PRINCETON, N.J., Jan. 24, 2013 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its fourth quarter and year ended December 31, 2012. On a GAAP basis, net revenue was $562 million in the fourth quarter and $2,181 million for the full year. Excluding revenue from facilities that were closed in 2012, pro forma net revenue was $561 million in the fourth quarter and $2,172 million for the full year. On a GAAP basis, the company reported earnings of $0.61 per diluted share in the fourth quarter. Excluding losses from facilities that were closed in 2012, restructuring costs and other items during the quarter, the company reported earnings per diluted share of $0.73. For the full year, diluted earnings per share on a GAAP basis were $1.68. Excluding losses from facilities closed in 2012, restructuring costs and other charges and favorable income tax developments during the year, the company reported earnings per diluted share of $2.70.
"In 2012, Covance took several important actions which are expected to drive future EPS growth, including reducing our preclinical capacity and overhead cost structure, advancing our strategic IT initiatives, and repurchasing over 10% of our outstanding shares. In addition, our intensified selling efforts led to record adjusted net orders for the year of $2.87 billion, a year-on-year increase of 13.5%, resulting in an adjusted net book-to-bill of 1.32 to 1 for the year," said Joe Herring, Chairman and Chief Executive Officer. "For the fourth quarter, pro forma revenue of $561 million and pro forma earnings per share of $0.73 were better than expected primarily due to significantly higher kit volumes in central laboratories and continued strength in clinical development. Adjusted net orders in the fourth quarter were a record $769 million, representing an adjusted book-to-bill of 1.37 to 1.ct of restructuring charges, impairment charges, costs associated with the expected settlement of an inventory supply agreement, losses at sites that were closed during the period, gain on sale of investment and favorable tax items, as applicable:Income from operations$
"Late-Stage Development fourth quarter revenues grew 15.7% year-on-year to $345 million. This increase was led by 22% growth in clinical development and 16% growth in central laboratories, which more than offset a decline in our market access services. Late-Stage Development pro forma operating margins increased 130 basis points both year-on-year and sequentially to 21.3%. In Early Development, pro forma revenue of $216 million and pro forma operating margin of 12.0% declined modestly from the third quarter level on lower demand for discovery support services.
"Looking ahead to 2013, for the full year, we are forecasting mid- to high-single digit year-on-year revenue growth and pro forma diluted earnings per share, which exclude costs from ongoing restructuring activities, in the range of $2.85 to $3.15 (assuming foreign exchange rates remain at year-end 2012 levels). In the first quarter of 2013, we expect revenue to be up slightly from the fourth quarter level and pro forma earnings per share to be in the range of $0.71 to $0.73 as we forecast an increase in Late-Stage Development net revenues and earnings to be off-set by seasonally-lower first quarter Early Development results."
Consolidated Results($ in millions except EPS)4Q124Q11ChangeFY12FY11ChangeTotal Revenues
$2,236.4Less: Reimbursable Out-of-Pockets
(28.3%)Diluted Earnings per Share
(22.2%)Revenue from facilities closed in 2012**
-Net Revenue, continuing ops*
3.6%Restructuring costs and other items
($34.7)Loss from facilities closed in 2012**
-Operating Income, excluding items*
(7.9%) Operating Margin, excluding items*
10.3%Impairment of Equity Investment
($12.1)Gain on Sale of Investment
-Favorable Income Tax Developments
$2.5Net Income, excluding items*
(7.9%)Diluted EPS, excluding items*
(0.1%) * See attached pro forma income statement for reconciliation of 2012 & 2011 GAAP to pro forma amounts. ** Facilities closed in 2012 include Chandler, Honolulu and Basel.Operating Segment Results Early Development($ in millions)4Q124Q11ChangeFY12FY11ChangeNet Revenues
11.3%Revenue from facilities closed in 2012**
-Net Revenue, continuing ops
(7.5%)Restructuring costs and other items
($21.7)Loss from facilities closed in 2012**
-Operating Income, excluding items
(34.9%)Operating Margin, excluding items
13.7%** Facilities closed in 2012 include Chandler, Honolulu and Basel.The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the fourth quarter of 2012 declined 7.3% year-on-year on a GAAP basis to $217.4 million and 7.9% on a pro forma basis to $215.9 million, due to the following: declines in toxicology, discovery support, and clinical pharmacology; the impact of the sale of environmental services (which had contributed approximately $2.0 million in quarterly revenue); and the closure of sites in 2012. In the quarter, foreign exchange had a 20 basis point year-on-year favorable impact. Sequentially, pro forma revenues decreased $1.9 million on a decline in discovery support. Toxicology revenues were flat sequentially.
