Quintiles Reports Second Quarter 2013 Results and Full Year 2013 Guidance
Quintiles Reports Second Quarter 2013 Results and Full Year 2013 Guidance
- Net new business wins of $1.0 billion, up 13% compared to second quarter 2012; Backlog of $9.0 billion at the end of second quarter 2013
- Second quarter diluted adjusted EPS of $0.50 and adjusted net income of $62.9 million, up 6.4% and 12.6%, respectively, compared to second quarter 2012
- Second quarter GAAP reported diluted EPS of $0.30 and GAAP reported net income of $38.5 million, declined 25.0% and 18.4%, respectively, compared to second quarter 2012
- Full year 2013 adjusted diluted EPS guidance of $1.95 - $2.05
For the three months ended June 30, 2013, the growth in service revenues excluding the impact of foreign currency fluctuations ("constant currency revenue growth") was 2.2%, or $21.1 million compared to the same period last year. At actual foreign exchange rates, service revenues of $944.2 million were nearly unchanged compared to the same period last year due to an unfavorable foreign currency impact of 2.3%, or $21.8 million. Constant currency revenue growth was primarily from volume related increases in the Product Development segment compared to the same period in 2012.
Adjusted income from operations was $124.1 million in the second quarter of 2013 representing growth of 8.4% and 100 basis points of margin expansion compared to the same period last year. Adjusted net income was $62.9 million in the second quarter of 2013 representing growth of 12.6% compared to the same period last year. Diluted adjusted earnings per share was $0.50 in the quarter ended June 30, 2013 representing growth of 6.4% compared to the same period last year. Reported GAAP income from operations was $94.9 million, reported GAAP net income was $38.5 million and reported GAAP diluted earnings per share was $0.30 for the three months ended June 30, 2013. Reconciliations of the non-GAAP measures adjusted income from operations, adjusted net income and diluted adjusted earnings per share to the corresponding GAAP measures are attached to this press release.
Net new business grew 13% and 16% in the three and six months ended June 30, 2013 to $1.0 billion and $2.3 billion, respectively compared to the same periods last year. The second quarter of 2013 was the fourth sequential quarter of $1.0 billion or more in net new business which has contributed to an ending backlog at June 30, 2013 of $9.0 billion. The book-to-bill ratio, which represents net new business divided by service revenues during the respective period, was 1.07 for the second quarter and 1.21 for the six month period ending June 30, 2013.
"Quintiles delivered solid results overall with continued strength in new business wins," said Tom Pike, Quintiles' chief executive officer. "We have maintained the momentum following our initial public offering in May, which we believe demonstrates the confidence our customers have in us as well as the depth and diversity of our customer base. I am also pleased to report double-digit adjusted net income growth and improved margins on a year-to-date basis despite the negative impact on revenues that resulted from unfavorable foreign exchange rates."
"We continue to focus on growth areas that further differentiate us by deepening our scientific, therapeutic and data expertise as well as developing new capabilities. In doing so, we believe that we can improve the probability of development and commercial success for customers ultimately leading to shareholder success."
Product Development's constant currency revenue growth was 5.8%, or $40.4 million during the second quarter of 2013 compared to the same period last year. At actual foreign exchange rates, Product Development's service revenues grew 4.6% compared to the same period last year to $724.2 million. The constant currency revenue growth resulted from a volume related increase in clinical services partially offset by a decline in consulting services. Product Development's income from operations margin was 18.8% for the second quarter representing an expansion of 160 basis points compared to the same period last year of which 100 basis points was from contribution margin expansion and 60 basis points from a reduction in selling general and administrative expenses as a percentage of service revenues.
On a constant currency basis, Integrated Healthcare Services' service revenues declined 7.6%, or $19.3 million during the second quarter of 2013 compared to the same period last year primarily due to lower net new business, negative scope modifications and cancellations, and the impact of the conclusion of a major contract during 2012. At actual foreign exchange rates, Integrated Healthcare Services' service revenues declined 13.0%, or $32.8 million, compared to the same period last year to $220.0 million of which $13.5 million or 5.3% was due to unfavorable foreign currency fluctuations. Integrated Healthcare Services' income from operations margin was 5.7% for the second quarter, 230 basis points less than the same period last year, but 290 basis points higher than the first quarter of 2013.
General corporate and unallocated expenses were $50.9 million during the second quarter compared to $26.2 million for the same period last year. This increase was primarily due to $26.5 million of fees paid in connection with the termination or amendment of agreements with certain shareholders.
