Market Overview

Medidata Reports Second Quarter 2018 Results

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

"We executed well operationally and delivered strong business results
this quarter and in the first half of the year, all while closing our
largest acquisition to date," said Tarek Sherif, chairman and chief
executive officer, Medidata. "Providing the life sciences industry a
next gen analytics solution for commercialization, and the addition of
leading edge, real world evidence capabilities as part of our platform,
positions Medidata to be the strategic partner for customers pursuing
digital transformation."

Second Quarter 2018 Results

  • Total revenue was $155.9 million, an increase of $19.9 million, or
    15%, compared with $136.0 million in the second quarter of 2017
  • Subscription revenue was $130.5 million, an increase of $17.6 million,
    or 16%, compared with the same period last year. Professional services
    revenue was $25.4 million, an increase of $2.3 million, or 10%,
    compared with $23.1 million in the second quarter of 2017
  • GAAP operating income was $12.8 million, up 1%, compared with $12.7
    million in the second quarter of 2017. Non-GAAP operating income1
    was $36.6 million, up 18%, compared with $31.0 million a year ago
  • GAAP net income was $16.6 million, or $0.27 per diluted share, up
    120%, compared with $7.5 million, or $0.13 per diluted share, in the
    second quarter of 2017. Non-GAAP net income1 was $26.4
    million, or $0.43 per diluted share, up 46%, compared with $18.1
    million, or $0.30 per diluted share, in the second quarter of 2017.
    See the non-GAAP reconciliation included in this release for full
    details of the non-GAAP adjustments
  • GAAP net income includes a gain of $7.6 million on the company's
    original investment in SHYFT
  • Total cash and marketable securities were $477.4 million at the end of
    the quarter, compared with $663.3 million on December 31, 2017
  • Remaining 2018 adjusted subscription backlog2 as of June
    30, 2018 was $263 million, an increase of $40 million, or 18%,
    compared with a year ago

Additional Highlights:

  • IDC's report (Worldwide Life Science Software Market Shares, 2017),
    published this June, names Medidata as the global leader in Life
    Science Development Software revenue. The report cites that Medidata
    has extended its leadership position.
  • Novartis partnered with SHYFT to support the commercialization of key
    therapies in Europe with insights-based analytics
  • Medidata delivered the industry's largest Synthetic Control Database
    in Acute Myeloid Leukemia (AML) to a top pharma company. This targeted
    approach highlights the breadth and value of the company's clinical
    data repository.
  • Three top 25 pharma customers added RAVE Imaging to their existing
    enterprise agreements, indicating how Medidata enables companies to
    address the increasing use of medical imaging in clinical trials
  • A top 10 pharma customer adopted Edge Site Payments as their global
    payments platform
  • On average, contracts were renewed at 24% above prior value on a
    trailing twelve-month basis

"We are on track to achieve our financial targets," said Rouven
Bergmann, chief financial officer, Medidata. "Our competitive position
has never been stronger, with the acquisition of SHYFT and continued
excellent enterprise renewal performance. On top of this, we increased
EBITDAO by over 20% year to date."

For the full year 2018, the company's guidance provided on June 12, 2018
is unchanged. Please refer to the reconciliation of forward-looking
guidance included in this release for full details of the non-GAAP
adjustments.

Conference call details:

Time:

 

Today, July 24, 8 a.m. ET

 

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
Passcode: 7399978

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 #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 every day to create hope for
millions of patients. Discover the future of life sciences: www.mdsol.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; 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.

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,
2018   2017 2018   2017
Revenues
Subscription $ 130,486 $ 112,904 (3 ) $ 257,305 $ 220,797 (3 )
Professional services 25,419   23,123   47,798   42,874  
Total revenues 155,905 136,027 305,103 263,671
Cost of revenues (1)(2)
Subscription 21,602 17,017 41,943 34,146
Professional services 15,899   14,903   31,860   28,388  
Total cost of revenues 37,501 31,920 73,803 62,534
Gross profit 118,404 104,107 231,300 201,137
Operating costs and expenses
Research and development (1) 40,789 35,884 78,311 65,821
Sales and marketing (1)(2) 37,106 32,479 (3 ) 73,967 62,705 (3 )
General and administrative (1) 27,672   23,083   52,859   47,071  
Total operating costs and expenses 105,567   91,446   205,137   175,597  
Operating income 12,837 12,661 26,163 25,540

Interest and other income (expense)

