Performance Period, then, except as specified in (b) and (c) below, the Participant will forfeit this award and this Agreement will thereupon terminate and be of no further force or effect. For the purpose of this Agreement, the Participant’s employment will be considered terminated if (and only if) the Participant is no longer employed by or providing services to the Company or any of its subsidiaries.
(b)      Termination Due to Death or Disability . If, prior to the end of Performance Period, the Participant’s employment terminates by reason of the Participant’s death or the Company terminates the Participant’s employment by reason of “Disability” (as defined below), then the Participant will be deemed to have earned a pro-rata portion of the number of PBRSUs, if any, that the Participant would have earned under this Agreement (including, if applicable, Section 4(d) below) if the Participant’s employment had not terminated, based upon the ratio of (i) the number of full months elapsed from [ insert beginning date ] to the date the Participant’s employment terminated, to (ii) 36. For the purpose of this Agreement, the term “Disability” means the inability of the Participant to perform the essential duties of the Participant’s employment with the Company or a subsidiary for a period of 120 consecutive days or an aggregate of 180 days during any twelve-month period, by reason of a physical or mental illness or injury, as determined in good faith by the Committee acting in accordance with its discretionary authority under the Plan. Any PBRSUs deemed to be earned by the Participant pursuant to this subsection (b) will be settled in accordance with Section 5 below.
(c)      Involuntary Termination . If (A) the Company or a subsidiary terminates the Participant’s employment during the last year of the Performance Period for any reason other than Cause (as defined in the Plan) or Disability, and (B) the number of PBRSUs the Participant would

2


have earned (based on actual performance) if the Participant’s employment had continued through the end of the Performance Period is at least equal to the target number specified in Section 1, then the Participant will be deemed to have earned a pro rata portion of the PBRSUs that the Participant otherwise would have been earned, based on the ratio of (i) the number of full months elapsed from [ insert beginning date ] to the date the Participant’s employment is terminated, to (ii) 36. Any PBRSUs deemed to be earned by the Participant pursuant to this subsection (c) will be settled in accordance with Section 5 below.
(d)      Effect of a Sale Event During Performance Period . If a Sale Event (as defined in the Plan) occurs before [ insert end date ], and if the Participant’s employment has not previously terminated, then, immediately before the Sale Event, the Performance Period will end and the Participant will be deemed to have earned the number of PBRSUs determined in accordance with (i) – (iii) below. Any PBRSUs deemed to be earned by the Participant pursuant to this subsection (d) will be settled in accordance with Section 5 below.
(i)      First Year of Performance Period . If the Sale Event occurs during the first year of the Performance Period, the Participant will be deemed to have earned the target number of PBRSUs specified in Section 1 above.
(ii)      After First Year . If the Sale Event occurs during the second or third year of the Performance Period, the Participant will be deemed to have earned a number of PBRSUs equal to the target number multiplied by the Performance Percentage determined under the Revenue CAGR Table, based upon (A) the Company’s annualized Revenue for the portion of the calendar year ending on the date immediately preceding the date of the Sale Event, or, if greater, (B) the Company’s Revenue for the full calendar year preceding the year in which the Sale Event occurs.
(iii)      TSR Override . If the transaction value per Share is at least double the value per Share at the beginning of the Performance Period, then the Performance Percentage for determining the number of PBRSUs deemed to have been earned under this subsection (d) will [•]%, provided that (A) the Sale Event occurs in the first year of the Performance Period, or (B) the Sale Event occurs after the first year of the Performance Period and the Revenue CAGR determined under (ii) above is at least [•]%.
(iv)      Assumption of Award . Notwithstanding the foregoing, as part of the Sale Event, the parties may agree that this Agreement will be assumed by the acquiring or successor company (or a parent company thereof) and converted into an economically equivalent award with respect to freely tradable shares of the common stock of such acquiring or successor company (or parent company). In that event, the preceding provisions of Section 4 shall not apply with respect to such Sale Event, but will continue to apply with respect to a subsequent termination of employment or a second Sale Event.
5.      Settlement of PBRSUs; Rights as a Shareholder .
(a)      General . On or as soon as practicable after the date on which the number of PBRSUs earned or deemed earned by the Participant is determined in accordance with this Agreement (the “Determination Date”), but in no event later than March 15 of the following calendar year, the

