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INC Research Reports Fourth Quarter and Full Year 2016 ResultsHighlights
RALEIGH, N.C., Feb. 28, 2017 (GLOBE NEWSWIRE) -- INC Research Holdings, Inc. (Nasdaq:INCR), a leading global Phase I to Phase IV contract research organization, today reported financial results for the fourth quarter and year ended December 31, 2016. “INC Research delivered a solid performance during the quarter in several key areas, growing net service revenues by 9% and adjusted EPS by approximately 24%. We also were pleased to achieve two key milestones for the full year, surpassing $1.0 billion in net service revenue for the first time in INC’s history and wrapping up the year with a backlog of approximately $2.0 billion,” said Chief Executive Officer Alistair Macdonald. “While we are proud of these accomplishments, new business in the quarter was lower than anticipated due to delayed client decisions with regard to some of our pending proposals, which negatively impacted awards." Mr. Macdonald continued, "As we turn our focus to 2017, we remain confident in our ability to reaccelerate INC’s growth over the mid-to long-term, given our current sales pipeline and the continued investments we are making to strengthen our offerings." Fourth Quarter and Full Year 2016 Results Net service revenue for the three months ended December 31, 2016 increased by 9.0% to $263.0 million, compared to net service revenue of $241.4 million for the three months ended December 31, 2015. Net service revenue for the year ended December 31, 2016 increased by 12.6% to $1,030.3 million, compared to net service revenue of $914.7 million for the year ended December 31, 2015. Net service revenue grew across all therapeutic areas during both the fourth quarter and fiscal year 2016 and has been particularly strong in the central nervous system, oncology and other complex therapeutic areas. During the three months and year ended December 31, 2016, fluctuations in foreign currency exchange rates resulted in an unfavorable impact of $3.1 million and $11.7 million, respectively, on net service revenue compared to the same periods in the prior year. Income from operations for the three months ended December 31, 2016 increased by 10.3% to $43.8 million, compared to $39.7 million for the three months ended December 31, 2015. Income from operations for the year ended December 31, 2016 increased by 2.0% to $155.4 million, compared to $152.4 million for the year ended December 31, 2015. Operating margins for the three months and year ended December 31, 2016 were 16.7% and 15.1%, respectively, compared to 16.4% and 16.7% for the same respective periods in the prior year. The Company's income from operations includes certain expenses and transactions that it believes are not representative of its core operations. Excluding these items, adjusted income from operations was $59.3 million for the three months ended December 31, 2016, compared to $52.0 million for the three months ended December 31, 2015, representing growth of 14.0%. Adjusted income from operations was $223.2 million for the year ended December 31, 2016, compared to $203.2 million for the year ended December 31, 2015, representing growth of 9.8%. Adjusted operating margin for the three months and year ended December 31, 2016, was 22.5% and 21.7%, respectively, compared to 21.5% and 22.2% for the same respective periods in 2015. The Company reported net income for the three months ended December 31, 2016 of $37.5 million, resulting in diluted earnings per share of $0.68, compared to $30.7 million, or $0.53 per diluted share, for the three months ended December 31, 2015. Net income for the year ended December 31, 2016 was $112.6 million, resulting in diluted earnings per share of $2.03, compared to $117.0 million, or $1.95 per diluted share, for the year ended December 31, 2015. Adjusted net income for the three months ended December 31, 2016 was $36.9 million, or $0.67 per diluted share, compared to $31.4 million, or $0.54 per diluted share, for the same period in the prior year. Adjusted net income for the year ended December 31, 2016 was $139.0 million, or $2.50 per diluted share, compared to $120.2 million, or $2.00 per diluted share, for the same period in the prior year. Adjusted EBITDA for the three months ended December 31, 2016 increased 15.5% to $65.4 million, up from $56.6 million for the three months ended December 31, 2015. Adjusted EBITDA for the year ended December 31, 2016 increased 10.5% to $244.5 million, up from $221.4 million for the year ended December 31, 2015. For the three months and year ended December 31, 2016, adjusted EBITDA margins were 24.9% and 23.7%, respectively, compared to 23.4% and 24.2%, for the respective periods in 2015. Important disclosures about and reconciliations of non-GAAP measures, including adjusted income from operations, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, EBITDA and adjusted EBITDA, to the corresponding GAAP measures are provided below. New Business Awards and Backlog Backlog grew by 9.6% to $1.99 billion as of December 31, 2016, compared to $1.81 billion as of December 31, 2015. For the three months and year ended December 31, 2016, fluctuations in foreign currency exchange rates resulted in an unfavorable impact on our December 31, 2016 backlog in the amount of $21.6 million and $19.2 million, respectively, primarily due to the weakening of the Euro and British pound against the U.S. dollar. Net new business awards were $289.6 million for the three months ended December 31, 2016, representing a book-to-bill ratio of 1.1x, compared to $297.4 million for the three months ended December 31, 2015. While net book-to-bill was only slightly below our expectations, cancellations of and delays within our existing backlog had a larger than usual impact on the backlog expected to be recognized as revenue during 2017. Net new business awards were $1.22 billion for the year ended December 31, 2016, representing a book-to-bill ratio of 1.2x, compared to $1.18 billion for the year ended December 31, 2015. Business Outlook The Company's full-year guidance for 2017 is outlined in the following table. The guidance takes into account a number of factors, including current sales pipeline, existing backlog of $872 million expected to be realized in 2017 and our expectations for net awards during 2017. Further, our guidance is based on current foreign currency exchange rates, current interest rates and our expected tax rates, and does not take into account the effects of any future stock repurchases.