The GAAP effective income tax rate was 18.9% for the second quarter of 2013 compared to 37.1% for the same period in 2012. The effective income tax rates for the three and six month periods ended June 30, 2013 were positively impacted by the Company asserting in the second quarter of 2013 that the undistributed earnings of most of the Company's foreign subsidiaries are indefinitely reinvested outside of the United States.
For the six months ended June 30, 2013, the Company's constant currency service revenue growth was 4.2%, or $77.2 million as compared to the same period in 2012. At actual foreign exchange rates, the Company's service revenues of $1.9 billion grew 2.1% compared to the same period in 2012 which included an unfavorable foreign currency impact of 2.1% or $38.4 million. Adjusted income from operations for the six months ended June 30, 2013 was $242.5 million representing growth of 9.8% and 90 basis points of margin expansion compared to the same period last year. Adjusted net income was $120.5 million for the six months ended June 30, 2013 representing growth of 11.6% compared to the same period last year. Diluted adjusted earnings per share was $0.98 for the six months ended June 30, 2013 representing year on year growth of 6.5% compared to the same period last year. Reported GAAP income from operations was $210.1 million, reported GAAP net income was $86.8 million and reported GAAP diluted earnings per share was $0.71 for the six months ended June 30, 2013.
On May 9, 2013, the Company's common stock began trading on the New York Stock Exchange under the symbol "Q." On May 14, 2013, the Company completed an initial public offering ("IPO") of its common stock at a price to the public of $40.00 per share. The Company issued and sold 13,125,000 shares of common stock in the IPO. The selling shareholders offered and sold 14,111,841 shares of common stock in the IPO, including 3,552,631 shares that were offered and sold by the selling shareholders pursuant to the full exercise of the underwriters' option to purchase additional shares. The IPO raised proceeds for the Company of approximately $489.9 million, after deducting underwriting discounts, commissions, and related expenses. The Company did not receive any of the proceeds from the sale of the shares sold by the selling shareholders.
The Company used the net proceeds from the IPO as follows: (i) approximately $308.9 million to pay all amounts outstanding under the $300.0 million term loan including accrued interest and related fees and expenses, (ii) approximately $50.0 million to repay indebtedness under the Company's senior secured credit facilities, and (iii) $25.0 million to pay a one-time fee to terminate a management agreement with affiliates of certain shareholders. The Company incurred a loss on debt extinguishment in the second quarter of 2013 of $16.5 million dollars in connection with the prepayment of the outstanding debt.
For 2013, the Company expects to achieve service revenues between $3.76 billion and $3.81 billion which represents a constant currency growth range of 3.8% to 5.2%. The Company also expects diluted adjusted earnings per share between $1.95 and $2.05 per share representing growth of 10.2% to 15.5%, diluted GAAP earnings per share between $1.63 and $1.73 per share, and an annual effective income tax rate estimated in the range of 30% to 32%. This financial guidance is based on the actual results for the first half of 2013 combined with the expected results for the second half of 2013, assuming that June foreign currency exchange rates stay in effect for the remainder of the year.
Webcast & Conference Call Details
Quintiles will host a conference call at 8:00 a.m. EDT today to discuss its second quarter 2013 financial results. To participate, please dial +1 (855) 484-7367 or +1 (631) 259-7541 outside the United States, approximately 15 minutes before the scheduled start of the call. The conference call will also be accessible, live via webcast, on the Investors section of the Quintiles website at www.quintiles.com. An archived replay of the conference call will be available online at www.quintiles.com after 1:00 p.m. EDT on August 1, 2013.
Quintiles is the world's largest provider of biopharmaceutical development and commercial outsourcing services with a network of approximately 27,000 employees conducting business in approximately 100 countries. We have helped develop or commercialize all of the top-50 best-selling drugs on the market. Quintiles applies the breadth and depth of the company service offerings along with extensive therapeutic, scientific and analytics expertise to help our customers navigate an increasingly complex healthcare environment as they seek to improve efficiency and effectiveness in the delivery of better healthcare outcomes. To learn more about Quintiles, please visit www.quintiles.com
This press release contains forward-looking statements that reflect, among other things, the Company's current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements, market trends or industry results to differ materially from those expressed or implied by such forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may constitute forward-looking statements. Without limiting the foregoing, words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "should," "targets," "will" and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Actual results may differ materially from the Company's expectations due to a number of factors, including that most of the Company's contracts may be terminated on short notice, and that the Company may be unable to maintain large customer contracts or to enter into new contracts; the historical indications of the relationship of backlog to revenues may not be indicative of their future relationship; the market for the Company's services may not grow as the Company expects; the Company may under price contracts or overrun its cost estimates, and if the Company is unable to achieve operating efficiencies or grow revenues faster than expenses, operating margins will be adversely affected; the Company may be unable to maintain information systems or effectively update them; customer or therapeutic concentration could harm the Company's business; the Company's business is subject to risks associated with international operations, including economic, political and other risks; government regulators or customers may limit the scope of prescription or withdraw products from the market, and government regulators may impose new regulations affecting the Company's business; the Company may be unable to successfully develop and market new services or enter new markets; the Company's failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject it to significant costs or liability, damage its reputation and cause it to lose existing business or not receive new business; the Company's services are related to treatment of human patients, and it could face liability if a patient is harmed; the Company has substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect the Company's financial condition; and other factors that are set forth in the Company's filings with the Securities and Exchange Commission ("SEC"), including the final prospectus dated May 8, 2013 relating to the Company's initial public offering or the quarterly reports on Form 10-Q. The Company undertakes no obligation to update any forward-looking statement after the date of this release, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.
