PRINCETON, N.J., May 1, 2014 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its first quarter ended March 31, 2014. Net revenue was $620 million, representing 6.9% growth from the first quarter of 2013. On a GAAP basis, the company reported earnings of $0.88 per diluted share in the first quarter. Excluding a gain on the sale of our Seattle genomics laboratory of $1.6 million and charges associated with restructuring and other cost reduction actions totaling $4.1 million, the company reported earnings per diluted share of $0.90, up 20.1% over the first quarter of 2013.

"Covance's first quarter of 2014 featured a higher level of new toxicology orders and continued operational success in our clinical and central laboratory service offerings. Our 20% year-on-year increase in pro forma EPS was driven by 7% revenue growth and expanded pro forma operating margins of 11.5%," said Joe Herring, Chairman and Chief Executive Officer. "Adjusted net orders in the first quarter were $710 million, representing an adjusted net book-to-bill of 1.15 to 1. Net orders remained strong in central laboratories and grew significantly in toxicology and clinical pharmacology, offsetting lower-than-expected net orders in clinical development.

"Late-Stage Development first quarter revenues grew 7.8% year-on-year to $402 million. Central laboratories and clinical development grew 11% and 6%, respectively, which more than offset a decline in our market access services. Late-Stage Development operating margin expanded to 23.2%.

"Early Development results were in-line with our expectation with revenue increasing 5.3% year-on-year to $218 million with pro forma operating margin of 9.7%. Sequentially, growth in clinical pharmacology, research products, and nutritional chemistry was more than offset by the sale of our Seattle genomics laboratory and seasonal declines in toxicology and discovery support. Early Development second quarter revenue and operating margin are expected to increase considerably from the seasonally weak first quarter level.

"Looking ahead, we expect increases of a few cents in earnings per share each quarter as we progress throughout the year. We are narrowing our 2014 financial expectations to revenue growth of 6% to 9% and pro forma diluted earnings per share of $3.70 to $3.95 (excluding the gain on sale, costs associated with our on-going restructuring activities and assuming foreign exchange rates remain at March 31, 2014 levels)."


Consolidated Results



    ($ in millions except EPS)           1Q14       1Q13       Change
    -------------------------            ----       ----       ------

    Total Revenues                          $666.3     $634.3

    Less: Reimbursable Out-of-Pockets        $46.2      $54.1

    Net Revenues                            $620.1     $580.2          6.9%

    Operating Income                         $66.9      $48.3         38.6%

       Operating Margin                       10.8%       8.3%

    Net Income                               $50.8      $48.2          5.5%

    Diluted Earnings per Share               $0.88      $0.86          2.5%
    --------------------------               -----      -----          ---

    Restructuring costs                      ($4.1)     ($6.2)

    Operating Income, excluding items*       $71.0      $54.4         30.5%

      Operating Margin, excluding items*      11.5%       9.4%

    Gain on Sale of Business/Investment       $1.6      $15.7

    Net Income, excluding items*             $52.4      $42.3         23.8%

    Diluted EPS, excluding items*            $0.90      $0.75         20.1%
    ----------------------------             -----      -----         ----

* See attached pro forma income statements for reconciliation of 2014 and 2013 GAAP to pro forma amounts.

Operating Segment Results

Early Development



    ($ in millions)             1Q14       1Q13       Change
    --------------              ----       ----       ------

    Net Revenues                   $218.2     $207.3          5.3%

    Operating Income                $19.5      $16.6         17.6%

    Operating Margin                  8.9%       8.0%
    ----------------                  ---        ---

    Restructuring costs             ($1.6)     ($3.6)

    Operating Income, excluding
     items                          $21.1      $20.1          5.0%

    Operating Margin, excluding
     items                            9.7%       9.7%
    ---------------------------       ---        ---

The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the first quarter of 2014 increased 5.3% year-on-year to $218.2 million, as growth in clinical pharmacology and toxicology more than offset a decline in discovery support and the impact of the sale of our Seattle genomics laboratory. In the quarter, foreign exchange favorably impacted revenue growth by 180 basis points. Sequentially, revenue declined by $10.0 million from the fourth quarter as sequential growth in clinical pharmacology and research products were more than offset by the impact of the sale of our Seattle genomics laboratory and seasonality in toxicology and discovery support.

