MDSO Medidata Solutions Inc

Medidata (NASDAQ:MDSO) today announced its financial results for the third quarter of 2018.

“Our strong financial and operational performance this quarter highlight the momentum and success we are seeing in the market,” said Tarek Sherif, chairman and chief executive officer, Medidata. “Positive trends in the life sciences market around innovation and operational efficiency are driving demand for Medidata’s cloud-based solutions. Our impressive and rising win rate and healthy backlog underscore the strength of Rave, as life sciences companies and CROs adopt the Medidata Cloud to drive their digital transformations.”

Third Quarter 2018 Results

• Total revenue was $163.4 million, an increase of 18% compared with $138.9 million in the third quarter of 2017
• Subscription revenue was $137.0 million, an increase of 17% compared with the same period last year. Professional services revenue was $26.4 million, an increase of 22% compared with the third quarter of 2017
• GAAP operating income was $14.1 million and non-GAAP operating income1 was $41.4 million, representing a GAAP and non-GAAP operating margin of 8.6% and 25.3%, respectively. Both numbers reflect a full quarter of expenses related to the acquisition and operations of SHYFT, which was acquired on June 20, 2018
• GAAP net income was $10.7 million, or $0.17 per diluted share, compared with $13.0 million, or $0.22 per diluted share, in the third quarter of 2017. Non-GAAP net income1 was $26.2 million, or $0.42 per diluted share, compared with $20.4 million, or $0.34 per diluted share, in the third quarter of 2017. See the non-GAAP reconciliation included in this release for full details of the non-GAAP adjustments
• Total cash and marketable securities were $218.5 million at the end of the quarter, compared with $663.3 million on December 31, 2017
• Principal amount of $287.5 million convertible notes was repaid with cash on August 1, 2018
• Remaining 2018 adjusted subscription backlog2 as of September 30, 2018 was $139 million, an increase of $22 million, or 19%, compared with a year ago

Additional Highlights:

• Penetration into APAC markets continues to grow, highlighted by a platform agreement with the largest pharmaceutical company in China and expansion deals with two of the largest sponsors in Korea
• A record 24 Rave Patient Cloud deals were closed this quarter, reaffirming the growing prominence of mHealth solutions, as well as the unique value proposition of our ePRO solution and its integration with Rave EDC
• The National Cancer Institute expanded its agreement with Medidata, allowing it to double its number of studies to 700 per year over the next five years, as it continues to scale our nation’s support infrastructure for cancer research
• Medidata’s revenue retention rate3 was nearly 100%

“The third quarter highlights the strength and durability of our business,” said Rouven Bergmann, chief financial officer, Medidata. “We posted solid revenue growth, highlighted by subscription revenue growth of 17%, and maintained a very healthy 25.3% EBITDAO margin despite the dilutive impact of the SHYFT acquisition. We are well positioned to achieve our 2018 plan.”

For the full year 2018, the company's guidance provided on June 12, 2018 is unchanged. Please refer to the reconciliation of forward-looking guidance included in this release for full details of the non-GAAP adjustments.

Conference call details:

  Time: Today, October 18, 8 a.m. ET   Conference ID: 5480999   Live dial-in: 1-877-303-2528, domestic 1-847-829-0023, international   Webcast: investor.mdsol.com   Replay: 1-800-585-8367, domestic 1-404-537-3406, international  

About Medidata

Medidata is leading the digital transformation of life sciences, with the world's most used platform for clinical development, commercial, and real-world data. Powered by artificial intelligence and delivered by the #1 ranked industry experts, the Intelligent Platform for Life Sciences helps pharmaceutical, biotech, medical device companies, and academic researchers accelerate value, minimize risk and optimize outcomes. Medidata serves more than 1,000 customers and partners worldwide and empowers more than 100,000 certified users everyday to create hope for millions of patients. Discover the future of life sciences: www.mdsol.com

