Quintiles' growth in service revenues increases 7.7% in Q4 2013

Feb 13 2014

Quintiles Transnational Holdings Inc. ("Quintiles" or the "Company") (NYSE: Q) today reported its financial results for the fourth quarter ended December 31, 2013.

For the three months ended December 31, 2013, the Company's growth in service revenues, excluding the impact of foreign currency fluctuations ("constant currency service revenue growth"), increased 7.7%, or $72.5 million compared to the same period last year. At actual foreign exchange rates, service revenues grew $58.1 million to $1.0 billion, representing growth of 6.2% compared to the same period last year including an unfavorable foreign currency impact of 1.5%, or $14.4 million. Constant currency service revenue growth resulted from growth in the Product Development segment including the acquisition of Novella Clinical completed in September 2013, partially offset by a decrease in the Integrated Healthcare Services segment.

Adjusted income from operations was $129.2 million in the fourth quarter of 2013, representing growth of 12.8% compared to the prior year. The adjusted income from operations margin was 12.9%, representing 80 basis points of expansion compared to the same period last year. Adjusted net income was $76.5 million in the fourth quarter of 2013, representing growth of 58.2% compared to the same period last year. Diluted adjusted earnings per share was $0.58 in the fourth quarter ended December 31, 2013, representing growth of 41.5% compared to the same period last year. Reported GAAP income from operations was $127.0 million, reported GAAP net income was $73.0 million and reported GAAP diluted earnings per share was $0.55 for the three months ended December 31, 2013. Reconciliations of the non-GAAP measures, including adjusted income from operations, adjusted net income and diluted adjusted earnings per share to the corresponding GAAP measures are attached to this press release.

For the year ended December 31, 2013, the Company's constant currency service revenue growth was 5.1% or $186.6 million compared to 2012. At actual foreign exchange rates, the Company's service revenues grew 3.1% compared to 2012 to $3.8 billion, including an unfavorable foreign currency impact of 2.0% or $70.6 million. Adjusted income from operations for the year ended December 31, 2013 was $504.1 million, representing growth of 13.2% and 110 basis points of margin expansion compared to the same period last year. Adjusted net income was $268.9 million for the year ended December 31, 2013, representing growth of 28.7% compared to the same period last year. Diluted adjusted earnings per share was $2.10 for the year ended December 31, 2013, representing growth of 18.6% compared to the same period last year. Reported GAAP income from operations was $462.3 million, reported GAAP net income was $226.6 million and reported GAAP diluted earnings per share was $1.77 for the year ended December 31, 2013.

Net new business of $1.3 billion and $4.9 billion was recorded for the quarter and twelve months ended December 31, 2013, respectively, representing a book-to-bill ratio of 1.29 for both the fourth quarter and year ended December 31, 2013. This net new business contributed to an ending backlog of $9.9 billion on December 31, 2013.

"We enter 2014 positioned for growth with our strong 2013 performance," said Tom Pike, chief executive officer. "2013 was a year of entry into the public markets punctuated by the strength of our leadership, customer relationships, deepening scientific and therapeutic expertise, and enhanced data and analytics capabilities, all coupled with predictable service delivery. We made progress on our growth strategy, concluding 2013 with another strong quarter in net new business generating a book-to-bill ratio of 1.29 for the full year. In addition, we expanded our best in industry income from operations margins and grew our full year diluted adjusted earnings per share by 18.6%, compared to the prior year. All of these achievements are enabled by the talented and dedicated team of professionals working at Quintiles.

"We continue to see strong demand across all clinical phases of the pipeline with a greater interest in end-to-end integrated solutions underpinned with data analytics. We are well positioned entering 2014 with the largest backlog in the industry at $9.9 billion dollars which will fuel 2014 constant currency service revenue and earnings growth. We have one foot in today focused on delivery and another foot in tomorrow focused on redefining our industry with innovations and valued solutions that we believe will contribute to improving the healthcare landscape."

The Product Development segment net new business totaled $964.0 million in the current quarter and $3.8 billion for the twelve months ended December 31, 2013 which translates into a book-to-bill ratio of 1.24 for the fourth quarter and 1.29 for the year ended December 31, 2013. Product Development's constant currency service revenue growth was 10.7%, or $75.1 million during the fourth quarter of 2013 compared to the same period last year. At actual foreign exchange rates, Product Development's service revenues grew 10.2% compared to the same period last year to $775.0 million. The constant currency service revenue growth resulted from a volume-related increase in core clinical services and global labs and the acquisition of Novella in 2013, partially offset by the continuing wind down of two large projects. Product Development's income from operations margin was 19.7% for the fourth quarter, representing an improvement of 190 basis points compared to the same period last year.

The Integrated Healthcare Services segment net new business totaled $335.0 million in the current quarter and $1.1 billion for the year ended December 31, 2013 which translates into a book-to-bill ratio of 1.47 for the fourth quarter and 1.27 for the year ended December 31, 2013. On a constant currency basis, Integrated Healthcare Services' service revenues declined 1.1% or $2.6 million during the fourth quarter of 2013 compared to the same period last year primarily due to lower new business won in the first half of 2013, negative scope modifications and cancellations. At actual foreign exchange rates, Integrated Healthcare Services' service revenues declined 5.7%, or $13.9 million, compared to the same period last year to $228.9 million of which $11.3 million or 4.6% was due to unfavorable foreign currency fluctuations. Integrated Healthcare Services' income from operations margin was 5.1% for the fourth quarter.

General corporate and unallocated expenses were $35.4 million during the fourth quarter compared to $37.5 million for the same period last year and $128.0 million for the full year ended December 31, 2013 compared to $123.3 million for the same period in 2012.

Interest expense was $26.8 million during the fourth quarter compared to $38.4 million for the same period last year and $123.5 million for the full year ended December 31, 2013 compared to $134.4 million for the same period in 2012.

The GAAP effective income tax rate was 27.5% for the fourth quarter of 2013 compared to 36.3% for the same period in 2012 and 29.7% for the full year ended December 31, 2013 compared to 34.9% for 2012. The effective income tax rates for the three and twelve months ended December 31, 2013 were positively impacted by the Company's change in income tax accounting as a result of its change in assertion that the undistributed earnings of most of the Company's foreign subsidiaries are indefinitely reinvested outside of the United States.

Recent Events

The Company repurchased approximately 153,200 shares of its common stock and 2.0 million vested in-the-money employee stock options under the equity repurchase program approved in October 2013 for an aggregate purchase price of $65.5 million. As of December 31, 2013, $59.5 million of authorization remains available under the repurchase program.

Financial Guidance

For 2014, the Company expects to achieve service revenues between $4.09 billion and $4.15 billion, representing a constant currency growth range of 7.4% to 9.0%, and diluted adjusted earnings per share of $2.33 to $2.46 per share, representing growth of 11.0% to 17.1% with diluted GAAP earnings per share between $2.26 and $2.40 per share, and an annual effective income tax rate estimated at approximately 30%. This financial guidance assumes the first of January foreign currency exchange rates, but does not reflect the potential impact of future equity repurchases.