WAYNE, Pa., Nov. 10 - Covalent Group, Inc. (Nasdaq: CVGR) today announced its financial results for the third quarter ended September 30, 2005.
Our financial, business and strategic accomplishments for the third quarter of 2005 were as follows:
* An increase in net revenues of $800 thousand, or 45%, compared to the
prior year quarter;
* Strong operating cash flow that increased cash and cash equivalents to
$7 million from $3.2 million at December 31, 2004;
* Continued improvement in balance sheet liquidity with no debt and
minimal exposure to capital lease commitments;
* New business contracts for $6.8 million that resulted from our recent
programmatic successes in high profile clinical trials in which we
played a significant role;
* An increase in backlog of $8 million since December 31, 2004;
* New business opportunities that have been engendered by our recent
accomplishments in the design and management of clinical trials and
patient disease registries.
Net revenue for the third quarter of 2005, excluding reimbursement revenue, increased 45% to $2.7 million as compared to $1.9 million for the comparable prior year period. Net revenue for the three months ended September 30, 2004 was materially impacted by significant increases in the estimated cost to complete for certain legacy studies without a corresponding increase in contract value that had a negative impact on reported revenues. These legacy studies were substantially complete as of the end of 2004.
Net expenses for the quarter ended September 30, 2005, excluding the reimbursement for out-of-pocket expenses, were $3 million versus $4 million for the comparable prior year period, a decrease of approximately $1 million. This decrease resulted principally from a $1 million reduction in direct expenses associated with decreased personnel costs related to lower clinical trial activity due principally to headcount reductions and decreased use of independent contractors.
Net revenue for the nine months ended September 30, 2005, excluding reimbursement revenue, was $8.3 million versus $10.9 million for the comparable prior year period. The decrease of $2.6 million in net revenue reflects a decrease in the value and number of clinical trial studies being managed by the Company during the first nine months of 2005 compared to the comparable prior year period when several large legacy projects were winding down their development cycle combined with lower than anticipated new business awards toward the end of 2004 and during 2005.
Net expenses for the nine months ended September 30, 2005, excluding the reimbursement for out-of-pocket expenses, was $9.2 million versus $15 million for the comparable prior year period, a decrease of $5.8 million. This decrease was principally due to a $5 million reduction in direct expenses due to decreased personnel costs related to lower clinical trial activity, an $800 thousand reduction in SG&A due principally to a $400 thousand decrease in bad debt expense as well as a decline in administrative personnel related to ongoing cost control initiatives.
Net loss for the third quarter of 2005 was $244 thousand, or ($0.02) per share, compared to a net loss of $1.4 million, or ($0.11) per share, for the comparable prior year period.
Net loss for the nine months ended September 30, 2005 was $826 thousand, or ($0.06) per share, compared to a net loss of $2.9 million, or ($0.22) per share, for the comparable prior year period.
Cash and cash equivalents were $7 million as of September 30, 2005 compared with $3.2 million as of December 31, 2004, an increase of $3.8 million. This increase resulted principally from cash provided from operating activities in the amount of $3.9 million that included a one-time income tax refund of $1.1 million.
The amount of new business contracts for the third quarter that were announced in early October 2005 was $6.8 million. This brought our year-to-date new business awards to $16.6 million. Our backlog was approximately $23 million as of September 30, 2005 compared to approximately $15 million at December 31, 2004, an increase of $8 million. Sequentially, our backlog grew from $20 million at June 30, 2005, an increase of $3 million.
Kenneth M. Borow, M.D., President and Chief Executive Officer, commented, "Our third quarter financial results improved significantly compared to the third quarter of 2004 with our business providing $3.9 million of positive cash flow from operations. We had another successful third quarter relative to new business signings. As a result, our backlog grew in the third quarter on a sequential basis as well as from the end of 2004. In addition, we are competing for multiple new business contracts which we believe will help us significantly improve our future operating results. We are especially pleased that our programmatic successes over the past year have positioned us to be highly competitive for the new business awards that we are currently seeking. We expect to make additional new business announcements during the fourth quarter of this year."
