Sfbc (NASDAQ:SFCC)
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Please replace the release dated May 9, 2006 with the
following corrected version due to multiple revisions.
The corrected release reads:
SFBC INTERNATIONAL REPORTS ITS FIRST QUARTER 2006 FINANCIAL
RESULTS; COMPANY REDUCES GUIDANCE
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 first quarter ended March 31, 2006. In addition, the
Company announced that it intends to file Form 12b-25, which will
provide an extension of the deadline for filing the Company's Form
10-Q to May 15, 2006, with the SEC.
"SFBC continues to make significant progress on the issues facing
the Company," commented Jeffrey P. McMullen, president and chief
executive officer of SFBC International. "We are taking and will
continue to take the necessary steps to address these issues,
including the implementation of a new structure for the early clinical
development segment that better aligns SFBC's leadership team with our
strategic, operational and financial goals. The time and resources
necessary to fully address these issues have significantly exceeded
our original expectations. In addition, we experienced weaker than
expected performance in our early clinical development segment in the
first quarter of 2006. However, as indicated by the continued
improvement in our cash position and working capital in the quarter,
we remain focused on strengthening our liquidity position and internal
procedures to ensure we have the flexibility to maximize the long-term
opportunity for the Company."
First Quarter Financial Results
Direct revenue for the first quarter of 2006 was approximately
$80.1 million, an increase of 4% compared to direct revenue for the
first quarter of 2005 of approximately $77.3 million. Total net
revenue for the first quarter of 2006 was approximately $110.1
million, which included reimbursed out-of-pocket expenses of
approximately $30.0 million, a 14% increase over the reported total
net revenue of approximately $96.4 million, which included reimbursed
out-of-pocket expenses of approximately $19.1 million, in the first
quarter of 2005.
As a result of weak revenues, operating results and outlook for
its Miami and Ft Myers facilities, the Company recorded pre-tax,
non-cash goodwill and long-lived asset impairment charges in the first
quarter of 2006 of approximately $7.1 million. The goodwill impairment
charges of approximately $4.1 million includes approximately $3.5
million for the remaining goodwill related to the Company's Miami
operations and approximately $0.6 million for the goodwill related to
the Company's Fort Myers operations. The long-lived asset impairment
charge of approximately $3.0 million reduces the carrying value of the
Miami property on the Company's balance sheet to reflect the estimated
fair market value of the property based on a recent appraisal. All
financial results and comparisons in this release include the impact
of the impairment charges to be recognized for the first quarter of
2006.
The loss from operations for the first quarter of 2006 was
approximately $3.3 million compared to earnings from operations of
approximately $11.7 million for the first quarter of 2005. The net
loss for the first quarter of 2006 was approximately $4.1 million
compared to net earnings for the first quarter of 2005 of
approximately $5.0 million. The net loss for the first quarter of 2006
was $0.23 per basic and diluted share compared to net earnings for the
first quarter of 2005 of $0.32 per basic share and $0.30 per fully
diluted share. These first quarter 2006 results include the impairment
charges of $7.1 million described above as well as additional legal
and other professional fees related to recent events of approximately
$1.2 million pre-tax, or approximately $0.06 per fully diluted share
net of tax effect, as well as the non-cash amortization of
acquisition-related intangible expenses provided below. Net loss in
the first quarter of 2006 includes non-cash stock option expense of
approximately $0.5 million in accordance with SFAS No. 123(R),
Share-Based Payment, which the Company adopted as of January 1, 2006.
Non-cash stock option expense is not included in net earnings for the
first quarter of 2005. Because the Company had a loss for the first
quarter of 2006, 368,525 dilutive equivalents have been excluded from
the calculation of diluted earnings per common share, since they were
antidilutive.
