Medidata Reports Second Quarter 2019 Results

Medidata (NASDAQ:MDSO) today announced its financial results for the second quarter of 2019.

“Our good results in the second quarter and for the first half of the year were driven by the strength of our core business,” said Tarek Sherif, chairman and CEO, Medidata. “With our win rate at an all-time high, we continue to gain market share with over 1,300 customers now relying on our platform to power their mission critical drug development activities and accelerate innovation. Acorn AI is off to a fast start, creating significant value for our customers and further differentiating us as the platform of choice for life sciences.

"This quarter we celebrated the 20th anniversary of Medidata, and our 10th as a public company. I am incredibly proud of what we’ve accomplished and the value we have created over the past two decades--most importantly, I’m proud of the impact we are having on patients’ lives. As I think about the next decade, I am excited about the potential that lies ahead for Medidata, our industry and patients, as we move forward in partnership with Dassault Systèmes.”

Second Quarter 2019 Results

• Total revenue was $180.5 million, an increase of 16% compared with $155.9 million in the second quarter of 2018
• Subscription revenue was $150.0 million, an increase of 15% compared with the second quarter of 2018. Professional services revenue was $30.5 million, an increase of 20% compared with the second quarter of 2018
• GAAP operating income was $1.9 million and non-GAAP operating income1, which excludes $5.1 million of merger-related expenses incurred during the quarter, was $41.3 million, representing GAAP and non-GAAP operating margins of 1.1% and 22.9%, respectively
• GAAP net income was $7.9 million, or $0.13 per diluted share, compared with $16.6 million, or $0.27 per diluted share, in the second quarter of 2018. This includes an income tax benefit of $6.1 million related to excess tax benefits from stock-based compensation
• Non-GAAP net income1, which excludes the aforementioned merger-related expenses, was $30.1 million, or $0.48 per diluted share, compared with $26.4 million, or $0.43 per diluted share, in the second quarter of 2018. See the non-GAAP reconciliation included in this release for full details of the non-GAAP adjustments
• Total cash and marketable securities were $206.0 million at the end of the quarter, compared with $240.5 million on December 31, 2018

Additional Highlights:

• Remaining 2019 adjusted subscription backlog2 as of June 30, 2019 was $301 million, an increase of $38 million, or 14%, compared with a year ago
• Total multi-year unadjusted subscription backlog was $1.1B, an increase of 6% from a year ago
• Operating cash flow for the trailing 12 months was $96 million, up 13% from a year ago
• Total customers grew to 1,330, an increase of 23% from a year ago
• Medidata Institute was launched to collaborate with industry thought leaders, redefining technology’s role in advancing science and healthcare
• Medidata received a Gold Stevie® at the 2019 American Business Awards® for the company’s corporate social responsibility program
• Everest Group’s 2019 Life Sciences Clinical Trials Products PEAK Matrix™ recognized Medidata as both a leader and star performer
• IDC’s report (Worldwide Life Science Software Market Shares, 2018), named Medidata as the global leader in Life Science Development Software Revenue. The report cited that Medidata has continued to strengthen its position as the leading vendor in life science development
• Revenue retention rate3 was nearly 100% for the quarter

“In the second quarter, we delivered solid top-line growth of 16% and operating cash flow growth of 29%. I am pleased with the scale in our core business. Consistent with our long-term strategy, we continue to invest in our core Rave applications, scaling our platform, and capturing the value of our data with AI,” said Rouven Bergmann, chief financial officer, Medidata. “While we are no longer providing financial guidance, we remain focused on executing in the second half of the year via our established growth drivers of density, intensity and new customer additions.”

Conference call and earnings guidance

Due to the company's pending acquisition by Dassault Systèmes, it will not host a conference call to discuss its results. Additionally, the company will no longer provide financial guidance.

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 industry experts, Medidata helps pharmaceutical, biotech, medical device companies, and academic researchers accelerate value, minimize risk and optimize outcomes. Medidata and its companies, Acorn AI and SHYFT, serve more than 1,300 customers and partners worldwide and empower more than 150,000 certified users every day 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, risks related to our pending merger with a subsidiary of Dassault Systèmes, 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, 2018. 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 June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

Revenues

 

 

 

 

 

 

 

Subscription

$

150,006

 

 

$

130,486

 

 

$

296,881

 

 

$

257,305

 

Professional services

30,454

 

 

25,419

 

 

57,083

 

 

47,798

 

Total revenues

180,460

 

 

155,905

 

 

353,964

 

 

