Medidata net revenues increase 11% to $184.5M for full year 2011

Medidata Solutions (NASDAQ: MDSO), a leading global provider of SaaS clinical technology solutions that enhance the efficiency of clinical development, today announced its financial results for the fourth quarter and full year 2011, and provided detailed financial guidance for the first quarter and full year 2012.

"Medidata's record financial and operational performance reflects growing customer reliance on our integrated clinical development solutions," said Tarek Sherif, chief executive officer. "We are at an inflection point in our growth, driven by market share gains and sales of our non-Rave products. The projected acceleration of our revenue is well supported by the significant backlog with which we enter 2012, as well as a rich pipeline of opportunities. Enabling our customers to cost-effectively transform their clinical research processes through our cloud-based platform creates significant, measurable value for our customers and will continue to drive our future growth."

Fourth Quarter and Full Year Highlights

• Full year revenues increased to $184.5 million, up $18 million, or 11%, year on year.
• Non-Rave revenues increased 52% year over year to $13.2 million, or 7% of total revenue as new and existing customers embrace Medidata's cloud-based technology.
• Full year gross margins were 71%, up 2% year on year. Fourth quarter gross margins increased to 73%.
• Full year non-GAAP operating income increased 17% year on year, to $45.7 million, exceeding the company's guidance of $44.5 to $45.5 million. Non-GAAP operating income excludes, among other items, the impact of a $6.3 million one-time litigation settlement charge.
• Full year GAAP operating income decreased 3% year on year, to $22.6 million, which among other items, includes the impact of a $6.3 million one-time charge. Excluding the impact of these fourth quarter charges, GAAP operating income would have been $29.1 million, exceeding the company's guidance of $27.5 to $28.5 million.
• Full year non-GAAP operating margins increased over 135 basis points to 24.8%, which among other items, excludes the impact of a $6.3 million one-time charge.
• Full year GAAP operating margins decreased 160 basis points to 12.3%, which among other items, includes the impact of a $6.3 million one-time charge.
• Cash flow from operations for the year increased over 360% to $28.7 million. Excluding the payment of a $6.3 million one-time charge, cash flow from operations were in line with the company's guidance of $35 million.
• Medidata added 86 new customers in 2011 for a total of 275 at year end, with 25 new customers added in the fourth quarter.
• Customers continued to buy additional products from Medidata's expanded portfolio, with 33% of Medidata customers now purchasing more than one product.
• In 2011, Medidata successfully renewed 100% of its enterprise contracts up for renewal, representing some of the world's largest pharmaceutical companies.
• In 2011 Medidata launched additional products and functionality in its clinical trial concept to conclusion portfolio, including the clinical business analytics solution Medidata Insights™, the easy-to-use, centralized coding tool Medidata Coder and the automated site negotiating tool Medidata Grants Manager Contracting™. It also acquired Clinical Force, a pioneer in offering a flexible, modular Clinical Trial Management System (CTMS).

Sherif added, "While 2011 was a transitional year for Medidata, we are beginning this year with tremendous momentum based on our financial performance, excellent customer retention, feature-rich solution and a solid reputation for innovation and customer service. In 2012, we will continue to invest aggressively in our business, to capitalize on the massive opportunity we see resulting from our customers' evolving clinical development technology needs."

Financial Highlights

Fourth Quarter 2011 Results

Net revenues for the fourth quarter of 2011 were $47.2 million, compared with $47.4 million in the fourth quarter of 2010. The decrease in revenues was due to a $3.9 million, or 10%, decrease in revenues from application services, partially offset by an increase in revenues from professional services. Net revenue and profitability figures for the fourth quarter 2010 included a $3.2 million, one-time acceleration of revenue recognition related to a termination of a government contract on behalf of the National Cancer Institute (NCI).

For the fourth quarter and full year of 2011, GAAP operating income reflects, among other items, a $6.3 million settlement of litigation with DataSci. GAAP net income also includes a favorable non-cash tax benefit of $19 million resulting from the reversal of the majority of the company's tax valuation allowance previously recorded against its net deferred tax assets. The company's non-GAAP results exclude, among other items, the impact of the one-time charge and tax benefit. To facilitate comparability of its results with prior periods, Medidata has provided a supplemental financial table at the end of this release.

