Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-Q
  _____________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-34387
_____________________________________
Medidata Solutions, Inc.
(Exact name of registrant as specified in its charter)
  _____________________________________
Delaware
13-4066508
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
350 Hudson Street, 9th Floor
New York, New York
10014
(Address of principal executive offices)
(Zip Code)
(212) 918-1800
(Registrant’s telephone number, including area code)
  _____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     ý   Yes    ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý   Yes     ¨   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨   Yes     ý   No
As of May 2, 2016 , the registrant had 57,296,821 shares of common stock outstanding.

Table of Contents

MEDIDATA SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
TABLE OF CONTENTS
 
 
Page
PART I
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 


- 1 -
Table of Contents

PART I - FINANCIAL INFORMATION
Item 1.     Financial Statements (Unaudited)

- 2 -
Table of Contents

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
March 31,
2016
 
December 31, 2015
 
(Amounts in thousands, except per share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
87,669

 
$
49,562

Marketable securities
235,859

 
220,126

Accounts receivable, net of allowance for doubtful accounts of $1,758 and $1,992, respectively
77,654

 
90,590

Prepaid commission expense
2,472

 
1,670

Prepaid expenses and other current assets
19,469

 
21,165

Deferred income taxes
94

 
88

Total current assets
423,217

 
383,201

Restricted cash
5,756

 
5,755

Furniture, fixtures and equipment, net
51,919

 
51,043

Marketable securities – long-term
153,096

 
209,041

Goodwill
18,662

 
18,797

Intangible assets, net
1,067

 
1,172

Deferred income taxes – long-term
12,144

 
12,128

Other assets (1)
8,065

 
3,043

Total assets (1)
$
673,926

 
$
684,180

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,918

 
$
6,283

Accrued payroll and other compensation
13,472

 
23,744

Accrued expenses and other
13,804

 
15,469

Deferred revenue
71,031

 
75,582

Total current liabilities
100,225

 
121,078

Noncurrent liabilities:
 
 
 
1.00% convertible senior notes, net (1)
252,895

 
249,487

Deferred revenue, less current portion
2,748

 
2,993

Deferred tax liabilities
429

 
414

Other long-term liabilities
23,276

 
26,052

Total noncurrent liabilities (1)
279,348

 
278,946

Total liabilities (1)
379,573

 
400,024

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01 per share; 5,000 shares authorized, none issued and outstanding
—

 
—

Common stock, par value $0.01 per share; 200,000 shares authorized; 60,669 and 59,455 shares issued; 57,213 and 56,311 shares outstanding, respectively
606

 
594

Additional paid-in capital
376,747

 
364,973

Treasury stock, 3,456 and 3,144 shares, respectively
(109,464
)
 
(100,806
)
Accumulated other comprehensive loss
(2,183
)
 
(3,404
)
Retained earnings
28,647

 
22,799

Total stockholders’ equity
294,353

 
284,156

Total liabilities and stockholders’ equity
$
673,926

 
$
684,180

(1) As of December 31, 2015, $3.3 million of unamortized debt issuance costs have been reclassified from other assets to 1.00% convertible senior notes, net, in order to conform to current period presentation. Refer to Note 6, "Debt." for further information.
The accompanying notes are an integral part of the condensed consolidated financial statements.

- 3 -

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended
March 31,
 
2016
 
2015
 
(Amounts in thousands, except per share data)
Revenues
 
 
 
Subscription
$
89,968

 
$
78,749

Professional services
14,270

 
13,691

Total revenues
104,238

 
92,440

Cost of revenues (1)(2)
 
 
 
Subscription
14,329

 
11,473

Professional services
10,339

 
10,703

Total cost of revenues
24,668

 
22,176

Gross profit
79,570

 
70,264

Operating costs and expenses
 
 
 
Research and development (1)
28,228

 
21,911

Sales and marketing (1)(2)
25,458

 
24,318

General and administrative (1)
19,246

 
20,569

Total operating costs and expenses
72,932

 
66,798

Operating income
6,638

 
3,466

Interest and other income (expense)
 