Important disclosures about and reconciliations of non-GAAP measures, including adjusted net income and adjusted diluted earnings per share, to the corresponding GAAP measures are provided below. Webcast and Conference Call Details INC Research will host a conference call at 8:00 a.m. EST on February 28, 2017, to discuss its fourth quarter and full year 2016 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 63144979. An archived replay of the conference call will be available online at investor.incresearch.com after 1:00 p.m. EST on February 28, 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 63144979. About INC Research INC Research (NASDAQ:INCR) is a leading global contract research organization ("CRO") providing the full range of Phase I to Phase IV clinical development services for the biopharmaceutical and medical device industries. Leveraging the breadth of our service offerings and the depth of our therapeutic expertise across multiple patient populations, INC Research connects customers, clinical research sites and patients to accelerate the delivery of new medicines to market. The Company was ranked “Top CRO to Work With” among large global CROs in the 2015 CenterWatch Global Investigative Site Relationship Survey. INC Research is headquartered in Raleigh, NC, with operations across six continents and experience spanning more than 110 countries. For more information, please visit us on LinkedIn or on Twitter. Forward-Looking Statements Except for historical information, all of the statements, expectations, and assumptions contained in this press release, including our 2017 guidance, 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: 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 as a result of the recent vote by the United Kingdom to exit from the European Union and the U.S. presidential election results and resulting foreign policy activities; fluctuations in our financial results; our ability to maintain or generate new business awards; our backlog not being indicative of future revenues and our ability to realize the anticipated future revenue reflected in our backlog; reliance on key personnel; our customer or therapeutic area concentration; our ability to increase our market share, grow our business and execute our growth strategies; and the other risk factors set forth in our Form 10-K for the year ended December 31, 2016 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 GAAP, this press release contains certain non-GAAP financial measures, including 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 so as to be different than 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. The Company defines 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 amortization, restructuring, CEO transition and other costs, transaction expenses, asset impairment charges, share-based compensation expense, contingent consideration related to acquisitions and other expense, and R&D tax credit adjustments. The Company defines Adjusted Operating Margin as adjusted income from operations as a percentage of net service revenue. The Company defines 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, other (income) expense and loss on extinguishment of debt. 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, restructuring, CEO transition and other costs, transaction expenses, asset impairment charges, share-based compensation expense, contingent consideration related to acquisitions and other expense, R&D tax credit adjustments, other (income) expense 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 Board to evaluate the Company's core operating results as 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.
(a) Represents the amortization of intangible assets primarily for customer relationships and backlog. (b) Restructuring, CEO transition and other costs consist of: (i) severance costs associated with a reduction of workforce in line with the Company's expectations of future business operations, (ii) transition costs associated with the transition to the Company's new Chief Executive Officer, (iii) legal and consulting costs incurred for the continued consolidation of legal entities and restructuring of the Company's contract financial process to meet the requirements of upcoming accounting regulation changes, and (iv) lease obligation and termination costs in connection with abandonment and closure of redundant facilities. (c) Represents fees associated with stock repurchases, debt placement and refinancings and other corporate transactions. (d) Represents impairment of goodwill and long-lived assets associated with the Company's Phase I Services reporting unit. (e) Represents non-cash share-based compensation expense related to awards granted under equity incentive plans. (f) Represents contingent consideration expense incurred as a result of acquisitions and other expenses accounted for as compensation expense under GAAP. (g) Represents additional research and development tax credits in certain international locations for expenses incurred during 2016 and recorded as a reduction of direct costs. The Company has not received similar level of research and development credits in prior years as the associated costs did not qualify. Accordingly, the Company has excluded these expenses for 2016. (h) Represents other (income) expense comprised primarily of foreign exchange gains and losses. (i) Represents loss on extinguishment of debt associated with the debt refinancing activities in May 2015 and August 2016. (j) Adjustment for the income tax effect of the non-GAAP adjustments made to arrive at adjusted net income using the full year estimated effective tax rate of approximately 34% in 2016 and 36% in 2015, in order to reflect the removal of the tax impact of valuation allowances recorded against deferred tax assets and changes in the assertion to indefinitely reinvest the undistributed earnings of foreign subsidiaries. Historically, the Company recorded a valuation allowance against some of its deferred tax assets, but it believes that these valuation allowances cause significant fluctuations in its financial results that are not indicative of the Company's underlying financial performance. Specifically, the majority of the Company's revenue was generated in jurisdictions in which it recognized no tax expense or benefit due to changes in this valuation allowance.
(a) Amounts are estimates with an estimated range of +/- 5% and are presented gross without the benefit of income tax reduction. Investor Relations Contact: Ronnie Speight Vice President, Investor Relations Phone: +1 (919) 745-2745 Email: [email protected] Press/Media Contact: Lori Dorer Senior Director, Global Corporate Communications Phone: +1 (919) 745-2890 Email: [email protected] |
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