INC Research Reports First Quarter 2015 Results
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First quarter 2015 net new business awards of
$255.5 million , as compared to$280.9 million in the first quarter of 2014, and a book-to-bill ratio of 1.2x
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Net service revenue of
$211.5 million for the quarter, representing growth of 14.5% over 2014
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GAAP diluted earnings per share of
$0.40 and adjusted diluted earnings per share of$0.42 for the first quarter of 2015
Net service revenue for the three months ended
Income from operations for the three months ended March 31, 2015 increased 122.1% to
The Company reported net income for the three months ended March 31, 2015 of
"
Adjusted EBITDA for the three months ended March 31, 2015 increased 57.1% to
Important disclosures about and reconciliations of non-GAAP measures, including adjusted income from operations, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, EBITDA and adjusted EBITDA, to the corresponding GAAP measures, are provided below and attached to this press release.
New Business Awards and Backlog
Backlog was
2015 Credit Agreement and Share Repurchase
In
Business Outlook
The Company is updating its 2015 full-year guidance as outlined in the following table. The guidance takes into account a number of factors, including current foreign currency exchange rates, expected tax rates, the Company's overall outlook and the refinancing activities mentioned above. The following guidance does not reflect the net impact of the stock repurchase, as the impact will vary depending on the number of shares repurchased.
| Guidance Issued | Guidance Issued | |||
| 4/27/2015 | 2/24/2015 | |||
| Low | High | Low | High | |
| Net service revenue | $880 million | $905 million | $870 million | $900 million |
| GAAP diluted EPS | $1.13 | $1.29 | $1.00 | $1.17 |
| Adjusted diluted EPS | $1.40 | $1.52 | $1.19 | $1.29 |
Important disclosures about and reconciliations of non-GAAP measures, adjusted net income and diluted adjusted earnings per share to the corresponding GAAP measures are provided below and attached to this press release.
Webcast and Conference Call Details
An archived replay of the conference call will be available online at www.investor.incresearch.com after 1:00 p.m. EDT on April 27, 2015. In addition, an audio replay will be available for one week following the call and will be accessible by dialing +1 (855) 859-2056 within
About
Forward-Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this press release, including our updated 2015 guidance, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: fluctuations in our financial results; our ability to maintain or generate new business awards; our backlog not being indicative of future revenues and our ability to realize the anticipated future revenue reflected in our backlog; our ability to adequately price our contracts and not overrun cost estimates; our customer or therapeutic area concentration; international economic, political and other risks; our ability to increase our market share, grow our business and execute our growth strategies; and the other risk factors set forth in our Form 10-K for the year ended
Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with GAAP, this press release contains certain non-GAAP financial measures, including Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Net Income (including Adjusted Diluted Earnings per Share), EBITDA, and Adjusted EBITDA. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets or statements of cash flows of the Company.
EBITDA represents earnings before interest, taxes, depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA excluding certain expenses such as management fees that terminated in connection with our initial public offering, restructuring costs, transaction expenses, non-cash stock compensation expense, contingent consideration related to acquisitions, asset impairment charges, debt refinancing expenses and other income/expense.
The Company presents EBITDA because it believes it is a useful metric for investors as it is commonly used by investors, analysts and debt holders to measure our ability to service our debt obligations, fund capital expenditures and meet working capital requirements.
Each of the non-GAAP measures noted above are used by management and the Board to evaluate our 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. Adjusted Income from Operations, Adjusted Operating Margin, and Adjusted Net Income (including Adjusted Diluted Earnings per Share) are used by management and the Board to assess our business, as well as by investors and analysts, to measure our performance. Adjusted EBITDA is also a useful metric for management and investors to measure our ability to service our debt obligations.
Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. Investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures included in this press release and the accompanying tables.
| Investor Relations Contact: |
| Ronnie Speight |
| Vice President, Investor Relations |
| Phone: +1 (919) 745-2745 |
| Email: Investor.Relations@incresearch.com |
| Press/Media Contact: |
| Lori Dorer |
| Senior Director, Corporate Communications |
| Phone: +1 (513) 345-1685 |
| Email: Corporate.Communications@incresearch.com |
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INC Research Holdings, Inc. and Subsidiaries GAAP Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) |
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| Three Months Ended March 31, | ||
| 2015 | 2014 | |
| Net service revenue | $ 211,514 | $ 184,700 |
| Reimbursable out-of-pocket expenses | 97,403 | 82,077 |
| Total revenue | 308,917 | 266,777 |
| Costs and operating expenses: | ||
| Direct costs | 125,448 | 120,764 |
| Reimbursable out-of-pocket expenses | 97,403 | 82,077 |
| Selling, general and administrative | 35,800 | 32,185 |
| Restructuring and other costs | (418) | 758 |
| Transaction expenses | 122 | 2,042 |
| Asset impairment charges | 3,931 | — |
| Depreciation | 4,766 | 6,869 |
| Amortization | 9,478 | 7,502 |
| Total operating expenses | 276,530 | 252,197 |
| Income from operations | 32,387 | 14,580 |
| Other income (expense), net: | ||
| Interest income | 84 | 182 |
| Interest expense | (5,389) | (16,083) |
| Other income, net | 3,466 | 1,378 |
| Total other expense, net | (1,839) | (14,523) |
| Income before provision for income taxes | 30,548 | 57 |
| Income tax expense | (5,292) | (1,609) |
| Net income (loss) | 25,256 | (1,552) |
| Class C common stock dividends | — | (125) |
| Net income (loss) attributable to common stockholders | $ 25,256 | $ (1,677) |
| Income (loss) per share attributable to common stockholders: | ||
| Basic | $ 0.41 | $ (0.03) |
| Diluted | $ 0.40 | $ (0.03) |
| Weighted average common shares outstanding: | ||
| Basic | 61,244 | 51,897 |
| Diluted | 63,103 | 51,897 |
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INC Research Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Measures (in thousands) (unaudited) |
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| Three Months Ended March 31, | ||
| 2015 | 2014 | |
| Net service revenue | $ 211,514 | $ 184,700 |
| Adjusted Income from Operations: | ||
| GAAP income from operations | $ 32,387 | $ 14,580 |
| Amortization | 9,478 | 7,502 |
| Restructuring and other costs | (418) | 758 |
| Transaction expenses(a) | 122 | 2,042 |
| Asset impairment charges(b) | 3,931 | — |
| Stock-based compensation | 707 | 531 |
| Contingent consideration treated as compensation expense(c) | 221 | 153 |
| Monitoring and advisory fees(d) | — | 142 |
| Adjusted Income from Operations | $ 46,428 | $ 25,708 |
| GAAP Operating Margin | 15.3% | 7.9% |
| Adjusted Operating Margin | 22.0% | 13.9% |
| EBITDA and Adjusted EBITDA: | ||
| Net income (loss) as reported | $ 25,256 | $ (1,552) |
| Interest expense, net | 5,305 | 15,901 |
| Income tax expense | 5,292 | 1,609 |
| Depreciation | 4,766 | 6,869 |
| Amortization | 9,478 | 7,502 |
| EBITDA | 50,097 | 30,329 |
| Restructuring and other costs | (418) | 758 |
| Transaction expenses(a) | 122 | 2,042 |
| Asset impairment charges(b) | 3,931 | — |
| Stock-based compensation | 707 | 531 |
| Contingent consideration treated as compensation expense(c) | 221 | 153 |
| Monitoring and advisory fees(d) | — | 142 |
| Other income | (3,466) | (1,378) |
| Adjusted EBITDA | $ 51,194 | $ 32,577 |
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INC Research Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Measures (Continued) (in thousands, except per share data) (unaudited) |
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| Three Months Ended March 31, | ||
| 2015 | 2014 | |
| Adjusted Net Income: | ||
| Net income (loss) as reported | $ 25,256 | $ (1,552) |
| Amortization | 9,478 | 7,502 |
| Restructuring and other costs | (418) | 758 |
| Transaction expenses(a) | 122 | 2,042 |
| Asset impairment charges(b) | 3,931 | — |