GAAP operating income in the first quarter of 2014 was $19.5 million, and included $1.6 million in costs associated with our on-going restructuring actions versus operating income of $16.6 million in the first quarter of 2013, which included charges associated with restructuring and other cost reduction actions of $3.6 million. Pro forma operating income, excluding these costs, was $21.1 million in the first quarter of this year, a 5.0% increase from the first quarter of 2013. Pro forma operating margins were 9.7% in the first quarter of both this year and last year, versus 12.1% in the fourth quarter of 2013. The sequential decline in pro forma operating margin resulted from seasonal headwinds in toxicology and discovery support, which more than offset increases in our chemistry services.

Late-Stage Development

    ($ in millions)             1Q14       1Q13       Change
    --------------              ----       ----       ------

    Net Revenues                   $401.8     $372.9          7.8%

    Operating Income                $93.1      $82.9         12.2%

    Operating Margin                 23.2%      22.2%
    ----------------                 ----       ----

    Restructuring Costs             ($0.2)     ($1.9)

    Operating Income, excluding
     items                          $93.3      $84.8         10.0%

    Operating Margin, excluding
     items                           23.2%      22.8%
    ---------------------------      ----       ----

The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services. Net revenues for the first quarter of 2014 grew 7.8% year-on-year to $401.8 million, a sequential increase of $7.0 million from the fourth quarter level. In the quarter, foreign exchange favorably impacted revenue growth by 160 basis points. Year-over-year growth was driven by 10.9% growth in central laboratories and 5.7% growth in clinical development, which more than offset a decline in our market access services. Sequentially, although all three service areas increased, growth was driven by clinical development services.

Operating income for the first quarter was $93.1 million on a GAAP basis and included $0.2 million in costs associated with our on-going restructuring actions. On a pro forma basis, operating income was $93.3 million, up 10.0% year-over-year and $3.8 million sequentially from the $89.5 million delivered last quarter. Pro forma operating margins expanded to 23.2% for the first quarter of 2014, up from 22.7% last quarter and 22.8% in the first quarter of 2013. The year-on-year and sequential increases in profitability were driven by clinical development. IT operating expenses were up year-over-year, but down sequentially due to project timing.

Corporate Information

The company reported first quarter adjusted net orders of $710 million. Backlog at March 31, 2014 was $6.90 billion compared to $6.92 billion at December 31, 2013 and $6.61 billion at March 31, 2013. Backlog was negatively impacted in the quarter by the sale of our Seattle genomics laboratory and was partially offset by a $37 million foreign exchange tailwind.

Corporate expenses totaled $45.6 million in the first quarter of 2014 (including $2.3 million in restructuring costs) down from $56.2 million last quarter (including $3.8 million in restructuring costs) and $51.3 million (including $0.7 million in restructuring costs) in the first quarter of 2013. The prior year and prior quarter both reflected significantly higher spending on the corporate component of our strategic IT initiatives and higher incentive compensation expenses related to the stronger-than-expected business performance in 2013. The current quarter reflects incremental savings from the company's on-going efforts to streamline its corporate and functional support organizations and the previously disclosed shift of informatics expenses which were previously reflected in corporate expense and are now reflected in the Late-Stage Development segment.

Cash, cash equivalents, and short-term investments at March 31, 2014 were $660 million compared to $729 million at December 31, 2013 and $430 million at March 31, 2013. Free cash flow (defined as operating cash flow less capital expenditures) for the first quarter of 2014 was a negative $106 million, consisting of operating cash flow of a negative $71 million (reflecting the payment of 2013 annual bonuses, the remittance of a client VAT payment of $28 million received in the fourth quarter of 2013 to the tax authorities coupled with a 4 day increase in DSO) less capital expenditures of $35 million. Debt outstanding remains at $250 million.

Net Days Sales Outstanding (DSO) were 38 days at March 31, 2014 compared to 34 days at December 31, 2013 and 41 days at March 31, 2013.

The pro forma effective tax rate in the first quarter was 23.2% and is expected to be approximately 24% for the full year 2014.

The Company's investor conference call will be webcast on May 2 at 9:00 am ET. Management's commentary and presentation slides will be available through www.covance.com.

Covance, the world's most comprehensive drug development company and a leader in nutritional analysis, is dedicated to advancing healthcare and delivering Solutions Made Real(TM). The company, headquartered in Princeton, New Jersey, has annual revenues greater than $2.4 billion and more than 12,500 employees located in over 60 countries. Information on Covance's solutions, recent press releases, and SEC filings can be obtained through its website at www.covance.com.