Use of Non-GAAP Financial Measures
This press release includes adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted net income per share, each of which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Management believes that these non-GAAP measures provide useful supplemental information to management and investors regarding the underlying performance of the Company's business operations and are more indicative of core operating results as they exclude certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the core operations of the business. These non-GAAP measures are performance measures only and are not measures of the Company's cash flows or liquidity, nor are they alternatives for measures of financial performance prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. Investors and potential investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures attached to this press release.
Internet Posting of Information: The Company routinely posts information that may be important to investors in the 'Investors' section of the Company's website at www.Quintiles.com. The Company encourages investors and potential investors to consult the Company's website regularly for important information about the Company.
QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|Three Months Ended June 30,||Six Months Ended June 30,|
|(in thousands, except per share data)|
|Costs, expenses and other:|
|Costs of revenue, service costs||617,666||628,222||1,228,775||1,218,785|
|Costs of revenue, reimbursed expenses||351,442||285,853||652,848||554,402|
|Selling, general and administrative||228,838||203,544||428,140||409,339|
|Income from operations||94,897||100,885||210,062||192,872|
|Loss on extinguishment of debt||16,543||—||16,543||—|
|Other expense (income), net||536||(6,159||)||(1,846||)||(8,578||)|
Income before income taxes and equity in earnings (losses)
of unconsolidated affiliates
|Income tax expense||8,830||27,558||40,948||51,809|
Income before equity in earnings (losses) of unconsolidated
Equity in earnings (losses) of unconsolidated affiliates
|Net loss attributable to noncontrolling interests||164||189||317||654|
Net income attributable to Quintiles Transnational Holdings
|Earnings per share attributable to common shareholders:|
|Weighted average common shares outstanding:|
QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|(in thousands, except per share data)|
|Cash and cash equivalents||$||585,722||$||567,728|
|Trade accounts receivable and unbilled services, net||867,211||745,373|
|Deferred income taxes||65,416||69,038|
|Income taxes receivable||26,504||17,597|
|Other current assets and receivables||78,087||74,082|
|Total current assets||1,673,860||1,509,994|
|Property and equipment, net||196,749||193,999|
|Investments in debt, equity and other securities||35,943||35,951|
|Investments in and advances to unconsolidated affiliates||22,179||19,148|
|Other identifiable intangibles, net||271,733||272,813|
|Deferred income taxes||41,141||37,313|
|Deposits and other assets||111,302||127,506|
|LIABILITIES AND SHAREHOLDERS' DEFICIT|
|Accounts payable and accrued expenses||$||708,583||$||751,798|
|Income taxes payable||27,604||9,639|
|Current portion of long-term debt and obligations held under capital leases||141||55,710|
|Other current liabilities||42,830||44,230|
|Total current liabilities||1,238,727||1,317,964|
|Long-term debt and obligations held under capital leases, less current portion||2,045,142||2,366,268|
|Deferred income taxes||8,362||11,616|
|Commitments and contingencies|
Common stock and additional paid-in capital, 300,000 and 150,000 shares authorized at June 30,
2013 and December 31, 2012, respectively, $0.01 par value, 128,921 and 115,764 shares
issued and outstanding at June 30, 2013 and December 31, 2012, respectively
|Accumulated other comprehensive income||(18,186||)||7,695|
|Deficit attributable to Quintiles Transnational Holdings Inc.'s shareholders||(798,058||)||(1,359,523||)|
|Equity attributable to noncontrolling interests||170||479|
|Total shareholders' deficit||(797,888||)||(1,359,044||)|
|Total liabilities and shareholders' deficit||$||2,648,167||$||2,499,153|