Medidata Solutions fourth quarter net revenues increase 24% to $58.6 million

Medidata Solutions (NASDAQ: MDSO), a leading global provider of cloud-based clinical technology solutions that enhance the efficiency of clinical development, today announced its financial results for the fourth quarter and full year 2012, and provided detailed financial guidance for the first quarter and full year 2013.

"Our stellar fourth quarter, strong execution in 2012 and accelerating growth highlight Medidata as the leading cloud-based platform provider in the life sciences industry," said Tarek Sherif, Medidata's chief executive officer. "The Medidata Clinical Cloud is becoming a de facto standard for life science organizations, helping them transform their clinical development activities by improving decision making and productivity. Our market is dynamic and growing with many life sciences companies emerging from a prolonged period of retrenchment, once again focused on aggressively developing new drugs. In this environment, our existing cloud offerings and ability to innovate, coupled with our customer-centric focus and great execution, position us for continued success."

Full Year and Fourth Quarter Highlights

• Full year revenues increased to $218.3 million, up $33.9 million, or 18%, year-over-year.
• Application services backlog grew to a record $186 million, up 38% year-over-year, compared with a 23% increase for the comparable period last year.
• Non-Rave revenues increased 135% year-over-year to $31.1 million, or 14% of total revenue.
• Medidata's customer base grew to 350 in the fourth quarter of 2012, up 27% from the end of 2011. Medidata added 28 new customers in the fourth quarter.
• At the end of 2012, 38% of customers had committed to multiple products, an increase of 46% over the previous year.
• Medidata's revenue retention rate for the year was over 98%, with a 100% renewal rate for all enterprise customers in 2012.
• New and enhanced modules were made available in the Medidata Clinical Cloud in the fourth quarter, including new budgeting capabilities, enhanced clinical trial management system (CTMS) integrations, and new functionality for clinical supply logistics in complex studies.

Sherif added, "Our aggressive investment strategy in 2012 has changed our growth trajectory. We are starting 2013 with strong momentum based on our solid backlog and recognition that we are leading the industry in solving critical problems that help our customers plan and execute the clinical trials of the future."

Financial Highlights

Fourth Quarter 2012 Results

Net revenues for the fourth quarter of 2012 increased 24% to $58.6 million, compared with $47.2 million in the fourth quarter of 2011. The increase in revenues was primarily due to an $11.7 million, or 32%, increase in application services revenues.

Gross margins in the fourth quarter of 2012 were in line with the company's expectations at 72%, a decrease of 1 percentage point over gross margins of 73% a year ago.

GAAP operating income for the quarter increased to $9.3 million, compared with $0.8 million a year ago. Non-GAAP operating income* for the fourth quarter of 2012 increased to $14.0 million, compared with $11.6 million a year ago.

For the fourth quarter and full year of 2011, GAAP operating income reflected, among other items, a $6.3 million settlement of litigation. GAAP net income also included a favorable non-cash tax benefit of $19 million resulting from the reversal of the majority of the company's tax valuation allowance. The company's non-GAAP results excluded, among other items, the impact of the one-time charge and tax benefit.

GAAP net income for the fourth quarter of 2012 was $6.6 million, or $0.25 per diluted share, compared with $18.7 million, or $0.76 per diluted share, in the fourth quarter of 2011. Non-GAAP net income* for the fourth quarter of 2012 was $9.8 million, or $0.38 per diluted share, compared with $9.0 million, or $0.37 per diluted share, in the fourth quarter of 2011. Adjusted non-GAAP net income* for the fourth quarter of 2012 was $9.1 million, or $0.35 per diluted share, compared with $9.0 million, or $0.37 per diluted share, in the fourth quarter of 2011.

Full Year 2012 Results

Net revenues for the full year of 2012 were $218.3 million, an increase of $33.9 million, or 18%, compared with $184.5 million in 2011. The increase in revenues was the result of a $27.2 million, or 19%, increase in revenues from application services and 17% growth in professional services revenue.

Operating expenses for the full year increased 17% to $127.8 million, compared with $109.1 million in 2011 primarily due to growth related initiatives. These include increased staffing-related costs in R&D, higher sales compensation and sales-related expense, and certain charges in G&A related to higher professional fees and miscellaneous charges.

For the full year 2012, gross margins were consistent at 71% versus a year ago.

GAAP operating income for the full year of 2012 was $27.9 million, compared with $22.6 million in 2011. Non-GAAP operating income for the full year was $47.1 million, compared with $45.7 million in 2011.

GAAP net income for the full year was $18.0 million, or $0.71 per diluted share, compared with $39.4 million, or $1.60 per diluted share, in 2011. Non-GAAP net income for 2012 was $31.0 million, or $1.22 per diluted share, compared with $37.3 million, or $1.51 per diluted share, in 2011. Adjusted non-GAAP net income for 2012 was $26.4 million, or $1.03 per diluted share, compared with $37.3 million, or $1.51 per diluted share, in 2011.

Total cash, cash equivalents and marketable securities were $122.6 million at the end of the fourth quarter, an increase of $14.9 million as compared with $107.7 million at the end of the fourth quarter 2011. For the full year, the company generated cash flow from operations of $13.2 million, which was impacted by the timing of payments from certain accounts at year-end and our full effective tax rate in 2012.

Financial Outlook

For the full year 2013, the company expects:

• Revenues between $265.0 and $270.0 million.
• Professional services revenues in the high $40 million range.
• Non-GAAP operating income between $57.0 and $60.0 million. Based on current estimates, this would equate to GAAP operating income between $20.0 and $23.0 million.
• Adjusted non-GAAP net income, which includes the tax affected impact from stock-based compensation and amortization at a 40% effective tax rate, between $28.0 and $31.0 million. Based on current estimates, this would equate to GAAP net income between $10.5 and $13.5 million.
• While changes in the stock price could change the fully diluted share count, the company is assuming 26.8 million fully diluted shares.

Full year application services backlog as of January 1, 2013 increased 38% to $186 million over the comparable period a year ago. This compares with a 23% increase in full year application services backlog as of January 1, 2012 over the comparable prior period. The difference between the application services backlog and the balance of revenue guidance for the remainder of the year includes professional services revenue guidance and expected additional business from new and existing customers.

For the first quarter of 2013, the company expects:

• Revenues between $60.5 and $61.5 million.
• Non-GAAP operating income between $11.0 and $12.0 million. Based on current estimates this would equate to GAAP operating income between $4.0 and $5.0 million.
• Adjusted non-GAAP net income, which includes the tax effected impact from stock-based compensation and amortization at a 40% effective tax rate, between $5.0 and $6.0 million. Based on current estimates, this would equate to GAAP net income between $2.0 and $3.0 million.
• While changes in the stock price could change the fully diluted share count, the company is assuming 26.3 million fully diluted shares.

"Medidata's fourth quarter and full year 2012 results clearly reflect our growing momentum in the market as we delivered strong revenue growth and solid margins, in a period of significant investment in the business," said Cory Douglas, chief financial officer. "Overall we are very pleased with our financial performance in 2012 and given our disciplined approach to investing and the large market opportunity we see ahead of us, we feel well positioned to accelerate our top line growth in 2013 in excess of our long-term target."