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss or delay of large studies, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, testing mix and geographic mix of kit receipts in central laboratories, fluctuations in currency exchange rates, the realization of savings from the Company's announced restructuring actions, the cost and pace of completion of our information technology projects and the realization of benefits therefrom, and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Exhibits Follow



                                                  COVANCE INC.


                                         CONSOLIDATED INCOME STATEMENTS


                               FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013


                                 (Dollars in thousands, except per share data)


                                                  (UNAUDITED)


                                                       Three Months Ended
                                                            March 31
                                                      -------------------

                                                                        2014            2013
                                                                        ----            ----


    Net revenues                                                    $620,052        $580,199

    Reimbursable out-of-pocket expenses                               46,236          54,136

         Total revenues                                              666,288         634,335
                                                                     -------         -------


    Costs and expenses:

      Cost of revenue                                                432,553         411,344

      Reimbursable out-of-pocket expenses                             46,236          54,136

      Selling, general and administrative                             87,282          89,219

      Depreciation and amortization                                   33,329          31,385

            Total costs and expenses                                 599,400  (a)    586,084  (b)
                                                                     -------         -------


    Income from operations                                            66,888  (a)     48,251  (b)


    Other expense (income), net:

      Interest expense, net                                            2,448             871

      Foreign exchange transaction loss, net                             402             335

      Gain on sale of business                                        (1,648)              -

      Gain on sale of investment                                           -         (15,693)

            Other expense (income), net                                1,202  (a)    (14,487) (b)
                                                                       -----         -------


    Income before taxes                                               65,686  (a)     62,738  (b)


    Taxes on income                                                   14,870  (a)     14,572  (b)


    Net income                                                       $50,816  (a)    $48,166  (b)
                                                                     =======         =======


    Basic earnings per share                                           $0.91  (a)      $0.89  (b)


    Weighted average shares outstanding - basic                   55,681,285      54,207,032


    Diluted earnings per share                                         $0.88  (a)      $0.86  (b)


    Weighted average shares outstanding - diluted                 57,989,826      56,307,034


    (a) Three months ended March 31, 2014 includes, as
     applicable, $4,138 in charges associated with
     restructuring

          and other cost reduction actions ($2,587 net of tax) and
           $1,648 gain on sale of certain assets of Genomics

          Laboratory ($1,033 net of tax).

    (b) Three months ended March 31, 2013 includes, as
     applicable, $6,170 in restructuring costs ($4,347 net of
     tax),

          and $15,693 gain on sale of
           investment in BioClinica, Inc.
           ($10,194 net of tax).



    Excluding the impact of charges associated with
     restructuring and other cost reduction
    -----------------------------------------------

    actions, gain on sale of business and gain on sale of
     investment, as applicable:
    -----------------------------------------------------


    Income from operations                                           $71,026         $54,421


    Taxes on income                                                  $15,806         $10,896


    Net income                                                       $52,370         $42,319


    Basic earnings per share                                           $0.94           $0.78


    Diluted earnings per share                                         $0.90           $0.75



                                     COVANCE INC.


                             CONSOLIDATED BALANCE SHEETS


                         MARCH 31, 2014 and DECEMBER 31, 2013


                                (Dollars in thousands)



                                          March 31             December 31

                                                         2014                 2013
                                                         ----                 ----

                                        (UNAUDITED)

    ASSETS

    Current
     Assets:

      Cash &
       cash
       equivalents                                   $546,593             $617,686

      Short-
       term
       investments                                    113,546              111,359

      Accounts
       receivable,
       net                                            337,381              331,815

      Unbilled
       services                                       159,092              141,707

      Inventory                                        48,839               48,257

      Deferred
       income
       taxes                                           52,575               51,543

      Prepaid
       expenses
       and other
       current
       assets                                         232,343              201,621
                                                      -------              -------

          Total
           Current
           Assets                                   1,490,369            1,503,988


    Property
     and
     equipment,
     net                                              919,009              913,612

    Goodwill                                          108,522              109,820

    Other
     assets                                            31,369               29,168

          Total
           Assets                                  $2,549,269           $2,556,588
                                                   ==========           ==========


     LIABILITIES
     and
     STOCKHOLDERS'
     EQUITY

    Current
     Liabilities:

      Accounts
       payable                                        $59,038              $59,713

      Accrued
       payroll
       and
       benefits                                       117,997              170,806