 
 
Interest expense
(4,127
)
 
(3,958
)
Interest income
872

 
534

Other expense, net
(4
)
 
(34
)
  Total interest and other expense, net
(3,259
)
 
(3,458
)
Income before income taxes
3,379

 
8

Provision for income taxes
(2,469
)
 
(149
)
Net income
$
5,848

 
$
157

Earnings per share
 
 
 
Basic
$
0.11

 
$
0.00

Diluted
$
0.10

 
$
0.00

Weighted average common shares outstanding
 
 
 
Basic
55,119

 
53,257

Diluted
56,365

 
55,658

(1)    Stock-based compensation expense included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues
1,210

 
1,248

Research and development
2,194

 
1,786

Sales and marketing
1,877

 
2,367

General and administrative
4,969

 
6,269

Total stock-based compensation
$
10,250

 
$
11,670

(2)    Amortization of intangible assets included in cost of revenues and operating costs and expenses is as follows:
Cost of revenues
79

 
179

Sales and marketing
24

 
29

Total amortization of intangible assets
$
103

 
$
208

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 4 -

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three Months Ended
March 31,
 
2016
 
2015
 
(Amounts in thousands)
Net income
$
5,848

 
$
157

Other comprehensive income (loss)
 
 
 
Foreign currency translation adjustments
(87
)
 
(752
)
Unrealized gain on marketable securities
1,308

 
593

Other comprehensive income (loss)
1,221

 
(159
)
Income tax effect of unrealized gain on marketable securities
—

 
(274
)
Other comprehensive income (loss), net of tax
1,221

 
(433
)
Comprehensive income (loss), net of tax
$
7,069

 
$
(276
)

























The accompanying notes are an integral part of the condensed consolidated financial statements.

- 5 -

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
March 31,
 
2016

2015
Cash flows from operating activities
(Amounts in thousands)
Net income
$
5,848

 
$
157

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Amortization of intangible assets and depreciation
3,217

 
2,553

Stock-based compensation
10,250

 
11,670

Amortization of discounts or premiums on marketable securities
983

 
1,309

Deferred income taxes
(86
)
 
683

Amortization of debt issuance costs
319

 
319

Amortization of debt discount
3,089

 
2,909

Excess tax benefit associated with equity awards
(1,341
)
 
(215
)
Provision for doubtful accounts
371

 
300

Loss on fixed asset disposal
4

 
—

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
4,635

 
(16,643
)
Prepaid commission expense
(2,738
)
 
(46
)
Prepaid expenses and other current assets
1,199

 
(2,425
)
Other assets
(2,590
)
 
1,676

Accounts payable
(1,297
)
 
2,755

Accrued payroll and other compensation
(10,052
)
 
(4,043
)
Accrued expenses and other
238

 
(272
)
Deferred revenue
3,134

 
16,375

Other long-term liabilities
(2,720
)
 
(197
)
Net cash provided by operating activities
12,463

 
16,865

Cash flows from investing activities
 
 
 
Purchases of furniture, fixtures and equipment
(7,589
)
 
(3,451
)
Purchases of available-for-sale securities
(28,815
)
 
(49,724
)
Proceeds from sale of available-for-sale securities
69,352

 
71,833

Net cash provided by investing activities
32,948

 
18,658

Cash flows from financing activities
 
 
 
Proceeds from exercise of stock options
194

 
3,702

Proceeds from employee stock purchase plan
1,819

 
1,519

Excess tax benefit associated with equity awards
1,341

 
215

Repayment of obligations under capital leases
—

 
(9
)
Acquisition of treasury stock
(10,831
)
 
(8,928
)
Net cash used in financing activities
(7,477
)
 
(3,501
)
Effect of exchange rate changes on cash and cash equivalents
173

 
(67
)
Net increase in cash and cash equivalents
38,107

 
31,955

Cash and cash equivalents – Beginning of period
49,562

 
39,517

Cash and cash equivalents – End of period
$
87,669

 
$
71,472






The accompanying notes are an integral part of the condensed consolidated financial statements.

