MDSO - Medidata Reports Fourth Quarter 2018 Results

February, 12 2019 06:30 AM Medidata Solutions Inc.

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

“In 2018, we expanded our market leadership in life sciences, and proved that our unique data and AI capabilities can reinvent the way treatments are developed and commercialized,'' said Tarek Sherif, chairman and chief executive officer, Medidata. “Our strong fourth quarter results capped a year of solid execution. Greater platform adoption, high customer satisfaction and our unique company culture, coupled with our performance, give us great momentum heading into 2019.''

Fourth Quarter 2018 Results

Total revenue was $167.2 million, an increase of 18% compared with $141.6 million in the fourth quarter of 2017
Subscription revenue was $141.3 million, an increase of 18% compared with the fourth quarter of 2017. Professional services revenue was $25.9 million, an increase of 18% compared with the fourth quarter of 2017
GAAP operating income was $11.0 million and non-GAAP operating income¹ was $36.6 million, representing a GAAP and non-GAAP operating margin of 6.6% and 21.9%, respectively
GAAP net income was $14.3 million, or $0.23 per diluted share, compared with $17.0 million, or $0.28 per diluted share, in the fourth quarter of 2017. Non-GAAP net income¹ was $27.7 million, or $0.45 per diluted share, compared with $27.8 million, or $0.46 per diluted share, in the fourth quarter of 2017. See the non-GAAP reconciliation included in this release for full details of the non-GAAP adjustments

Full-Year 2018 Results

Total revenue was $635.7 million, an increase of 17% compared with $544.2 million in 2017
Subscription revenue was $535.7 million, an increase of 17% from the prior year. Professional services revenue was $100.0 million, an increase of 16% compared with 2017
GAAP operating income was $51.3 million and non-GAAP operating income¹ was $148.8 million, representing a GAAP and non-GAAP operating margin of 8.1% and 23.4%, respectively
GAAP net income was $51.9 million, or $0.85 per diluted share, compared with $47.6 million, or $0.80 per diluted share, in 2017. Non-GAAP net income¹ was $104.3 million, or $1.71 per diluted share, compared with $84.9 million, or $1.42 per diluted share, in 2017. See the non-GAAP reconciliation included in this release for full details of the non-GAAP adjustments
Total cash and marketable securities were $240.5 million at the end of 2018, compared with $663.3 million on December 31, 2017, driven by the acquisition of SHYFT and cash settlement of convertible notes

Additional Highlights:

Adjusted 2019 subscription backlog² as of December 31, 2018 was $560 million, an increase of 17% compared with $480 million a year ago. Adjusted subscription backlog, together with professional services revenue guidance, provides 91% coverage of total revenue based on the midpoint of full-year 2019 total revenue guidance range
Entered a strategic alliance with Cognizant in which Cognizant will develop and deliver a comprehensive set of managed services and solutions utilizing Medidata’s software application offerings. The agreement exemplifies the power of Medidata’s technology combined with the expertise of the most advanced partner ecosystem in life science
Presented with representatives of the FDA and Johns Hopkins at the Friends of Cancer Research annual meeting, demonstrating how Medidata’s synthetic control arm can use historical data to replicate outcomes of a randomized control arm
As presented at the annual American Society of Hematology meeting, Medidata’s Rave Omics - a machine learning capability - discovered previously unknown patient subgroups that had a three times higher response rate to a particular therapy
Revenue retention rate⁴ was nearly 100% for the full year

“We closed 2018 on a strong note, highlighted by Q4 subscription revenue growth of 18% and strong bookings as our total backlog grew to nearly $1.2 billion,” said Rouven Bergmann, chief financial officer, Medidata. “Turning our focus to the future, it is clear that we are uniquely positioned to capitalize on the opportunity ahead of us, and we remain focused on building momentum across our portfolio.”

