- Record Adjusted Net Orders of $643 Million; 1.33 Adjusted
Book-to-Bill - - Issues 2010 Targets: Revenue Growth of ~10% and
EPS of $2.50 to $2.75 - PRINCETON, N.J., Jan. 27
/PRNewswire-FirstCall/ -- Covance Inc. (NYSE: CVD) today reported
earnings for its fourth quarter ended December 31, 2009 of $0.64
per diluted share. For the full-year, earnings per share were $2.73
on a GAAP basis, inclusive of $0.10 per share in gains related to
sales of businesses and $0.03 from favorable income tax resolutions
in the third quarter. Excluding the gains on sales and the tax
item, full-year earnings per share were $2.60. "During a
challenging 2009, we made progress on a number of fronts,
delivering full-year net revenue growth of 8.1% (11.2% excluding
the impact of foreign exchange), record adjusted net orders of $2.4
billion, a full-year adjusted book-to-bill of 1.27 to 1, and market
share gains across most of our portfolio," said Joe Herring,
Chairman and Chief Executive Officer. "In the fourth quarter, net
revenue grew 10.6% (6.9% excluding the impact on foreign exchange)
and operating margin was 11.3%. Early Development revenues grew
$6.7 million sequentially and operating income was up slightly from
the third quarter. Sequential growth in toxicology revenue and
operating margin was offset by weaker performance in clinical
pharmacology and some chemistry services. In Late-Stage
Development, continued strong performances in clinical development
and central laboratories drove revenue growth of 25.6% (19.3%
excluding the impact on foreign exchange) and operating margin of
22.6%. As forecasted, operating margin declined from the record
third quarter level primarily due to hiring of new staff and a
shift in the mix of central laboratory kits. "On the commercial
front, continued strong business awards in clinical development and
central laboratory led to record adjusted net orders in the fourth
quarter of $643 million, representing an adjusted book-to-bill
ratio of 1.33 to 1. For the second consecutive quarter, Early
Development recorded a quarterly adjusted book-to-bill greater than
1.0 to 1. On a trailing twelve month basis, our Late-Stage
Development adjusted book-to-bill was approximately 1.45 to 1.
"Looking to 2010, Covance expects full-year revenue growth to be
approximately 10% over 2009 and earnings per share to be in the
range of $2.50 to $2.75. The midpoint of this range assumes
toxicology and chemistry earnings will remain roughly flat from the
fourth quarter of 2009 levels, sequential improvement in clinical
pharmacology results as the year progresses, operating margins in
Late-Stage Development remain near the fourth quarter 2009 level,
no new strategic transactions, and foreign exchange rates at
year-end 2009 levels. The earnings target for 2010 also reflects a
step-up in depreciation and maintenance expense from new IT systems
and other investments, and a return to a normal level of incentive
compensation expense. In the first quarter of 2010, we expect a
sequential decline of approximately four cents in earnings per
share from the fourth quarter of 2009, largely relating to higher
expenses associated with new IT systems coming online and incentive
compensation. Consolidated Results ($ in millions except EPS) 4Q09
4Q08 Change FY2009 FY2008 Change -------------- ---- ---- ------
------ ------ ------ Total Revenues $507.3 $463.8 $1,962.6 $1,827.1
Less: Reimbursable Out-of-Pockets $22.2 $25.2 $95.0 $99.0 Net
Revenues $485.1 $438.6 10.6% $1,867.6 $1,728.1 8.1% Operating
Income $54.9 $63.5 (13.6)% $228.6 $263.7 (13.3)% Operating Margin %
11.3% 14.5% 12.2% 15.3% Net Income $41.5 $45.7 (9.1)% $175.9 $196.8
(10.6)% Diluted EPS $0.64 $0.72 (10.3)% $2.73 $3.08 (11.1)%
----------- ----- ----- ------ ----- ----- ------ Gain on Sale, net
of tax - $0.1 $6.3 $2.6 Favorable Income Tax Resolutions - - $2.1 -
Net Income ex Gain on Sale and Favorable Income Tax Resolutions
$41.5 $45.6 (8.9)% $167.5 $194.1 (13.7)% Diluted EPS ex Gain on
Sale and Favorable Income Tax Resolutions $0.64 $0.72 (10.1)% $2.60
$3.03 (14.2)% ------------------- ----- ----- ------ ----- -----
------ Operating Segment Results Early Development ($ in millions)
4Q09 4Q08 Change FY2009 FY2008 Change ---- ---- ------ ------
------ ------ Net Revenues $203.1 $214.2 (5.2)% $791.8 $844.8
(6.3)% Operating Income $23.1 $45.8 (49.6)% $99.7 $205.4 (51.4)%
Margin % 11.3% 21.4% 12.6% 24.3% -------- ---- ---- ---- ---- The
Company's Early Development segment includes preclinical
toxicology, analytical chemistry, clinical pharmacology services,
discovery support, and research products. Early Development net
revenues for the fourth quarter of 2009 were $203.1 million
compared to $214.2 million in the fourth quarter of 2008 and $196.4
million last quarter. Reduced demand for Early Development service
offerings led to the 5.2% year-on-year decline in revenues. In the
quarter, foreign exchange positively impacted year-on-year revenue
growth by 80 basis points. On a sequential basis, toxicology
revenues saw growth for the second consecutive quarter. As
expected, clinical pharmacology revenues were down significantly
from third quarter levels. Full year 2009 net revenues declined
6.3% to $791.8 million compared to $844.8 million in 2008. Full
year 2010 Early Development revenues, excluding the acquired gene
expression laboratory, are expected to be essentially flat from
