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| [January 31, 2008] |
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Phase Forward Reports Fourth Quarter and Full Year 2007 Results
WALTHAM, Mass. --(Business Wire)-- Phase Forward Incorporated (NASDAQ: PFWD), a leading provider of data management solutions for clinical trials and drug safety, today announced its financial results for the fourth quarter and full year 2007.
Revenues for the fourth quarter of 2007 were $37.8 million, a 25% increase from $30.2 million in the fourth quarter of 2006. Within total revenues, InForm(TM) license, application hosting and other related revenues were $27.4 million, an increase of 30% from $21.0 million in the prior year period, representing 72.4% of fourth quarter total revenues.
Bob Weiler, chief executive officer and president, remarked, "The fourth quarter was a strong finish to a highly successful year for Phase Forward. During 2007, we added over 50 new direct customers. These included clients spanning the global pharmaceutical, biotech, medical devices, CROs and academic sectors and range from the smallest to some of the largest life science companies in the world. We believe Phase Forward's proven track record of delivering highly scalable and complex deployments for companies of all sizes serves as a strong motivating factor that influences customers to adopt Phase Forward and has made us a strategic partner of choice for many of our customers. Our strong business momentum and solid industry fundamentals make us optimistic about our outlook heading into 2008."
For the fourth quarter of 2007, GAAP income from operations was $2.5 million, compared to $2.9 million in the fourth quarter of 2006. GAAP net income for the period was $15.7 million, or $0.36 per diluted share, compared to a net income of $5.5 million, or $0.15 per diluted share, in the fourth quarter of 2006. The fourth quarter of 2007 included a per share benefit of $0.22 related to an adjustment and full release of the company's remaining deferred tax asset valuation allowance and other net tax credits of $0.04 per share not included in the projected tax rate. The fourth quarter of 2006 also had a per share benefit of $0.07 related to an adjustment to the release of a portion of the deferred tax asset valuation allowance.
For the fourth quarter of 2007, non-GAAP income from operations was $5.3 million, representing an increase of 28% from the prior year period and an operating margin of 13.9%. Non-GAAP net income for the period was $18.2 million, or $0.41 per diluted share, compared to $6.7 million, or $0.19 per diluted share, in the fourth quarter of 2006. Non-GAAP earnings per share in 2007 included a per share benefit of $0.22 related to an adjustment and full release of the company's remaining deferred tax asset valuation allowance and other net tax credits of $0.04 per share not included in the projected tax rate. The fourth quarter of 2006 also had a per share benefit of $0.07 related to an adjustment to the release of a portion of the deferred tax asset valuation allowance.
The attached table presents a reconciliation of GAAP to non-GAAP income from operations and net income and net income per share applicable to common stockholders for the fourth quarter of 2007 and 2006.
Cash, cash equivalents and short-term investments were $182.6 million at the end of the fourth quarter, a decrease of $4.3 million from $187.0 million at the end of the prior quarter. On a full year basis, the company generated $42.4 million in cash from operations during 2007, compared to $11.4 million during 2006. Total deferred revenue was $67.1 million at the end of the quarter, an increase from $60.0 million at the end of the prior quarter.
Business Highlights
-- PAREXEL, one of the world's top CROs, signed a multi-year, multi-million dollar extension to its strategic relationship with Phase Forward for the implementation and use of the InForm EDC solution as its preferred EDC solution. PAREXEL has been an InForm customer of Phase Forward since 1999.
-- The company added six new CRO customers in the quarter, including Montreal Heart Institute and Everest Clinical Research, in addition to expanding its existing relationships with CROs such as PharmaLink and Prologue Research.
-- The company added 55 new direct customers in 2007, up from 38 added during 2006.
-- Phase Forward acquired privately-held Green Mountain Logic, an innovative vendor of process automation software for managing Phase I clinical trials.
-- Phase Forward announced the establishment of a wholly owned subsidiary, Phase Forward Software Services India Private Limited, based in Hyderabad, India. Phase Forward plans to leverage its highly successful model of staffing global projects with in-house and external resources in response to market demand, thereby enabling the company to deploy the most skilled professionals for a particular project in a cost-effective manner.
-- During the fourth quarter the company announced the availability of a new version of its Web Submission Data Manager (WebSDM(TM)) 2.6 product which is capable of reading data from Phase Forward's InForm(TM) Integrated Trial Management electronic data capture product. The combination of these two products enables sponsor personnel to evaluate data more thoroughly at an earlier stage in the clinical trial process, which can help to detect anomalies, trends to support safety analysis and data structure issues prior to submission.
Full Year 2007 Summary Financial Results
Revenues for the full year 2007 were $134.3 million, a 26% increase from $106.6 million in the full year 2006. Within total revenues, InForm license, application hosting and other related revenues were $96.9 million, an increase of 34% from $72.3 million in 2006, representing 72.1% of 2007 total revenues.