Financial Outlook

For 2019, the Company now expects:

Total revenue between $734 and $746 million, representing 16% growth at the midpoint
Subscription revenue between $619 and $631 million, representing 17% growth at the midpoint
Professional services revenue of approximately $115 million
GAAP operating income between $49 and $57 million. Non-GAAP operating income⁵, which excludes the impact of depreciation, amortization of intangible assets, and stock-based compensation expense, between $175 and $183 million
GAAP net income between $39 and $46 million. Non-GAAP net income⁵, which excludes the impact of stock-based compensation, amortization, non-cash interest expense, cash compensation from acquisition-related agreements, and any contingent consideration fair value adjustments, tax-effected at a 25% rate, between $107 and $114 million
While changes in the stock price could change the fully diluted share count, Medidata is assuming 62.5 million fully diluted shares

The operating and net income measures above reflect Medidata’s non-GAAP financial guidance and the most directly comparable GAAP equivalents to its guidance.

Conference call details:

Time:

Today, February 12, 8 a.m. ET

Conference ID:

9289627

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.medidata.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) Total multi-year subscription backlog is unadjusted for renewals.

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

(5) A tabular reconciliation of forward-looking non-GAAP financial measures to the most comparable forward-looking GAAP measures is attached to this press release.




MEDIDATA SOLUTIONS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


(Amounts in thousands, except per share data)













Three Months Ended December 31,



Twelve Months Ended December 31,




2018

2017



2018

2017


Revenues












Subscription

$
141,321


$
119,756


(4)

$
535,672


$
457,824


(4)
Professional services

25,866


21,833


(4)

100,024


86,381


(4)
Total revenues

167,187


141,589




635,696


544,205



Cost of revenues (1)(2)












Subscription

24,526


17,958




91,087


69,235



Professional services

18,603


14,747




68,072


57,558



Total cost of revenues

43,129


32,705




159,159


126,793



Gross profit

124,058


108,884




476,537


417,412



Operating costs and expenses












Research and development (1)

43,851


36,536




162,788


138,564



Sales and marketing (1)(2)

39,647


31,437


(4)

151,943


124,138


(4)
General and administrative (1)

29,525


23,552




110,489


94,324



Wire transaction recovery (3)

–


–




–


(4,770
)


Total operating costs and expenses

113,023


91,525




425,220


352,256



Operating income

11,035


17,359




51,317


65,156



Interest and other income (expense)












Interest expense

(1,433
)

(4,648
)



(15,855
)

(17,765
)


Interest income

891


1,687




7,435


5,717



Other (expense) income, net

(3
)

(66
)



7,241


(73
)


Total interest and other expense, net

(545
)

(3,027
)



(1,179
)

(12,121
)


Income before income taxes

10,490


14,332




50,138


53,035



Provision for income taxes

(3,829
)

(2,680
)

(4)

(1,783
)

5,459


(4)
Net income

$
14,319


$
17,012


(4)

$
51,921


$
47,576


(4)
Earnings per share












Basic

$
0.24


$
0.30


(4)

$
0.89


$
0.84


(4)
Diluted

$
0.23


$
0.28


(4)

$
0.85


$
0.80


(4)
Weighted average common shares outstanding












Basic

59,286


56,724




58,125


56,473



Diluted

61,571


60,245




61,162


59,765



(1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues

$
1,927


$
1,306




$
6,619


$
4,873



Research and development

2,832


3,580




11,993


13,314



Sales and marketing

3,275


1,958




12,568


6,833



General and administrative

7,634


5,947




29,958


22,793



Total stock-based compensation

$
15,668


$
12,791




$
61,138


$
47,813



(2) Amortization of intangible assets included in costs of revenues and operating costs and expenses is as follows:
Cost of revenues

$
1,378


$
1,094




$
5,048


$
3,664



Sales and marketing

505


120




1,293


441



Total amortization of intangible assets

$
1,883


$
1,214




$
6,341


$
4,105

(4) Figures for the three and twelve months ended December 31, 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 December 31,



Twelve Months Ended December 31,




2018

2017



2018

2017


Operating income:












GAAP operating income

$
11,035


$
17,359


(8)

$
51,317


$
65,156


(8)
GAAP operating margins

6.6
%

12.3
%

(8)