Cautionary Statement

Certain statements made in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve significant risks and uncertainties about Medidata Solutions, Inc. (“Medidata”), including, but not limited to, statements about Medidata’s forecast of financial performance, products and services, business model, strategy and growth opportunities, and competitive position. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. Among other things, the risks and uncertainties include those associated with possible fluctuations in our financial and operating results; integration activities, performance and financial impact of acquired companies; our ability to retain and expand our customer base or increase new business from those customers; and our ability to continue to release, and gain customer acceptance of, new and improved versions of our products. For additional disclosure regarding these and other risks faced by Medidata, see disclosures contained in Medidata’s public filings with the Securities and Exchange Commission, including the “Risk Factors” section of Medidata’s Annual Report on Form 10-K for the year ended December 31, 2017. You should consider these factors in evaluating the forward-looking statements included in this press release and not place undue reliance on such statements. The forward-looking statements are made as of the date hereof, and Medidata undertakes no obligation to update such statements as a result of new information, new developments or otherwise, except as required by law.

(1) Non-GAAP Financial Information

Medidata provides non-GAAP operating income, net income, and net income per share data as a supplement to its operating results. These measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP), and may be different from non-GAAP measures used by other companies. Management uses these non-GAAP measures to evaluate its financial results, develop budgets, manage expenditures, and as an important factor in determining variable compensation. In addition, management believes, based on discussions with investors, that these non-GAAP measures enhance investors’ ability to assess Medidata’s historical and projected future financial performance. While management believes these non-GAAP financial measures provide useful supplemental information to investors, there are inherent limitations associated with the use of non-GAAP financial measures. Investors are encouraged to review the attached reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures.

(2) Adjusted subscription backlog equals subscription backlog plus outstanding intra-year renewals valued at an amount equal to the contracts to be renewed.

(3) Revenue retention rate is calculated as the percentage of prior year revenue attributable to customers retained in the current year.