On a non-GAAP basis, net earnings for the first quarter of 2006
decreased by 69% to approximately $2.4 million, or $0.13 per fully
diluted share, compared to net earnings of approximately $7.9 million,
or $0.48 per fully diluted share, in the first quarter of 2005. For
the first quarter of 2006, non-GAAP net earnings and non-GAAP earnings
per share ("EPS") exclude non-cash amortization of intangible expenses
of approximately $814,000 and the impairment charges of approximately
$7.1 million. For the first quarter of 2005, non-GAAP net earnings and
non-GAAP EPS exclude amortization of intangible expenses of
approximately $1.2 million and a non-cash charge of approximately $2.2
million pre-tax related to the write-off of deferred financing costs.
-0-
*T
Reconciliation of GAAP (Loss)/Earnings to Non-GAAP Net Earnings
----------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------------------------------------------------
2006 2005
--------------------------------------------------------- -----------
GAAP net (loss)/earnings $(4,134,380) $5,024,903
--------------------------------------------------------- -----------
Add back: Amortization of acquisition-
related intangible
assets $813,680 $1,176,458
--------------------------------------------------------- -----------
Add back: Non-recurring charges related to
financing - $2,214,135
--------------------------------------------------------- -----------
Add back: Non-cash impairment charges $7,098,941 -
--------------------------------------------------------- -----------
Less: Tax effect of non-GAAP adjustments $(1,354,148) $(505,782)
--------------------------------------------------------- -----------
Non-GAAP net earnings $2,424,093 $7,909,714
--------------------------------------------------------- -----------
Non-GAAP EPS $0.13 $0.48
--------------------------------------------------------- -----------
Shares used in computing non-GAAP net
earnings per fully diluted share 18,316,002 16,507,924
--------------------------------------------------------- -----------
*T
Segment Performance
SFBC's Early-Phase Clinical Development and Laboratory Services
segment ("Early Clinical Development") primarily include the areas of
Phase I clinical trials and support services, bioanalytical laboratory
services, and clinical laboratory services. SFBC's Late-Phase
Development Services segment ("Late Clinical Development") consists of
PharmaNet, which primarily 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 segments, SFBC has excluded
an allocation of corporate expenses related to certain selling,
general and administrative ("S,G&A") expenses of $5.1 million for the
first quarter of 2006 and $2.0 million for the first quarter of 2005.
For the Early Clinical Development segment, SFBC recorded direct
revenue, which does not include reimbursed out-of-pocket expenses, of
approximately $33.0 million, or 41% of total direct revenue, in the
first quarter 2006 compared to approximately $41.3 million, or 53%, in
the first quarter 2005. The loss from operations for Early Clinical
Development was approximately $5.6 million, representing a (17.0)%
operating margin on direct revenue and a non-GAAP operating margin of
(16.3)%, for the first quarter 2006 compared to earnings from
operations of approximately $10.3 million, representing a 25.0%
operating margin on direct revenue and a non-GAAP operating margin of
25.8%, for the first quarter 2005.
For the Late Clinical Development segment, SFBC recorded direct
revenue, which does not include reimbursed out-of-pocket expenses, of
approximately $47.1 million, or 59% of total direct revenue, in the
first quarter 2006 compared to approximately $36.0 million, or 47%, in
the first quarter 2005. Earnings from operations for Late Clinical
Development were approximately $7.5 million, representing a 15.9%
operating margin on direct revenue and a non-GAAP operating margin of
17.1%, for the first quarter 2006 compared to approximately $3.7
million, representing a 10.3% operating margin on direct revenue and a
non-GAAP operating margin of 12.6%, for the first quarter 2005.
SFBC has provided the following summary of Early Clinical
Development and Late Clinical Development segments, excluding the
allocation of corporate expenses related to S,G&A expenses of
$5,139,928 for the first quarter of 2006 and $2,044,855 for the first
quarter of 2005. For SFBC's Early Clinical Development and Late
Clinical Development segments, the non-GAAP operating income and
margins exclude the impact of amortization of intangibles.
