SFBC International, Inc. (NASDAQ:SFCC), a provider of drug
development services to branded pharmaceutical, biotechnology,
generic drug and medical device companies, today reported its
financial results for the fourth quarter and full year, ended
December 31, 2005. "Our late-phase clinical development services,
bioequivalence services, and bioanalytical laboratory services
delivered revenue and income growth in the fourth quarter of 2005,
although our results were negatively impacted by the issues the
company is facing relating to our Miami facility," commented
Jeffrey P. McMullen, chief executive officer of SFBC International.
"Throughout 2006, we will look for opportunities to leverage the
strong reputation in the industry for quality and service
excellence of the Company's subsidiaries, including PharmaNet and
Anapharm." Fourth Quarter Financial Results Direct revenue for the
fourth quarter of 2005 was approximately $87.6 million, an increase
of 81% compared to direct revenue for the fourth quarter of 2004 of
approximately $48.3 million. Total net revenue for the fourth
quarter of 2005 was approximately $116.9 million, which included
reimbursed out-of-pocket expenses of approximately $29.3 million, a
137% increase over the reported total net revenue of approximately
$49.3 million, reflecting reimbursed out-of-pocket expenses of
approximately $1.1 million, in the fourth quarter of 2004. As a
result of the decline in business at the Company's Miami facility,
the Company will record a non-cash, pre-tax impairment charge for
the fourth quarter of 2005. The impairment charge is related to the
goodwill on the Company's balance sheet incurred when the Company
merged Clinical Pharmacology Associates into the Company's Miami
operations in August 2003. The Company currently estimates the
impairment charge will be in the range of $17 million - $24
million. All financial results and comparisons in this release
exclude the impact of the impairment charge to be recognized for
the fourth quarter of 2005, except as described immediately below
the reconciliation tables. The Company, with the assistance of an
independent third-party valuation specialist, estimated the amount
of the impairment charge related to goodwill in accordance with
Statement of Financial Accounting Standards (SFAS) No. 142
"Goodwill and Other Intangible Assets." The valuation specialist
tested impairment of tangible and intangible assets and will help
management make the final determination of the impairment charge.
To determine the range of the impairment charge, management
estimated the fair market value of the Miami business based on
historical performance, discounted cash flow projections and
comparative market data, including EBITDA (earnings before
interest, taxes, depreciation and amortization) multiples. The
final measurement of the impairment has yet to be finalized;
therefore, the estimated impairment charge represents management's
current best estimate as to the actual charge. Upon finalization of
the actual impairment charge for the fourth quarter of 2005, the
Company will record this charge in its Form 10-K filing with the
Securities and Exchange Commission. Earnings from operations for
the fourth quarter of 2005 decreased 45% to approximately $4.7
million, representing a 5.4% operating margin on direct revenue,
compared to approximately $8.6 million for the fourth quarter of
2004, representing a 17.8% operating margin on direct revenue. Net
earnings for the fourth quarter of 2005 decreased by 36% to
approximately $3.8 million, or $0.20 per fully diluted share,
compared to net earnings of approximately $5.9 million, or $0.38
per fully diluted share, in the fourth quarter of 2004. Net
earnings and earnings per fully diluted share for the fourth
quarter of 2005 includes additional legal and consulting fees
related to recent events related to the Company's Miami operations
of approximately $737,000 pre-tax, or approximately $0.03 per fully
diluted share net of tax effect, as well as the non-cash
amortization of acquisition-related intangible expenses and the
one-time charge related to the severance agreements described in
this release. On a non-GAAP basis, net earnings for the fourth
quarter increased by 25% to approximately $7.8 million, or $0.42
per fully diluted share, compared to net earnings of approximately
$6.3 million, or $0.40 per fully diluted share, in the fourth
