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INC Research hits $1 billion milestone, but shares plunge as guidance disappoints

INC Research achieved a major milestone by surpassing $1 billion in annual revenue for the first time, but the pharmaceutical services company issued guidance for 2017 that disappointed Wall Street.

That guidance, plus mixed fourth-quarter results, triggered a 21 percent drop in the company’s shares Tuesday morning.

The Raleigh-based company also reported mixed fourth-quarter results: Net income met expectations but revenue fell short.

INC projected that net service revenue for 2017 would range from a low of $1.03 billion – on par with 2016 revenue – to a high of $1.1 billion. The consensus projection of analysts polled by Bloomberg News was that revenue this year would hit $1.15 billion, or $50 million above the company’s high end guidance and more than $100 million above the low end.

In an interview, Chief Financial Officer Greg Rush said the 2017 projection was impacted by project cancellations in the fourth quarter.

Although cancellations actually were down nominally during the quarter, Rush said, more of them had an immediate impact on revenue than is typical. Cancellations of projects that are already well under way can take three to six months to wind down and therefore don’t immediately affect revenue.

“We are still bullish about the company in the long-term,” Rush said.

Contract research organizations like INC help pharmaceutical and biotechnology companies conduct clinical trials of experimental drugs and analyze the results.

In the fourth quarter, INC’s net service revenue rose 9 percent to $263 million. Analysts had projected $269 million in revenue.

“Our revenue performance was below our internal expectations,” Rush said.

Fluctuations in currency reduced fourth-quarter revenue by $2 million, while delays in projects getting started lowered revenue by another $3 million, Rush said.

Adjusted net income totaled $36.9 million, up 17.5 percent. Adjusted net income per share totaled 67 cents, up from 54 cents and in line with estimates.

For the full year, net service revenue rose 12.6 percent to $1.03 billion. Adjusted net income totaled $139 million, or $2.50 per share, up from $120.2 million and $2 per share in 2015.

“We had a really strong 2016 in terms of growth,” Rush said “I think it is one of the best (growth rates) in the industry in terms of revenue and earnings per share.”

In 2016 the company’s backlog also reached $2 billion for the first time.

INC shares were trading at $44.50, down $12,05, Tuesday morning.

INC finished 2016 with about 6,800 employees, up 350 over the past 12 months. The company’s contingent of employees in the Triangle increased by about 75 workers during the year, giving it a total of about 1,025 locally.

In December INC announced plans to move its headquarters from Raleigh to Morrisville and add 550 jobs over the next five years.

David Ranii: 919-829-4877, @dranii

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