NEWS RELEASE FOR RELEASE JULY 31, 2003
6 a.m. Eastern Time
CONTACTS:
Keith A. Cheesman, Investors, (513) 763-1936
Lori Dorer, Media, (513) 345-1685
KENDLE INTERNATIONAL REPORTS SECOND QUARTER 2003 RESULTS
CINCINNATI, July 31, 2003 -- Kendle International Inc. (Nasdaq: KNDL), a leading
full-service contract research organization, today reported second quarter 2003
financial results.
Net service revenues for the second quarter 2003 were $38.5 million compared to
net service revenues of $43.7 million for the second quarter 2002. Net service
revenues by geographic region were 67 percent in North America, 30 percent in
Europe and 3 percent in the Asia-Pacific region. The top five customers based on
net service revenues accounted for 47 percent of net service revenues for the
second quarter 2003.
Reimbursable out-of-pocket revenues and expenses were $14.4 million for the
second quarter 2003 compared to $14.5 million in the same quarter a year ago.
Income from operations for the second quarter of 2003 was approximately $549,000
or 1 percent of net service revenues. Included in income from operations for the
quarter is a $106,000 adjustment to reduce the severance costs related to the
workforce reduction charge previously recorded by the Company in the first
quarter of 2003. This adjustment is a result of lower than expected severance
costs associated with the workforce reduction. In the second quarter of 2003,
Kendle made a $1.4 million partial early repayment on its $6 million convertible
note. Accordingly, as a result of this partial early debt extinguishment, Kendle
recognized a gain of approximately $558,000. As of June 30, 2003, there remains
$4 million outstanding under this convertible note. Kendle may continue to repay
this convertible note ahead of its originally scheduled maturity. Additionally,
during the quarter Kendle determined that its investment in KendleWits, its 50
percent-owned joint venture in the People's Republic of China, was permanently
impaired and accordingly recorded a $405,000 non-cash impairment charge to
reduce the carrying value of this investment to zero. Including these amounts,
income before taxes for the second quarter of 2003 was approximately $536,000.
The Company continues to record full valuation reserves for certain net
operating losses thereby resulting in tax expense in excess of pre-tax income.
As a result, the Company incurred a net loss for the quarter of approximately
$423,000 or $0.03 per share. Excluding the charges mentioned above, the net loss
for the quarter was approximately $458,000 or $0.04 per share.
"Our second quarter performance is in line with our expectations and we remain
optimistic about Kendle's future and the new operational unit structure we are
putting in place to better serve our customers over the long term," said
Chairman and Chief Executive Officer Dr. Candace Kendle. "To this end, our
efforts during the quarter focused on finalizing the five operating units that
will make up 'Kendle 2004' and preparing our organization for the transition to
this more project-focused approach of serving our customers. These operating
units -- which include North America; Europe; Pfizer; Global Medical Affairs,
Marketing and Communications; and Global Regulatory Affairs -- are the
foundation of Kendle's future. We are excited about this new structure and are
confident it will better position Kendle to meet the needs of our customers
while making us a more efficient and profitable organization going forward."
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Cash flow from operations for the quarter was a negative $5.1 million with cash
and marketable securities totaling $19.9 million and total bank borrowings of
$11.3 million as of June 30, 2003. Days sales outstanding in accounts receivable
were 54 compared to 59 at June 30, 2002, and capital expenditures for the second
quarter 2003 totaled $1.8 million.
New business awards were $33 million for the second quarter 2003. Contract
cancellations for the quarter were $12 million. Total business authorizations,
which consist of signed backlog and verbally awarded business, totaled $174
million at June 30, 2003, compared to $188 million at June 30, 2002. "Our
business development efforts during the quarter were affected by a number of
factors, including the slowdown in activity resulting from the completion of the
merger of two of our largest customers," said Dr. Kendle. "We believe this
decline is temporary and that we will see an increase in activity levels in the
future."
Net service revenues for the six months ended June 30, 2003, were $75.7 million
compared to net service revenues of $87.6 million for the six months ended June
30, 2002. Net service revenues by geographic region were 69 percent in North
America, 28 percent in Europe and 3 percent in the Asia-Pacific region. The top
five customers based on net service revenues accounted for 49 percent of net
service revenues for the six months ended June 30, 2003.
Reimbursable out-of-pocket revenues and expenses were $25.9 million for the six
months ended June 30, 2003, compared to $24.5 million in the same period a year
ago.
For the six months ended June 30, 2003, the Company recorded a loss from
operations of $969,000, which included a charge of $576,000 in severance and
office consolidation costs. As previously noted, the Company also recorded a
gain on the partial early extinguishment of debt and an impairment write-down of
the remaining carrying value of its investment in KendleWits. Including these
amounts, the net loss for the first six months was $2.5 million or $0.20 per
share. Excluding these charges, the net loss for the six months was $2.0 million
or $0.16 per share.
Capital expenditures for the six months ended June 30, 2003, totaled $3.7
million. Cash flow from operations for the first six months was a negative $4.2
million.