Dr. Borow continued, "In the past we have discussed our commitment to growing our revenue base through mergers and acquisitions, new strategic alliances and new business awards. We are actively seeking new business opportunities in order to grow our revenues and leverage our in-house resources to a fuller extent. Our actions are ongoing and our growth in backlog and net revenues along with a return to profitability is our goal. Strategically, our commitment to expand the geographic reach of our Company and our ability to provide additional services to our clients remains our top priority."
Covalent Group will hold a conference call on Friday, November 11 at 9:00 A.M. ET to discuss third quarter results. To participate in the live call by telephone, please dial (877) 407-4018 from the U.S., or for international callers, please dial (201) 689-8471. Those interested in listening to the conference call live via the Internet may do so by visiting the Company's Web site at http://www.covalentgroup.com. Please go to the Web site 15 minutes prior to the scheduled start to register, download, and install any necessary audio software.
A webcast audio replay will be available on the Company Web site for 31 days through Sunday, December 11, 2005. A telephone audio replay will also be available for 10 days through Monday, November 21, 2005, by dialing (877) 660-6853 from the U.S., or (201) 612-7415 for international callers, and entering account number 3055 and conference ID number 174310 when prompted.
About Covalent Group
Covalent Group is a clinical research organization that is a leader in the design and management of complex clinical trials for the pharmaceutical, biotechnology and medical device industries. The Company's mission is to provide its clients with high quality, full-service support for their clinical trials. Covalent offers therapeutic expertise, experienced team management and advanced technologies. The Company has clinical trial experience across a wide variety of therapeutic areas such as cardiovascular, endocrinology/metabolism, diabetes, vaccines, biologics, gene therapy, immunology, neurology, infectious diseases, gastroenterology, dermatology, hepatology, women's health and respiratory medicine. Covalent believes that its leadership in the design of complex clinical trials, its application of innovative technologies, therapeutic expertise and commitment to quality offer its clients a means to more quickly and cost effectively develop products through the clinical trial process. With its wholly-owned international subsidiary, Covalent Group, Ltd., as well as its Strategic Partners operating in various regions around the world, Covalent is able to meet the global drug development needs of its clients.
This press release contains forward-looking statements identified by words such as "estimate," "project," "expect," "intend," "believe," "anticipate" and similar expressions. Actual results might differ materially from those projected in, expressed in or implied by the forward-looking statements. Potential risks and uncertainties that could affect the Company's future operating results, financial condition and stock price include, without limitation: (i) our success in attracting new business and retaining existing clients and projects; (ii) the size, duration, and timing of clinical trials we are currently managing may change unexpectedly; (iii) the termination, delay or cancellation of clinical trials we are currently managing could cause revenues to decline unexpectedly; (iv) the timing difference between our receipt of contract milestone or scheduled payments and our incurring costs to manage these trials; (v) outsourcing trends in the pharmaceutical, biotechnology and medical device industries; (vi) the ability to maintain profit margins in a very competitive marketplace; (vii) our ability to attract and retain qualified personnel; (viii) the sensitivity of our business to general economic conditions; (ix) other economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices; (x) announced awards received from existing and potential customers are not definitive until fully negotiated contracts are executed by the parties; and (xi) our backlog may not be indicative of future results and may not generate the revenues expected. Additional information concerning risk factors that might affect our business or stock price which could cause actual results to materially differ from those in forward-looking statements is contained in Covalent Group's SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2004 and other periodic reports under the Securities Exchange Act of 1934, as amended, copies of which are available upon request from Covalent Group's investor relations department.
Investor Relations Contact: Lawrence R. Hoffman, CPA, Esq.
CFO, Covalent Group, Inc.
(610) 975-9533
Contact us on-line: http://www.covalentgroup.com
Covalent Group, Inc.
