Medidata Solutions (NASDAQ: MDSO), a leading global provider of SaaS-based clinical technology solutions that enhance the efficiency of clinical development, today announced its financial results for the fourth quarter 2010 and full year ended December 31, 2010, as well as provided financial guidance for the first quarter and full year 2011.
"Medidata concluded 2010 with record revenues, margins and profitability. Our continued investment in innovation has enabled a dramatic increase in new product offerings and significant upgrades to existing offerings, while a focus on quality and execution has driven high customer satisfaction and excellent customer retention," said Tarek Sherif, chairman and chief executive officer of Medidata. "Our overall progress and momentum solidify our position as the leading independent SaaS vendor in clinical development."
Business Highlights
- Medidata's success in the fourth quarter was driven by robust adoption of its clinical technology solutions. Growth of the Medidata Rave® EDC/CDMS platform was particularly strong, with brisk sales to middle market biotechnology and pharmaceutical companies. Regionally, the Asia Pacific region continued to be a major contributor to Medidata's growth, with the addition of three new customers and a new contract research organization (CRO) channel partner.
- Medidata added 16 new customers in the fourth quarter, marking the sixth quarter of double-digit customer growth. With 63 new customers in 2010, Medidata closed the year with 219 customers, representing a compound growth rate of 34% over the past three years. New customers in the fourth quarter include: Cadence Pharmaceuticals, Inc., Cytori Therapeutics, Inc., Dyax Corp., Human Genome Sciences, Keio University School of Medicine, Lantheus Medical Imaging, Nordic Bioscience and Zeria Pharmaceutical Co., Ltd. For the year, the company added 5 new enterprise (multi-study subscription contracts) customers, 6 existing customers upgraded from study-by-study to enterprise relationships and 8 enterprise customers renewed their contracts.
- Medidata released five follow-on versions of existing products in the fourth quarter, with new features and functionality that provide additional clinical development efficiencies for customers. In 2010 Medidata released major new products that included Medidata Balance™, a randomization and trial supply management solution; iMedidata™, a user and learning management portal; and Rave Targeted SDV, a tool providing enablement of risk-based data monitoring.
- Two contract research organizations joined Medidata's ASPire to Win® partner program in the fourth quarter, bringing the year-end total to 31, an increase of six partners for the year. The CRO channel continues to grow as a major contributor to Medidata's results, with 2010 new business at record levels. New partners included PharPoint Research, a North Carolina-based drug development service company, and LSK Global Pharma Services, Medidata's second full service Korean-based CRO Partner. In addition, 7 partners reached higher accreditation levels, increasing their investment in training on Medidata products to better serve customers with Rave-related services.
- Clinical technology innovators continue to join the Medidata Technology Program, which now includes 12 partners, expanding the ability of customers to integrate additional applications with Medidata offerings. New technology partners in the fourth quarter include Logos Technologies, a provider of solutions for Phase I trials, and DZS Software, which provides clinical trial software products and clinical outsourcing services, including the ClinPlus® clinical trial management system. In addition, 92 organizations are now part of Medidata Developer Central, an online developer community dedicated to users of the Rave Web Services API that provides an array of resources to support integration efforts.
Financial Highlights
Fourth Quarter 2010 Results
Net revenues for the fourth quarter of 2010 were $47.4 million, an increase of $9.8 million, or 26%, compared with $37.5 million in the fourth quarter of 2009. The increase in revenues was due to an $11.6 million, or 41%, increase in revenues from application services, partially offset by a decline in revenues from professional services, which continues to represent a smaller portion of the company's total revenue. Net revenue, operating income and net income figures for the quarter and full year include a $3.2 million, one-time acceleration of revenue recognition related to a contractual termination of a government contract on behalf of the National Cancer Institute (NCI). The NCI and certain NCI supported organizations continue to utilize the Rave software licenses acquired under the original procurement. To facilitate comparability of results, Medidata presents pro forma results excluding this event. On this basis, pro forma net revenues for the quarter were $44.1 million, an increase of $6.6 million, or 18% year on year.
Gross margins in the fourth quarter of 2010 were 71%, an increase of more than 4 percentage points over gross margins of 67% a year ago. Pro forma gross margins were 69%, compared with 67% a year ago.
Income before taxes increased to $10.1 million in the fourth quarter of 2010, compared with $3.0 million in the fourth quarter of 2009. Pro forma income before taxes for the quarter would have been $7.0 million, an increase of $4.0 million year on year.
During the quarter, the company increased its annual limitation on federal net operating loss carryforwards under IRC Section 382 from $14M to $31M based on the completion of a detailed tax analysis. This resulted in the reversal of $5 million in anticipated federal income tax, which positively impacted net income. Medidata also excluded this event and used a 30% annual effective tax rate in our pro forma results.
Non-GAAP operating income for the fourth quarter of 2010 increased 94% to $13.9 million, compared with $7.2 million a year ago. Pro forma non-GAAP operating income increased 50% to $10.8 million.
GAAP operating income for the quarter increased 220% to $9.9 million, compared with $3.1 million a year ago. Pro forma GAAP operating income increased 120% to $6.8 million, compared with $3.1 million a year ago.
Non-GAAP net income for the fourth quarter of 2010 increased to $15.5 million, or $0.64 per diluted share, compared with $3.5 million, or $0.15 per diluted share, in the fourth quarter of 2009. Pro forma non-GAAP net income for the fourth quarter of 2010 increased 104% to $7.1 million, or $0.29 per diluted share, compared with $3.5 million, or $0.15 per diluted share, in the fourth quarter of 2009.