Kendle will host its second quarter 2003 conference call July 31, 2003, at 8:30
a.m. Eastern Time. The call will be broadcast live over the Internet and can be
accessed at WWW.KENDLE.COM. A replay of the Webcast will be available at
WWW.KENDLE.COM shortly after the call for on-demand replay through 5 p.m.
Eastern Time on August 30, 2003.
ABOUT KENDLE INTERNATIONAL INC.
Kendle International is a global provider of quality clinical research and
development services for the pharmaceutical and biotechnology industries.
Headquartered in Cincinnati, Ohio, Kendle is among the world's largest publicly
held clinical research organizations, with approximately 1,600 associates
worldwide. The company has conducted clinical trials or provided regulatory and
validation services in 60 countries. Investor kits are available upon request
from Kendle International Inc., 1200 Carew Tower, 441 Vine Street, Cincinnati,
OH 45202 or from the Company's web site at www.kendle.com.
-more-
Information provided herein, which is not historical information, such as
statements about prospective earnings, revenue and earnings growth 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, the Company's ability to
manage growth and to continue to attract and retain qualified personnel, the
Company's ability to complete additional acquisitions and to integrate newly
acquired businesses, the Company's ability to penetrate new markets, competition
and consolidation within the industry, the fixed price nature of contracts or
the loss of large contracts, cancellation or delay of contracts, the progress of
ongoing contracts, the ability to maintain existing customer relationships or
enter into new ones, cost overruns, the Company's sales cycle, the effects of
exchange rate fluctuations, and other factors described in the Company's filings
with the Securities and Exchange Commission including Quarterly Reports on Form
10-Q and the Annual Report on Form 10-K. No assurance can be given that the
Company will be able to realize the net revenues included in backlog and verbal
awards. Kendle believes that its aggregate backlog and verbal awards are not
necessarily a meaningful indicator of future results. All information in this
release is current as of July 31, 2003. 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.
###
Kendle International Inc.
Condensed Consolidated Statement of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ ----------------------------------
2003 2002 2003 2002
----------------- --------------- ----------------- --------------
Net service revenues $38,497 $43,694 $75,677 $87,615
Reimbursable out-of-pocket revenues 14,381 14,500 25,926 24,529
----------------- --------------- ----------------- --------------
Total revenues 52,878 58,194 101,603 112,144
----------------- --------------- ----------------- --------------
Costs and expenses:
Direct costs 23,480 26,506 46,169 52,538
Reimbursable out-of-pocket costs 14,381 14,500 25,926 24,529
Selling, general and administrative expenses 12,347 12,428 25,489 24,711
Depreciation and amortization 2,227 2,081 4,412 4,055
Severance and office consolidation costs (106) - 576 -
----------------- --------------- ----------------- --------------
Total costs and expenses 52,329 55,515 102,572 105,833
----------------- --------------- ----------------- --------------
Income (loss) from operations 549 2,679 (969) 6,311
Other income (expense):
Interest expense (276) (281) (548) (546)
Interest income 96 148 199 301
Other 14 92 (424) 58
Investment impairment (405) (1,938) (405) (1,938)
Gain on debt extinguishment 558 - 558 -
----------------- --------------- ----------------- --------------
Income (loss) before income taxes 536 700 (1,589) 4,186
Income taxes 959 1,067 958 2,436
----------------- --------------- ----------------- --------------
Net income (loss) ($423) ($367) ($2,547) $1,750
================= =============== ================= ==============
Income (loss) per share data:
Basic:
Net income (loss) per share ($0.03) ($0.03) ($0.20) $0.14
================= =============== ================= ==============
Weighted average shares outstanding 12,938 12,731 12,908 12,671
Diluted:
Net income (loss) per share ($0.03) ($0.03) ($0.20) $0.13
================= =============== ================= ==============
Weighted average shares outstanding 12,938 12,731 12,908 13,455
PRO FORMA:
Pro forma net income per diluted share: ($0.04) $0.12 ($0.16) $0.28
================= =============== ================= ==============
Kendle International Inc.
Reconciliation of GAAP EPS to Pro forma EPS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
GAAP net income (loss) per share ($0.03) ($0.03) ($0.20) $0.13
Employee severance and office consolidation costs (0.01) 0.04
Investment impairment 0.03 $ 0.15 0.03 $ 0.15
Gain on extinguishment of debt (0.03) (0.03)
------------- ------------- ------------- -------------
Pro forma net income (loss) per share ($0.04) $0.12 ($0.16) $0.28
============= ============= ============= =============
Kendle International Inc.
Selected Balance Sheet Information
(In thousands)
(Unaudited)
June 30, 2003 December 31, 2002
------------- -----------------
Cash, cash equivalents and
marketable securities $ 19,930 $ 29,975
Working capital 37,806 41,451
Total assets 148,150 155,397
Bank borrowings 11,250 12,750
Shareholders' equity 93,449 94,360