- 6 -

MEDIDATA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited)
 
Three Months Ended
March 31,
 
2016
 
2015
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
1,438

 
$
1,438

Income taxes
$
794

 
$
281

 
 
 
 
Noncash activities:
 
 
 
Furniture, fixtures, and equipment acquired but not yet paid for at period-end
$
951


$
953


































The accompanying notes are an integral part of the condensed consolidated financial statements.

- 7 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Medidata Solutions, Inc., together with its consolidated subsidiaries (collectively, the "Company"), is the leading global provider of cloud-based solutions for clinical research in life sciences, offering platform technology that transforms clinical development and increases the value of its customers' research investments. The Company was organized as a New York corporation in June 1999 and reincorporated as a Delaware corporation in May 2000.
Except to the extent updated or described below, the Company’s significant accounting policies as of March 31, 2016 are the same as those at December 31, 2015 , which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016 .
Basis of Presentation — The accompanying interim condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015 , the condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015 , the condensed consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015 , and the condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC for interim financial reporting. Accordingly, certain information and footnote disclosures have been condensed or omitted pursuant to SEC rules that would ordinarily be required by U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2016 .
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments consisting of normal recurring accruals considered necessary to present fairly the Company’s financial position as of March 31, 2016 , results of its operations for the three months ended March 31, 2016 and 2015 , comprehensive income for the three months ended March 31, 2016 and 2015 , and cash flows for the three months ended March 31, 2016 and 2015 . The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 .
Income Taxes — The Company’s interim period provision for income taxes is computed by using an estimate of the annual effective tax rate, adjusted for discrete items taken into account in the relevant period, if any. Each quarter, the annual effective income tax rate is recomputed and if there are material changes in the estimate, a cumulative adjustment is made.
Accounts Receivable — Accounts receivable are recorded at original invoice amount less an allowance that management believes will be adequate to absorb estimated losses on uncollectible accounts. This allowance is based on an evaluation of the collectability of accounts receivable and prior bad debt experience. Accounts receivable are written off when deemed uncollectible. Unbilled receivables consist of revenue recognized in excess of billings, substantially all of which is expected to be billed and collected within one year. As of March 31, 2016 and December 31, 2015 , unbilled accounts receivable of $8.7 million and $10.3 million , respectively, were included in accounts receivable on the Company's consolidated balance sheets. In general, there is a direct relationship between the Company's accounts receivable balance and its transaction volume.
Recently Adopted Accounting Pronouncements — In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15,  Presentation of Financial Statements—Going Concern . This new guidance formally establishes management's responsibility to evaluate at each reporting period whether there is substantial doubt about the entity's ability to continue as a going concern for a period of one year after the date the financial statements are issued, and to provide related footnote disclosures. ASU No. 2014-15 is effective for annual reporting periods ending after December 15, 2016, and for interim and annual periods thereafter. The Company will adopt ASU No. 2014-15 for the annual reporting period ending December 31, 2016, and the adoption is not expected to have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs be presented not as an asset but as a reduction of the carrying amount of the related debt liability, similar to a debt discount. ASU No. 2015-03 is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU No. 2015-03 retrospectively on January 1, 2016, and the adoption did not have a material impact on its consolidated financial statements, aside from a balance sheet reclassification. Refer to Note 6 , "Debt," for details.
In April 2015, the FASB issued ASU No. 2015-05,  Customer's Accounting for Fees Paid in a Cloud Computing Arrangement , which provides guidance on whether an entity should account for the fees paid as a customer under a cloud computing arrangement as a license of internal-use software or as a service contract. ASU No. 2015-05 is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU No. 2015-05 prospectively on January 1, 2016, and the adoption did not have a material impact on its consolidated financial statements as the Company accounts for all subscription fees paid under its cloud computing arrangements as service contracts.

