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

“We started the year with good financial and operational execution driven by customer and partner platform adoption,” said Tarek Sherif, Medidata’s chairman and chief executive officer. “That adoption is being driven by favorable industry trends. Customers are looking to our platform with its sophisticated analytic capabilities to meet their increasingly complex drug development needs and achieve higher returns. Medidata is at the forefront of driving innovation in the areas of data science, advanced analytics, and mobile health in clinical development.”

First Quarter 2018 Results

  • Total revenue was $149.2 million, an increase of $21.6 million, or 17%, compared with $127.6 million in the first quarter of 2017. Subscription revenue was $126.8 million, an increase of $18.9 million, or 18%, compared with the same period last year
  • Professional services revenue was $22.4 million, an increase of $2.6 million, or 13%, compared with $19.8 million in the first quarter of 2017
  • GAAP operating income was $13.3 million, up 3%, compared with $12.9 million in the first quarter of 2017. Non-GAAP operating income1 was $34.2 million, up 24%, compared with $27.7 million a year ago
  • GAAP net income was $10.3 million, or $0.17 per diluted share, up 3%, compared with $10.0 million, or $0.17 per diluted share, in the first quarter of 2017. Non-GAAP net income1 was $24.0 million, or $0.40 per diluted share, up 29%, compared with $18.7 million, or $0.32 per diluted share, in the first quarter of 2017. See the non-GAAP reconciliation included in this release for full details of the non-GAAP adjustments
  • Total cash, cash equivalents and marketable securities were $645.2 million at the end of the quarter, compared with $663.3 million on December 31, 2017

Additional Highlights:

  • Remaining 2018 adjusted subscription backlog2 as of March 31, 2018 was $370 million, an increase of $51 million compared with a year ago
  • Medidata signed an enterprise agreement with a top 5 CRO during the quarter. The company now has enterprise agreements in place with all top 5 CROs, providing further proof that the Medidata Clinical Cloud® is the industry leading technology platform to streamline clinical development
  • Platform adoption accelerated during the quarter. The company signed its first enterprise agreement in payments with a top 15 pharma, an existing Medidata platform customer. Additionally, 17 imaging customers were added and the number of eTMF customers nearly doubled
  • The European Organisation for Research and Treatment of Cancer (EORTC) signed a five-year platform agreement including Rave Genomics, and Memorial Sloan Kettering expanded its usage of the platform to include Rave Genomics. Medidata Rave Genomics helps not only to accelerate the integration, data management automation and quality control of genomic data, but also to streamline biomarker discovery with machine learning
  • On average, contracts were renewed at 22% above prior value

“Building on a strong fourth quarter, our business momentum continued in the first quarter highlighted by 18 percent subscription revenue growth and 120 basis points of EBITDAO margin expansion,” said Rouven Bergmann, Medidata’s chief financial officer. “We are investing in all the right areas and I am confident in the long-term value our strategy will create for customers and shareholders.”

For the full year 2018, the company's guidance provided on February 8, 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

The company plans to host its investor conference call today at 8:00 a.m. Eastern time. The investor conference call will be available via live webcast on the “Investor” section of Medidata’s website at http://investor.mdsol.com. To participate by telephone, domestic participants may dial 877-303-2528 and international participants may dial 847-829-0023. Participants can also join the call via a simultaneous live audio webcast, which will be made available on the “Investor” section of Medidata’s website at http://investor.mdsol.com. A replay of the conference call can be accessed through May 3, 2018 by dialing 800-585-8367 domestically or 404-537-3406 internationally, with the passcode 6959879. An archive of the call will also be hosted on the “Investor” section of Medidata’s website, http://investor.mdsol.com, for a limited period of time.

About Medidata

Medidata's unified platform, pioneering analytics, and unrivaled expertise power the development of new therapies for over 1,000 pharmaceutical companies, biotech, medical device firms, academic medical centres and contract research organizations around the world. The Medidata Clinical Cloud® connects patients, physicians and life sciences professionals. Companies on the Medidata platform are individually and collaboratively reinventing the way research is done to create smarter, more precise treatments. For more information: 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. In particular, the risks and uncertainties include, among other things, risks associated with possible fluctuations in our financial and operating results; errors, interruptions or delays in our service or our web hosting; integration activities, performance and financial impact of acquired companies; our ability to continue to release, and gain customer acceptance of, new and improved versions of our products; changes in our sales and implementation cycles; competition; our ability to retain and expand our customer base or increase new business from those customers; our ability to hire, retain, and motivate our employees and manage our growth; regulatory developments; litigation; and general developments in the economy. 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.