quarter of 2004. Non-GAAP net earnings and non-GAAP earnings per
share ("EPS") for the fourth quarter of 2005 exclude non-cash
amortization of intangible expenses of approximately $913,000 and a
one-time charge during the fourth quarter of 2005 related to the
severance agreements with two former executives of approximately
$3.8 million. -0- *T Reconciliation of GAAP Earnings Before
Impairment Charge to Non-GAAP Net Earnings
----------------------------------------------------------------------
Three Months Ended December 31,
----------------------------------------------------------------------
2005 2004
----------------------------------------------------------------------
GAAP earnings before impairment charge (a) $3,788,810 $5,914,452
----------------------------------------------------------------------
Add back: Amortization of acquisition-related intangible assets $
912,980 $ 461,300
----------------------------------------------------------------------
Add back: One-time charge related to the severance agreements with
two former executives $3,825,000 0
----------------------------------------------------------------------
Less: Tax effect of non-GAAP adjustments $ (706,774)$ (109,207)
----------------------------------------------------------------------
Non-GAAP net earnings before impairment charge $7,820,016
$6,266,545
----------------------------------------------------------------------
Non-GAAP EPS before impairment charge $ 0.42 $ 0.40
----------------------------------------------------------------------
Shares used in computing non-GAAP net earnings before impairment
charge per fully diluted share 18,753,018 15,551,174
----------------------------------------------------------------------
(a) Using the estimated minimum impairment charge of $17 million,
GAAP net earnings/(loss) for the fourth quarter 2005 would be
reduced to a loss of approximately $(13.2 million), or $(0.70) per
fully diluted share. Using the estimated maximum impairment charge
of $24 million, GAAP net earnings/(loss) for the fourth quarter
2005 would be reduced to a loss of approximately $(20.2 million),
or $(1.08) per fully diluted share. *T Full Year 2005 Financial
Results Direct revenue for the full year 2005 was $334.8 million,
an increase of 125% compared to direct revenue for the full year
2004 of $148.9 million. Total net revenue for the full year 2005
was $429.6 million, which included reimbursed out-of-pocket
expenses of $94.8 million, a 169% increase over the reported total
net revenue of $159.6 million, which included reimbursed
out-of-pocket expenses of $10.7 million, in the full year 2004. As
previously stated, all financial results and comparisons in this
release exclude the impact of the impairment charge to be
recognized for the fourth quarter of 2005, except as described
below the reconciliation tables. Earnings from operations for the
full year 2005 increased 50% to $41.3 million, representing a 12.3%
operating margin on direct revenue, compared to $27.5 million for
the full year 2004, representing an 18.5% operating margin on
direct revenue. Net earnings for the full year 2005 increased by
28% to $25.1 million, or $1.37 per fully diluted share, compared to
net earnings of $19.7 million, or $1.25 per fully diluted share, in
the full year 2004. Net earnings and earnings per fully diluted
share for 2005 include additional legal and consulting fees related
to recent events arising out of operations at the Miami facility of
approximately $737,000 pre-tax, or approximately $0.03 per fully
diluted share net of tax effect as well as the non-cash
amortization of intangible expenses, the non-recurring charges
related to financing and the one-time charge related to the
severance agreements described in this release. On a non-GAAP
basis, net earnings for the full year 2005 increased by 66% to
$34.5 million, or $1.88 per fully diluted share, compared to net
earnings of approximately $20.8 million, or $1.32 per fully diluted
share, in the full year 2004. Non-GAAP net earnings and non-GAAP
EPS for full year 2005 exclude: 1) non-cash amortization of
intangible expenses of approximately $4.0 million pre-tax; 2) a
one-time, non-cash charge of $3.3 million pre-tax related to the
write-off of deferred financing costs in 2005; and 3) a one-time
charge during the fourth quarter of 2005 related to the severance
agreements with two former executives of approximately $3.8 million