- 8 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU No. 2015-07 removes the requirement to categorize within the fair value hierarchy those investments that are measured at fair value using net asset value per share as a practical expedient and requires that sufficient information be provided to permit reconciliation of the fair value of assets categorized within the fair value hierarchy to amounts presented on the balance sheets. ASU No. 2015-07 is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU No. 2015-07 retrospectively on January 1, 2016, and the adoption did not have a material impact on its consolidated financial statements.
Recently Issued Accounting Pronouncements — There have been no changes in the expected dates of adoption or estimated effects on the Company's consolidated financial statements of recently issued accounting pronouncements from those disclosed in the Company’s Annual Report on Form 10-K, except as described below.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments by amending certain aspects of existing guidance on recognition, measurement, presentation, and disclosure to provide financial statement users with more decision-useful information. ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company will adopt ASU No. 2016-01 on January 1, 2018, and is presently evaluating the impact of the adoption on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which replaces previous lease guidance in its entirety with Accounting Standards Codification ("ASC") 842, Leases. The new guidance requires lessees to recognize lease assets and lease liabilities for those arrangements classified as operating leases under previous guidance, with the exception of leases with a term of twelve months or less. The new guidance also adds quantitative and qualitative disclosure requirements around leasing activities. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, and requires a modified retrospective approach. Early adoption is permitted. The Company will adopt ASU No. 2016-02 on January 1, 2019, and is presently evaluating the impact of the adoption on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liability, and classification on the statement of cash flows. ASU No. 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. The Company will adopt ASU No. 2016-09 no later than January 1, 2017 but is presently evaluating the impact of the adoption on its consolidated financial statements, and may consider early adoption.
2. STOCKHOLDERS' EQUITY
Common Stock — Common stockholders are entitled to one vote for each share of common stock held. Common stockholders may receive dividends if and when the Board of Directors determines, at its sole discretion.
Treasury Stock — From time to time, the Company grants nonvested restricted stock awards ("RSAs"), restricted stock units ("RSUs"), and performance-based restricted stock units ("PBRSUs") to its employees pursuant to the terms of its Second Amended and Restated 2009 Long-Term Incentive Plan (the “2009 Plan”). Under the provisions of the 2009 Plan, unless otherwise elected, participants fulfill their related income tax withholding obligation by having shares withheld at the time of vesting. On the date of vesting, the Company divides the participant's income tax withholding obligation in dollars by the closing price of its common stock and withholds the resulting number of vested shares. The shares withheld are then transferred to the Company's treasury stock at cost for future reissuance. During the three months ended March 31, 2016 and 2015 , the Company withheld 257,878 shares at an average price of $33.57 and 185,275 shares at an average price of $46.54 , respectively, in connection with the vesting of equity awards.
Nonvested restricted stock awards forfeited by plan participants are transferred to the Company's treasury stock at par. During the three months ended March 31, 2016 and 2015 , 54,161 and 25,427 forfeited shares, respectively, were transferred to treasury stock at their par value of $0.01 .
3. MARKETABLE SECURITIES
Marketable securities, which the Company classifies as available-for-sale securities, primarily consist of high quality commercial paper, corporate bonds, and U.S. government debt obligations. Marketable securities with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term; otherwise, they are classified as long-term on the consolidated balance sheet.

- 9 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table provides the Company’s marketable securities by security type as of March 31, 2016 and December 31, 2015 (in thousands):
 
As of March 31, 2016
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Commercial paper and corporate bonds
$
351,957

 
$
100

 
$
(405
)
 
$
351,652

U.S. government agency debt securities
37,305

 
7

 
(9
)
 
37,303

Total
$
389,262

 
$
107

 
$
(414
)
 
$
388,955

 
As of December 31, 2015
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Commercial paper and corporate bonds
$
401,824

 
$
—

 
$
(1,522
)
 
$
400,302

U.S. government agency debt securities
28,958

 
2

 
(95
)
 
28,865

Total
$
430,782

 
$
2

 
$
(1,617
)
 
$
429,167

Contractual maturities of the Company’s marketable securities as of March 31, 2016 and December 31, 2015 are summarized as follows (in thousands):
 