Gross margins in the fourth quarter of 2011 were 73%, an increase of 2 percentage points over gross margins of 71% a year ago.

Non-GAAP operating income for the fourth quarter of 2011 decreased to $11.6 million, compared with $13.9 million a year ago. This compares with guidance of $10.5 to $11.5 million. GAAP operating income for the quarter decreased to $0.8 million, compared with $9.9 million a year ago.

Non-GAAP net income for the fourth quarter of 2011 decreased to $9.0 million, or $0.37 per diluted share, compared with $15.5 million, or $0.64 per diluted share, in the fourth quarter of 2010. GAAP net income for the fourth quarter of 2011 increased to $18.7 million, or $0.76 per diluted share, compared with $13.3 million, or $0.55 per diluted share, in the fourth quarter of 2010.

Full Year 2011 Results

Net revenues for the full year of 2011 were $184.5 million, an increase of $18.1 million, or 11%, compared with $166.4 million in 2010. The increase in revenues was the result of a $10.0 million, or 33%, increase in revenues from professional services and growth in application services revenue.

For the full year 2011, gross margins were 71%, an increase of more than 2 percentage points over the 69% margins generated in 2010.

Non-GAAP operating income for the full year was $45.7 million, compared with $39.0 million in 2010. GAAP operating income for the full year of 2011 was $22.6 million, compared with $23.3 million in 2010.

Non-GAAP net income for 2011 increased to $37.3 million, or $1.51 per diluted share, compared with $30.8 million, or $1.28 per diluted share, in 2010. GAAP net income for the full year increased to $39.4 million, or $1.60 per diluted share, compared with $22.8 million or $0.95 per diluted share, in 2010.

Total cash, cash equivalents and marketable securities were $107.7 million at the end of the fourth quarter, an increase of $5.0 million from the third quarter and compares to $85.5 million at the end of the fourth quarter 2010. For the full year, the company generated cash flow from operations of $28.7 million, an increase of over 360%, which includes the payment of a $6.3 million one-time charge. Excluding this payment, cash flow from operations was consistent with guidance of $35 million. A decrease in deferred revenue due to changes in professional services revenue recognition and changing customer payment terms consistent with Medidata's evolution as a Software-as-a-Service provider, continued to have an impact on cash flow.

Financial Outlook

For the full year 2012, the company now expects revenues to be between $210 and $215 million. Professional services revenues are expected to be in the low to mid $40 million range. Non-GAAP operating income is expected to be between $50.0 and $53.0 million. Based on current estimates, this would equate to GAAP operating income between $30.5 and $33.5 million. Non-GAAP net income is expected to be between $31.0 and $34.0 million. Based on current estimates, this would equate to GAAP net income between $18.0 and $21.0 million. The company expects adjusted non-GAAP net income, which includes the tax impact on stock-based compensation and amortization at a 40% effective tax rate, to be between $25.5 and $28.5 million.

Full year application services backlog as of January 1, 2012 increased 23% to $135 million over the comparable period a year ago. This compares with a 4% increase in full year application services backlog as of January 1, 2011 over the comparable prior period. The difference between the application services backlog and balance of revenue guidance for the remainder of the year includes professional services revenue guidance, and expected customer renewals, as well as expected additional business from new and existing customers.

For the first quarter of 2012, the company expects revenues to be between $48.5 and $49.5 million. The company expects non-GAAP operating income to be between $9.0 and $10.0 million. Based on current estimates this would equate to GAAP operating income of $5.0 and $6.0 million. Non-GAAP net income is expected to be between $5.5 and $6.5 million. Based on current estimates, this would equate to GAAP net income of between $3.0 and $4.0 million. The company expects adjusted non-GAAP net income, which includes the tax impact on stock-based compensation and amortization at a 40% effective tax rate, to be between $4.5 and $5.5 million.

While changes in the stock price could change the fully diluted share count, the company is assuming 24.7 and 25.0 million fully diluted shares in the first quarter and full year, respectively.

"Medidata's strong operational and financial performance in 2011 has positioned the company for continued profitable growth in the coming year," said Cory Douglas, chief financial officer. "Given our record cash flow from operations and significant margin expansion over the last few years, we feel well positioned to further invest in our business and capitalize on market opportunities to accelerate growth in 2012 and beyond."