-0-
*T
Early Clinical Development Summary
Quarter ended March 31,
----------------------------------------------------------------------
2006 2005
-------------------------------------------------------- ------------
Direct Revenues $33,025,685 $41,332,490
-------------------------------------------------------- ------------
GAAP operating (loss)/income $(5,610,747) $10,312,474
-------------------------------------------------------- ------------
Amortization of intangibles $238,682 $350,806
-------------------------------------------------------- ------------
Non-GAAP operating (loss)/income $(5,372,065) $10,663,280
-------------------------------------------------------- ------------
GAAP Operating Margin (17.0)% 25.0%
-------------------------------------------------------- ------------
Non-GAAP Operating Margin (16.3)% 25.8%
-------------------------------------------------------- ------------
Late Clinical Development Summary
Quarter ended March 31,
----------------------------------------------------------------------
2006 2005
-------------------------------------------------------- ------------
Direct Revenues $47,093,439 $35,974,086
-------------------------------------------------------- ------------
GAAP Operating Income $7,488,388 $3,691,157
-------------------------------------------------------- ------------
Amortization of intangibles $575,000 $825,652
-------------------------------------------------------- ------------
Non-GAAP Operating Income $8,063,388 $4,516,809
-------------------------------------------------------- ------------
GAAP Operating Margin 15.9% 10.3%
-------------------------------------------------------- ------------
Non-GAAP Operating Margin 17.1% 12.6%
-------------------------------------------------------- ------------
*T
Other Financial Information
At March 31, 2006, backlog for SFBC was approximately $336.3
million, which was a decrease of approximately 7%, from approximately
$360.9 million at December 31, 2005 and a decrease of approximately
6%, from approximately $358.5 million at March 31, 2005. 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 days sales outstanding ("DSOs"), which includes accounts
receivable and unbilled services less current and long-term advanced
billings, was 32 days at March 31, 2006 compared to 37 days at
December 31, 2005 and 47 days at March 31, 2005.
SFBC reported an increase of approximately $15.1 million in cash,
cash equivalents, and investments in marketable securities in the
first quarter to approximately $53.9 million at March 31, 2006 from
approximately $38.8 million at December 31, 2005. Working capital,
which includes current assets less current liabilities, was $56.0
million at March 31, 2006 and $51.6 million at December 31, 2005. As
of March 31, 2006, SFBC had approximately $143.8 million in
convertible notes outstanding and $17.0 million drawn on its $90
million Senior Secured Credit Facility ("Credit Facility"). To
facilitate the filing of the Company's Form 10-Q for the period ended
March 31, 2006 within the extended deadline of May 15, 2006, the
Company has obtained waivers through June 30, 2006 for all of the
Company's defaults related to covenants and certain other terms under
its existing Credit Facility. In addition, the Company and its lenders
have agreed to reduce the Credit Facility from $90 million to $45
million. As a result of the reduction in the size of the Credit
Facility, the Company expects to record a non-cash write-off of
deferred finance charges of approximately $1.2 million in the second
quarter of 2006.
SFBC's effective tax rate in the first quarter of 2006 was 26.7%
compared to 24.4% in the first quarter of 2005.
Full Year 2006 Guidance
SFBC is updating its 2006 guidance based upon SFBC's current
business outlook, greater than previously anticipated decrease in
revenues at its Miami facility, greater than previously anticipated
legal and related expenses pertaining to recent issues and a lower
than previously anticipated outlook for Anapharm. The Company now
anticipates its direct revenue in 2006 will be approximately $308
million - $324 million.
SFBC now anticipates that its Early Clinical Development segment
will be significantly lower than previously expected and that the Late
Clinical Development segment will be consistent with the Company's
previous expectations. Further, the Company anticipates that EPS will
be weighted significantly to the second-half of 2006.
SFBC has provided the following summary of its updated 2006 EPS
guidance, which includes the estimated impact of expensing stock
options under SFAS 123(R) of approximately $0.07.