305,103

 

Cost of revenues (1)(2)

 

 

 

 

 

 

 

Subscription

29,306

 

 

21,602

 

 

56,034

 

 

41,943

 

Professional services

20,296

 

 

15,899

 

 

39,571

 

 

31,860

 

Total cost of revenues

49,602

 

 

37,501

 

 

95,605

 

 

73,803

 

Gross profit

130,858

 

 

118,404

 

 

258,359

 

 

231,300

 

Operating costs and expenses

 

 

 

 

 

 

 

Research and development (1)

48,475

 

 

40,789

 

 

94,964

 

 

78,311

 

Sales and marketing (1)(2)

44,388

 

 

37,106

 

 

87,784

 

 

73,967

 

General and administrative (1)

36,090

 

 

27,672

 

 

68,724

 

 

52,859

 

Total operating costs and expenses

128,953

 

 

105,567

 

 

251,472

 

 

205,137

 

Operating income

1,905

 

 

12,837

 

 

6,887

 

 

26,163

 

Interest and other income (expense)

 

 

 

 

 

 

 

Interest expense

(1,110

)

 

(5,700

)

 

(2,220

)

 

(11,275

)

Interest income

599

 

 

2,328

 

 

1,544

 

 

4,416

 

Other expense, net

381

 

 

7,729

 

 

353

 

 

7,633

 

Total interest and other (expense) income, net

(130

)

 

4,357

 

 

(323

)

 

774

 

Income before income taxes

1,775

 

 

17,194

 

 

6,564

 

 

26,937

 

Income tax (benefit) provision

(6,118

)

 

605

 

 

(12,474

)

 

23

 

Net income

$

7,893

 

 

$

16,589

 

 

$

19,038

 

 

$

26,914

 

Earnings per share

 

 

 

 

 

 

 

Basic

$

0.13

 

 

$

0.29

 

 

$

0.32

 

 

$

0.47

 

Diluted

$

0.13

 

 

$

0.27

 

 

$

0.31

 

 

$

0.44

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

Basic

60,081

 

 

57,448

 

 

59,888

 

 

57,252

 

Diluted

62,372

 

 

60,874

 

 

62,191

 

 

60,564

 

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

Cost of revenues

$

2,871

 

 

$

1,506

 

 

$

5,254

 

 

$

2,774

 

Research and development

5,005

 

 

3,319

 

 

9,254

 

 

6,173

 

Sales and marketing

6,046

 

 

2,917

 

 

11,472

 

 

5,561

 

General and administrative

7,973

 

 

7,377

 

 

15,579

 

 

13,766

 

Total stock-based compensation

$

21,895

 

 

$

15,119

 

 

$

41,559

 

 

$

28,274

 

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

Cost of revenues

$

1,365

 

 

$

1,205

 

 

$

2,729

 

 

$

2,299

 

Sales and marketing

505

 

 

231

 

 

1,011

 

 

351

 

Total amortization of intangible assets

$

1,870

 

 

$

1,436

 

 

$

3,740

 

 

$

2,650

 

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,

 

2019

 

2018

 

2019

 

2018

Operating income:

 

 

 

 

 

 

 

GAAP operating income

$

1,905

 

 

$

12,837

 

 

$

6,887

 

 

$

26,163

 

GAAP operating margins

1.1

%

 

8.2

%

 

1.9

%

 

8.6

%

Stock-based compensation

21,895

 

 

15,119

 

 

41,559

 

 

28,274

 

Depreciation and amortization

11,646

 

 

8,405

 

 

22,175

 

 

16,218

 

Contingent consideration adjustments (1)

79

 

 

79

 

 

240

 

 

7

 

Cash compensation from acquisition-related agreements (2)

705

 

 

134

 

 

1,295

 

 

134

 

Merger-related costs (3)

5,103

 

 

—

 

 

5,103

 

 

—

 

Non-GAAP operating income

$

41,333

 

 

$

36,574

 

 

$

77,259

 

 

$

70,796

 

Non-GAAP operating margins

22.9

%

 

23.5

%

 

21.8

%

 

23.2

%

Net income:

 

 

 

 

 

 

 

GAAP net income

$

7,893

 

 

$

16,589

 

 

$

19,038

 

 

$

26,914

 

Stock-based compensation

21,895

 

 

15,119

 

 

41,559

 

 

28,274

 

Amortization

1,870

 

 

1,436

 

 

3,740

 

 

2,650

 

Contingent consideration adjustments (1)

79

 

 

79

 

