Canadian Insider

Highlights

• Book-to-bill of 1.2x for the first quarter of 2016 and 1.3x for the trailing twelve-month period ended March 31, 2016.
  
• Net new business awards of $302.4 million for the three months ended March 31, 2016.
  
• Net service revenue growth of 17.7% for the three months ended March 31, 2016.
  
• Adjusted diluted earnings per share growth of 38.1% to $0.58 for the three months ended March 31, 2016.
  
• GAAP diluted earnings per share of $0.31 for the three months ended March 31, 2016.
  
• Increased full year net service revenue guidance to $1,020 million to $1,030 million and adjusted diluted EPS guidance to $2.34 to $2.46.
  

RALEIGH, N.C., May 02, 2016 (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 first quarter ended March 31, 2016.

“INC is off to an excellent start in 2016 with our first quarter results driven by robust awards and a strong book-to-bill ratio,” said CEO Jamie Macdonald. “We continue to strengthen our position as an innovative clinical development partner to our customers and remain focused on our goal to make INC Research the CRO of Choice for all of our stakeholders.”

First Quarter 2016 Results

Net service revenue for the three months ended March 31, 2016 increased by 17.7% to $249.0 million, compared to net service revenue of $211.5 million for the three months ended March 31, 2015. Net service revenue growth during the first quarter of 2016 was primarily driven by continued strong awards over the last two years. In 2016, revenue grew across all therapeutic areas and has been particularly strong in the central nervous system, oncology and other complex therapeutic areas. During the three months ended March 31, 2016, fluctuations in foreign currency exchange rates resulted in an unfavorable impact of $6.0 million on net service revenue compared to the same period in the prior year.

Income from operations for the three months ended March 31, 2016 increased 0.4% to $32.5 million, compared to $32.4 million for the three months ended March 31, 2015, representing an operating margin for the three months ended March 31, 2016 of 13.1%, compared to 15.3% for the same period in the prior year.

The Company's income from operations includes certain expenses and transactions that the Company believes are not representative of its core operations.  Excluding these items, adjusted income from operations was $52.2 million for the three months ended March 31, 2016, compared to $46.4 million for the three months ended March 31, 2015, representing growth of 12.4%.  Adjusted operating margin for the three months ended March 31, 2016, was 21.0% compared to 22.0% for the same period in 2015.

The Company reported net income for the three months ended March 31, 2016 of $17.4 million, resulting in diluted earnings per share of $0.31, compared to net income of $25.3 million, or $0.40 per diluted share, for the three months ended March 31, 2015. This decrease was primarily due to the impact of foreign currency losses in 2016 compared to gains in the first quarter of the prior year. Adjusted net income for the three months ended March 31, 2016 was $32.5 million, or $0.58 per diluted share, compared to $26.3 million, or $0.42 per diluted share, for the same period in the prior year.

Adjusted EBITDA for the three months ended March 31, 2016 increased 11.5% to $57.1 million, up from $51.2 million for the three months ended March 31, 2015. For the three months ended March 31, 2016, adjusted EBITDA margins decreased to 22.9% from 24.2% for the three months ended March 31, 2015.

Important disclosures about and reconciliations of non-GAAP measures, including net service revenue, 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 and attached to this press release.

New Business Awards and Backlog

Backlog grew by 17.5% to $1.9 billion as of March 31, 2016, as compared to $1.6 billion as of March 31, 2015.  For the three and twelve months ended March 31, 2016, fluctuations in foreign currency exchange rates resulted in a favorable impact on our March 31, 2016 backlog in the amount of $7.0 million and $7.9 million, respectively, primarily due to the strengthening of the Euro against the U.S. dollar. Net new business awards were $302.4 million, representing a book-to-bill ratio of 1.2x, for the three months ended March 31, 2016 as compared to $255.5 million for the three months ended March 31, 2015. This increase was primarily due to the Company's continued growth across CNS, Oncology and other complex therapeutic areas.

Business Outlook

The Company is updating its 2016 full-year guidance as outlined in the following table.  The guidance takes into account a number of factors, including current foreign currency exchange rates, expected tax rates, and the Company’s overall outlook. 

Important disclosures about and reconciliations of non-GAAP measures, including adjusted net income and diluted adjusted earnings per share, to the corresponding GAAP measures are provided below and attached to this press release.

Webcast and Conference Call Details

INC Research will host a conference call at 8:00 a.m. EDT on May 2, 2016, to discuss its first quarter 2016 financial results.  The live webcast will be available in listen-only mode on 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 94957861.

An archived replay of the conference call will be available online at investor.incresearch.com after 1:00 p.m. EDT on May 2, 2016.  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 94957861.

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 named “Best Contract Research Organization” in December 2015 by a distinguished panel for Scrip Intelligence and 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 www.incresearch.com. 

Forward-Looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained in this press release, including our updated 2016 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; 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; 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, 2015 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 certain expenses and transactions that the Company believes are not representative of its core operations, namely, acquisition-related amortization, restructuring and other costs, transaction expenses, share-based compensation expense, contingent consideration related to acquisitions and other, and asset impairment charges.  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 and other expense (income). 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 excluding certain expenses and transactions that the Company believes are not representative of its core operations, namely, restructuring and other costs, transaction expenses, share-based compensation expense, contingent consideration related to acquisitions and other, asset impairment charges, transaction expenses, and other expense (income). 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 service its debt obligations, 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. The Company believes these measures are used by investors and analysts to measure the Company's performance.  Adjusted EBITDA is also a useful metric for management, investors and debt holders to measure the Company's ability to service its debt obligations.

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 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) legal and consulting cost 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 (iii) lease obligation and termination costs in connection with abandonment and closure of redundant facilities.

(c) Represents fees associated with 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 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 other (income) expense comprised primarily of foreign exchange gains and losses.

(h) Adjustment for the income tax effect of the non-GAAP adjustments made to arrive at adjusted net income using the estimated effective tax rate of 34% in 2016 and 36% in 2015.  In 2015, the Company's effective tax rate has been adjusted in order to reflect the removal of the tax impact of its valuation allowances recorded against its deferred tax assets and changes in the assertion to indefinitely reinvest the undistributed earnings of foreign subsidiaries.  Historically, the Company has recorded a valuation allowance against some of its deferred tax assets, but 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.

(b) Income tax expense is calculated and the adjustments are tax-affected at an approximate rate of 34%, which is the midpoint of our range for the expected income tax rate of 33% to 35%. This adjustment also excludes unusual tax impacts during the period.

CONTACT: Investor Relations Contact:
Ronnie Speight
Vice President, Investor Relations
Phone: +1 (919) 745-2745
Email: [email protected]

Press/Media Contact:
Lori Dorer
Senior Director, Corporate Communications
Phone: +1 (513) 763-1380
Email: [email protected]