GAAP income from operations was $13.0 million in 2007, compared to $9.3 million in 2006. GAAP net income was $29.2 million, or $0.72 per diluted share, for the full year 2007, compared to $12.3 million, or $0.35 per diluted share, in the full year 2006.
Non-GAAP income from operations was $19.7 million in 2007, representing an increase of 50% from 2006 and a full year operating margin of 14.7%. Non-GAAP net income was $35.2 million, or $0.87 per diluted share, for the full year 2007. Non-GAAP net income was $16.2 million, or $0.45 per diluted share, in 2006.
GAAP and non-GAAP results in 2007 both include a per share benefit of $0.22 related to an adjustment and full release of the company's remaining deferred tax asset valuation allowance and other net tax credits of $0.04 per share not included in the projected tax rate.
The attached table presents a reconciliation of GAAP to non-GAAP income from operations and net income and net income per share applicable to common stockholders for the fourth quarter and full year of 2007 and 2006.
Bookings for 2007 totaled $195.8 million, an increase of 43% over 2006. Backlog at December 31, 2007 was $279 million, compared to $217 million at the end of 2006.
Financial Outlook
The following statements are based on current expectations and the company assumes no obligation to update or confirm them. These statements are forward-looking and inherently uncertain. Actual results may differ materially as a result of the factors identified below and the factors identified in our public filings made with the Securities and Exchange Commission, or other factors.
For the first quarter of 2008, the company expects revenues to be between $37.0 and $37.6 million. The company expects non-GAAP operating income to be between $5.5 and $6.0 million, with non-GAAP EPS between $0.10 and $0.11. GAAP EPS is expected to be between $0.07 and $0.08, including non-cash expenses associated with stock-based compensation expense and the amortization of intangible assets. The expected EPS reflects an estimated tax rate of 37% to 39%.
For the full year 2008, the company expects revenues to be between $165 and $169 million. On a non-GAAP basis, operating income is expected to be between 16% and 17%, with non-GAAP EPS between $0.46 and $0.49. GAAP EPS is expected to be between $0.33 and $0.36, including non-cash expenses associated with stock-based compensation expense and the amortization of intangible assets. The expected EPS reflects an estimated tax rate of 37% to 39%.
Conference Call
The company plans to host its investor conference call today at 5:00 pm EST to discuss its financial results for the fourth quarter and full year 2007 and its outlook for the first quarter and full year of 2008. The investor conference call will be available via live web cast on Phase Forward's web site at www.phaseforward.com under the tab "Investors." To participate by telephone, the domestic dial-in number is 888-713-4217 and the international dial-in is 617-213-4869. The access code is 53879801. Investors are advised to dial in at least five minutes prior to the call to register. The web cast will be archived until February 29, 2008.
About Phase Forward
Phase Forward is a leading provider of integrated data management solutions for clinical trials and drug safety. The company offers proven solutions for electronic data capture (InForm(TM)), phase I clinic automation (LabPas(TM)), clinical data management (Clintrial(TM)), clinical trials signal detection (CTSD(TM)), strategic pharmacovigilance (WebVDME(TM) and Signal Management), adverse event reporting (Clintrace(TM)) and applied data standards (WebSDM(TM)). In addition, the company provides services in the areas of application implementation, hosting and validation, data integration, business process optimization, safety data management and industry standards. Phase Forward's products and services have been utilized in over 10,000 clinical trials involving more than 1,000,000 clinical trial study participants at over 250 organizations and regulatory agencies worldwide including: AstraZeneca, Boston Scientific, Dana-Farber Cancer Institute, Eli Lilly, the U.S. Food and Drug Administration, or FDA, GlaxoSmithKline, Harvard Clinical Research Institute, Merck Serono, Novartis, Novo Nordisk, PAREXEL International, Procter & Gamble, Quintiles, sanofi-aventis, Schering-Plough Research Institute, Servier, Tibotec, and the U.K. Medicines and Healthcare Products Regulatory Agency. Additional information about Phase Forward is available at www.phaseforward.com.
Cautionary Statement
Certain statements made in this press release that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This press release contains express or implied forward-looking statements relating to, among other things, Phase Forward's expectations and assumptions concerning management's forecast of financial performance, the performance of Phase Forward's products and services, future business and operations plans of Phase Forward's customers, the ability of Phase Forward's customers to realize benefits from the use of Phase Forward's products and services, and management's plans, objectives and strategies. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond Phase Forward's control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things, changes in our customers' industries; our ability to convince prospective customers to adopt our solutions; competition and changes in competition during future periods; changing customer requirements; governmental regulation; our ability to maintain profitability; fluctuations in our operating results; long sales and implementation cycles; our dependence on a limited number of customers or suppliers; product performance; third party service interruptions or delays; technology failures; our ability to maintain customer relationships and contracts; our ability to retain and hire skilled personnel; our ability to protect our intellectual property rights; product liability or intellectual property infringement claims brought against us; acquisitions; our ability to manage our rapid growth; our ability to obtain capital when desired on favorable terms; and the volatility of the market price of our common stock. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Phase Forward undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise. For additional disclosure regarding these and other risks faced by Phase Forward, see the disclosure contained in Phase Forward's public filings with the Securities and Exchange Commission including, without limitation, its most recent Quarterly Report on Form 10-Q.
