Medidata Solutions second quarter net revenues increase 25% to $50.2 million

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 second quarter 2011, as well as provided financial guidance for the third quarter and full year 2011.

Highlights

• Revenues increased 25% year on year to $50.2 million, based on strong market adoption of its growing SaaS-based clinical development technology portfolio of products and the impact of renewals. Excluding a $3.5 million accounting impact of two large renewals, revenues increased 16% year on year to $46.7 million.
• Gross margins were 73%, above the company's previously stated long term target range.
• Non-GAAP operating income increased 81% to $15 million, including the $3.5 million accounting impact of two large renewals, and approximately $1 million in additional commissions and fees associated with the acceleration of revenues and the Clinical Force acquisition, which were not included in guidance.
• The company generated cash flow from operations of $11.6 million in the first half of 2011, an increase of 290% year over year.
• The acquisition of Clinical Force closed early in the third quarter, adding robust SaaS-based clinical trial management system (CTMS) capabilities to the rich functionality of the Medidata platform.
• Medidata won nine new customers globally, including Ardea Biosciences and CRO Veristat.
• Customers continue to move to production usage of Medidata's expanded product portfolio following pilots, including a Top 5 pharma company using Medidata Designer as its protocol development tool and customers in Asia and the U.S. using Medidata Balance for randomization and clinical supply management.
• One of the largest clinical research organizations (CRO) in Japan joined the Medidata Services Partner program.
• Lee Shapiro, president of Allscripts Healthcare Solutions, Inc., joined Medidata's board of directors.

"We delivered another excellent quarter, highlighting our strong execution, the financial leverage of our business model and our ability to meet customers' expectations for operational excellence," said Tarek Sherif, Medidata's chief executive officer. "The Clinical Force acquisition, combined with internally-driven innovation, has dramatically expanded our SaaS platform, reinforcing our position as the leading solutions provider meeting the rapidly evolving needs of the clinical development industry."

Financial Review

Net revenues for the second quarter of 2011 were $50.2 million, an increase of $9.9 million, or 25%, compared with $40.3 million in the second quarter of 2010. Application services revenues increased 21%, or $6.9 million, to $39.0 million, while professional services revenues increased 37%. Professional services revenues increased due to a number of factors, including strong demand and the timing of revenue recognition following the company's adoption of a new GAAP accounting standard at the beginning of 2011.

Net revenues for the quarter include a $3.5 million one-time acceleration of revenue recognition related to two large customer renewals which was not included in guidance. Of the $3.5 million, $2.3 and $1.2 million related to professional services and application services revenue, respectively. Excluding the accounting impact of these two large renewals, net revenues for the quarter were $46.7 million, an increase of $6.3 million, or 16% year on year.

Operating income and net income figures also include approximately $1 million in additional commissions and fees associated with the acceleration of revenues and the Clinical Force acquisition, which were not included in guidance.

Gross margins in the second quarter of 2011 were 73%, an increase of almost 5 percentage points over gross margins of 68% a year ago. Excluding a $3.5 million acceleration of revenue recognition related to two large customer renewals, gross margins were 71%, achieving the company's previously stated long term target range.

Income before taxes increased to $10.7 million in the second quarter of 2011, compared with $4.6 million in the second quarter of 2010.

Non-GAAP operating income for the second quarter of 2011 increased 81% to $15.0 million, compared with $8.3 million a year ago. GAAP operating income for the quarter increased 143% to $10.7 million, compared with $4.4 million a year ago.

Non-GAAP net income for the second quarter of 2011 increased to $12.6 million, or $0.51 per diluted share, compared with $5.0 million, or $0.21 per diluted share, in the second quarter of 2010. GAAP net income for the second quarter of 2011 increased to $10.0 million, or $0.40 per diluted share, compared with $3.0 million, or $0.13 per diluted share, in the second quarter of 2010.

Total cash, cash equivalents and marketable securities were $94.2 million at the end of the second quarter, an increase of $3.1 million from the first quarter, and compares to $86.2 million at the end of the second quarter 2010 and $85.5 million at the end of the fourth quarter 2010. On a year to date basis, cash flow from operations at the end of the second quarter was $12 million, an increase of $6 million in the quarter and $8.6 million over the same period last year. The increase was driven by the company's improving profitability and changes in working capital. Total remaining backlog for the year was $74 million as of June 30, 2011.

Financial Outlook

For the full year 2011, the company expects revenues to be between $182 and $186 million. 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.

For the third quarter of 2011, the company expects revenues to be between $45 and $46 million. The company expects non-GAAP operating income to be between $10 and $11 million. Based on current estimates this would equate to GAAP operating income of $5.5 and $6.5 million. Non-GAAP net income is expected to be between $8 and $9 million. Based on current estimates, this would equate to GAAP net income of between $5 and $6 million.

While changes in the stock price could change the fully diluted share count, the company is assuming 24.9 million fully diluted shares in the third quarter and full year.

Bruce Dalziel, chief financial officer, noted, "This was another strong, steady quarter of growth for Medidata. We are helping customers drive faster decision making, speed time to market and lower their total cost of clinical development, and this resonates deeply with our client base and fuels our growth."