      Accrued
       expenses
       and other
       current
       liabilities                                    109,083              153,808

      Unearned
       revenue                                        236,596              240,398

      Income
       taxes
       payable                                          8,100                7,952
                                                        -----                -----

          Total
           Current
           Liabilities                                530,814              632,677


    Long-term
     debt                                             250,000              250,000

    Deferred
     income
     taxes                                             30,571               32,035

    Other
     liabilities                                       77,505               76,630

          Total
           Liabilities                                888,890              991,342
                                                      -------              -------


     Stockholders'
     Equity:

      Common
       stock                                              824                  809

      Paid-in
       capital                                        929,961              859,535

      Retained
       earnings                                     1,830,649            1,779,833

       Accumulated
       other
       comprehensive
       income                                          37,307               25,746

      Treasury
       stock                                       (1,138,362)          (1,100,677)

          Total
           Stockholders'
           Equity                                   1,660,379            1,565,246
                                                    ---------            ---------

          Total
           Liabilities
           and
           Stockholders'
            Equity                                 $2,549,269           $2,556,588
                                                   ==========           ==========



                                       COVANCE INC.


                          CONSOLIDATED STATEMENTS OF CASH FLOWS


                    FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013


                                  (Dollars in thousands)


                                     (UNAUDITED)


                                            Three Months
                                           Ended March 31
                                          ---------------


                                                       2014                2013
                                                       ----                ----

    Cash flows from
     operating activities:

      Net income                                    $50,816             $48,166

      Adjustments to reconcile
       net income to net cash
       used in

        operating activities:

        Depreciation and
         amortization                                33,329              31,385

        Non-cash compensation
         expense associated with
         employee benefit

           and stock compensation
            plans                                     9,342              10,932

        Deferred income tax
         benefit                                     (2,631)             (4,710)

        Gain on sale of business                     (1,648)                  -

        Gain on sale of
         investment                                       -             (15,693)

        Loss on disposal of
         property and equipment                         240                 202

        Changes in operating
         assets and liabilities,
         net of business sold:

           Accounts receivable                       (5,566)             (4,804)

           Unbilled services                        (17,385)            (18,876)

           Inventory                                 (3,752)                480

           Accounts payable                            (675)              7,162

           Accrued liabilities                      (97,534)            (67,536)

           Unearned revenue                          (3,365)            (14,765)

           Income taxes                               5,170               8,460

           Other assets and
            liabilities, net                        (36,890)            (34,461)

    Net cash used in
     operating activities                           (70,549)            (54,058)
                                                    -------             -------


    Cash flows from
     investing activities:

      Capital expenditures                          (35,129)            (30,350)

      Proceeds from sale of
       business                                       8,429                   -

      Proceeds from sale of
       investment                                         -              17,074

      Other, net                                          -                 393

    Net cash used in
     investing activities                           (26,700)            (12,883)
                                                    -------             -------


    Cash flows from
     financing activities:

      Stock issued under
       option plans                                  56,077              24,909

      Purchase of treasury
       stock                                        (37,685)             (8,649)

      Net borrowings under
       revolving credit
       facility                                           -               5,000

    Net cash provided by
     financing activities                            18,392              21,260
                                                     ------              ------

    Effect of exchange rate
     changes on cash                                  7,764             (17,296)
                                                      -----             -------

    Net change in cash and
     cash equivalents                               (71,093)            (62,977)


    Cash and cash
     equivalents, beginning
     of period                                      617,686             492,824
                                                    -------             -------


    Cash and cash
     equivalents, end of
     period                                        $546,593            $429,847
                                                   ========            ========



                                                                                                                       COVANCE INC.


                                                                                                             GAAP to Pro Forma Reconciliation


                                                                                                                          Q1 2014


                                                                                                       (Dollars in thousands, except per share data)


                                                                                                                     (UNAUDITED)


                                                                                                                                                      Adjustments
                                                                                                                                                      -----------

                                                                                                                               GAAP                   Restructuring             Other               Pro Forma
                                                                                                                                                     and Other Cost           Items (2)
                                                                                                                                                       Reduction
                                                                                                                                                     Activities (1)
                                                                                                                                                                                                                   ---


    Net revenues                                                                                                                     $620,052                                                                 $620,052

    Reimbursable out-of-pocket expenses                                                                                                46,236                                                                   46,236