As of March 31, 2016
 
As of December 31, 2015
 
Cost
 
Estimated
Fair
Value
 
Cost
 
Estimated
Fair
Value
Due in one year or less
$
236,024

 
$
235,859

 
$
220,492

 
$
220,126

Due in one to five years
153,238

 
153,096

 
210,290

 
209,041

Total
$
389,262

 
$
388,955

 
$
430,782

 
$
429,167

At March 31, 2016 , the Company had $0.4 million of gross unrealized losses primarily due to a decrease in the fair value of certain corporate bonds.
The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Investments that are impaired are those that are considered to have losses that are other-than-temporary. Factors considered in determining whether a loss is temporary include:
• the length of time and extent to which fair value has been lower than the cost basis;
• the financial condition, credit quality and near-term prospects of the investee; and
• whether it is more likely than not that the Company will be required to sell the security prior to recovery.
As the Company has the ability and intent to hold these investments until a recovery of fair value, which may be until maturity, the Company has determined that the gross unrealized losses on such investments at March 31, 2016 are temporary in nature. Accordingly, the Company did not consider its investments in marketable securities to be other-than-temporarily impaired as of March 31, 2016 .
The following tables provide the fair market value and the gross unrealized losses of the Company's marketable securities with unrealized losses, aggregated by security type, as of March 31, 2016 and December 31, 2015 (in thousands):
 
In Loss Position for Less than 12 Months
 
As of March 31, 2016
 
As of December 31, 2015
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Commercial paper and corporate bonds
$
180,691

 
$
(304
)
 
$
359,566

 
$
(1,443
)
U.S. government agency debt securities
16,297

 
(9
)
 
25,863

 
(95
)
Total
$
196,988

 
$
(313
)
 
$
385,429

 
$
(1,538
)

- 10 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 
In Loss Position for More than 12 Months
 
As of March 31, 2016
 
As of December 31, 2015
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Commercial paper and corporate bonds
$
69,463

 
$
(101
)
 
$
38,726

 
$
(79
)
Total
$
69,463

 
$
(101
)
 
$
38,726

 
$
(79
)
During the three months ended March 31, 2016 and 2015 , the Company recorded an insignificant amount of net realized gains from the sale of marketable securities.
4. FAIR VALUE
The following table summarizes, as of March 31, 2016 and December 31, 2015 , our financial assets that are measured at fair value on a recurring basis, according to the fair value hierarchy described in our significant accounting policies included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (in thousands):
 
As of March 31, 2016
 
As of December 31, 2015
 
Fair Value Measurement Using
 
Fair Value Measurement Using
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash
57,207

 
—

 
57,207

 
48,917

 
—

 
48,917

Money market funds
30,462

 
—

 
30,462

 
645

 
—

 
645

Total cash and cash equivalents
87,669

 
—

 
87,669

 
49,562

 
—

 
49,562

Commercial paper and corporate bonds
—

 
351,652

 
351,652

 
—

 
400,302

 
400,302

U.S. government agency debt securities
—

 
37,303

 
37,303

 
—

 
28,865

 
28,865

Total marketable securities
—

 
388,955

 
388,955

 
—

 
429,167

 
429,167

Total financial assets measured at fair value on a recurring basis
87,669

 
388,955

 
476,624

 
49,562

 
429,167

 
478,729

As of March 31, 2016 and December 31, 2015 , the Company had no financial liabilities measured at fair value on a recurring basis, and none of its financial assets measured at fair value on a recurring basis relied upon Level 3 inputs.
Investments in commercial paper, corporate bonds, and U.S. government agency debt securities have been classified as Level 2 as they are valued using quoted prices in less active markets or other directly or indirectly observable inputs. Fair values of corporate bonds and U.S. government agency debt securities were derived from a consensus or weighted-average price based on input of market prices from multiple sources at each reporting period. With regard to commercial paper, all of the securities had high credit ratings and one year or less to maturity; therefore, fair value was derived from accretion of purchase price to face value over the term of maturity or quoted prices for similar instruments if available. During the three months ended March 31, 2016 and 2015 , there were no transfers of financial assets between Level 1 and Level 2.
The carrying amounts of all other current financial assets and current financial liabilities reflected in the consolidated balance sheets approximate fair value due to their short-term nature.
5. GOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill during the three months ended March 31, 2016 was as follows (in thousands):
Balance as of January 1, 2016
$
18,797

