MDSO Medidata Solutions Inc

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

“We executed well operationally and delivered strong business results this quarter and in the first half of the year, all while closing our largest acquisition to date,” said Tarek Sherif, chairman and chief executive officer, Medidata. “Providing the life sciences industry a next gen analytics solution for commercialization, and the addition of leading edge, real world evidence capabilities as part of our platform, positions Medidata to be the strategic partner for customers pursuing digital transformation.”

Second Quarter 2018 Results

• Total revenue was $155.9 million, an increase of $19.9 million, or 15%, compared with $136.0 million in the second quarter of 2017
• Subscription revenue was $130.5 million, an increase of $17.6 million, or 16%, compared with the same period last year. Professional services revenue was $25.4 million, an increase of $2.3 million, or 10%, compared with $23.1 million in the second quarter of 2017
• GAAP operating income was $12.8 million, up 1%, compared with $12.7 million in the second quarter of 2017. Non-GAAP operating income1 was $36.6 million, up 18%, compared with $31.0 million a year ago
• GAAP net income was $16.6 million, or $0.27 per diluted share, up 120%, compared with $7.5 million, or $0.13 per diluted share, in the second quarter of 2017. Non-GAAP net income1 was $26.4 million, or $0.43 per diluted share, up 46%, compared with $18.1 million, or $0.30 per diluted share, in the second quarter of 2017. See the non-GAAP reconciliation included in this release for full details of the non-GAAP adjustments
• GAAP net income includes a gain of $7.6 million on the company’s original investment in SHYFT
• Total cash and marketable securities were $477.4 million at the end of the quarter, compared with $663.3 million on December 31, 2017
• Remaining 2018 adjusted subscription backlog2 as of June 30, 2018 was $263 million, an increase of $40 million, or 18%, compared with a year ago

Additional Highlights:

• IDC’s report (Worldwide Life Science Software Market Shares, 2017), published this June, names Medidata as the global leader in Life Science Development Software revenue. The report cites that Medidata has extended its leadership position.
• Novartis partnered with SHYFT to support the commercialization of key therapies in Europe with insights-based analytics
• Medidata delivered the industry’s largest Synthetic Control Database in Acute Myeloid Leukemia (AML) to a top pharma company. This targeted approach highlights the breadth and value of the company’s clinical data repository.
• Three top 25 pharma customers added RAVE Imaging to their existing enterprise agreements, indicating how Medidata enables companies to address the increasing use of medical imaging in clinical trials
• A top 10 pharma customer adopted Edge Site Payments as their global payments platform
• On average, contracts were renewed at 24% above prior value on a trailing twelve-month basis

"We are on track to achieve our financial targets,” said Rouven Bergmann, chief financial officer, Medidata. “Our competitive position has never been stronger, with the acquisition of SHYFT and continued excellent enterprise renewal performance. On top of this, we increased EBITDAO by over 20% year to date.”

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, July 24, 8 a.m. ET

 

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 Passcode: 7399978

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 #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 every day 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; 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.

MEDIDATA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data)   Three Months Ended June 30,   Six Months Ended June 30, 2018   2017 2018   2017 Revenues Subscription $ 130,486 $ 112,904 (3 ) $ 257,305 $ 220,797 (3 ) Professional services 25,419   23,123   47,798   42,874   Total revenues 155,905 136,027 305,103 263,671 Cost of revenues (1)(2) Subscription 21,602 17,017 41,943 34,146 Professional services 15,899   14,903   31,860   28,388   Total cost of revenues 37,501 31,920 73,803 62,534 Gross profit 118,404 104,107 231,300 201,137 Operating costs and expenses Research and development (1) 40,789 35,884 78,311 65,821 Sales and marketing (1)(2) 37,106 32,479 (3 ) 73,967 62,705 (3 ) General and administrative (1) 27,672   23,083   52,859   47,071   Total operating costs and expenses 105,567   91,446   205,137   175,597   Operating income 12,837 12,661 26,163 25,540

Interest and other income (expense)