8.1
%

12.0
%

(8)
Stock-based compensation

15,668


12,791




61,138


47,813



Depreciation and amortization

9,709


7,135




35,045


24,053



Contingent consideration adjustments (1)

(68
)

159




(331
)

319



Cash compensation from acquisition-related agreements (2)

252


–




1,624


–



Wire transaction recovery (3)

–


–




–


(4,770
)


Non-GAAP operating income

$
36,596


$
37,444


(8)

$
148,793


$
132,571


(8)
Non-GAAP operating margins

21.9
%

26.4
%

(8)

23.4
%

24.4
%

(8)
Net income:












GAAP net income

$
14,319


$
17,012


(8)

$
51,921


$
47,576


(8)
Stock-based compensation

15,668


12,791




61,138


47,813



Amortization

1,883


1,214




6,341


4,105



Contingent consideration adjustments (1)

(68
)

159




(331
)

319



Cash compensation from acquisition-related agreements (2)

252


–




1,624


–



Wire transaction recovery (3)

–


–




–


(4,770
)


Interest income on wire transaction recovery (4)

–


–




(1,149
)

–



Non-cash interest expense (5)

108


3,762




9,840


14,706



Gain on step acquisition (6)

–


–




(7,648
)

–



Tax impact on add-back items (7)

(4,461
)

(7,170
)



(17,454
)

(24,869
)


Non-GAAP net income

$
27,701


$
27,768


(8)

$
104,282


$
84,880


(8)
GAAP basic earnings per share

$
0.24


$
0.30


(8)

$
0.89


$
0.84


(8)
GAAP diluted earnings per share

$
0.23


$
0.28


(8)

$
0.85


$
0.80


(8)
Non-GAAP basic earnings per share

$
0.47


$
0.49


(8)

$
1.79


$
1.50


(8)
Non-GAAP diluted earnings per share

$
0.45


$
0.46


(8)

$
1.71


$
1.42


(8)

(1) Change in fair value of acquisition-related contingent consideration liability.

(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 twelve months ended December 31, 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 twelve months ended December 31, 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 settled 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 December 31, 2018 and 2017, respectively.

(8) Figures for the three and twelve months ended December 31, 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 twelve months ended December 31, 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)



December 31, 2018

December 31, 2017
ASSETS





Current assets:





Cash and cash equivalents


$
105,440


$
237,325

Marketable securities


135,105


246,967

Accounts receivable, net of allowance for doubtful accounts of $1,999 and $1,454, respectively
(1)

170,744


110,685

Prepaid commission expense


22,247


12,404

Prepaid expenses and other current assets


28,949


33,636

Total current assets


462,485


641,017

Restricted cash


7,205


5,518

Furniture, fixtures and equipment, net


98,983


88,091

Marketable securities, long-term


–


179,041

Goodwill


216,017


47,435

Intangible assets, net


29,546


17,587

Deferred income taxes


45,982


35,789

Other assets


52,994


46,755

Total assets


$
913,212


$
1,061,233

LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Accounts payable


$
7,482


$
5,009

Accrued payroll and other compensation


51,270


32,537

Accrued expenses and other


37,487


36,041

Deferred revenue


74,463


77,375

1.00% convertible senior notes, net


–


278,094

Total current liabilities


170,702


429,056

Noncurrent liabilities:





Term loan, net


88,366


92,841

Deferred revenue, less current portion


3,843


5,256

Deferred tax liabilities


99


99

Other long-term liabilities


18,754


21,371

Total noncurrent liabilities


111,062


119,567

Total liabilities


281,764


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; 66,103 and 62,801 shares issued; 61,348 and 58,607 shares outstanding, respectively


661


628

Additional paid-in capital


574,667


486,147

Treasury stock, 4,755 and 4,194 shares, respectively


(152,849
)

(132,705
)
Accumulated other comprehensive loss


(4,869
)

(3,377
)
Retained earnings


213,838


161,917

Total stockholders' equity


631,448


512,610

Total liabilities and stockholders' equity


$
913,212


$
1,061,233


(1) Unbilled receivables of $38,601 and $12,488, respectively, are included in accounts receivable as of December 31, 2018 and 2017.




