Sfbc (NASDAQ:SFCC)
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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.
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*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.
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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:
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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:
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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.
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*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
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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