pre-tax. -0- *T Reconciliation of GAAP Net Earnings Before
Impairment Charge to Non- GAAP Net Earnings
----------------------------------------------------------------------
12 Months Ended December 31,
----------------------------------------------------------------------
2005 2004
----------------------------------------------------------------------
GAAP earnings before impairment charge (a) $25,094,105 $19,658,891
----------------------------------------------------------------------
Add back: Amortization of acquisition- related intangible assets $
3,979,365 $ 1,430,700
----------------------------------------------------------------------
Add back: Non-recurring charges related to financing $ 3,278,279 0
----------------------------------------------------------------------
Add back: One-time charge related to the severance agreements with
two former executives $ 3,825,000 0
----------------------------------------------------------------------
Less: Tax effect of non-GAAP adjustments $(1,653,220)$ (338,699)
----------------------------------------------------------------------
Non-GAAP earnings before impairment charge $34,523,529 $20,750,892
----------------------------------------------------------------------
Non-GAAP EPS before impairment charge $ 1.88 $ 1.32
----------------------------------------------------------------------
Shares used in computing non-GAAP net earnings per fully diluted
share 18,356,030 15,753,815
----------------------------------------------------------------------
(a) Using the estimated minimum impairment charge of $17 million,
GAAP net earnings for the full year 2005 would be reduced to
approximately $8.1 million, or $0.44 per fully diluted share. Using
the estimated maximum impairment charge of $24 million, GAAP net
earnings for the full year 2005 would be reduced to approximately
$1.1 million, or $0.06 per fully diluted share. *T Performance of
Early Clinical Development Services and Laboratories Business and
Late-Phase Development Services Business SFBC's Early Clinical
Development and Laboratory Services Business ("Early Clinical
Development") primarily include the areas of Phase I/IIa clinical
trials and support services, bioanalytical laboratory services, and
clinical laboratory services. SFBC's Late-Phase Development
Services Business ("Late Clinical Development") consists of
PharmaNet, which conducts Phase II through IV clinical trials, data
management and biostatistics, medical and scientific affairs,
regulatory affairs and submissions, and provides software tools and
services for use in clinical trials. For the financial results
provided below for the Early Clinical Development and Late Clinical
Development businesses, SFBC has excluded an allocation of
corporate expenses related to certain selling, general and
administrative ("S,G&A") expenses of $4.4 million for the
fourth quarter of 2005 and $12.4 for the full year 2005. For the
fourth quarter 2005, SFBC recorded direct revenue, which does not
include reimbursed out-of-pocket expenses, from Early Clinical
Development of approximately $45.6 million, or 52%, and from Late
Clinical Development approximately $41.9 million, or 48%. Earnings
from operations for Early Clinical Development were approximately
$4.1 million, representing an 8.9% operating margin on direct
revenue and a non-GAAP operating margin of 16.1%, during the fourth
quarter 2005. Earnings from operations for Late Clinical
Development were approximately $5.0 million, representing a 12.0%
operating margin on direct revenue and a non-GAAP operating margin
of 13.6%, during the fourth quarter 2005. For SFBC's Early Clinical
Development and Late Clinical Development businesses, the non-GAAP
operating income and margins exclude the impact of amortization of
intangibles. For the full year 2005, SFBC recorded direct revenue,
which does not include reimbursed out-of-pocket expenses, by
development phase of approximately $177.2 million, or 53%, from
Early Clinical Development and of approximately $157.5 million, or
47%, from Late Clinical Development. Earnings from operations for
Early Clinical Development were approximately $35.2 million,
representing a 19.9% operating margin on direct revenue and a
non-GAAP operating margin of 22.3%, during full year 2005. Earnings
from operations for Late Clinical Development were approximately
$18.3 million, representing an 11.6% operating margin on direct