-0-
*T
Summary of 2006 EPS Guidance (a)
----------------------------------------------------------------------
2006E EPS
----------------------------------------------------------------------
Low High
-------------------------------------------------------------- ------
GAAP EPS $0.21 $0.33
-------------------------------------------------------------- ------
Impact of non-cash expense of approximately $3.0
million related to acquisition-related amortization
of intangibles $0.16 $0.16
-------------------------------------------------------------- ------
Impact of non-cash impairment charges of
approximately $7.1 million $0.30 $0.30
-------------------------------------------------------------- ------
Impact of non-recurring finance charge of
approximately $1.2 million in the second quarter of
2006 $0.06 $0.06
-------------------------------------------------------------- ------
NON-GAAP EPS (including stock option expense) $0.73 $0.85
-------------------------------------------------------------- ------
a) All line items are represented per fully diluted share and
individual line items are each net of projected tax effect
*T
Conference Call and Webcast Information
SFBC plans to host a conference call and Webcast to review its
first quarter 2006 results at 10:00 a.m. Eastern Daylight Time on
Wednesday, May 10, 2006. To access the conference call, please dial
the following teleconference number 866-672-2663 (U.S.) or
973-582-2822 (International), or visit the "investor relations"
section of the Company's Website at www.sfbci.com to listen to the
simultaneous Webcast.
For those unable to access the live conference, there will be an
audio replay available from May 10, 2006 at approximately 1:00 p.m.
EDT through May 24, 2006 at 11:59 p.m. EDT. 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: 7338097. A
replay of the live Webcast will also be available in the "investor
relations" section of the Company's Website at www.sfbci.com
approximately two hours after the live call ends through June 9, 2006
at 11:59 p.m. EDT.
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 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, non-recurring charges related to financing, and
non-cash impairment charges. 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 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 and
securities class action lawsuits and derivative lawsuits; SFBC's
assessment of its current FDA inspections; 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 its Form 10-K filed
with the SEC in 2006 and other filings with the Securities and
Exchange Commission.
-0-
*T
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
======================================================================
Three Months Ended
March 31,
2006 2005
------------ ------------
Net revenue
Direct revenue $80,119,124 $77,306,576
Reimbursed out-of-pockets 30,011,702 19,136,369
------------ ------------
Total net revenue 110,130,826 96,442,945
Costs and expenses
Direct costs 49,259,051 43,894,723
Reimbursable out-of-pocket expenses 30,011,702 19,136,369
Selling, general and administrative
expenses 27,023,419 21,703,089
Impairment of goodwill 4,051,082 -
Impairment of long-lived assets 3,047,859 -
------------ ------------
Total costs and expenses 113,393,113 84,734,181
Earnings from operations (3,262,287) 11,708,764
Other income (expense)
Interest income 184,365 397,556
Interest expense (1,776,241) (5,511,083)
Foreign exchange transaction gain (loss),
net (526,568) 125,006
------------ ------------
Total other income (expense) (2,118,444) (4,988,521)
------------ ------------
Earnings before income taxes (5,380,731) 6,720,243
Income tax expense (1,435,137) 1,637,658
------------ ------------
Earnings before minority interest in
joint venture (3,945,594) 5,082,585
Minority interest in joint venture 188,786 57,682
------------ ------------
Net earnings $(4,134,380) $5,024,903
============ ============
Earnings per share:
Basic $(0.23) $0.32
============ ============
Diluted $(0.23) $0.30
============ ============
Shares used in computing earnings per
share:
Basic 17,947,477 15,784,111
============ ============
Diluted 17,947,477 16,507,924
============ ============
SFBC INTERNATIONAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET INFORMATION
FOR THE PERIODS ENDED MARCH 31, 2006 AND DECEMBER 31, 2005
======================================================================
(Unaudited)
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Cash, equivalents, and investments in
marketable securities 53,944,695 38,834,702
Accounts receivable 115,302,350 117,871,669
Total current assets 187,835,846 178,027,709
Fixed assets 71,091,317 73,265,112
Total assets 574,839,171 572,537,096
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities 130,482,285 126,434,061
Total liabilities 293,144,965 290,255,497
Stockholders' equity 281,694,206 282,281,599
Total liabilities and stockholders'
equity 574,839,171 572,537,096
*T