2009. Operating income for the fourth quarter of 2009 declined
49.6% year-over-year to $23.1 million, compared to $45.8 million in
the fourth quarter of last year. Operating margins for the fourth
quarter of 2009 were 11.3% compared to 21.4% in the fourth quarter
of 2008 and 11.4% last quarter. Improvement in toxicology margins
from the third quarter were offset by a decline in clinical
pharmacology profitability. Full year operating margins were 12.6%
compared to 24.3% in the prior year. Early Development operating
margins in 2010 are expected to be flat year-on-year. Late-Stage
Development ($ in millions) 4Q09 4Q08 Change FY2009 FY2008 Change
---- ---- ------ ------ ------ ------ Net Revenues $281.9 $224.4
25.6% $1,075.8 $883.3 21.8% Operating Income $63.8 $44.0 45.0%
$254.5 $170.1 49.6% Margin % 22.6% 19.6% 23.7% 19.3% -------- ----
---- ---- ---- The Late-Stage Development segment includes central
laboratory, Phase II-III clinical development, and
commercialization services (periapproval and market access
services). Late-Stage Development net revenues for the fourth
quarter of 2009 grew 25.6% to $281.9 million compared to $224.4
million in the fourth quarter of 2008 and $278.9 million last
quarter. The year-on-year growth was led by the continued
exceptional performances of central laboratory and clinical
development. Foreign exchange positively impacted year-on-year
revenue growth in the quarter by 630 basis points. For the full
year 2009, net revenues grew 21.8% to $1,075.8 million compared to
$883.3 million in 2008. Late-Stage Development revenues are
expected to grow in the mid-teens range in 2010. Operating income
for the fourth quarter of 2009 increased 45.0% to $63.8 million
compared to $44.0 million in the fourth quarter of the prior year.
Operating margins for the fourth quarter of 2009 increased to 22.6%
from 19.6% in the fourth quarter of 2008 on strong performances in
clinical development and in central laboratory services. As
forecasted, operating margins declined from the third quarter due
to increased staffing and a shift in the mix of central laboratory
kits. Full year operating margins were 23.7% compared to 19.3% in
the prior year. Late-Stage Development operating margins in 2010
are expected to remain at approximately the fourth quarter 2009
level due to increased hiring to support growth and a more
traditional testing mix in central laboratory kits. Corporate
Information The Company's backlog at December 31, 2009 grew 12.3%
year-over-year to $4.87 billion compared to $4.33 billion at
December 31, 2008 and $4.79 billion at September 30, 2009. Foreign
exchange negatively impacted sequential backlog growth by $61.3
million. Adjusted net orders (net orders adjusted for dedicated
capacity contracts) were $643 million in the fourth quarter of
2009. Corporate expenses totaled $32.0 million in the fourth
quarter of 2009 compared to $33.5 million last quarter and $26.3
million in the fourth quarter of last year. For the full year,
corporate expenses totaled $125.6 million (or 6.7% of net revenues)
compared to $111.9 million (or 6.5% of net revenues) in 2008. We
continue to make investments that will improve our ability to
provide strategic partnering and integrated services as well as
investments in infrastructure to enhance our ability to manage
future growth. In 2010, corporate expenses are expected to be
approximately 7% of revenue. Cash and cash equivalents at December
31, 2009 were $289 million compared to $266 million at September
30, 2009 and $221 million at December 31, 2008. The Company is debt
free. Free cash flow (defined as operating cash flow less capital
expenditures) for the fourth quarter of 2009 was $52 million,
consisting of operating cash flow of $85 million less capital
expenditures of $33 million. Free cash flow in 2009 was $128
million, consisting of operating cash flow of $259 million less
capital expenditures of $131 million. In 2010, we expect free cash
flow to be approximately $120 million, consisting of operating cash
flow of approximately $300 million less capital expenditures of
approximately $180 million. The free cash flow target for 2010
assumes net Days Sales Outstanding (DSO) remains at 40 days. Net
Days Sales Outstanding (DSO) were 40 days at December 31, 2009
compared to 42 days at September 30, 2009 and 37 days at December
31, 2008. We continue to experience a lower effective tax rate due
to a shift in the geographic mix of earnings and from tax planning
initiatives. The effective tax rate was 25.3% in the fourth quarter
and 27.0% for the full-year (excluding the impact of favorable
income tax resolutions in the third quarter and the gain on sales
in 2009). Our 2010 EPS target assumes an effective tax rate of
approximately 26.5%. The Company's investor conference call will be
webcast on January 28 at 9:00 am ET. Management's commentary and
presentation slides will be available through
http://www.covance.com/ . Covance, with headquarters in Princeton,
New Jersey, is one of the world's largest and most comprehensive
drug development services companies with annual revenues greater
than $1.8 billion, global operations in more than 25 countries, and
more than 10,000 employees worldwide. Information on Covance's
products and services, recent press releases, and SEC filings can
be obtained through its website at http://www.covance.com/.