Consolidated Condensed Balance Sheets
September 30, December 31,
2005 2004
Assets
Current Assets
Cash and cash equivalents $ 6,995,334 $ 3,165,986
Restricted cash 687 145,612
Accounts receivable, less
allowance of $35,093 and $40,000
at September 30, 2005 and
December 31, 2004, respectively 3,222,929 5,209,950
Prepaid expenses and other 309,774 158,287
Prepaid taxes 18,448 1,132,315
Costs and estimated earnings in
excess of related billings on
uncompleted contracts 431,360 1,667,947
Total Current Assets 10,978,532 11,480,097
Property and Equipment, Net 975,369 1,321,139
Other Assets 21,665 21,665
Total Assets $11,975,566 $12,822,901
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 646,414 $ 1,101,788
Accrued expenses 272,783 392,385
Obligations under capital leases 25,637 23,709
Billings in excess of related
costs and estimated earnings on
uncompleted contracts 2,468,509 1,770,275
Customer advances 1,049,247 1,080,469
Total Current Liabilities 4,462,590 4,368,626
Long Term Liabilities
Obligations under capital leases 43,833 63,309
Other liabilities 494,454 581,710
Total Long Term Liabilities 538,287 645,019
Total Liabilities 5,000,877 5,013,645
Stockholders' Equity
Common stock, $.001 par value
25,000,000 shares authorized,
13,501,333 and 13,495,534
shares issued and outstanding
respectively 13,502 13,496
Additional paid-in capital 12,028,457 12,017,822
Accumulated deficit (4,759,285) (3,933,377)
Accumulated other comprehensive
income 150,989 170,289
Less: 7,433,663 8,268,230
Treasury stock, at cost,
152,932 shares (458,974) (458,974)
Total Stockholders' Equity 6,974,689 7,809,256
Total Liabilities and Stockholders'
Equity $11,975,566 $12,822,901
Covalent Group, Inc.
Consolidated Condensed Statements of Operations
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
Net revenue $2,713,702 $1,876,406 $8,255,610 $10,937,765
Reimbursement
revenue 1,064,923 592,582 2,067,749 4,851,093
Total Revenue 3,778,625 2,468,988 10,323,359 15,788,858
Operating Expenses
Direct 1,884,398 2,853,514 5,672,081 10,531,941
Reimbursement out-
of-pocket expenses 1,064,923 592,582 2,067,749 4,851,093
Selling, general and
administrative 997,677 1,004,396 3,096,970 3,874,888
Depreciation and
amortization 122,414 167,287 392,171 601,262
Total Operating Expenses 4,069,412 4,617,779 11,228,971 19,859,184
Loss from Operations (290,787) (2,148,791) (905,612) (4,070,326)
Interest Income 48,348 3,112 86,709 4,795
Interest Expense (1,924) (2,552) (7,006) (8,036)
Net Interest Income
(Expense) 46,424 560 79,703 (3,241)
Loss before Income Taxes (244,363) (2,148,231) (825,909) (4,073,567)
Income Tax Benefit - (704,917) - (1,210,628)
Net Loss $(244,363) $(1,443,314) $(825,909) $(2,862,939)
Net Loss per Common
Share
Basic $ (0.02) $ (0.11) $ (0.06) $ (0.22)
Diluted $ (0.02) $ (0.11) $ (0.06) $ (0.22)
Weighted Average Common
and Common Equivalent
Shares Outstanding
Basic 13,348,269 13,454,035 13,346,458 13,207,279
Diluted 13,348,269 13,454,035 13,346,458 13,207,279
Covalent Group, Inc.
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30,
2005 2004
Operating Activities:
Net loss $ (825,909) $(2,862,939)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 392,171 601,262
Changes in assets and liabilities;
Restricted cash - (166,058)
Accounts receivable - 2,110,896
Prepaid expenses and other - (106,113)
Prepaid Taxes - (527,364)
Costs and estimated earnings in
excess of related billings on
uncompleted contracts - 5,008,855
Accounts payable - (1,464,726)
Accrued expenses - (83,418)
Other Liabilities - (87,255)
Deferred taxes - (18,310)
Billings in excess of related
costs and estimated earnings on
uncompleted contracts - 98,622
Customer advances - (1,753,143)
Net Cash Provided by Operating
Activities (433,738) 750,309
Investing Activities:
Purchases of property and equipment (392,171) (216,841)
Net Cash Used In Investing Activities (392,171) (216,841)
Financing Activities:
Repayments under capital leases - (18,717)
Proceeds from exercise of stock options - 610,145
Net Cash Provided (Used) By Financing
Activities - 591,428
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (19,299) 28,197
Net Increase In Cash and Cash
Equivalents (845,208) 1,153,093
Cash and Cash Equivalents, Beginning
of Period 3,165,986 2,069,687
Cash and Cash Equivalents, End of
Period $2,320,778 $ 3,222,780