  MEDIDATA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data)   Three Months Ended September 30,   Nine Months Ended September 30, 2018   2017 2018   2017 Revenues Subscription $ 137,046 $ 117,271 (4) $ 394,351 $ 338,068 (4) Professional services 26,360   21,674   (4) 74,158   64,548   (4) Total revenues 163,406 138,945 468,509 402,616 Cost of revenues (1)(2) Subscription 24,618 17,131 66,561 51,277 Professional services 17,609   14,423   49,469   42,811   Total cost of revenues 42,227 31,554 116,030 94,088 Gross profit 121,179 107,391 352,479 308,528 Operating costs and expenses Research and development (1) 40,626 36,207 118,937 102,028 Sales and marketing (1)(2) 38,329 29,996 (4) 112,296 92,701 (4) General and administrative (1) 28,105 23,701 80,964 70,772 Wire transaction recovery (3) —   (4,770 ) —   (4,770 ) Total operating costs and expenses 107,060   85,134   312,197   260,731   Operating income 14,119 22,257 40,282 47,797 Interest and other income (expense) Interest expense (3,147 ) (4,407 ) (14,422 ) (13,117 ) Interest income 2,128 1,531 6,544 4,030 Other (expense) income, net (389 ) (7 ) 7,244   (7 ) Total interest and other expense, net (1,408 ) (2,883 ) (634 ) (9,094 ) Income before income taxes 12,711 19,374 39,648 38,703 Provision for income taxes 2,023   6,331   (4) 2,046   8,139   (4) Net income $ 10,688   $ 13,043   (4) $ 37,602   $ 30,564   (4) Earnings per share Basic $ 0.18   $ 0.23   (4) $ 0.65   $ 0.54   (4) Diluted $ 0.17   $ 0.22   (4) $ 0.62   $ 0.51   (4) Weighted average common shares outstanding Basic 58,680 56,654 57,734 56,389 Diluted 61,712 60,614 61,002 59,664 (1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows: Cost of revenues $ 1,918 $ 1,152 $ 4,692 $ 3,567 Research and development 2,988 3,472 9,161 9,734 Sales and marketing 3,732 1,864 9,293 4,875 General and administrative 8,558   5,521   22,324   16,846   Total stock-based compensation $ 17,196   $ 12,009   $ 45,470   $ 35,022   (2) Amortization of intangible assets included in costs of revenues and operating costs and expenses is as follows: Cost of revenues $ 1,371 $ 1,094 $ 3,670 $ 2,570 Sales and marketing 437   119   788   321   Total amortization of intangible assets $ 1,808   $ 1,213   $ 4,458   $ 2,891     (3) Operating costs and expenses for the three and nine months ended September 30, 2017 include recognition of insurance recovery of amounts associated with the previously recognized 2014 wire transaction loss. (4) Figures for the three and nine months ended September 30, 2017 have been recast to reflect our January 1, 2018 full retrospective adoption of Accounting Standards Codification ("ASC") 606.   MEDIDATA SOLUTIONS, INC. Reconciliation of GAAP Operating Income and GAAP Net Income to Non-GAAP Operating Income and Non-GAAP Net Income (Unaudited) (Amounts in thousands, except per share data)   Three Months Ended September 30,     Nine Months Ended September 30, 2018   2017   2018   2017 Operating income: GAAP operating income $ 14,119 $ 22,257 (8) $ 40,282 $ 47,797 (8) GAAP operating margins 8.6 % 16.0 % (8) 8.6 % 11.9 % (8) Stock-based compensation 17,196 12,009 45,470 35,022 Depreciation and amortization 9,118 6,853 25,336 16,918 Contingent consideration adjustment (1) (270 ) 102 (263 ) 160 Cash compensation from acquisition-related