revenue and a non-GAAP operating margin of 13.3%. For SFBC's Early
Clinical Development and Late Clinical Development businesses, the
non-GAAP operating income and margins exclude the impact of
amortization of intangibles. SFBC has provided the following
summary of Early Clinical Development and Late Clinical
Development, excluding the allocation of corporate expenses related
to S,G&A expenses of $4,375,285 for the fourth quarter of 2005
and $12,274,025 for the full year 2005: -0- *T Early Clinical
Development Summary (Phase I - IIa) Fourth Quarter Full Year 2005
2005
----------------------------------------------------------------------
Direct Revenues $45,620,121 $177,221,149
----------------------------------------------------------------------
Operating Income $ 4,055,310 $ 35,231,873
----------------------------------------------------------------------
Amortization of intangibles $ 238,673 $ 1,291,099
----------------------------------------------------------------------
Add back: Allocation of one-time charge related to the severance
agreements with two former executives (a) $ 3,060,000 $ 3,060,000
----------------------------------------------------------------------
Non-GAAP Operating Income $ 7,353,983 $ 39,582,972
----------------------------------------------------------------------
Operating Margin 8.9% 19.9%
----------------------------------------------------------------------
Non-GAAP Operating Margin 16.1% 22.3%
----------------------------------------------------------------------
a) The balance of the one-time charge related to the severance
agreements is allocated to corporate expenses. Late Clinical
Development Summary (Phase IIb - IV) Fourth Quarter Full Year 2005
2005
----------------------------------------------------------------------
Direct Revenues $41,938,308 $157,529,409
----------------------------------------------------------------------
Operating Income $ 5,017,176 $ 18,311,009
----------------------------------------------------------------------
Amortization of intangibles $ 674,307 $ 2,688,266
----------------------------------------------------------------------
Non-GAAP Operating Income $ 5,691,483 $ 20,999,275
----------------------------------------------------------------------
Operating Margin 12.0% 11.6%
----------------------------------------------------------------------
Non-GAAP Operating Margin 13.6% 13.3%
----------------------------------------------------------------------
*T Other Financial Information At December 31, 2005, backlog for
SFBC was approximately $360.9 million, which was an increase of
$20.5 million, or 6%, from approximately $340.4 million at
September 30, 2005 and an increase of $49.4 million, or 16%, from
approximately $311.5 million at December 31, 2004. Backlog consists
of anticipated direct revenue from contracts and letters of intent
that either have not started but are anticipated to begin in the
near future or are in process and have not been completed. Net
DSOs, which includes accounts receivable and unbilled services less
current and long-term advanced billings, improved to 37 days at
December 31, 2005 from 52 days at September 30, 2005. SFBC reported
an increase of approximately $7.5 million in cash, cash
equivalents, and investments in marketable securities in the fourth
quarter to approximately $38.8 million at December 31, 2005 from
approximately $31.3 million at September 30, 2005. During the
fourth quarter, SFBC used approximately $12.4 million to purchase
approximately 606,300 shares of SFBC's common stock for an average
share price of $20.49. As of December 31, 2005, SFBC had
approximately $143.8 million in convertible notes outstanding and
approximately $17.0 million drawn on its $90 million line of
credit. SFBC's effective tax rate in the fourth quarter of 2005 was
(23.4)% compared to 19.6% in the fourth quarter of 2004. SFBC's
effective tax rate for full year 2005 was 14.9% compared to 23.7%
for full year 2004. The lower effective tax rate for the fourth
quarter and full year 2005 is primarily due to higher interest
expense recorded in the U.S. on the Company's debt and a larger
proportion of the Company's profits originating in foreign
countries, which have significantly lower tax rates than the U.S.
Full Year 2006 Guidance Investors should not rely on the guidance
previously issued in December 2005, which was previously withdrawn.