Foreign currency translation adjustments
(135
)
Balance as of March 31, 2016
$
18,662


- 11 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Intangible assets are summarized as follows (in thousands):
 
As of March 31, 2016
 
As of December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Acquired technology
$
5,177

 
$
(4,370
)
 
$
807

 
$
5,223

 
$
(4,336
)
 
$
887

Customer relationships
2,153

 
(1,999
)
 
154

 
2,165

 
(1,994
)
 
171

Non-competition agreements
150

 
(44
)
 
106

 
150

 
(36
)
 
114

Total
$
7,480

 
$
(6,413
)
 
$
1,067

 
$
7,538

 
$
(6,366
)
 
$
1,172

Annual amortization for the next five years is expected to be as follows (in thousands):
Remainder of year ending December 31, 2016
$
309

Years ending December 31,
 
2017
387

2018
305

2019
47

2020
19

6. DEBT
The Company's 1.00% convertible senior notes (the "Notes"), issued in August 2013, consisted of the following components as of March 31, 2016 and December 31, 2015 (in thousands):
 
March 31,
2016
 
December 31,
2015
Equity component, net of equity issue costs
$
60,222

 
$
60,222

Liability component:
 
 
 
Principal
287,500

 
287,500

Less: unamortized debt discount
(31,624
)
 
(34,712
)
Less: unamortized debt issuance costs
(2,981
)
 
(3,301
)
Net carrying amount
$
252,895

 
$
249,487

On January 1, 2016, the Company retrospectively adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires unamortized debt issuance costs to be presented as a reduction of the carrying amount of the related debt liability, similar to a debt discount. This resulted in the reclassification of $3.3 million in unamortized debt issuance costs from other assets to 1.00% convertible senior notes on the Company's consolidated balance sheet as of December 31, 2015 .
As of March 31, 2016 and December 31, 2015 , the estimated fair value of the Notes was $290.7 million and $313.0 million , respectively. The Company considers this disclosure to be a Level 2 measurement because it is based upon a recent modeled bid-price quote for the Notes, reflecting activity in a less than active market. As of March 31, 2016 , the Notes are not convertible. Based on the closing price of the Company's common stock on March 31, 2016 of $38.71 , which is less than the Notes' initial conversion price of $58.05 , the if-converted value of the Notes was less than their principal amount.
As of March 31, 2016 , the remaining life of the Notes was approximately 28 months .

- 12 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table sets forth total interest expense recognized related to the Notes for the three months ended March 31, 2016 and 2015 (in thousands except percentages):
 
Three Months Ended March 31,
 
2016
 
2015
Contractual interest expense
$
719

 
$
719

Amortization of debt issuance costs
319

 
319

Amortization of debt discount
3,089

 
2,909

Total
$
4,127

 
$
3,947

 
 
 
 
Effective interest rate
6.5
%
 
6.5
%
7. STOCK-BASED COMPENSATION
For the three months ended March 31, 2016 and 2015 , the components of stock-based compensation expense were as follows (in thousands):
 
Three Months Ended
March 31,
 
2016
 
2015
Stock options
$
1,055

 
$
1,147

Restricted stock awards and units
5,478

 
4,221

Performance-based restricted stock units
2,634

 
5,205

Employee stock purchase plan
1,083

 
1,097

Total stock-based compensation
$
10,250

 
$
11,670

Stock Options
The fair value of each stock option granted during the three months ended March 31, 2016 and 2015 was estimated on the date of grant using a Black-Scholes pricing model with the following weighted-average assumptions:
 