         Total revenues                                                                                                               666,288                              -                     -             666,288
                                                                                                                                      -------                            ---                   ---             -------


    Costs and expenses:

      Cost of revenue                                                                                                                 432,553                                                                  432,553

      Reimbursable out-of-pocket expenses                                                                                              46,236                                                                   46,236

      Selling, general and administrative                                                                                              87,282                         (3,720)                                   83,562

      Depreciation and amortization                                                                                                    33,329                           (418)                                   32,911

            Total costs and expenses                                                                                                  599,400                         (4,138)                    -             595,262
                                                                                                                                      -------                         ------                   ---             -------


    Income from operations                                                                                                             66,888                          4,138                     -              71,026


    Other expense, net:

      Interest expense, net                                                                                                             2,448                                                                    2,448

      Foreign exchange transaction loss, net                                                                                              402                                                                      402

      Gain on sale of business                                                                                                         (1,648)                                               1,648                   -

            Other expense, net                                                                                                          1,202                              -                 1,648               2,850
                                                                                                                                        -----                            ---                 -----               -----


    Income before taxes                                                                                                                65,686                          4,138                (1,648)             68,176


    Taxes on income                                                                                                                    14,870                          1,551                  (615)             15,806


    Net income                                                                                                                        $50,816                         $2,587               $(1,033)            $52,370
                                                                                                                                      =======                         ======               =======             =======


    Basic earnings per share                                                                                                            $0.91                          $0.05                $(0.02)              $0.94


    Weighted average shares outstanding - basic                                                                                    55,681,285                     55,681,285            55,681,285          55,681,285


    Diluted earnings per share                                                                                                          $0.88                          $0.04                $(0.02)              $0.90


    Weighted average shares outstanding - diluted                                                                                  57,989,826                     57,989,826            57,989,826          57,989,826



    (1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure.

    (2) Represents gain on sale of business.



                                                                                                                   COVANCE INC.


                                                                                                         GAAP to Pro Forma Reconciliation


                                                                                                                      Q1 2013


                                                                                                   (Dollars in thousands, except per share data)


                                                                                                                 (UNAUDITED)


                                                                                                                                                         Adjustments
                                                                                                                                                         -----------

                                                                                                                               GAAP              Restructuring Activities (1)      Other            Pro Forma
                                                                                                                                                                                 Items (2)
                                                                                                                                                                                                                  ---


    Net revenues                                                                                                                     $580,199                                                                $580,199

    Reimbursable out-of-pocket expenses                                                                                                54,136                                                                  54,136

         Total revenues                                                                                                               634,335                                 -                  -            634,335
                                                                                                                                      -------                               ---                ---            -------


    Costs and expenses:

      Cost of revenue                                                                                                                 411,344                                                                 411,344

      Reimbursable out-of-pocket expenses                                                                                              54,136                                                                  54,136

      Selling, general and administrative                                                                                              89,219                            (4,673)                               84,546

      Depreciation and amortization                                                                                                    31,385                            (1,497)                               29,888

            Total costs and expenses                                                                                                  586,084                            (6,170)                 -            579,914
                                                                                                                                      -------                            ------                ---            -------


    Income from operations                                                                                                             48,251                             6,170                  -             54,421


    Other (income) expense, net:

      Interest expense, net                                                                                                               871                                                                     871

      Foreign exchange transaction loss, net                                                                                              335                                                                     335

      Gain on sale of investment                                                                                                      (15,693)                                              15,693                  -

            Other (income) expense, net                                                                                               (14,487)                                -             15,693              1,206
                                                                                                                                      -------                               ---             ------              -----


    Income before taxes                                                                                                                62,738                             6,170            (15,693)            53,215


    Taxes on income                                                                                                                    14,572                             1,823             (5,499)            10,896


    Net income                                                                                                                        $48,166                            $4,347           $(10,194)           $42,319
                                                                                                                                      =======                            ======           ========            =======


    Basic earnings per share                                                                                                            $0.89                             $0.08             $(0.19)             $0.78


    Weighted average shares outstanding - basic                                                                                    54,207,032                        54,207,032         54,207,032         54,207,032


    Diluted earnings per share                                                                                                          $0.86                             $0.08             $(0.18)             $0.75


    Weighted average shares outstanding - diluted                                                                                  56,307,034                        56,307,034         56,307,034         56,307,034



    (1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure.

    (2) Represents gain on sale of investment.


SOURCE Covance Inc.