agreements (2) 1,238 — 1,372 — Wire transaction recovery (3) —   (4,770 ) —   (4,770 ) Non-GAAP operating income $ 41,401   $ 36,451   (8) $ 112,197   $ 95,127   (8) Non-GAAP operating margins 25.3 % 26.2 % (8) 23.9 % 23.6 % (8) Net income: GAAP net income $ 10,688 $ 13,043 (8) $ 37,602 $ 30,564 (8) Stock-based compensation 17,196 12,009 45,470 35,022 Amortization 1,808 1,213 4,458 2,891 Contingent consideration adjustment (1) (270 ) 102 (263 ) 160 Cash compensation from acquisition-related agreements (2) 1,238 — 1,372 — Wire transaction recovery (3) — (4,770 ) — (4,770 ) Interest income on wire transaction recovery (4) (1,149 ) — (1,149 ) — Non-cash interest expense (5) 1,861 3,698 9,732 10,944 Gain on step acquisition (6) — — (7,648 ) — Tax impact on add-back items (7) (5,171 ) (4,901 ) (12,993 ) (17,699 ) Non-GAAP net income $ 26,201   $ 20,394   (8) $ 76,581   $ 57,112   (8) GAAP basic earnings per share $ 0.18   $ 0.23   (8) $ 0.65   $ 0.54   (8) GAAP diluted earnings per share $ 0.17   $ 0.22   (8) $ 0.62   $ 0.51   (8) Non-GAAP basic earnings per share $ 0.45   $ 0.36   (8) $ 1.33   $ 1.01   (8) Non-GAAP diluted earnings per share $ 0.42   $ 0.34   (8) $ 1.26   $ 0.96   (8)   (1) Change in fair value of acquisition-related contingent consideration liabilities. (2) Expense associated with acquisition-related cash compensation agreements entered into with certain employees of SHYFT Analytics, Inc. ("SHYFT"). (3) Operating costs and expenses for the three and nine months ended September 30, 2017 include recognition of insurance recovery of amounts associated with the previously recognized 2014 wire transaction loss. We exclude these amounts for the purposes of calculating non-GAAP operating income and non-GAAP net income because we believe they are not indicative of our continuing operations or meaningful when comparing current to past results. (4) Interest income for the three and nine months ended September 30, 2018 includes interest on wire transaction recovery that was received during the third quarter of 2018. We exclude this amount for the purposes of calculating non-GAAP net income because we believe it is not indicative of our continuing operations or meaningful when comparing current to past results. (5) Non-cash interest expense includes amortization of debt discount and issuance costs on our 1.00% convertible senior notes issued in 2013, which were converted on August 1, 2018, and amortization of issuance costs on our credit agreement entered into in 2017. We exclude this incremental non-cash interest expense for purposes of calculating non-GAAP net income. We believe that excluding these expenses from our non-GAAP measures is useful to investors because such incremental non-cash interest expense does not generate a cash outflow, nor do the debt issuance costs represent a cash outflow except in the period of issuance; therefore both are not indicative of our continuing operations. (6) Elimination of gain recognized upon step acquisition of SHYFT. (7) Tax impact calculated using tax rates of 25% and 40% for the periods ended September 30, 2018 and 2017, respectively. (8) Figures for the three and nine months ended September 30, 2017 have been recast to reflect our January 1, 2018 full retrospective adoption of ASC 606.