SFBC is providing new 2006 guidance that is based upon SFBC's
current business outlook, including a significant decrease in
revenues at its Miami facility, and a substantial increase in legal
and related expenses pertaining to recent issues. The Company
anticipates its direct revenue in 2006 will be approximately $332
million - $347 million. SFBC has provided the following summary of
its 2006 EPS guidance: -0- *T Summary of 2006 EPS Guidance (a)
----------------------------------------------------------------------
2006E EPS
----------------------------------------------------------------------
GAAP EPS (including stock option expense) $1.30 - $1.44
----------------------------------------------------------------------
Impact of expensing stock options under FAS 123(R) $ 0.08
----------------------------------------------------------------------
EPS (excluding stock option expense) $1.38 - $1.52
----------------------------------------------------------------------
Impact of non-cash expense of approximately $3.0 million related to
acquisition-related amortization of intangibles $ 0.14
----------------------------------------------------------------------
NON-GAAP EPS (excluding stock option expense) $1.52 - $1.66
----------------------------------------------------------------------
Stock Option Expense $ 0.08
----------------------------------------------------------------------
NON-GAAP EPS (including stock option expense) $1.44 - $1.58
----------------------------------------------------------------------
a) All line items are represented per fully diluted share and
individual line items are each net of tax effect *T Conference Call
and Webcast Information SFBC plans to host a conference call and
Webcast to review its fourth quarter and full year 2005 results at
8:30 a.m. Eastern Standard Time on Thursday, March 9, 2006. To
access the conference call, please dial the following
teleconference number (877) 691-0878 (U.S.) or (973) 582-2773
(International) or, to listen to the simultaneous Webcast, please
visit http://www.sfbci.com. For those unable to access the live
call, there will be an audio replay available from March 9, 2006 at
approximately 11:00 a.m. Eastern Standard Time through March 17,
2006 at 11:59 p.m. Eastern Standard Time. To listen to the audio
replay, please dial (877) 519-4471 (U.S.) or (973) 341-3080
(International) and use the following replay pin code: 7081622. A
replay of the Webcast will be available at http://www.sfbci.com
approximately two hours after the live call ends through April 8,
2006 at 11:59 p.m. Eastern Standard Time. About SFBC International,
Inc. SFBC International, Inc. is an international drug development
services company offering a comprehensive range of clinical
development, clinical and bioanalytical laboratory, and consulting
services to the branded pharmaceutical, biotechnology, generic drug
and medical device industries. SFBC has more than 35 offices,
facilities and laboratories with approximately 2,500 employees
strategically located throughout the world. For more information,
visit SFBC's website at http://www.sfbci.com. Non-GAAP Financial
Measures This press release contains non-GAAP financial measures,
which exclude, among other items, amortization of
acquisition-related intangible assets and the impact of the
one-time severance charge. Guidance also excludes any charge for
stock option expenses. SFBC excludes these items from the non-GAAP
financial measures because they are outside of its operations and
are a useful indicator which allows management to monitor SFBC's
underlying business performance. Non-GAAP results also allow
investors to compare the reported GAAP results and the non-GAAP
First Call consensus estimate and to compare the Company's
operations against the financial results of other companies in the
industry. The non-GAAP financial measures included in this press
release should not be considered superior to or a substitute for
results of operations prepared in accordance with GAAP.
Reconciliations of the non-GAAP financial measures used in this
press release to the most directly comparable GAAP financial
measures are set forth in the text of, and the accompanying tables
to, this press release, and can also be found on the Company's
website at http://www.sfbci.com. Forward-Looking Statements The
statements made in this press release relating to the leveraging
the strong reputation of the Company's subsidiaries, the estimated
impairment charge, estimated stock option expense, and 2006
guidance are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act").