Statements contained in this press release, which are not
historical facts, such as statements about prospective earnings,
savings, revenue, operations, revenue and earnings growth and other
financial results are forward-looking statements pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All such forward-looking statements including the
statements contained herein regarding anticipated trends in the
Company's business are based largely on management's expectations
and are subject to and qualified by risks and uncertainties that
could cause actual results to differ materially from those
expressed or implied by such statements. These risks and
uncertainties include, without limitation, competitive factors,
outsourcing trends in the pharmaceutical industry, levels of
industry research and development spending, the Company's ability
to continue to attract and retain qualified personnel, the fixed
price nature of contracts or the loss of large contracts, risks
associated with acquisitions and investments, the Company's ability
to increase order volume, the pace of translation of orders into
revenue in late-stage development services, fluctuations in
currency exchange rates, and other factors described in the
Company's filings with the Securities and Exchange Commission
including its Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q. The Company undertakes no duty to update any forward
looking statement to conform the statement to actual results or
changes in the Company's expectations. Financial Exhibits Follow
COVANCE INC. CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS
AND YEARS ENDED DECEMBER 31, 2009 AND 2008 (Dollars in thousands,
except per share data) Three Months Ended Years Ended December 31
December 31 ------------------ ----------- 2009 2008 2009 2008 ----
---- ---- ---- (UNAUDITED) Net revenues $485,065 $438,645
$1,867,634 $1,728,098 Reimbursable out-of- pocket expenses 22,263
25,190 94,992 98,969 ------ ------ ------ ------ Total revenues
507,328 463,835 1,962,626 1,827,067 ------- ------- ---------
--------- Costs and expenses: Cost of revenue 337,896 294,679
1,277,142 1,142,697 Reimbursable out-of- pocket expenses 22,263
25,190 94,992 98,969 Selling, general and administrative 67,544
61,071 270,593 250,180 Depreciation and amortization 24,753 19,399
91,289 71,571 ------ ------ ------ ------ Total costs and expenses
452,456 400,339 1,734,016 1,563,417 ------- ------- ---------
--------- Income from operations 54,872 63,496 228,610 263,650
Other expense (income), net: Interest (income) expense, net (57)
(833) 201 (6,461) Foreign exchange transaction loss (gain), net 353
674 245 (142) Gain on sale of businesses - (143) (9,681) (4,070) -
---- ------ ------ Other expense (income), net 296 (302)(a)
(9,235)(b) (10,673)(c) --- ---- ------ ------- Income before taxes
and equity investee earnings 54,576 63,798(a) 237,845(b) 274,323(c)
Taxes on income 13,820 18,195(a) 62,870(b) 79,415(c) Equity
investee earnings 779 75 907 1,852 --- -- --- ----- Net income
$41,535 $45,678(a) $175,882(b) $196,760(c) ======= ======= ========
======== Basic earnings per share $0.65 $0.72(a) $2.76(b) $3.12(c)
Weighted average shares outstanding - basic 63,968,682 63,188,155
63,818,717 63,096,155 Diluted earnings per share $0.64 $0.72(a)
$2.73(b) $3.08(c) Weighted average shares outstanding - diluted
64,541,063 63,647,684 64,341,084 63,981,505 (a) Includes the impact
of a $143 gain on sale of Cardiac Safety Services ($93 net of tax)
during the fourth quarter of 2008. (b) Includes the impact of a
$9,026 gain on sale of Interactive Voice & Web Response
Services ($5,867 net of tax) and the impact of a $655 gain on sale
of Cardiac Safety Services ($426 net of tax) and favorable income
tax items totaling $2,072 during the year ended 2009. (c) Includes
the impact of a $4,070 gain on sale of Cardiac Safety Services
($2,646 net of tax) during the year ended 2008. Excluding the