Non-GAAP Financial Information
Phase Forward provides non-GAAP income from operations, net income, and net income per share applicable to common stockholders data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Phase Forward's management believes these non-GAAP measures are useful to investors because this supplemental information facilitates comparisons to prior periods. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to the comparable GAAP results, which are attached to this press release.
Phase Forward Incorporated
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
2006 2007 2006 2007
-------- --------- --------- ---------
Revenues:
License $11,260 $ 13,355 $ 40,893 $ 48,784
Service 18,966 24,440 65,720 85,505
-------- --------- --------- ---------
Total revenues 30,226 37,795 106,613 134,289
Costs of revenues:
License 678 675 2,698 2,361
Service(1) 10,682 15,651 38,663 53,098
-------- --------- --------- ---------
Total cost of revenues 11,360 16,326 41,361 55,459
Gross margin:
License 10,582 12,680 38,195 46,423
Service 8,284 8,789 27,057 32,407
-------- --------- --------- ---------
Total gross margin 18,866 21,469 65,252 78,830
-------- --------- --------- ---------
Operating expenses:
Sales and marketing(1) 6,360 7,478 21,158 25,209
Research and
development(1) 4,599 5,496 16,621 20,116
General and
administrative(1) 5,036 5,711 18,174 20,220
In-process research and
development - 300 - 300
-------- --------- --------- ---------
Total operating expenses 15,995 18,985 55,953 65,845
-------- --------- --------- ---------
Income from operations 2,871 2,484 9,299 12,985
Other income (expense):
Interest income 838 2,323 2,848 7,081
Other, net 31 118 (19) (35)
-------- --------- --------- ---------
Total other income 869 2,441 2,829 7,046
-------- --------- --------- ---------
Income before benefit from
income taxes 3,740 4,925 12,128 20,031
Benefit from income taxes (1,741) (10,749) (221) (9,170)
-------- --------- --------- ---------
Net income $ 5,481 $ 15,674 $ 12,349 $ 29,201
======== ========= ========= =========
Net income per share applicable
to common stockholders:
Basic $ 0.16 $ 0.38 $ 0.36 $ 0.76
======== ========= ========= =========
Diluted $ 0.15 $ 0.36 $ 0.35 $ 0.72
======== ========= ========= =========
Weighted average number of
common shares used in net
income per share calculations:
Basic 34,446 41,605 34,104 38,642
======== ========= ========= =========
Diluted 36,279 43,792 35,737 40,739
======== ========= ========= =========
(1) Amounts include stock-based
compensation expense, as
follows:
Costs of service revenues $ 97 $ 372 $ 258 $ 702
Sales and marketing 151 $ 491 502 1,061
Research and development 146 $ 297 394 813
General and
administrative 637 $ 1,085 1,868 3,002
-------- --------- --------- ---------
Total stock-based
compensation expense $ 1,031 $ 2,245 $ 3,022 $ 5,578
======== ========= ========= =========
Phase Forward Incorporated
Tables of Reconciliation from GAAP to Non-GAAP
(unaudited)
(in thousands, except per share amounts)
Three Months Twelve Months
Ended December Ended December
31, 31,
--------------- ---------------
2006 2007 2006 2007
------- ------- ------- -------
Reconciliation of GAAP to Non-GAAP
income from operations:
GAAP income from operations $ 2,871 $ 2,484 $ 9,299 $12,985
Stock-based compensation expense 1,031 2,245 3,022 5,578
Amortization of intangible
assets 217 230 870 867
In-process research and
development - 300 - 300
------- ------- ------- -------
Non-GAAP income from operations $ 4,119 $ 5,259 $13,191 $19,730
======= ======= ======= =======
Three Months Twelve Months
Ended December Ended December
31, 31,
--------------- ---------------
2006 2007 2006 2007
------- ------- ------- -------
Reconciliation of GAAP to Non-GAAP net
income and net income per share
applicable to common stockholders:
GAAP net income $ 5,481 $15,674 $12,349 $29,201
Stock-based compensation
expense, net of tax 1,031 2,010 3,022 4,995
Amortization of intangible
assets, net of tax 217 206 870 776
In-process research and
development, net of tax - 269 - 269
------- ------- ------- -------
Non-GAAP net income $ 6,729 $18,159 $16,241 $35,241
======= ======= ======= =======
GAAP net income per share applicable
to common stockholders:
Diluted $ 0.15 $ 0.36 $ 0.35 $ 0.72
======= ======= ======= =======
Non-GAAP net income per share
applicable to common stockholders:
Diluted $ 0.19 $ 0.41 $ 0.45 $ 0.87
======= ======= ======= =======
The Company has assumed a 2007 effective tax rate of 10.5% for
purposes of the Non-GAAP Reconciliation shown above. This rate
represents the Company's effective tax rate for the first three
quarters of 2007. This rate allows for comparison to prior periods as
it excludes the remaining release of the deferred tax asset valuation
allowance and miscellaneous other credits which were recorded in the
fourth quarter of 2007.
