INC Research/inVentiv Health Reports Third Quarter 2017 Results
Source:

GLOBE NEWSWIRE

November 9, 2017

RALEIGH, N.C., Nov. 09, 2017 (GLOBE NEWSWIRE) — INC Research (NASDAQ:INCR), which, following the completion of the merger on August 1, 2017 with inVentiv Health (“the Merger”), we refer to as INC Research/inVentiv Health (“the Company”), the only fully-integrated biopharmaceutical solutions organization combining a CRO and a CCO (Contract Commercial Organization), today reported financial results for the third quarter and year-to-date periods ended September 30, 2017. To aid investors and analysts with year-over-year comparability of results for the merged business, we are including certain “Combined Company” metrics that represent combined financial information of INC Research and inVentiv Health as if the Merger had taken place on January 1, 2016, with conforming adjustments to the current year presentation. Please refer to the “Use of Non-GAAP Financial Measures” and “Reconciliation of GAAP to Combined Company Non-GAAP Measures” included in this press release and accompanying tables for important disclosures about non-GAAP measures and a reconciliation of these measures to the nearest GAAP measure.

“We’ve experienced a quarter of rapid evolution as we achieve integration milestones at an accelerated pace, and we have significant customer interest in our unique, integrated business model. By combining clinical and commercial insights to deliver Real-World Evidence/late phase capabilities and full commercialization, we’re seeing an increasing interest from customers for our high-value solutions in a highly competitive market,” said Chief Executive Officer Alistair Macdonald.

“In the Clinical segment, our momentum continues with another strong quarter of net awards, illustrating our ability to leverage our complementary customer bases, delivery platforms, and market approaches. While our Commercial segment performance was lower than expected, over time we expect this to improve with potentially more quarterly variability than our CRO business. Specifically, we remain confident in our ability to deliver on our long-term Commercial growth through our market leading offering in an improving sales environment stemming from increased drug approvals and related new drug launches and expectations that this trend will continue over the near and mid-term.”

“We’re confident in unlocking meaningful value from this combination and remain on target to achieve the $100 million of annual savings by year three while building market momentum. All of this is made possible by the dedicated efforts of our transition management team and the thousands of INC Research/inVentiv Health employees worldwide who are committed to speeding the delivery of important therapies for our customers and the patients they serve.”

Third Quarter 2017 Results

Net service revenue for the three months ended September 30, 2017 increased by $332.7 million, or 128.2%, to $592.2 million from $259.6 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, net service revenue increased by $335.0 million, or 43.7%, to $1.10 billion from $767.4 million for the nine months ended September 30, 2016. Our total net service revenue increased compared to the same periods in the prior year, solely due to the Merger, which accounted for $340.8 million of the increase for both the three and nine months ended September 30, 2017. This increase was partially offset by a decline in revenues due to continued customer and regulatory delays, which we believe are transitory in nature. In addition, under purchase accounting rules, approximately $12.7 million of inVentiv Health deferred revenue, which otherwise would have been recognized as revenue in the three months ended September 30, 2017, was eliminated. The impact of fluctuations in foreign currency exchange rates on net service revenue was not material for the three months ended September 30, 2017. During the nine months ended September 30, 2017, fluctuations in foreign currency exchange rates resulted in an unfavorable impact of $7.1 million on net service revenue as compared to the nine months ended September 30, 2016.

Combined Company non-GAAP net service revenue for the three months ended September 30, 2017 decreased by $48.7 million, or 6.0%, to $766.6 million from $815.2 million for the three months ended September 30, 2016, respectively. Combined Company non-GAAP net service revenue for the nine months ended September 30, 2017 decreased by $93.8 million, or 3.9%, to $2.33 billion from $2.43 billion for the three months ended September 30, 2016, respectively. Combined Company non-GAAP net service revenue for the three and nine months ended September 30, 2017 includes revenue of $13.2 million and $27.0 million, respectively, eliminated as part of purchase accounting.

For the three and nine months ended September 30, 2017, our Combined Clinical Solutions Segment generated adjusted net service revenue of $533.4 million and $1.58 billion, respectively, representing an increase of 2.6% for each period compared to $519.8 million and $1.54 billion for the three and nine months ended September 30, 2016, respectively. Our Combined Clinical Solutions segment revenue increased primarily due to our strong bookings in 2017, partially offset by continued customer delays.