Interest expense (5,700 ) (4,383 ) (11,275 ) (8,710 ) Interest income 2,328 1,328 4,416 2,499 Other income, net 7,729   —   7,633   —   Total interest and other income (expense), net 4,357   (3,055 ) 774   (6,211 ) Income before income taxes 17,194 9,606 26,937 19,329 Provision for income taxes 605   2,065   (3 ) 23   1,808   (3 ) Net income $ 16,589   $ 7,541   (3 ) $ 26,914   $ 17,521   (3 ) Earnings per share Basic $ 0.29   $ 0.13   (3 ) $ 0.47   $ 0.31   (3 ) Diluted $ 0.27   $ 0.13   (3 ) $ 0.44   $ 0.30   (3 ) Weighted average common shares outstanding Basic 57,448 56,433 57,252 56,254 Diluted 60,874 59,835 60,564 59,051 (1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows: Cost of revenues $ 1,506 $ 1,246 $ 2,774 $ 2,415 Research and development 3,319 3,427 6,173 6,262 Sales and marketing 2,917 1,836 5,561 3,011 General and administrative 7,377   6,183   13,766   11,325   Total stock-based compensation $ 15,119   $ 12,692   $ 28,274   $ 23,013   (2) Amortization of intangible assets included in costs of revenues and operating costs and expenses is as follows: Cost of revenues $ 1,205 $ 1,022 $ 2,299 $ 1,476 Sales and marketing 231   119   351   202   Total amortization of intangible assets $ 1,436   $ 1,141   $ 2,650   $ 1,678     (3) Figures for the three and six months ended June 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 June 30,     Six Months Ended June 30, 2018   2017 2018   2017 Operating income: GAAP operating income $ 12,837 $ 12,661 (6 ) $ 26,163 $ 25,540 (6 ) GAAP operating margins 8.2

%

9.3 % (6 ) 8.6 % 9.7 % (6 ) Stock-based compensation 15,119 12,692 28,274 23,013 Depreciation and amortization 8,405 5,589 16,218 10,065 Contingent consideration adjustment (1) 79 58 7 58 Cash compensation from acquisition-related agreements (2) 134   —   134   —   Non-GAAP operating income $ 36,574   $ 31,000   (6 ) $ 70,796   $ 58,676   (6 ) Non-GAAP operating margins 23.5 % 22.8 % (6 ) 23.2 % 22.3 % (6 ) Net income: GAAP net income $ 16,589 $ 7,541 (6 ) $ 26,914 $ 17,521 (6 ) Stock-based compensation 15,119 12,692 28,274 23,013 Amortization 1,436 1,141 2,650 1,678 Contingent consideration adjustment (1) 79 58 7 58 Cash compensation from acquisition-related agreements (2) 134 — 134 — Non-cash interest expense (3) 3,963 3,648 7,871 7,246 Gain on step acquisition (4) (7,648 ) — (7,648 ) — Tax impact on add-back items (5) (3,271 ) (7,016 ) (7,822 ) (12,798 )

Non-GAAP net income

$ 26,401   $ 18,064   (6 ) $ 50,380   $ 36,718   (6 ) GAAP basic earnings per share $ 0.29   $ 0.13   (6 ) $ 0.47   $ 0.31   (6 ) GAAP diluted earnings per share $ 0.27   $ 0.13   (6 ) $ 0.44   $ 0.30   (6 )

Non-GAAP basic earnings per share

$ 0.46   $ 0.32   (6 ) $ 0.88   $ 0.65   (6 )

Non-GAAP diluted earnings per share

$ 0.43   $ 0.30   (6 ) $ 0.83   $ 0.62   (6 ) (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) Non-cash interest expense includes amortization of debt discount and issuance costs on our 1.00% convertible senior notes issued in 2013 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. (4) Elimination of gain recognized upon step acquisition of SHYFT. (5) Tax impact calculated using tax rates of 25% and 40% for the periods ended June 30, 2018 and 2017, respectively. (6) Figures for the three and six months ended June 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 six months ended June 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, and cash compensation from acquisition-related agreements. 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, non-cash interest expense, and gain on step acquisition.