Phase Forward Incorporated
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except per share amounts)
As of December 31,
-------------------
2006 2007
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 42,169 $133,401
Short-term investments 27,466 49,221
Accounts receivable, net of allowance of $384
and $270 in 2006 and 2007, respectively 29,652 35,515
Deferred set up costs, current portion 1,649 2,062
Prepaid commissions and royalties, current
portion 3,570 4,458
Prepaid expenses and other current assets 2,972 4,513
Deferred income taxes 5,158 10,061
--------- ---------
Total current assets 112,636 239,231
--------- ---------
Property and equipment, net 8,561 15,967
Deferred set up costs, net of current portion 1,000 1,347
Prepaid commissions and royalties, net of current
portion 2,670 3,614
Intangible assets, net of accumulated amortization
of $1,176 and $2,044 in 2006 and 2007,
respectively 2,724 3,356
Goodwill 27,820 25,511
Deferred income taxes 4,988 16,576
Other assets 252 267
--------- ---------
Total assets $160,651 $305,869
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,893 $ 1,222
Accrued expenses 14,183 20,724
Accrued earn-out 3,500 -
Deferred revenue, current portion 47,128 61,750
Deferred rent, current portion 352 240
--------- ---------
Total current liabilities 68,056 83,936
--------- ---------
Deferred revenues, net of current portion 3,527 5,380
Deferred rent, net of current portion 596 116
Other long-term liabilities 451 -
--------- ---------
Total liabilities 72,630 89,432
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized-----5,000 shares
Issued-----0 shares - -
Common stock, $0.01 par value:
Authorized-----100,000 shares
Issued-----35,529 and 42,724 shares in
2006 and 2007, respectively 355 428
Additional paid-in capital 176,545 274,870
Treasury stock, 37 shares at cost (111) (111)
Accumulated other comprehensive (loss) income (72) 745
Accumulated deficit (88,696) (59,495)
--------- ---------
Total stockholders' equity 88,021 216,437
--------- ---------
Total liabilities and stockholders' equity $160,651 $305,869
========= =========
Phase Forward Incorporated
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Twelve Months Ended
December 31,
---------------------
2006 2007
---------- ----------
Operating activities
Net income $ 12,349 $ 29,201
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,179 6,928
Stock-based compensation expense 3,022 5,578
Loss on disposal of fixed assets 51 -
Foreign currency exchange loss 15 42
Provision for allowance for doubtful
accounts 224 56
Deferred income taxes (755) (10,249)
Charge for in-process research and
development - 300
Tax benefit related to exercise of options (1,656) -
Amortization of premiums or discounts on
short-term investments (12) 43
Changes in assets and liabilities:
Accounts receivable (3,980) (5,092)
Deferred costs (535) (2,450)
Prepaid expenses and other current
assets (636) (1,474)
Accounts payable 759 (1,735)
Accrued expenses 2,100 5,723
Accrued litigation settlement (8,500) -
Deferred revenue 4,321 16,167
Deferred rent (579) (589)
---------- ----------
Net cash provided by operating activities 11,367 42,449
---------- ----------
Investing activities
Proceeds from maturities of short-term
investments 40,188 78,897
Purchase of short-term investments (58,836) (100,694)
Purchase of property and equipment (5,230) (13,407)
Payment on earn-out under acquisition (2,000) (3,500)
Acquisition of business, net of cash acquired - (5,391)
(Increase) decrease in other assets (32) 2
---------- ----------
Net cash used in investing activities (25,910) (44,093)
---------- ----------
Financing activities
Net proceeds from issuance of common stock 3,549 92,819
Tax benefit related to exercise of options 1,656 -
---------- ----------
Net cash provided by financing activities 5,205 92,819
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents (272) 57
---------- ----------
Net (decrease) increase in cash and cash
equivalents (9,610) 91,232
Cash and cash equivalents at beginning of year 51,779 42,169
---------- ----------
Cash and cash equivalents at end of year 42,169 133,401
Short-term investments at end of year 27,466 49,221
---------- ----------
Total cash, cash equivalents and short-term
investments at end of year $ 69,635 $ 182,622
========== ==========
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