GAAP operating income in the fourth quarter of 2012 was $18.7 million, and included $4.3 million in costs associated with our on-going restructuring actions and $2.9 million in losses at closed facilities. GAAP operating income for the fourth quarter of 2011 was $17.7 million, and included $15.0 million in restructuring costs. Pro forma operating income, excluding these items, was $25.9 million in the fourth quarter of this year, versus $26.9 million last quarter and $32.6 million in the fourth quarter of 2011. Pro forma operating margins were 12.0% for the fourth quarter of this year, versus 12.4% last quarter and compared to 13.9% in the fourth quarter of 2011. Sequentially, pro forma operating income decreased primarily due to a decline in profitability in discovery support.
Late-Stage Development($ in millions)4Q124Q11ChangeFY12FY11ChangeNet Revenues
($5.0)Operating Income, excluding items
20.6%Operating Margin, excluding items
19.8%The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services. Net revenues for the fourth quarter of 2012 grew 15.7% year-on-year to $344.8 million, a sequential increase of $20.7 million from the third quarter level. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 130 basis points. Year-over-year growth was driven by both the continued strong performance in clinical development, where net revenue was up 22%, and a strong increase in central labs, where net revenue was up 16%, which more than offset a year-over-year decline in market access services net revenue. Sequentially, the increase in net revenue was led by central laboratory followed by clinical development and then by market access services. Central laboratory had an increase in kit volumes for the fifth consecutive quarter.
Operating income for the fourth quarter was $72.7 million on a GAAP basis and $73.4 million on a pro forma basis. This represents growth of 24.8% and 23.3%, respectively, compared to the fourth quarter of the prior year and a significant increase from the $64.4 million on a GAAP basis and $64.8 million on a pro forma basis last quarter. Pro forma operating margins expanded to 21.3% for the fourth quarter of 2012, up from pro forma operating margins of 20.0% both last quarter and in the fourth quarter of 2011. The year-on-year and sequential increases in profitability were driven by operating leverage in both clinical development and central laboratories, which more than offset increased spending on strategic IT projects.
Corporate InformationThe company reported fourth quarter adjusted net orders of $769 million. Backlog at December 31, 2012 was $6.64 billion compared to $6.37 billion at September 30, 2012 and $6.14 billion at December 31, 2011. Foreign exchange favorably impacted backlog sequentially by $44 million. In addition, contributing $110 million to fourth quarter backlog growth (but excluded from adjusted net orders) was the extension of a contractual minimum volume commitment and the addition of a small new minimum volume commitment.
Corporate expenses totaled $48.3 million in the fourth quarter of 2012 (including $1.5 million in restructuring costs) compared to $40.9 million last quarter (including $0.5 million in restructuring costs) and $37.0 million in the fourth quarter of 2011 (including $2.7 million in restructuring costs). The largest driver of the sequential increase in corporate expenses was spending on our corporate data center consolidation, one of our strategic IT initiatives, coupled with increased incentive compensation accruals related to stronger business performance toward year end.
Cash and cash equivalents at December 31, 2012 were $493 million compared to $441 million at September 30, 2012 and $389 million at December 31, 2011. Debt outstanding is now $320 million, originating from borrowings related to our share repurchase program.
Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2012 was $61 million, consisting of operating cash flow of $107 million less capital expenditures of $46 million. Free cash flow for full-year 2012 was $108 million, consisting of operating cash flow of $260 million less capital expenditures of $152 million.Net Days Sales Outstanding (DSO) were 36 days at December 31, 2012 compared to 38 days at both September 30, 2012 and December 31, 2011.
The Company's investor conference call will be webcast on January 25 at 9:00 am ET. Management's commentary and presentation slides will be available through 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 of approximately $2.2 billion, global operations in more than 30 countries, and more than 11,750 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at 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 or delay of large studies, 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, testing mix and geographic mix of kit receipts in central laboratories, fluctuations in currency exchange rates, the realization of savings from the Company's announced restructuring actions, the cost and pace of completion of our information technology projects and the realization of benefits therefrom, 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 FollowCOVANCE INC.CONSOLIDATED INCOME STATEMENTSFOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2012 AND 2011(Dollars in thousands, except per share data)Three Months Ended December 31Years Ended December 312012201120122011(UNAUDITED)Net revenues$
532,478$ 2,180,621$ 2,095,938Reimbursable out-of-pocket expenses46,96449,907185,138140,508Total revenues609,144582,3852,365,7592,236,446Costs and expenses: Cost of revenue395,841371,8521,570,2231,467,051 Reimbursable out-of-pocket expenses46,96449,907185,138140,508 Selling, general and administrative92,82395,752358,854343,044 Depreciation and amortization30,42325,923117,708105,214 Goodwill impairment charge--17,959-Total costs and expenses566,051(a)543,434(c)2,249,882(b)2,055,817(d)Income from operations43,093(a)38,951(c)115,877(b)180,629(d)Other expense, net: Interest expense, net1,1533393,5061,979 Foreign exchange transaction loss, net1733561,4741,248 Impairment of equity investment-12,1197,37312,119 Gain on sale of investment--(1,459)- Loss on sale of business--169-Other expense, net1,32612,814(c)11,06315,346(d)Income before taxes and equity investee earnings41,767(a)26,137(c)104,814(b)165,283(d)Taxes on income7,870(a)5,172(c)10,099(b)33,574(d)Equity investee earnings-17517480Net income $
32,189(d)Basic earnings per share$
2.22(d)Weighted average shares outstanding - basic53,698,33459,730,27054,844,64159,629,788Diluted earnings per share$
2.16(d)Weighted average shares outstanding - diluted55,197,96861,080,38756,290,01061,091,354(a) Three months ended December 31, 2012 include, as applicable, $10,191 in restructuring costs ($6,968 net of tax), $3,613 favorable inventory adjustment ($2,502 net of tax) and $2,850 in losses at sites that were closed during the period ($1,966 net of tax).(b) Year ended December 31, 2012 includes, as applicable, $33,930 in restructuring costs ($23,145 net of tax), $21,168 in inventory impairment charges and costs associated with the expected settlement of an inventory supply agreement ($14,645 net of tax), $17,959 of goodwill impairment charges ($17,959net of tax), $7,373 of impairment of equity investment ($7,373 net of tax), $9,274 in losses at sites that were closed during the year ($6,533 net of tax), $1,459 gain on sale of investment ($945 net of tax) and favorable income tax items totaling $11,501.(c) Three months ended December 31, 2011 include, as applicable, $8,667 in restructuring costs ($5,961 net of tax), $10,287 in costs associated with the termination of an inventory supply agreement and related inventory write-down ($7,130 net of tax), $12,119 impairment of equity investment ($12,119 net of tax) and favorable income tax items totaling $1,769.(d) Year ended December 31, 2011 includes, as applicable, $24,369 in restructuring costs ($16,067 net of tax), $10,287 in costs associated with the termination of an inventory supply agreement and related inventory write-down ($7,130 net of tax), $12,119 impairment of equity investment ($12,119 net of tax) and favorable income tax items totaling $2,469.Excluding the impa
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