For the three and nine months ended September 30, 2017, our Combined Commercial Solutions Segment generated net service revenue of $233.2 million and $752.9 million, respectively, compared to $295.5 million and $887.3 million, during the three and nine months ended September 30, 2016, respectively. Our Combined Commercial Solutions Segment revenue declined by 21.1% and 15.1%, respectively, for the three and nine months ended September 30, 2017 compared to the same periods in 2016. The decrease in revenue was primarily due to (i) the impact of cancellations at the end of 2016, (ii) further cancellations in third quarter of 2017, and (iii) lower new drug approval activity during 2016.

For the three and nine months ended September 30, 2017, we generated a loss from operations of $88.9 million and $43.9 million, respectively, compared to income from operations of $39.4 million and $111.6 million for the three and nine months ended September 30, 2016, respectively. Our operating results for the three and nine months ended September 30, 2017 were impacted by (i) Merger-related transaction expenses of $84.3 million and $108.1 million, respectively, (ii) an impairment charge of $30.0 million recorded in the third quarter of 2017 with respect to the INC Research trademark and intangible asset, and (iii) an increase in amortization expense of $41.9 million in both periods due to the acquisition of intangible assets as a result of the Merger.

Our income (loss) from operations includes expenses associated with certain transactions that we believe are not representative of our core operations. Excluding these items, adjusted Combined Company non-GAAP income from operations decreased to $120.5 million and $366.5 million for the three and nine months ended September 30, 2017, respectively, compared to $133.7 million and $382.4 million for the three and nine months ended September 30, 2016, respectively. Adjusted operating margin for both the three and nine months ended September 30, 2017, was 15.7%, compared to 16.4% and 15.8%, respectively, for the same periods in 2016.

For the three and nine months ended September 30, 2017, we reported a net loss of $148.0 million and $123.4 million, respectively, resulting in a diluted loss per share of $1.70 and $1.90, respectively. For the three and nine months ended September 30, 2016, we reported net income of $27.3 million and $75.1 million, respectively, or $0.49 and $1.35 per diluted share, respectively. Combined Company adjusted net income for the three and nine months ended September 30, 2017 was $56.5 million and $164.2 million, or $0.54 and $1.56 per diluted share, respectively, compared to $49.2 million and $135.2 million, or $0.47 and $1.28 per diluted share, for the three and nine months ended September 30, 2016, respectively.

Combined Company adjusted EBITDA for the three and nine months ended September 30, 2017 was $138.9 million and $424.5 million, respectively, compared to $153.1 million and $439.4 million for the three and nine months ended September 30, 2016, respectively. For the three-month periods ended September 30, 2017 and 2016, adjusted EBITDA margin was 18.1% and 18.8%, respectively. For the nine-month periods ended September 30, 2017 and 2016, adjusted EBITDA margin was 18.2% and 18.1%, respectively.

Important disclosures about and reconciliations of non-GAAP measures, including Combined Company non-GAAP measures related to adjusted net service revenue, adjusted income from operations, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, to the nearest corresponding GAAP measures are provided below under “Use of Non-GAAP Financial Measures.”

New Business Awards and Backlog

In connection with the Merger, we re-evaluated our existing backlog policy for our Clinical Solutions Segment. As a result of this evaluation, effective during the third quarter of 2017, we changed our policy for calculating and reporting the amounts of our net new business awards and backlog. Under our new policy our Combined Company Clinical Solutions backlog was adjusted from $4.80 billion to $3.72 billion as of September 30, 2017. Prior to the adoption of our new policy, our Combined Company Clinical Solutions net new business awards for the three and nine months ended September 30, 2017 were $755.0 million and $2.13 billion, respectively, resulting in a book-to-bill of 1.4x and 1.3x, respectively. Under our new policy, we adjusted Combined Company Clinical Solutions net new business awards for the three and nine months ended September 30, 2017 to $683.2 million and $1.88 billion, respectively, representing a book-to-bill ratio of 1.3x and 1.2x, respectively.

Business Outlook

The Company’s fourth quarter guidance for 2017 is outlined in the following table. The guidance takes into account a number of factors, including current sales pipeline, trends in cancellations and delays, and our expectations for commercial sales during the fourth quarter of 2017. Furthermore, our guidance is based on current foreign currency exchange rates, current interest rates, and our expected tax rates.

mportant disclosures about and reconciliations of non-GAAP measures, including adjusted net service revenue, adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to the corresponding GAAP measures are provided below under “Use of Non-GAAP Financial Measures.”