GAAP net income for the fourth quarter of 2010 increased to $13.3 million, or $0.55 per diluted share, compared with $1.7 million, or $0.07 per diluted share, in the fourth quarter of 2009. Pro forma GAAP net income for the fourth quarter of 2010 increased 184% to $4.9 million, or $0.20 per diluted share, compared with $1.7 million, or $0.07 per diluted share, in the fourth quarter of 2009.
Income tax (benefit) expense decreased $4.5 million to ($3.3) million in the fourth quarter of 2010 from $1.3 million in the comparable period. The decrease was primarily driven by our ability to fully utilize our federal net operating loss carryforwards as a result of our increased Section 382 limitation during the year.
Adjusted non-GAAP net income, which includes tax impact on stock-based compensation and amortization, increased to $17.3 million, compared with $3.5 million in the fourth quarter of 2009. Tax impact for the fourth quarter included the reversal of prior quarters' tax impact as a result of our full utilization of federal net operating loss carryforwards. Pro forma adjusted non-GAAP net income for the fourth quarter of 2010 increased 85% to $6.5 million, compared with $3.5 million in the fourth quarter of 2009.
Full Year 2010 Results
Net revenues for the full year of 2010 were $166.4 million, an increase of $26.0 million, or 19%, compared with $140.4 million in 2009. The increase in revenues was primarily due to a $33.9 million, or 33%, increase in revenues from application services. Medidata's changing business mix reflects the company's strategy to lower the total cost of ownership for its clients by reducing the total amount of follow-on professional services they incur. Pro forma net revenues for the full year were $163.2 million, an increase of $22.8 million, or 16% year on year.
For the full year 2010, gross margins were 69%, an increase of more than 4 percentage points over the 64% margins generated in 2009. Pro forma gross margins were 68%, compared with 64% margins in the prior year.
GAAP operating income for the full year of 2010 was $23.3 million, compared with $8.8 million in 2009. Pro forma GAAP operating income for the year increased 130% to $20.2 million, compared with $8.8 million a year ago. Non-GAAP operating income for the full year was $39.0 million, compared with $24.1 million in 2009. Pro forma non-GAAP operating income increased 49% to $35.9 million, compared with $24.1 million last year.
GAAP net income for the full year increased to $22.8 million, compared with $5.2 million in 2009. Pro forma GAAP net income for the full year increased 178% to $14.4 million, compared with $5.2 million in 2009. Non-GAAP net income for 2010 increased to $30.8 million, compared with $11.7 million in 2009. Pro forma non-GAAP net income increased 91% to $22.4 million, compared with $11.7 million in 2009.
Adjusted Non-GAAP net income, which includes the tax impact on stock-based compensation and amortization, for the year was $30.8 million, compared with $11.7 million in 2009. As a result of our full utilization of federal net operating loss carryforwards, there was no tax impact on stock-based compensation and amortization. Pro forma adjusted non-GAAP net income for the year was $20.0 million, compared with $11.7 million in 2009.
Total cash, cash equivalents and marketable securities were $85.5 million at the end of the fourth quarter, a decrease of $3.6 million from the third quarter and compares to $89 million at the end of the fourth quarter 2009. A decrease in deferred revenue due to changing customer payment terms, consistent with our evolution as a Software-as-a-Service provider, had an impact on year-to-date cash flow, as did a temporary increase in accounts receivable, which resulted from an ERP systems migration during the quarter.
Financial Outlook
For the full year 2011, the company expects revenues to be between $180 and $188 million. This range includes a $4.8 million reduction in 2011 NCI revenue the company had expected to recognize from its backlog. Excluding this effect, the midpoint of our revenue growth forecast for 2011 over pro forma 2010 would have been 16%, in line with the company's long term organic target range. Non-GAAP operating income is expected to be between $43 and $47 million. Based on current estimates, this would equate to GAAP operating income between $26 and $30 million. Non-GAAP net income is expected to be between $35 and $39 million. Based on current estimates, this would equate to GAAP net income between $25 and $29 million. Cash flow from operations is expected to be over $40 million.
Beginning of year backlog for full year 2011 was $135 million, which represents the amount of 2011 contractual revenue booked as of January 1, 2011. This compares to beginning of year backlog for full year 2010 as of January 1, 2010 of $132 million. The difference between the backlog and revenue guidance includes renewals of large agreements, new product traction, as well as additional business from new and existing customers.
For the first quarter of 2011, the company expects revenues to be between $40.5 and $41.5 million. The company expects non-GAAP operating income to be between $7 and $8 million. Based on current estimates this would equate to GAAP operating income of $3 and $4 million. Non-GAAP net income is expected to be between $5 and $6 million. Based on current estimates, this would equate to GAAP net income of between $3 and $4 million.
While changes in the stock price could change the fully diluted share count, the company is assuming 24.8 and 25.1 million fully diluted shares in the first quarter and full year, respectively.
Bruce Dalziel, chief financial officer, noted, "We finished 2010 with very good momentum. We expect 2011 to be another excellent year for Medidata, including expectations of strong cash flow generation. Our vision of helping customers develop successful drugs faster and more efficiently continues to resonate in the market, as we provide better information for critical portfolio decisions. Our success is scalable and we will continue to execute."
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