Covance Reports EPS Growth of 32.4% to $0.45 and Raises Full-Year Targ

PRINCETON, N.J., April 20 /PRNewswire-FirstCall/ -- Covance Inc. today reported earnings for its first quarter ended March 31, 2005 of $0.45/diluted share, 32.4% growth over the same period in 2004.

"Covance experienced robust financial results in the first quarter as top- line growth accelerated to 15.2% and operating margins increased to a record 14.5%," said Joe Herring, Chief Executive Officer and President. "Covance's diversified portfolio of early- and late-stage drug development services continued to provide balanced results. In our Early Development segment, strong demand for our full-range of services led to record results in the quarter with revenue growing 13.6% and operating margins increasing to an all time high of 24.4%. In Late-Stage Development, accelerated revenue growth of 16.6% was driven by strong performance in our central laboratory, which continues to see an increase in kit volumes, and central diagnostic services, which is benefiting from investments we made in this growth market. Late- Stage Development operating margins increased 280 basis points year-on-year to 17.1%. Our accelerated revenue growth and our healthy backlog of orders lead us to raise our 2005 earnings per share target to at least $1.88, up from the previous range of $1.81-$1.86."

"In the first quarter we continued to realize the benefits of our focus on operational and service excellence: People, Process, and Clients. On the People front, employee retention remains strong as we achieved an all-time low employee turnover rate. In terms of Process, we continue to see increasing levels of productivity as measured by both revenue and operating margin per employee, even as we increased headcount in order to effectively perform work on our significant backlog of orders. On the Client front, we achieved solid net orders of $308 million in the first quarter. We are also pleased to report that ten additional toxicology rooms were just brought online in Madison, WI, and were immediately locked up by a client under a dedicated capacity agreement."

Consolidated Results ($ in millions except EPS) 1Q05 1Q04 Change Net Revenues $281.3 $244.2 15.2% Reimbursable Out-of-Pockets $11.5 $7.3 Total Revenues $292.8 $251.5 Costs and Expenses $240.4 $212.1 13.3% Reimbursable Out-of-Pockets $11.5 $7.3 Total Costs and Expenses $251.9 $219.4 Operating Income $40.9 $32.1 27.4% Operating Margin % 14.5% 13.1% Net Income $28.9 $22.2 30.2% Diluted EPS $0.45 $0.34 32.4%

Net revenues for the first quarter of 2005 increased 15.2% to $281.3 million compared to $244.2 million in the first quarter of 2004. Costs and expenses for the first quarter of 2005 increased 13.3% to $240.4 million, compared to $212.1 million in the first quarter of 2004.

Consolidated operating income for the first quarter of 2005 increased 27.4% to $40.9 million, compared to $32.1 million in the first quarter of 2004. Operating margins for the first quarter of 2005 were 14.5% compared to 13.1% for the first quarter of last year.

Net income for the first quarter of 2005 increased 30.2% to $28.9 million or $0.45/diluted share compared to $22.2 million or $0.34/diluted share for the first quarter of last year.

Operating Segment Results Early Development ($ in millions) 1Q05 1Q04 Change Net Revenues $131.0 $115.3 13.6% Operating Income $32.0 $26.9 18.8% Margin % 24.4% 23.3%

The Company's Early Development segment includes preclinical toxicology, analytical chemistry, and Phase I clinical trial services. Early Development net revenues for the first quarter of 2005 grew 13.6% to $131.0 million compared to $115.3 million in the first quarter of 2004, and continued to be driven by strong performances in our toxicology, chemistry, and North American Phase I services.

Operating income for the first quarter of 2005 increased 18.8% to $32.0 million compared to $26.9 million for the first quarter of last year. Operating margins for the first quarter of 2005 were a record at 24.4% versus 23.3% in the first quarter of the prior year. Operating margin improvement was broad-based across the segment.

Late-Stage Development ($ in millions) 1Q05 1Q04 Change Net Revenues $150.3 $128.9 16.6% Operating Income $25.6 $18.5 39.0% Margin % 17.1% 14.3%

The Late-Stage Development segment includes central laboratory, Phase II- III clinical development, commercialization services (periapproval services and market access services), and central diagnostic services. Late-Stage Development net revenue growth for the first quarter accelerated to 16.6% with net revenues of $150.3 million compared to $128.9 million in the first quarter of 2004. This growth was driven by central laboratory, central diagnostic, and commercialization services.

Operating income for the first quarter of 2005 increased 39.0% to $25.6 million compared to $18.5 million in the first quarter of the prior year. Operating margins for the first quarter of 2005 were 17.1% versus 14.3% in the first quarter of the prior year. The increase in operating margins was also driven by central laboratory, central diagnostic, and commercialization services.