| Stock-based compensation | 707 | 531 |
| Contingent consideration treated as compensation expense(c) | 221 | 153 |
| Monitoring and advisory fees(d) | — | 142 |
| Other income | (3,466) | (1,378) |
| Adjust income tax to normalized rate(e)(f) | (9,513) | (2,019) |
| Adjusted Net Income | $ 26,318 | $ 6,179 |
| Shares used in computing GAAP diluted net income (loss) per share | 63,103 | 51,897 |
| Effect of certain securities considered anti-dilutive under GAAP(g) | — | 50 |
| Shares used in computing adjusted diluted net income per share | 63,103 | 51,947 |
| Adjusted Diluted EPS | $ 0.42 | $ 0.12 |
| (a) Represents fees associated with debt placement and refinancing, costs incurred in connection with business combinations and potential acquisitions and other corporate transactions. | ||
| (b) Represents impairment of goodwill and long-lived assets associated with our Phase I Services reporting unit. | ||
| (c) Consists of contingent consideration expense incurred as a result of acquisitions and accounted for as compensation expense under GAAP. | ||
| (d) Represents monitoring and advisory fees paid to affiliates of Avista Capital Partners, L.P. in the periods prior to the initial public offering in November 2014, as well as reimbursements of expenses paid to affiliates of Avista Capital Partners, L.P. and affiliates of Teachers' Private Capital pursuant to the Expense Reimbursement Agreement. These arrangements were terminated upon completion of our initial public offering. | ||
| (e) In 2015 and 2014, our effective tax rate has been adjusted, in order to reflect the removal of the tax impact of our valuation allowances recorded against our deferred tax assets and changes in the assertion to indefinitely reinvest the undistributed earnings of foreign subsidiaries. Historically, we recorded a valuation allowance against some of our deferred tax assets, but we believe that these valuation allowances cause significant fluctuations in our financial results that are not indicative of our underlying financial performance. Specifically, the majority of our revenue was generated in jurisdictions in which we recognized no tax expense or benefit due to changes in this valuation allowance. | ||
| (f) Adjustment for the income tax effect of the non-GAAP adjustments made to arrive at adjusted net income using the estimated effective tax rate of 36% in 2015 and 37% in 2014. | ||
| (g) Adjustment represents the weighted average number of equity-based awards issued under the Company's equity incentive plans calculated using the treasury stock method that were excluded from shares used in computing GAAP diluted net loss per share due to reporting a net loss under GAAP for the period. | ||
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INC Research Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Full-Year 2015 Guidance (in millions, except per share data) (unaudited) |
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Adjusted Net Income |
Adjusted Diluted Earnings Per Share |
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| Low | High | Low | High | |
| Net income and diluted earnings per share | $72.5 | $82.5 | $1.13 | $1.29 |
| Adjustments: | ||||
| Amortization(a) | 37.7 | 37.7 | ||
| Stock-based compensation expense(a) | 3.6 | 3.6 | ||
| Contingent consideration treated as compensation expense(a) | 0.6 | 0.6 | ||
| Transaction expenses(a) | 1.1 | 1.1 | ||
| Restructuring expenses(a) | 2.6 | 2.6 | ||
| Asset impairment charges(a) | 3.9 | 3.9 | ||
| Debt extinguishment costs(a) | 10.7 | 10.7 | ||
| Other(a) | (3.8) | (3.7) | ||
| Income tax effect of above adjustments(b) | (39.4) | (42.0) | ||
| Adjusted net income and adjusted diluted earnings per share | $89.5 | $97.0 | $1.40 | $1.52 |
| (a) Amounts are estimates with an estimated range of +/- 5% and are presented gross without the benefit of income tax reduction. | ||||
| (b) Income tax expense is calculated and the adjustments are tax affected at an approximate rate of 36%, which is the midpoint of our range for the expected income tax rate of 35% to 37%. This adjustment also excludes the impact of the valuation allowances recorded against our deferred tax assets. Historically, we recorded a valuation allowance against some of our deferred tax assets, but we believe that these valuation allowances cause significant fluctuations in our financial results that are not indicative of our underlying financial performance. | ||||