(1) Non-GAAP Financial Information

Medidata provides non-GAAP operating income, net income, and net income per share applicable to common stockholders data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Non-GAAP operating income excludes the impact of depreciation, amortization of intangible assets associated with acquisitions, stock-based compensation expense, and adjustments to the fair value of contingent consideration. Non-GAAP net income excludes the tax-effected impact of amortization of intangible assets associated with acquisitions, stock-based compensation expense, non-cash interest expense, and adjustments to the fair value of contingent consideration. 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, investors frequently have requested information from management regarding depreciation, amortization, and other non-cash charges, such as share-based compensation, and 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 limitations associated with the use of non-GAAP financial measures. One limitation of non-GAAP operating income is that it excludes depreciation and amortization, which represents the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Medidata compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to the comparable GAAP results, which are attached to this press release.

(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 March 31,
2018   2017
Revenues
Subscription $ 126,819 $ 107,893

 (3)

Professional services 22,379   19,751  
Total revenues 149,198 127,644
Cost of revenues (1)(2)
Subscription 20,341 17,129
Professional services 15,961   13,485  
Total cost of revenues 36,302 30,614
Gross profit 112,896 97,030
Operating costs and expenses
Research and development (1) 37,522 29,937
Sales and marketing (1)(2) 36,861 30,226

 (3)

General and administrative (1) 25,187   23,988  
Total operating costs and expenses 99,570   84,151  
Operating income 13,326 12,879
Interest and other income (expense)
Interest expense (5,575 ) (4,327 )
Interest income 2,088 1,171
Other expense, net (96 ) —  
Total interest and other expense, net (3,583 ) (3,156 )
Income before income taxes 9,743 9,723
Provision for income taxes (582 ) (257 )

 (3)

Net income $ 10,325   $ 9,980  

 (3)

Earnings per share
Basic $ 0.18   $ 0.18  

 (3)

Diluted $ 0.17   $ 0.17  

 (3)

Weighted average common shares outstanding
Basic 57,055 56,072
Diluted 60,098 58,083
(1) Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues $ 1,268 $ 1,169
Research and development 2,854 2,835
Sales and marketing 2,644 1,175
General and administrative 6,389   5,142  
Total stock-based compensation $ 13,155   $ 10,321  
(2) Amortization of intangible assets included in costs of revenues and operating costs and expenses is as follows:
Cost of revenues $ 1,094 $ 454
Sales and marketing 120   83  
Total amortization of intangible assets $ 1,214   $ 537  
 

(3) Figures for the three months ended March 31, 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 March 31,
2018   2017
Operating income:
GAAP operating income $ 13,326 $ 12,879 (4)
GAAP operating margins 8.9 % 10.1 % (4)
Stock-based compensation 13,155 10,321
Depreciation and amortization 7,813 4,476
Contingent consideration adjustment (1) (72 ) —  
Non-GAAP operating income $ 34,222   $ 27,676   (4)
Non-GAAP operating margins 22.9 % 21.7 % (4)
Net income:
GAAP net income $ 10,325 $ 9,980 (4)
Stock-based compensation 13,155 10,321
Amortization 1,214 537
Contingent consideration adjustment (1) (72 ) —
Non-cash interest expense (2) 3,908 3,598
Tax impact on add-back items (3) (4,551 ) (5,782 )
Non-GAAP net income $ 23,979   $ 18,654   (4)
GAAP basic earnings per share $ 0.18   $ 0.18   (4)
GAAP diluted earnings per share $ 0.17   $ 0.17   (4)
Non-GAAP basic earnings per share $ 0.42   $ 0.33   (4)
Non-GAAP diluted earnings per share $ 0.40   $ 0.32   (4)

 

(1) Amount represents the change in fair value of acquisition-related contingent consideration liabilities.
(2) 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.
(3) Tax impact calculated using tax rates of 25% and 40% for the three months ended March 31, 2018 and 2017, respectively.
(4) Figures for the three months ended March 31, 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 months ended March 31, 2018 and 2017. Non-GAAP operating income (EBITDAO) excludes the impact of depreciation, amortization of intangible assets associated with acquisitions, stock-based compensation expense, and adjustments to the fair value of contingent consideration. Non-GAAP net income excludes the tax-affected impact of amortization of intangible assets associated with acquisitions, stock-based compensation expense, adjustments to the fair value of contingent consideration, and non-cash interest expense.