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

June 30, 2018

 

December 31, 2017

ASSETS Current assets: Cash and cash equivalents $ 120,298 $ 237,325 Marketable securities 287,603 246,967 Accounts receivable, net of allowance for doubtful accounts of $1,668 and $1,454, respectively 137,169 110,685 Prepaid commission expense 17,612 12,404 Prepaid expenses and other current assets 37,109   33,636   Total current assets 599,791 641,017 Restricted cash 5,523 5,518 Furniture, fixtures and equipment, net 93,088 88,091 Marketable securities, long-term 69,476 179,041 Goodwill 198,780 47,435 Intangible assets, net 54,938 17,587 Deferred income taxes, long-term 37,414 35,789 Other assets 43,775   46,755   Total assets $ 1,102,785   $ 1,061,233   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,527 $ 5,009 Accrued payroll and other compensation 23,061 32,537 Accrued expenses and other 37,624 36,041 Deferred revenue 72,075 77,375 1.00% convertible senior notes, net 285,748   278,094   Total current liabilities 425,035   429,056   Noncurrent liabilities: Term loan, net 91,906 92,841 Deferred revenue, less current portion 3,993 5,256 Deferred tax liabilities 100 99 Other long-term liabilities 20,395   21,371   Total noncurrent liabilities 116,394   119,567   Total liabilities 541,429   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; 64,289 and 62,801 shares issued; 59,634 and 58,607 shares outstanding, respectively 643 628 Additional paid-in capital 527,336 486,147 Treasury stock, 4,655 and 4,194 shares, respectively (150,964 ) (132,705 ) Accumulated other comprehensive loss (4,490 ) (3,377 ) Retained earnings 188,831   161,917   Total stockholders' equity 561,356   512,610   Total liabilities and stockholders' equity $ 1,102,785   $ 1,061,233   MEDIDATA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)   Six Months Ended June 30, 2018   2017 Cash flows from operating activities Net income $ 26,914 $ 17,521 (1 ) Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets and depreciation 16,218 10,065 Stock-based compensation 28,274 23,013 Amortization of discounts or premiums on marketable securities 50 757 Deferred income taxes 106 2,406 (1 ) Amortization of debt issuance costs 856 639 Amortization of debt discount 7,015 6,607 Provision for doubtful accounts 763 526 Loss (gain) on fixed asset disposal 127 (2 ) Gain recognized on step acquisition (7,648 ) — Changes in fair value of contingent consideration 7 58 Changes in operating assets and liabilities: Accounts receivable (27,247 ) 4,058 Prepaid commission expense (7,205 ) (5,514 ) (1 ) Prepaid expenses and other current assets (3,008 ) (12,366 ) (1 ) Other assets 1,591 1,171

 

 

Accounts payable 1,753 4,490 Accrued payroll and other compensation (8,909 ) (10,122 ) Accrued expenses and other (764 ) 5,313 Deferred revenue (9,572 ) 11,198 (1 ) Other long-term liabilities 4,455   884   Net cash provided by operating activities 23,776   60,702   Cash flows from investing activities Purchase of furniture, fixtures and equipment (19,520 ) (16,642 ) Purchase of available-for-sale securities (69,214 ) (157,228 ) Proceeds from sale of available-for-sale securities 137,786 154,117 Acquisition of businesses, net of cash acquired (178,568 ) (22,941 ) Net cash used in investing activities (129,516 ) (42,694 ) Cash flows from financing activities Proceeds from exercise of stock options 6,351 9,057 Proceeds from employee stock purchase plan 6,345 4,248 Acquisition of treasury stock (18,257 ) (14,785 ) Term loan principal payments (1,250 ) — Payment of acquisition-related earn-outs (4,087 ) — Payment of credit facility financing costs (175 ) —   Net cash used in financing activities (11,073 ) (1,480 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash (209 ) 414   Net (decrease) increase in cash, cash equivalents and restricted cash (117,022 ) 16,942 Cash, cash equivalents and restricted cash – Beginning of period 242,843   99,279  

Cash, cash equivalents and restricted cash – End of period

$ 125,821   $ 116,221     (1) Figures for the six months ended June 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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Medidata SolutionsInvestor:Betsy Frank, 917-522-4620bfrank@mdsol.comorMedia:Erik Snider, 646-362-2997esnider@mdsol.com