Additionally words such as "seek," "intend," "believe," "plan,"
"estimate," "expect," "anticipate" and other similar expressions
are forward-looking statements within the meaning of the Act. Some
or all of the results anticipated by these forward-looking
statements may not occur. Factors that could cause or contribute to
such differences include, but are not limited to, whether adverse
publicity relating to SFBC's Miami operations causes clients to
select competitors, not only for early stage branded clinical
trials but also for other aspects of SFBC's business; SFBC's
ability to resolve open issues relating to its Miami property
including whether it can change the hospital-type classification,
whether a building permit will be issued, whether it can complete
its remediation plan on a timely basis and within reasonable cost
parameters, whether SFBC will prevail in the pending land lease
litigation and whether, depending on the outcome of these issues,
it will relocate or close its Miami facility; continued adverse
publicity related to actions of the United States Senate Finance
Committee; developments with respect to the SEC's inquiry; SFBC's
ability to successfully achieve and manage the technical
requirements of specialized clinical trial services, while
complying with applicable rules and regulations; the Miami
subsidiary's continued ability to recruit participants for clinical
trials; regulatory changes; changes affecting the clinical research
industry; a reduction of outsourcing by pharmaceutical and
biotechnology companies; SFBC's ability to compete internationally
in attracting clients in order to develop additional business;
cancellation of contracts; SFBC's ability to retain and recruit new
employees; SFBC's clients' ability to provide the drugs and medical
devices used in its clinical trials; SFBC's future stock price; and
the national and international economic climate as it affects drug
development operations. Further information can be found in SFBC's
risk factors contained in the Form S-3 filed with the SEC in 2005
and other filings with the Securities and Exchange Commission. -0-
*T SFBC INTERNATIONAL, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED
BALANCE SHEET INFORMATION (SEE NOTE BELOW) FOR THE PERIOD ENDED
DECEMBER 31, 2005
======================================================================
December 31, December 31, 2005 2004 ------------ ------------
ASSETS Cash, equivalents, and investments in marketable securities
38,834,703 34,644,293 Accounts receivable 117,871,669 98,067,099
Total current assets 181,500,708 150,266,110 Fixed assets
73,265,110 63,906,271 Total assets 602,552,462 558,187,110
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities
114,725,430 99,168,612 Total liabilities 304,245,999 385,771,783
Stockholders' equity 298,306,463 172,415,327 Total liabilities and
stockholders' equity 602,552,462 558,187,110 The balance sheet at
December 31, 2005 presented above does not reflect the effect of
the range of the impairment charge of approximately $17.0 to $24.0
million described within this press release. *T -0- *T SFBC
INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS (SEE NOTE BELOW) FOR THE THREE AND TWELVE
MONTHS ENDED DECEMBER 31, 2005 AND 2004
======================================================================
Three Months Ended Twelve Months Ended December 31, December 31,
2005 2004 2005 2004 (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------- Net revenue
Direct revenue $ 87,558,429 $48,256,974 $334,750,558 $148,929,373
Reimbursed out- of-pockets 29,294,126 1,063,459 94,842,390
10,655,311 -----------------------------------------------------
Total net 116,852,555 49,320,433 429,592,948 159,584,684 revenue
Costs and expenses Direct costs 52,581,751 24,760,319 191,138,865
75,802,683 Reimbursable out- of-pocket expenses 29,294,126
1,063,459 94,842,390 10,655,311 Selling, general and administrative
expenses 30,279,477 14,896,915 102,342,836 45,598,163
----------------------------------------------------- Total costs
and expenses 112,155,354 40,720,693 388,324,091 132,056,157
Earnings from operations 4,697,201 8,599,740 41,268,857 27,528,527
Other income (expense) Interest income 196,005 577,999 890,646
1,345,872 Interest expense (1,672,135) (1,700,751) (12,016,506)
(2,690,995) -----------------------------------------------------
Total other income (expense)(1,476,130) (1,122,752) (11,125,860)
(1,345,123) -----------------------------------------------------
Earnings before income taxes 3,221,071 7,476,988 30,142,997
26,183,404 Income tax expense (753,285) 1,463,190 4,496,491
6,198,571 -----------------------------------------------------
Earnings before minority interest in joint venture 3,974,356
6,013,798 25,646,506 19,984,833 Minority interest in joint venture
185,546 99,346 552,401 325,942
----------------------------------------------------- Net earnings
$ 3,788,810 $ 5,914,452 $ 25,094,105 $ 19,658,891
===================================================== Earnings per
share: Basic $ 0.21 $ 0.40 $ 1.42 $ 1.31
===================================================== Diluted $
0.20 $ 0.38 $ 1.37 $ 1.25
===================================================== Shares used
in computing earnings per share: Basic 18,247,667 14,807,763
17,701,810 15,047,245
===================================================== Diluted
18,753,018 15,551,174 18,356,030 15,753,815
===================================================== For the
periods ended December 31, 2005, the statements of earnings
presented above do not reflect the effect of the range of the
impairment charge of approximately $17.0 to $24.0 million described
within this press release. *T
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