The table above presents a reconciliation of GAAP to non-GAAP operating income, net income, and net income per share applicable to common stockholders for the three and nine months ended September 30, 2018 and 2017. Non-GAAP operating income excludes the impact of stock-based compensation, depreciation, amortization of intangible assets associated with acquisitions, adjustments to the fair value of contingent consideration, cash compensation from acquisition-related agreements, and wire transaction recovery. Non-GAAP net income excludes the tax-affected impact of stock-based compensation, amortization of intangible assets associated with acquisitions, adjustments to the fair value of contingent consideration, cash compensation from acquisition-related agreements, wire transaction recovery and interest thereon, non-cash interest expense, and gain on step acquisition.

  MEDIDATA SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except per share data)   September 30, 2018  

December 31, 2017

ASSETS Current assets: Cash and cash equivalents $ 83,496 $ 237,325 Marketable securities 115,083 246,967 Accounts receivable, net of allowance for doubtful accounts of $1,642 and $1,454, respectively 163,180 110,685 Prepaid commission expense 18,422 12,404 Prepaid expenses and other current assets 27,898   33,636   Total current assets 408,079 641,017 Restricted cash 5,532 5,518 Furniture, fixtures and equipment, net 96,753 88,091 Marketable securities, long-term 19,878 179,041 Goodwill 215,000 47,435 Intangible assets, net 31,429 17,587 Deferred income taxes, long-term 43,242 35,789 Other assets 47,875   46,755   Total assets $ 867,788   $ 1,061,233   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,661 $ 5,009 Accrued payroll and other compensation 36,639 32,537 Accrued expenses and other 40,195 36,041 Deferred revenue 78,464 77,375 1.00% convertible senior notes, net —   278,094   Total current liabilities 161,959   429,056   Noncurrent liabilities: Term loan, net 89,512 92,841 Deferred revenue, less current portion 2,901 5,256 Deferred tax liabilities 98 99 Other long-term liabilities 19,332   21,371   Total noncurrent liabilities 111,843   119,567   Total liabilities 273,802   548,623   Commitments and contingencies Stockholders' equity: Preferred stock, par value $0.01 per share; 5,000 shares authorized, none issued and outstanding — — Common stock, par value $0.01 per share; 200,000 shares authorized; 65,888 and 62,801 shares issued; 61,194 and 58,607 shares outstanding, respectively 659 628 Additional paid-in capital 550,446 486,147 Treasury stock, 4,694 and 4,194 shares, respectively (152,216 ) (132,705 ) Accumulated other comprehensive loss (4,422 ) (3,377 ) Retained earnings 199,519   161,917   Total stockholders' equity 593,986   512,610   Total liabilities and stockholders' equity $ 867,788   $ 1,061,233     MEDIDATA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)   Nine Months Ended September 30, 2018   2017 Cash flows from operating activities Net income $ 37,602 $ 30,564 (1) Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets and depreciation 25,336 16,918 Stock-based compensation 45,470 35,022 Amortization of discounts or premiums on marketable securities 79 1,131 Realized loss on available-for-sale marketable securities 375 — Deferred income taxes (495 ) 6,035 (1) Amortization of debt issuance costs 1,071 958 Amortization of debt discount 8,661 9,986 Provision for doubtful accounts 1,169 806 Loss (gain) on fixed asset disposal 399 (8 ) Gain recognized on step acquisition (7,648 ) — Changes in fair value of contingent consideration (263 ) 160 Changes in operating assets and liabilities: Accounts receivable (53,664 ) 9,050 Prepaid commission expense (11,208 ) (8,157 ) (1) Prepaid expenses and other current assets 6,113 (16,187 ) (1) Other assets 774 596 Accounts payable 3,510 (3,796 ) Accrued payroll and other compensation 1,191 (3,155 ) Accrued expenses and other 6,394 3,539 Deferred revenue (4,275 ) 7,111 (1) Other long-term liabilities (3,344 ) 1,001   Net cash provided by operating activities 57,247   91,574   Cash flows from investing activities Purchase of furniture, fixtures and equipment (28,929 ) (30,502 ) Purchase of available-for-sale securities (69,214 ) (224,291 ) Proceeds from sale of available-for-sale securities 360,272 220,059 Acquisition of businesses, net of cash acquired (179,063 ) (22,941 ) Net cash provided by (used in) investing activities 83,066   (57,675 ) Cash flows from financing activities Proceeds from exercise of stock options 12,169 9,675 Proceeds from employee stock purchase plan 9,507 6,799 Acquisition of treasury stock (19,509 ) (16,293 ) Repayment of convertible notes (287,500 ) — Term loan principal payments (3,750 ) — Payment of acquisition-related earn-outs (4,417 ) — Payment of credit facility financing costs (175 ) —   Net cash (used in) provided by financing activities (293,675 ) 181   Effect of exchange rate changes on cash, cash equivalents and restricted cash (453 ) 591   Net (decrease) increase in cash, cash equivalents and restricted cash (153,815 ) 34,671 Cash, cash equivalents and restricted cash – Beginning of period 242,843   99,279   Cash, cash equivalents and restricted cash – End of period $ 89,028   $ 133,950   (1) Figures for the nine months ended September 30, 2017 have been recast to reflect our January 1, 2018 full retrospective adoption of ASC 606.   MEDIDATA SOLUTIONS, INC. Reconciliation of Forward-Looking GAAP Operating Income Guidance and GAAP Net Income Guidance to Non-GAAP Operating Income Guidance and Non-GAAP Net Income Guidance (Unaudited) (Amounts in millions)  

Estimated Full-Year 2018

Total revenues $624.0 - $648.0     GAAP operating income: $45.5- $53.5 Stock-based compensation (1) 64.0 Depreciation and amortization (1) 34.0 Contingent consideration adjustment (1) 0.5 Cash compensation from acquisition-related agreements (1) 2.0   Non-GAAP operating income $146.0 - $154.0     GAAP net income: $28.5 - $35.5 Stock-based compensation (1) 64.0 Amortization (1) 6.0 Non-cash interest expense (1) 10.0 Contingent consideration adjustment (1) 0.5 Cash compensation from acquisition-related agreements (1) 2.0 Tax impact on add-back items (2) (20.5 ) Non-GAAP net income $90.5 - $97.5     Fully diluted share count 61.0   (1) Represents the estimated midpoint of our guidance range. (2) Tax impact estimated using a 25% rate.  

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MedidataInvestors:Betsy Frank, 917-522-4620bfrank@mdsol.comorMedia:Erik Snider, 646-362-2997esnider@mdsol.com