Covance Inc. (Covance) has reported total revenues of $1.8 billion for the full year of 2008, compared with the total revenues of $1.6 billion in the previous year-end. It has also reported net income of $196.8 million, or $3.08 per diluted share, for the full year of 2008, compared with the net income of $175.9 million, or $2.71 per diluted share, in the previous year-end.
“As previously announced, reduced demand in our Early Development segment from a combination of a lower level of new project initiations and increased project delays in our toxicology and clinical pharmacology services led to a sequential decline in segment revenue and operating income,” said Joe Herring, chairman and chief executive officer. “Demand for our Late-Stage Development services remained on-track in the fourth quarter, including revenue growth of 10.5% (13.5% excluding the impact of foreign exchange), operating margins of 19.6%, record orders, and a net book-to-bill exceeding 1.6 to 1. On a consolidated basis, fourth quarter net revenues grew 6.7% (10.9% excluding the impact of foreign exchange), operating margin was 14.5%, and EPS was flat year-on-year (excluding the gain on sale from both periods).
“On the commercial front, adjusted net orders in the fourth quarter were $567 million ($555 million on an unadjusted basis), representing an adjusted book-to-bill ratio of 1.29 to 1. Backlog grew 62% year-on-year to $4.33 billion. In addition, in the latter part of 2008, we secured two seven-year, sole source contracts for our central laboratory services from top-ten drug companies, under which orders will be recognized as new projects are awarded.
“On December 18 we released our targets for 2009, which outlined revenue growth of 5% to 10% over 2008 and earnings per share in the range of $3.00 to $3.20. These targets assumed demand for early development services begins to pick up between the second and third quarters of this year, late-stage backlog would continue to convert to revenue at historical rates, and foreign exchange rates would remain at budgeted levels throughout the year. Relative to these assumptions, we are off to a somewhat slower start in Early Development services and there continues to be significant volatility in the US dollar, although central laboratory kits are running ahead of budget. Balancing the slower start in Early Development with the ongoing strength of new orders and revenue flow in Late-Stage Development, we continue to maintain our full-year earnings targets.”
The company’s backlog at December 31, 2008 grew 61.5% year-over-year to $4.33 billion compared to $2.68 billion at December 30, 2007. Foreign exchange negatively impacted sequential backlog growth by approximately $30 million. Adjusted net orders (net orders adjusted for dedicated capacity contracts) were $567 million in the fourth quarter of 2008 and $2.15 billion for the full year.
Corporate expenses totaled $26.3 million in the fourth quarter of 2008 compared to $29.2 million last quarter and $23.0 million in the fourth quarter of last year. Full-year corporate expenses totaled $111.9 million compared to $95.4 million in the prior year. We expect corporate expenses to average between 6.0% and 7.0% of revenues going forward as we continue to make investments in infrastructure to enhance our ability to manage future growth.
Cash and cash equivalents at December 31, 2008 were $221 million compared to $209 million at September 30, 2008 and $319 million at December 31, 2007. At December 31, 2008, short-term debt totaled $50 million. In October, the Company borrowed $50 million to finance the purchase of the Greenfield, Indiana campus from Eli Lilly.
Net Days Sales Outstanding (DSO) decreased significantly to 37 days at December 31, 2008 compared to 41 days at September 30, 2008 and 36 days at December 31, 2007.
Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter was $0.2 million, consisting of operating cash flow of $113 million less capital expenditures of $113 million, which includes the $50 million to purchase the Greenfield, Indiana campus. Free cash flow for full year 2008 was negative $33 million, consisting of operating cash flow of $286 million less capital expenditures of $319 million. In 2009, we expect free cash flow to be approximately $90 million and capital expenditures to be approximately $200 million. The free cash flow target for 2009 assumes DSO at 40 days.
The effective tax rate in the fourth quarter of 2008 was 28.5%. The effective tax rate for 2009 is expected to increase slightly, to approximately 29.0%.