Corporate Information

The Company's backlog at March 31, 2005 grew 25% year-over-year to $1.464 billion compared to $1.168 billion at March 31, 2004. Backlog at the end of 2004 was $1.459 billion. Backlog was up from year end despite a strengthening US Dollar during the quarter.

The Company continues to have no debt outstanding and reported cash and cash equivalents of $162.7 million at March 31, 2005 versus $177.7 million at December 31, 2004. The sequential reduction in cash for the quarter was primarily due to the payment of 2004 bonuses, on-going capital expenditures related to strategic facility expansions, and the repurchase of 232,300 shares of common stock. We continue to expect 2005 capital spending to be approximately $130 million and 2005 free cash flow (cash from operations less capital spending) to be approximately $40 million.

Net Days Sales Outstanding (DSO) were 55 days at March 31, 2005 versus 51 days at December 31, 2004 and 48 days at March 31, 2004.

The Company's investor conference call will be webcast on April 21 at 9:00 am EDT. Management's commentary and presentation slides will be available through http://www.covance.com/.

Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $1 billion, global operations in 17 countries, and approximately 6,800 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at http://www.covance.com/.

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss of large contracts, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Exhibits Follow COVANCE INC. INCOME STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Dollars in thousands, except per share data) (UNAUDITED) Three Months Ended March 31 2005 2004 Net revenues $281,265 $244,243 Reimbursable out-of-pockets 11,518 7,257 Total revenues 292,783 251,500 Costs and expenses: Cost of revenue 186,772 161,576 Reimbursed out-of-pocket expenses 11,518 7,257 Selling, general and administrative 42,136 38,854 Depreciation and amortization 11,501 11,738 Total 251,927 219,425 Income from operations 40,856 32,075 Other (income) expense, net: Interest income, net (1,012) (544) Foreign exchange transaction loss, net 582 200 Other (income) expense, net (430) (344) Income before taxes and equity investee earnings 41,286 32,419 Taxes on income 12,718 10,516 Equity investee earnings 296 266 Net income $28,864 $22,169 Basic earnings per share $0.46 $0.35 Weighted average shares outstanding - basic 62,755,085 62,594,930 Diluted earnings per share $0.45 $0.34 Weighted average shares outstanding - diluted 63,990,948 64,584,530 COVANCE INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 2005 and DECEMBER 31, 2004 (Dollars in thousands) March 31 December 31 2005 2004 (UNAUDITED) ASSETS Current Assets: Cash & cash equivalents $162,710 $177,712 Accounts receivable, net 182,969 178,518 Unbilled services 73,612 63,220 Inventory 39,073 40,999 Deferred income taxes 8,269 8,042 Prepaid expenses and other current assets 57,166 40,463 Total Current Assets 523,799 508,954 Property and equipment, net 327,042 319,747 Goodwill, net 56,876 56,876 Other assets 38,617 39,108 Total Assets $946,334 $924,685 LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $22,303 $24,346 Accrued payroll and benefits 47,402 63,143 Accrued expenses and other current liabilities 35,881 39,722 Unearned revenue 85,317 87,325 Income taxes payable 12,873 4,590 Total Current Liabilities 203,776 219,126 Deferred income taxes 45,279 46,104 Other liabilities 22,517 21,769 Total Liabilities 271,572 286,999 Stockholders' Equity: Common stock 710 700 Paid-in capital 319,216 289,952 Retained earnings 522,056 493,192 Cumulative translation adjustment 32,461 41,451 Treasury stock (199,681) (187,609) Total Stockholders' Equity 674,762 637,686 Total Liabilities and Stockholders' Equity $946,334 $924,685 COVANCE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Dollars in thousands) (UNAUDITED) Three Months Ended March 31 2005 2004 Cash flows from operating activities: Net income $28,864 $22,169 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,501 11,738 Stock issued under employee benefit and stock compensation plans 3,478 3,312 Deferred income tax provision (1,052) (173) Other 145 (131) Changes in operating assets and liabilities: Accounts receivable (4,451) 3,294 Unbilled services (10,392) (5,946) Inventory 1,926 501 Accounts payable (2,043) (76) Accrued liabilities (19,582) (9,151) Unearned revenue (2,008) (8,184) Income taxes payable 15,044 7,799 Other assets and liabilities, net (15,079) (11,968) Net cash provided by operating activities 6,351 13,184 Cash flows from investing activities: Capital expenditures (23,659) (9,091) Investment in affiliate - (20,741) Other, net - 73 Net cash used in investing activities (23,659) (29,759) Cash flows from financing activities: Stock issued under employee stock purchase and option plans 19,035 25,779 Purchase of treasury stock (12,072) (35,686) Net cash provided by (used in) financing activities 6,963 (9,907) Effect of exchange rate changes on cash (4,657) (891) Net change in cash and cash equivalents (15,002) (27,373) Cash and cash equivalents, beginning of period 177,712 171,600 Cash and cash equivalents, end of period $162,710 $144,227