Q1 2006 Ventiv Health, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Welcome to the inVentive Health first quarter conference call. I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. [OPERATOR INSTRUCTIONS] Before we begin I would like to read the following regarding forward-looking statements. During the course of this conference call the Company may make projections or other forward-looking statements regarding the financial performance of inVentiv Health. Such forward-looking statements involve known and unknown risks that may cause the Company's performance to differ materially. You are kindly referred to the risk factors and cautionary language contained in the document that inVentiv Health files with the Securities and Exchange Commission. This financial information is available at www.inVentiv Health.com. It should be noted that further information about non GAAP financial information discussed during the call is available at inVentiv's website at www.inVentivhealth.com. I would now turn the call over to Mr. Eran Broshy, Chief Executive Officer of inVentiv Health. Sir, you may begin your conference.

ERAN BROSHY, CEO, INVENTIV HEALTH, INC.: Good morning everyone and welcome to our first quarter earnings call. Let me begin by stating that I am extremely pleased with inVentiv's financial results for the first quarter of 2006. For continuing operations during the first quarter of 2006 total revenues increased 44% to $173.7 million for the first quarter of 2006 compared to 120.9 million for the first quarter of 2005. Adjusted operating income increased 60% to 20.5 million for the first quarter of 2006 compared to 12.8 million for the first quarter of 2005. Adjusted net income increased 33% to 10.1 million for the first quarter of 2006 compared to 7.6 million for the first quarter of 2005. Adjusted diluted earnings per share increased 21% to $0.34 for the first quarter of 2006 compared to $0.28 for the first quarter of 2005.

inVentiv's positive first quarter results demonstrate the effectiveness of our multifaceted business model and industry leadership position. Reflecting our increased confidence in the outlook for our business in 2006 and as you saw in our press release we're updating our 2006 adjusted earnings per share guidance from $1.43 to $1.48 to $1.46 to $1.48 towards the upper end of our previous guidance range. We're also reconfirming our revenue guidance of 705 to 725 million. Both the adjusted historic numbers and forward-looking guidance excludes tax benefits income or expense resulting from company's interest-rate hedge of it's $175 million term loan facility and expense related to equity based compensation which John will elaborate on. John will also provide more detailed review of our first quarter financial results. But first I would like to provide some first quarter highlights and then come back at the end to comment on our key priorities going forward.

Let me comment on five key highlights for this past quarter. First with an inVentiv commercial we reported total revenues of $88.8 million during the first quarter of 2006 compared to $96.2 million during the first quarter of 2005. And adjusted operating income of $12.4 million during the first quarter of 2006 which was roughly even with the same prior year period. Lower total revenues resulted from anticipated wind down of certain sales teams and higher margins were the results of various contract fees and a shift to higher-margin businesses.

This segment which has produced compound annual growth rates in excess of 30% for the past three years continues to perform solidly by providing a high quality flexible and cost effective range of commercial support services. We believe that this is attractive to small and mid tier companies which now make up an increasingly significant portion of new product approvals as well as to large pharmaceutical companies which are experiencing ongoing pricing and pipeline challenges. The segments new business pipeline is strengthening as evidenced by a number of new wins or contract extensions including seven sales team contracts with mid tier clients two patient assistance and two Medicare part D programs by the Franklin Group. Fourteen planning and analytics contracts by HPR and two Total Data Solutions contracts. We expect the segment's growth to resume in 2007 based on our strong industry positioning and increasing ongoing demand for outsource services by our clients.

Second, let me comment on inVentiv Communications which is performing very strongly. Reporting record total revenues and adjusted operating income of $52.5 million and $8.8 million respectively during the first quarter of 2006 compared to 48.7 million and 5.6 million for the fourth quarter of 2005. These results were due to contract wins with new clients like Ortho McNeil, Reliant Pharmaceuticals, and Gilead as well as growth with existing clients in our marketing communications businesses and the inclusion of Adheris results for a portion of the first quarter of 2006. In addition inVentiv communications recently received a MedAb news award for this year's most creative agency for GSW. Nominations for agency of the year for Palio and Navicore and Blane Walter was named advertising person of the year. This segment which benefits from a highly recurring revenue base is poised to continue it's strong growth trajectory based on strong growth in its marketing communications businesses as well as its patient compliance business.

Third, inVentiv clinical reported total revenues of $32.4 million during the first quarter of 2006 compared to 24.7 million during the first quarter of 2005. And adjusted operating income of $1.6 million during the first quarter of 2006 versus 1.9 million for the same prior year period. Strong revenue growth was driven by growth in clinical staffing and increased traction in functional outsourcing. Adjusted operating income was impacted in the first quarter of 2006 due to the deferral of several projects for a large client in the segments HHI data management business. We accept the business to strengthen over the year as head counts continue to increase in the clinical staffing business, projects are now completed in HHI's data management business, placements are made in the executive staffing business, and new functional outsourcing projects are initiated.

Fourth, let me comment on some favorable business mix and metrics in our business. inVentiv Health continues to trend strongly against a number of metrics relevant to our business. Pretax adjusted operating margins as a percent of net revenues increased to 14.3% during the first quarter of 2006 compared to 12.2% during the same prior year period. Reflecting our positive mix shift to higher-margin businesses. inVentiv's business mix has also shifted considerably with the percentage of total divisional operating profits coming from sales teams decreasing from approximately 80% in the first half of 2004 to under 30% going forward in 2006. inVentiv five largest client contracts have decreased from 65% of total company revenue in the first half of 2004 to …