 

 
MEDIDATA SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands, except per share data)
 
  March 31,   December 31,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 226,588 $ 237,325
Marketable securities 296,816 246,967
Accounts receivable, net of allowance for doubtful accounts of $1,481 and $1,454, respectively 133,453 110,685
Prepaid commission expense 17,615 12,404 (1)
Prepaid expenses and other current assets 33,056   33,636   (1)
Total current assets 707,528 641,017
Restricted cash 5,520 5,518
Furniture, fixtures and equipment, net 92,905 88,091
Marketable securities, long-term 121,790 179,041
Goodwill 47,597 47,435
Intangible assets, net 16,374 17,587
Deferred income taxes, long-term 35,054 35,789 (1)
Other assets 49,213   46,755   (1)
Total assets $ 1,075,981   $ 1,061,233  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,164 $ 5,009
Accrued payroll and other compensation 21,347 32,537
Accrued expenses and other 35,704 36,041
Deferred revenue 87,369 77,375 (1)
1.00% convertible senior notes, net 281,894   278,094  
Total current liabilities 434,478   429,056  
Noncurrent liabilities:
Term loan, net 93,052 92,841
Deferred revenue, less current portion 4,702 5,256
Deferred tax liabilities 105 99
Other long-term liabilities 21,441   21,371  
Total noncurrent liabilities 119,300   119,567  
Total liabilities 553,778   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; 63,674 and 62,801 shares
issued; 59,189 and 58,607 shares outstanding, respectively

637 628
Additional paid-in capital 501,718 486,147
Treasury stock, 4,485 and 4,194 shares, respectively (149,319 ) (132,705 )
Accumulated other comprehensive loss (3,075 ) (3,377 )
Retained earnings 172,242   161,917   (1)
Total stockholders' equity 522,203     512,610  
Total liabilities and stockholders' equity $ 1,075,981     $ 1,061,233  
(1) Figures as of December 31, 2017 have been recast to reflect our January 1, 2018 full retrospective adoption of ASC 606.
 

 
MEDIDATA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
 
Three Months Ended March 31,
2018   2017
Cash flows from operating activities
Net income $ 10,325 $ 9,980 (1)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,813 4,476
Stock-based compensation 13,155 10,321
Amortization of discounts or premiums on marketable securities 147 413
Deferred income taxes 818 1,599 (1)
Amortization of debt issuance costs 427 319
Amortization of debt discount 3,481 3,279
Provision for doubtful accounts 373 680
Loss (gain) on fixed asset disposal 96 (2 )
Changes in fair value of contingent consideration (72 ) —
Changes in operating assets and liabilities:
Accounts receivable (23,141 ) 12,045
Prepaid commission expense (5,700 ) (1,746 ) (1)
Prepaid expenses and other current assets (658 ) (6,771 ) (1)
Other assets 125 1,712
Accounts payable 2,600 130
Accrued payroll and other compensation (13,711 ) (15,557 )
Accrued expenses and other (778 ) (2,397 )
Deferred revenue 9,440 3,267 (1)
Other long-term liabilities 236   737  
Net cash provided by operating activities 4,976   22,485  
Cash flows from investing activities
Purchase of furniture, fixtures and equipment (11,147 ) (6,790 )
Purchase of available-for-sale securities (57,974 ) (81,985 )
Proceeds from sale of available-for-sale securities 64,202 80,426
Acquisition of business, net of cash acquired —   (8,702 )
Net cash used in investing activities (4,919 ) (17,051 )
Cash flows from financing activities
Proceeds from exercise of stock options 2,366 2,597
Proceeds from employee stock purchase plan 3,121 2,090
Acquisition of treasury stock (16,614 ) (13,617 )
Payment of acquisition-related earn-out (87 ) —
Payments of credit facility financing costs (175 ) —  
Net cash used in financing activities (11,389 ) (8,930 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 597   150  
Net decrease in cash, cash equivalents and restricted cash (10,735 ) (3,346 )
Cash, cash equivalents and restricted cash – Beginning of period 242,843   99,279  
Cash, cash equivalents and restricted cash – End of period $ 232,108   $ 95,933  
(1) Figures for the three months ended March 31, 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
GAAP operating income: $63.5 – $73.5
Stock-based compensation (1) 60.0
Depreciation and amortization (1) 33.0
Contingent consideration adjustment (1) 0.5
Non-GAAP operating income $157.0 – $167.0
 
GAAP net income: $42.0 - $50.0
Stock-based compensation (1) 60.0
Amortization (1) 5.0
Non-cash interest expense (1) 10.0
Contingent consideration adjustment (1) 0.5
Tax impact on add-back items (2) (19.0)
Non-GAAP net income $98.5 – $106.5
 
(1) Represents the estimated midpoint of our guidance range.
(2) Tax impact estimated using a 25% rate.