Webcast and Conference Call Details

INC Research/inVentiv Health will host a conference call at 8:00 a.m. EST on November 9, 2017, to discuss its third quarter and year-to-date 2017 financial results. The live webcast will be available in listen-only mode in the Events section of the Company’s Investor Relations website at investor.incresearch.com. To participate via phone, please dial +1 (877) 930-8058 within the United States or +1 (253) 336-7551 outside the United States, approximately 15 minutes before the scheduled start of the call. The conference ID for the call is 3396217.

An archived replay of the conference call is expected to be available online at investor.incresearch.com after 1:00 p.m. EST on November 9, 2017. 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 the United States or +1 (404) 537-3406 outside the United States. The audio replay ID is 3396217.

About INC Research/inVenitv Health

INC Research/inVentiv Health (NASDAQ:INCR) is the only fully integrated biopharmaceutical solutions organization. The Company, including a Contract Research Organization (CRO) and Contract Commercial Organization (CCO), is purpose-built to address new market realities where clinical and commercial operations share expertise, data, and insights to accelerate biopharmaceutical performance. With more than 22,000 employees and the ability to support customers in more than 110 countries, its global scale and deep therapeutic alignment enables INC Research/inVentiv Health to help customers successfully navigate an increasingly complex environment. For more information on the Raleigh, N.C.-based company, please visit www.incresearch.com or inventivhealth.com.

Forward-Looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained in this press release 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: risks associated with the integration of our business with the business of inVentiv, and our operation of the combined business following the closing of the Merger; our ability to maintain or generate new business awards; our ability to increase our market share, grow our business, and execute our growth strategies; 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; general and international economic, political, and other risks, including currency and stock market fluctuations and the uncertain economic environment; fluctuations in our financial results; reliance on key personnel; our customer or therapeutic area concentration; and the other risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 10-Q for the quarter ended June 30, 2017, and other SEC filings, copies of which are available free of charge on our website at investor.incresearch.com. INC Research assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with U. S. Generally Accepted Accounting Principles (“GAAP”), this press release contains certain Combined Company and Combined Segment non-GAAP financial measures, including net service revenue, 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 from 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. To aid investors and analysts with year-over-year comparability for the merged business, the Company has included financial information that combines certain stand-alone INC Research and inVentiv Health financial information as if the merger had taken place on January 1, 2016, with conforming adjustments to the current year presentation.

The Company defines Combined Company adjusted net service revenue as the stand-alone INC Research and inVentiv Health net service revenue as if the merger had taken place on January 1, 2016, with conforming adjustments to the current year presentation and adjusted to include revenue eliminated under purchase accounting.

The Company defines Combined Company adjusted income from operations as income from operations excluding expenses and transactions that the Company believes are not representative of its core operations, namely, acquisition-related deferred revenue adjustments; acquisition-related amortization; restructuring and other costs; transaction and integration-related expenses; asset impairment charges; share-based compensation expense; contingent consideration and other expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; and acquisition-related revaluation adjustments. The Company defines Combined Company adjusted operating margin as adjusted income from operations as a percentage of adjusted net service revenue.

The Company defines Combined Company adjusted net income (including adjusted diluted earnings per share) as net income (including diluted earnings per share) excluding the items excluded from adjusted income from operations mentioned previously, bridge financing fees, loss on extinguishment of debt, and other expense, net. After giving effect to these items and other unusual tax impacts during the period, the Company has also included an adjustment to its income tax rate to reflect the expected long-term income tax rate.

EBITDA represents earnings before interest, taxes, depreciation and amortization. The Company defines adjusted EBITDA as EBITDA, further adjusted to exclude certain expenses and transactions that the Company believes are not representative of its core operations, namely, acquisition-related deferred revenue adjustments; restructuring and other costs; transaction and integration-related expenses; asset impairment charges; share-based compensation expense; contingent consideration and other expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; acquisition-related revaluation adjustments; other expense, net; and loss on extinguishment of debt. The Company presents EBITDA and adjusted EBITDA because it believes they are useful metrics for investors as they are commonly used by investors, analysts, and debt holders to measure the Company’s ability to fund capital expenditures and meet working capital requirements.

Each of the non-GAAP measures noted above are used by management and the Company’s board of directors (the “Board”) to evaluate the Company’s core operating results because 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 the Company’s business.

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. Also, other companies might calculate these measures differently. 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.

Posted in: Finance, Operations

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