MEDIDATA SOLUTIONS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


(Amounts in thousands)




Twelve Months Ended December 31,




2018

2017


Cash flows from operating activities






Net income

$
51,921


$
47,576


(1)
Adjustments to reconcile net income to net cash provided by operating activities:






Amortization of intangible assets and depreciation

35,045


24,053



Stock-based compensation

61,138


47,813



Amortization of discounts or premiums on marketable securities

130


1,438



Realized loss on available-for-sale marketable securities

375


–



Deferred income taxes

(4,337
)

908


(1)
Amortization of debt issuance costs

1,179


1,291



Amortization of debt discount

8,661


13,415



Provision for doubtful accounts

1,587


1,089



Loss on fixed asset disposal

425


72



Gain recognized on step acquisition

(7,648
)

–



Changes in fair value of contingent consideration

(331
)

319



Changes in operating assets and liabilities:






Accounts receivable

(61,646
)

4,043



Prepaid commission expense

(23,070
)

(12,129
)

(1)
Prepaid expenses and other current assets

5,625


(15,464
)

(1)
Other assets

2,996


(1,270
)


Accounts payable

3,474


(3,014
)


Accrued payroll and other compensation

18,854


2,089



Accrued expenses and other

6,054


1,751



Deferred revenue

(7,334
)

6,556


(1)
Other long-term liabilities

(3,922
)

1,210



Net cash provided by operating activities

89,176


121,746



Cash flows from investing activities






Purchase of furniture, fixtures and equipment

(40,083
)

(44,621
)


Purchase of available-for-sale securities

(69,214
)

(303,641
)


Proceeds from sale of available-for-sale securities

360,271


297,297



Acquisition of businesses, net of cash acquired

(178,897
)

(22,941
)


Purchase of cost method investments

–


(4,124
)


Net cash provided by (used in) investing activities

72,077


(78,030
)


Cash flows from financing activities






Proceeds from exercise of stock options

14,463


10,207



Proceeds from employee stock purchase plan

12,506


9,378



Acquisition of treasury stock

(20,141
)

(18,499
)


Repayment of convertible notes

(287,500
)

–



Term loan principal payments

(5,000
)

–



Payment of acquisition-related earn-outs

(4,572
)

–



Borrowings under term loan facility

–


100,000



Payment of credit facility financing costs

(175
)

(1,997
)


Net cash (used in) provided by financing activities

(290,419
)

99,089



Effect of exchange rate changes on cash, cash equivalents and restricted cash

(1,032
)

759



Net (decrease) increase in cash, cash equivalents and restricted cash

(130,198
)

143,564



Cash, cash equivalents and restricted cash — Beginning of period

242,843


99,279



Cash, cash equivalents and restricted cash — End of period

$
112,645


$
242,843

(1) Figures for the twelve months ended December 31, 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
2019

Total revenues

$734.0 – $746.0

GAAP operating income:

$49.0 – $57.0

Stock-based compensation (1)

80.0

Depreciation and amortization (1)

43.0

Cash compensation from acquisition-related agreements (1)

3.0

Non-GAAP operating income

$175.0 – $183.0

GAAP net income:

$39.0 – $46.0

Stock-based compensation (1)

80.0

Amortization (1)

7.5

Cash compensation from acquisition-related agreements (1)

3.0

Non-cash interest expense (1)

0.5

Tax impact on add-back items (2)

(23.0)

Non-GAAP net income

$107.0 – $114.0

Fully diluted share count

62.5

(1) Represents the estimated midpoint of our guidance range.

(2) Tax impact estimated using a 25% rate.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190212005284/en/

Investors:
Betsy Frank
917-522-4620
bfrank@medidata.com

Media:
Erik Snider
646-362-2997
esnider@medidata.com

Company Name:	Medidata Solutions Inc.
Stock Symbol:	MDSO
Market:	NASDAQ

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