Interest expense (5,700 ) (4,383 ) (11,275 ) (8,710 )
Interest income 2,328 1,328 4,416 2,499
Other income, net 7,729     7,633    
Total interest and other income (expense), net 4,357   (3,055 ) 774   (6,211 )
Income before income taxes 17,194 9,606 26,937 19,329
Provision for income taxes 605   2,065   (3 ) 23   1,808   (3 )
Net income $ 16,589   $ 7,541   (3 ) $ 26,914   $ 17,521   (3 )
Earnings per share
Basic $ 0.29   $ 0.13   (3 ) $ 0.47   $ 0.31   (3 )
Diluted $ 0.27   $ 0.13   (3 ) $ 0.44   $ 0.30   (3 )
Weighted average common shares outstanding
Basic 57,448 56,433 57,252 56,254
Diluted 60,874 59,835 60,564 59,051
(1) Stock-based compensation expense included in cost of revenues
and operating costs and expenses is as follows:
Cost of revenues $ 1,506 $ 1,246 $ 2,774 $ 2,415
Research and development 3,319 3,427 6,173 6,262
Sales and marketing 2,917 1,836 5,561 3,011
General and administrative 7,377   6,183   13,766   11,325  
Total stock-based compensation $ 15,119   $ 12,692   $ 28,274   $ 23,013  
(2) Amortization of intangible assets included in costs of revenues
and operating costs and expenses is as follows:
Cost of revenues $ 1,205 $ 1,022 $ 2,299 $ 1,476
Sales and marketing 231   119   351   202  
Total amortization of intangible assets $ 1,436   $ 1,141   $ 2,650   $ 1,678  
 
(3) Figures for the three and six months ended June 30, 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 June 30,     Six Months Ended June 30,
2018   2017 2018   2017
Operating income:
GAAP operating income $ 12,837 $ 12,661 (6 ) $ 26,163 $ 25,540 (6 )
GAAP operating margins 8.2

%

9.3 % (6 ) 8.6 % 9.7 % (6 )
Stock-based compensation 15,119 12,692 28,274 23,013
Depreciation and amortization 8,405 5,589 16,218 10,065
Contingent consideration adjustment (1) 79 58 7 58
Cash compensation from acquisition-related agreements (2) 134     134    
Non-GAAP operating income $ 36,574   $ 31,000   (6 ) $ 70,796   $ 58,676   (6 )
Non-GAAP operating margins 23.5 % 22.8 % (6 ) 23.2 % 22.3 % (6 )
Net income:
GAAP net income $ 16,589 $ 7,541 (6 ) $ 26,914 $ 17,521 (6 )
Stock-based compensation 15,119 12,692 28,274 23,013
Amortization 1,436 1,141 2,650 1,678
Contingent consideration adjustment (1) 79 58 7 58
Cash compensation from acquisition-related agreements (2) 134 134
Non-cash interest expense (3) 3,963 3,648 7,871 7,246
Gain on step acquisition (4) (7,648 ) (7,648 )
Tax impact on add-back items (5) (3,271 ) (7,016 ) (7,822 ) (12,798 )

Non-GAAP net income

$ 26,401   $ 18,064   (6 ) $ 50,380   $ 36,718   (6 )
GAAP basic earnings per share $ 0.29   $ 0.13   (6 ) $ 0.47   $ 0.31   (6 )
GAAP diluted earnings per share $ 0.27   $ 0.13   (6 ) $ 0.44   $ 0.30   (6 )

Non-GAAP basic earnings per share

$ 0.46   $ 0.32   (6 ) $ 0.88   $ 0.65   (6 )

Non-GAAP diluted earnings per share

$ 0.43   $ 0.30   (6 ) $ 0.83   $ 0.62   (6 )
(1) Change in fair value of acquisition-related contingent
consideration liabilities.
(2) Expense associated with acquisition-related cash compensation
agreements entered into with certain employees of SHYFT Analytics,
Inc. ("SHYFT").
(3) Non-cash interest expense includes amortization of debt discount
and issuance costs on our 1.00% convertible senior notes issued in
2013 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.
(4) Elimination of gain recognized upon step acquisition of SHYFT.
(5) Tax impact calculated using tax rates of 25% and 40% for the
periods ended June 30, 2018 and 2017, respectively.
(6) Figures for the three and six months ended June 30, 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 six months ended June 30,
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, and cash compensation from
acquisition-related agreements. 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, non-cash interest expense, and
gain on step acquisition.