impact of the gain on sale of businesses and favorable income tax
items: Income before taxes and equity investee earnings $54,576
$63,655 $228,164 $270,253 Taxes on income $13,820 $18,145 $61,554
$77,991 Net income $41,535 $45,585 $167,517 $194,114 Basic earnings
per share $0.65 $0.72 $2.62 $3.08 Diluted earnings per share $0.64
$0.72 $2.60 $3.03 COVANCE INC. CONSOLIDATED BALANCE SHEETS DECEMBER
31, 2009 and 2008 (Dollars in thousands) December 31 December 31
2009 2008 ---- ---- ASSETS Current Assets: Cash & cash
equivalents $289,469 $221,334 Accounts receivable, net 285,119
228,951 Unbilled services 97,279 112,719 Inventory 80,926 68,206
Deferred income taxes 31,512 15,029 Prepaid expenses and other
current assets 93,367 91,451 ------ ------ Total Current Assets
877,672 737,690 Property and equipment, net 921,995 860,957
Goodwill, net 127,653 105,486 Other assets 47,624 48,955 ------
------ Total Assets $1,974,944 $1,753,088 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities: Accounts
payable $36,834 $41,887 Accrued payroll and benefits 111,365
104,607 Accrued expenses and other current liabilities 73,383
86,521 Unearned revenue 166,890 162,556 Short-term debt - 50,000
Income taxes payable 14,272 14,224 ------ ------ Total Current
Liabilities 402,744 459,795 Deferred income taxes 98,945 51,385
Other liabilities 62,251 47,059 ------ ------ Total Liabilities
563,940 558,239 ------- ------- Stockholders' Equity: Common stock
764 754 Paid-in capital 587,995 551,598 Retained earnings 1,305,451
1,129,569 Accumulated other comprehensive (loss) income (5,281)
(13,975) Treasury stock (477,925) (473,097) -------- -------- Total
Stockholders' Equity 1,411,004 1,194,849 --------- --------- Total
Liabilities and Stockholders' Equity $1,974,944 $1,753,088
========== ========== COVANCE INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (Dollars in
thousands) Years Ended December 31 ------------ 2009 2008 ---- ----
Cash flows from operating activities: Net income $175,882 $196,760
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 91,289 71,571
Non-cash compensation expense associated with employee benefit and
stock compensation plans 26,949 25,389 Deferred income tax
provision 33,030 9,343 Gain on sale of businesses (9,681) (4,070)
Loss on sale of property and equipment 998 1,064 Equity investee
earnings (907) (1,852) Changes in operating assets and liabilities,
net of businesses acquired and sold: Accounts receivable (54,937)
(11,294) Unbilled services 15,724 (23,884) Inventory (12,720)
(13,418) Accounts payable (5,163) 9,635 Accrued liabilities (8,072)
26,952 Unearned revenue 4,174 17,686 Income taxes payable (1,176)
(2,702) Other assets and liabilities, net 3,699 (15,023) -----
------- Net cash provided by operating activities 259,089 286,157
------- ------- Cash flows from investing activities: Capital
expenditures (131,079) (318,928) Acquisition of businesses, net of
cash acquired (28,096) - Proceeds from sale of businesses 10,373
4,070 Minority equity investment - (3,136) Other, net 29 385 -- ---
Net cash used in investing activities (148,773) (317,609) --------
-------- Cash flows from financing activities: Net (repayments)
borrowings under revolving credit facility (50,000) 50,000 Payment
of debt assumed upon acquisition of business (5,431) - Stock issued
under employee stock purchase and option plans 10,682 31,500
Purchase of treasury stock (4,828) (132,906) ------ -------- Net
cash used in financing activities (49,577) (51,406) ------- -------
Effect of exchange rate changes on cash 7,396 (15,293) -----
------- Net change in cash and cash equivalents 68,135 (98,151)
Cash and cash equivalents, beginning of period 221,334 319,485
------- ------- Cash and cash equivalents, end of period $289,469
$221,334 ======== ======== DATASOURCE: Covance Inc. CONTACT: Paul
Surdez of Covance Inc., +1-609-452-4807 Web Site:
http://www.covance.com/
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