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INC Research Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share data) (unaudited) |
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| March 31, 2015 | December 31, 2014 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 156,349 | $ 126,453 |
| Restricted cash | 480 | 505 |
| Accounts receivable: | ||
| Billed, net | 149,745 | 130,270 |
| Unbilled | 122,701 | 118,101 |
| Current portion of deferred income taxes | 17,082 | 16,177 |
| Prepaid expenses and other current assets | 30,965 | 35,393 |
| Total current assets | 477,322 | 426,899 |
| Property and equipment, net | 41,813 | 43,725 |
| Goodwill | 553,597 | 556,863 |
| Intangible assets, net | 180,801 | 190,359 |
| Deferred income taxes, less current portion | 11,355 | 15,665 |
| Other long-term assets | 11,615 | 11,576 |
| Total assets | $ 1,276,503 | $ 1,245,087 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $ 14,010 | $ 16,548 |
| Accrued liabilities | 97,026 | 111,655 |
| Deferred revenue | 282,510 | 246,902 |
| Current portion of long-term debt | 4,250 | 4,250 |
| Current portion of capital lease obligations | 254 | 441 |
| Total current liabilities | 398,050 | 379,796 |
| Long-term debt, less current portion | 414,450 | 415,277 |
| Capital lease obligations, less current portion | — | 11 |
| Deferred income taxes | 28,526 | 30,368 |
| Other long-term liabilities | 26,523 | 27,426 |
| Total liabilities | 867,549 | 852,878 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Preferred stock, $0.01 par value; 30,000,000 authorized, 0 shares issued and outstanding at March 31, 2015, and December 31, 2014, respectively | — | — |
| Common stock $0.01 par value; 600,000,000 and 600,000,000 shares authorized; 61,253,673 and 61,233,850 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | 612 | 612 |
| Additional paid-in-capital | 635,653 | 634,946 |
| Accumulated other comprehensive loss | (35,418) | (26,200) |
| Accumulated deficit | (191,893) | (217,149) |
| Total stockholders' equity | 408,954 | 392,209 |
| Total liabilities and stockholders' equity | $ 1,276,503 | $ 1,245,087 |
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INC Research Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) |
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| Three Months Ended March 31, | ||
| 2015 | 2014 | |
| Operating activities | ||
| Net income (loss) | $ 25,256 | $ (1,552) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
| Depreciation and amortization | 14,244 | 14,371 |
| Amortization of capitalized loan fees | 441 | 2,944 |
| Stock-based compensation | 707 | 531 |
| Allowance for doubtful accounts | 211 | 566 |
| Deferred income taxes | 939 | 513 |
| Foreign currency adjustments | (2,389) | (2,328) |
| Asset impairment charges | 3,931 | — |
| Other adjustments | (116) | 9 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable billed and unbilled | (28,001) | 12,176 |
| Accounts payable and accrued expenses | (14,078) | (10,705) |
| Deferred revenue | 39,803 | 11,942 |
| Other assets and liabilities | 2,683 | 2,743 |
| Net cash provided by operating activities | 43,631 | 31,210 |
| Investing activities | ||
| Acquisition of business, net of cash acquired | — | (2,302) |
| Purchase of property and equipment | (4,870) | (4,624) |
| Net cash used in investing activities | (4,870) | (6,926) |
| Financing activities | ||
| Payments on long-term debt | (1,063) | (5,453) |
| Principal payments toward capital lease obligations | (199) | (813) |
| Dividends paid | — | (125) |
| Net cash used in financing activities | (1,262) | (6,391) |
| Effect of exchange rate changes on cash and cash equivalents | (7,603) | (706) |
| Net change in cash and cash equivalents | 29,896 | 17,187 |
| Cash and cash equivalents at the beginning of the period | 126,453 | 96,972 |
| Cash and cash equivalents at the end of the period | $ 156,349 | $ 114,159 |