3


Company will issue and deliver to the Participant (or the Participant’s Beneficiary, as the case may be) the Shares covered by such earned PBRSUs in certificated or electronic form. Unless an insider trading blackout period is in effect and absent other extraordinary circumstances, the Company intends to complete such issuance and delivery promptly after the Determination Date. Notwithstanding the foregoing, if a Sale Event occurs, any PBRSUs that are earned or deemed earned will be settled in cash or Shares immediately prior to the Sale Event so that the Participant will be able to participate in and/or realize the economic benefit of the Sale Event as if the Shares covered by such PBRSUs were then outstanding.
(b)      Tax Withholding . As a condition of the issuance of Shares under this Agreement, the Company shall require the Participant to satisfy any applicable tax withholding obligations. Toward that end, the Company and its Subsidiaries may require the Participant to remit an amount sufficient to satisfy such withholding obligations or deduct or withhold such amount from any payments otherwise owed the Participant (whether or not under this Agreement or the Plan). The Participant expressly authorizes the Company to deduct from any compensation or any other payment of any kind due to the Participant, including (if the Company so consents) withholding Shares that would otherwise be issued to the Participant in settlement of vested PBRSUs, for the amount of any such tax withholding obligations, provided, however, that the value of any Shares withheld may not exceed the statutory minimum withholding amount required by law.
(c)      Rights as a Shareholder . The Participant shall have no voting or other rights of a shareholder with respect to the Shares covered by PBRSUs unless and until such Shares are issued to the Participant in accordance with the provisions hereof.
6.      Transfer Restrictions . The Participant may not sell, assign, transfer, pledge, hedge, hypothecate, encumber or dispose of in any way (whether by operation of law or otherwise) any of the Participant’s rights under this Agreement, and none of such rights shall be subject to execution, attachment or similar process. Any attempt by the Participant or any other person claiming against, through or under the Participant to cause any of the Participant’s rights under this Agreement to be transferred or assigned in any manner shall be null and void and without effect upon the Company, the Participant or any other person. Notwithstanding the foregoing, if the Participant dies on or after the date that any PBRSUs have become earned and before the issuance and delivery of Shares to the Participant in settlement of such PBRSUs, such Shares will be issued and delivered to the Participant’s Beneficiary.
7.      Provisions of the Plan Control; Effect of Other Agreements . This Agreement shall be subject to the provisions of the Plan and to such rules, regulations and interpretations as may be established or made by the Committee acting within the scope of its authority under the Plan. The Participant acknowledges receipt of a copy of the Plan prior to the execution of this Agreement. If and to the extent that any provision of this Agreement (including the Plan, as it applies to this Agreement) is inconsistent with any provision of any employment, separation, change in control or other agreement between the Company or a subsidiary and the Participant in effect at any time or from time to time, the terms of this Agreement (including the Plan, as it applies to this Agreement) shall govern.

4


8.      Recoupment . The Participant’s rights with respect to this award shall in all events be subject to (a) any right that the Company may have under any Company recoupment and/or forfeiture policy adopted by the Company at any time, and (b) any right or obligation the Company may have regarding the claw back of “incentive-based compensation” under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable securities law or the listing requirements of any national securities exchange on which the Company’s Shares are listed).
9.      No Employment Rights . Nothing contained herein or in the Plan shall confer upon the Participant any right with respect to the continuation of the Participant’s employment or other service with the Company or a subsidiary or interfere in any way with the right of the Company and its subsidiaries at any time to terminate such employment or other service or to increase or decrease, or otherwise adjust, the Participant’s compensation and any other terms and conditions of the Participant’s employment or other service.
10.      Committee Determinations Final . The Committee shall have complete discretion in the exercise of its authority, powers, and duties under the Plan and this Agreement. Any determination made by the Committee with respect to this Agreement and the Plan shall be final, conclusive, and binding on all interested persons. The Committee may designate any individual or individuals to perform any of its ministerial functions to be performed hereunder.
11.      Successors . This Agreement shall be binding upon and inure to the benefit of the Company any of its successors and assigns, as well as the Participant and, if applicable, the Participant’s surviving spouse or estate or other Beneficiary.
12.      Entire Agreement . This Agreement (including the appendix) constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended, except as provided in the Plan, other than by a written instrument executed by the parties hereto.
13.      Governing Law . All rights and obligations under this Agreement and the Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws.
14.      Counterparts . This Agreement may be executed in separate counterparts, each of which will be an original and all of which taken together shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
MEDIDATA SOLUTIONS, INC.



By:_________________________________


5




____________________________________
Participant


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APPENDIX
REVENUE CAGR TABLE FOR
PERFORMANCE PERIOD
[INSERT REVENUE CAGR TABLE]

A-1
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Tarek A. Sherif, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Medidata Solutions, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:  May 3, 2013
 
By:
/s/ T AREK  A. S HERIF
 
Tarek A. Sherif
Chairman and Chief Executive Officer
Medidata Solutions, Inc.



Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Cory A. Douglas, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Medidata Solutions, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.