 

240

 

 

7

 

Cash compensation from acquisition-related agreements (2)

705

 

 

134

 

 

1,295

 

 

134

 

Merger-related costs (3)

5,103

 

 

—

 

 

5,103

 

 

—

 

Non-cash interest expense (4)

108

 

 

3,963

 

 

217

 

 

7,871

 

Gain on step acquisition (5)

(101

)

 

(7,648

)

 

(101

)

 

(7,648

)

Tax impact on add-back items (6)

(7,414

)

 

(3,271

)

 

(13,013

)

 

(7,822

)

Non-GAAP net income

$

30,138

 

 

$

26,401

 

 

$

58,078

 

 

$

50,380

 

GAAP basic earnings per share

$

0.13

 

 

$

0.29

 

 

$

0.32

 

 

$

0.47

 

GAAP diluted earnings per share

$

0.13

 

 

$

0.27

 

 

$

0.31

 

 

$

0.44

 

Non-GAAP basic earnings per share

$

0.50

 

 

$

0.46

 

 

$

0.97

 

 

$

0.88

 

Non-GAAP diluted earnings per share

$

0.48

 

 

$

0.43

 

 

$

0.93

 

 

$

0.83

 

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

(2) Expense associated with acquisition-related cash compensation agreements entered into with certain employees of SHYFT Analytics, Inc. ("SHYFT").

(3) Expenses incurred related to the planned merger with Dassault Systèmes.

(4) Non-cash interest expense for the three and six months ended June 30, 2019 and 2018 includes amortization of issuance costs of our credit agreement entered into in 2017. Non-cash interest expense for the three and six months ended June 30, 2018 also includes amortization of debt discount and issuance costs of our 1.00% convertible senior notes entered into in 2013 and settled in August 2018.

(5) Elimination of gain related to step acquisition of SHYFT.

(6) Tax impact calculated using a 25% rate.

MEDIDATA SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in thousands, except per share data)

 

June 30, 2019

 

December 31, 2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

139,104

 

 

$

105,440

 

Marketable securities

66,914

 

 

135,105

 

Accounts receivable, net of allowance for doubtful accounts of $2,018 and $1,999, respectively (1)

198,166

 

 

170,744

 

Capitalized contract costs

24,426

 

 

22,247

 

Prepaid expenses and other current assets

37,615

 

 

28,949

 

Total current assets

466,225

 

 

462,485

 

Restricted cash

7,223

 

 

7,205

 

Operating lease assets (2)

83,554

 

 

—

 

Furniture, fixtures and equipment, net

114,210

 

 

98,983

 

Goodwill

213,976

 

 

216,017

 

Intangible assets, net

26,406

 

 

29,546

 

Deferred tax assets

53,475

 

 

45,982

 

Other assets

58,697

 

 

52,994

 

Total assets

$

1,023,766

 

 

$

913,212

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

10,672

 

 

$

7,482

 

Accrued payroll and other compensation

34,047

 

 

51,270

 

Accrued expenses and other

41,298

 

 

37,487

 

Operating lease liabilities (2)

15,318

 

 

—

 

Deferred revenue

80,435

 

 

74,463

 

Total current liabilities

181,770

 

 

170,702

 

Noncurrent liabilities:

 

 

 

Term loan, net

84,844

 

 

88,366

 

Deferred revenue, noncurrent

2,291

 

 

3,843

 

Deferred tax liabilities

101

 

 

99

 

Operating lease liabilities, noncurrent (2)

92,611

 

 

—

 

Other long-term liabilities

1,690

 

 

18,754

 

Total noncurrent liabilities

181,537

 

 

111,062

 

Total liabilities

363,307

 

 

281,764

 

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; 67,916 and 66,103 shares issued; 62,461 and 61,348 shares outstanding, respectively

679

 

 

661

 

Additional paid-in capital

629,451

 

 

574,667

 

Treasury stock, 5,455 and 4,755 shares, respectively

(198,003

)

 

(152,849

)

Accumulated other comprehensive loss

(4,544

)

 

(4,869

)

Retained earnings

232,876

 

 

213,838

 

Total stockholders' equity

660,459

 

 

631,448

 

Total liabilities and stockholders' equity

$

1,023,766

 

 

$

913,212

 

 

 

 

 

(1) Unbilled receivables of $51,421 and $38,601, respectively, are included in accounts receivable as of June 30, 2019 and December 31, 2018.

(2) Figures as of June 30, 2019 reflect January 1, 2019 adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases.

 

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