MEDIDATA SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands, except per share data)
 

June 30,
2018

 

December 31,
2017

ASSETS
Current assets:
Cash and cash equivalents $ 120,298 $ 237,325
Marketable securities 287,603 246,967
Accounts receivable, net of allowance for doubtful accounts of
$1,668 and $1,454, respectively
137,169 110,685
Prepaid commission expense 17,612 12,404
Prepaid expenses and other current assets 37,109   33,636  
Total current assets 599,791 641,017
Restricted cash 5,523 5,518
Furniture, fixtures and equipment, net 93,088 88,091
Marketable securities, long-term 69,476 179,041
Goodwill 198,780 47,435
Intangible assets, net 54,938 17,587
Deferred income taxes, long-term 37,414 35,789
Other assets 43,775   46,755  
Total assets $ 1,102,785   $ 1,061,233  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,527 $ 5,009
Accrued payroll and other compensation 23,061 32,537
Accrued expenses and other 37,624 36,041
Deferred revenue 72,075 77,375
1.00% convertible senior notes, net 285,748   278,094  
Total current liabilities 425,035   429,056  
Noncurrent liabilities:
Term loan, net 91,906 92,841
Deferred revenue, less current portion 3,993 5,256
Deferred tax liabilities 100 99
Other long-term liabilities 20,395   21,371  
Total noncurrent liabilities 116,394   119,567  
Total liabilities 541,429   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;
64,289 and 62,801 shares issued; 59,634 and 58,607 shares
outstanding, respectively
643 628
Additional paid-in capital 527,336 486,147
Treasury stock, 4,655 and 4,194 shares, respectively (150,964 ) (132,705 )
Accumulated other comprehensive loss (4,490 ) (3,377 )
Retained earnings 188,831   161,917  
Total stockholders' equity 561,356   512,610  
Total liabilities and stockholders' equity $ 1,102,785   $ 1,061,233  

MEDIDATA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
  Six Months Ended June 30,
2018   2017
Cash flows from operating activities
Net income $ 26,914 $ 17,521 (1 )
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of intangible assets and depreciation 16,218 10,065
Stock-based compensation 28,274 23,013
Amortization of discounts or premiums on marketable securities 50 757
Deferred income taxes 106 2,406 (1 )
Amortization of debt issuance costs 856 639
Amortization of debt discount 7,015 6,607
Provision for doubtful accounts 763 526
Loss (gain) on fixed asset disposal 127 (2 )
Gain recognized on step acquisition (7,648 )
Changes in fair value of contingent consideration 7 58
Changes in operating assets and liabilities:
Accounts receivable (27,247 ) 4,058
Prepaid commission expense (7,205 ) (5,514 ) (1 )
Prepaid expenses and other current assets (3,008 ) (12,366 ) (1 )
Other assets 1,591 1,171

 

 

Accounts payable 1,753 4,490
Accrued payroll and other compensation (8,909 ) (10,122 )
Accrued expenses and other (764 ) 5,313
Deferred revenue (9,572 ) 11,198 (1 )
Other long-term liabilities 4,455   884  
Net cash provided by operating activities 23,776   60,702  
Cash flows from investing activities
Purchase of furniture, fixtures and equipment (19,520 ) (16,642 )
Purchase of available-for-sale securities (69,214 ) (157,228 )
Proceeds from sale of available-for-sale securities 137,786 154,117
Acquisition of businesses, net of cash acquired (178,568 ) (22,941 )
Net cash used in investing activities (129,516 ) (42,694 )
Cash flows from financing activities
Proceeds from exercise of stock options 6,351 9,057
Proceeds from employee stock purchase plan 6,345 4,248
Acquisition of treasury stock (18,257 ) (14,785 )
Term loan principal payments (1,250 )
Payment of acquisition-related earn-outs (4,087 )
Payment of credit facility financing costs (175 )  
Net cash used in financing activities (11,073 ) (1,480 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(209 ) 414  
Net (decrease) increase in cash, cash equivalents and restricted cash (117,022 ) 16,942
Cash, cash equivalents and restricted cash – Beginning of period 242,843   99,279  

Cash, cash equivalents and restricted cash – End of period

$ 125,821   $ 116,221  
 
(1) Figures for the six months ended June 30, 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 2018
Total revenues $ 624.0 - $648.0  
 
GAAP operating income: $ 45.5- $53.5
Stock-based compensation (1) 64.0
Depreciation and amortization (1) 34.0
Contingent consideration adjustment (1) 0.5
Cash compensation from acquisition-related agreements (1)   2.0  
Non-GAAP operating income $ 146.0 - $154.0  
 
GAAP net income: $ 28.5 - $35.5
Stock-based compensation (1) 64.0
Amortization (1) 6.0
Non-cash interest expense (1) 10.0
Contingent consideration adjustment (1) 0.5
Cash compensation from acquisition-related agreements (1) 2.0
Tax impact on add-back items (2)   (20.5 )

Non-GAAP net income

$ 90.5 - $97.5  
 
Fully diluted share count 61.0
 
(1) Represents the estimated midpoint of our guidance range.
(2) Tax impact estimated using a 25% rate.

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