Three Months Ended
March 31,
 
2016
 
2015
Expected volatility
43
%
 
—

Expected life
6 years

 
—

Risk-free interest rate
1.50
%
 
—

Dividend yield
—

 
—

The following table summarizes the status of the Company's stock options as of March 31, 2016 , and changes during the three months then ended (in thousands, except per share data):
 
 
Number of
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(years)
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2016
 
1,940

 
$
21.73

 
 
 
 
Granted
 
59

 
39.11

 
 
 
 
Exercised
 
(22
)
 
8.82

 
 
 
 
Forfeited
 
(30
)
 
46.48

 
 
 
 
Expired
 
(1
)
 
1.60

 
 
 
 
Outstanding at March 31, 2016
 
1,946

 
$
22.03

 
5.77
 
$
37,449

Exercisable at March 31, 2016
 
1,496

 
$
15.50

 
4.91
 
$
36,527

Vested and expected to vest at March 31, 2016
 
1,890

 
$
21.33

 
5.67
 
$
37,421


- 13 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2016 was $16.94 . No stock options were granted during the three months ended March 31, 2015 . The total intrinsic value of stock options exercised during the three months ended March 31, 2016 and 2015 was $0.7 million and $7.3 million , respectively. The total fair value of stock options vested during the three months ended March 31, 2016 and 2015 was $0.8 million and $1.3 million , respectively. As of March 31, 2016 , there was $8.0 million in unrecognized compensation cost related to all non-vested stock options granted. This cost is expected to be recognized over a weighted-average remaining period of 2.52 years .
R estricted Stock Awards and Units
The following table summarizes the status of the Company’s nonvested time-based RSAs and RSUs as of March 31, 2016 , and changes during the three months then ended (in thousands, except per share data):
 
Number of
Shares
 
Weighted-
Average
Grant-Date
Fair Value
Nonvested at January 1, 2016
1,355

 
$
40.82

Granted
901

 
35.44

Vested
(278
)
 
40.18

Forfeited
(59
)
 
42.58

Nonvested at March 31, 2016
1,919

 
$
38.33

The total fair value of RSAs and RSUs vested during the three months ended March 31, 2016 and 2015 was $9.4 million and $9.0 million , respectively. As of March 31, 2016 , there was $66.3 million in unrecognized compensation cost related to all nonvested RSAs and RSUs granted. This cost is expected to be recognized over a weighted-average remaining period of 2.87 years .
Performance-Based Restricted Stock Units
During the three months ended March 31, 2016 , the Company granted 223 thousand PBRSUs ("2016 TSR PBRSUs") with market conditions based on the Company's total stockholder return ("TSR") relative to that of the Russell 2000 Index over the three-year period ending December 31, 2018, vesting in full in three years with the number of PBRSUs ultimately earned ranging from zero to 200% of the target number of shares . The Company also granted an insignificant number of other PBRSUs with performance conditions based on achievement of certain individual performance objectives.
During the three months ended March 31, 2015 , the Company granted 242 thousand PBRSUs ("2015 TSR PBRSUs") with market conditions based on the Company's TSR relative to that of the Russell 2000 Index over the one-, two-, and three-year periods ending December 31, 2015, 2016, and 2017, respectively, vesting in equal parts over three years with the number of PBRSUs ultimately earned ranging from zero to 200% of the target number of shares .
The fair value of PBRSUs with market conditions granted during the three months ended March 31, 2016 and 2015 was estimated as of the date of grant using a Monte Carlo valuation model with the following weighted average assumptions:
 
2016 TSR PBRSUs
 
2015 TSR PBRSUs
Expected volatility - Medidata
48
%
 
46
%
Expected volatility - comparison index
43
%
 
41
%
Expected life
2.84 years

 
2.88 years

Risk-free interest rate
0.91
%
 
0.99
%
Dividend yield
—

 
—


- 14 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table summarizes the status of the Company’s PBRSUs based upon expected performance as of March 31, 2016 , and changes during the three months then ended (in thousands, except per share data):
 
Revenue
 
TSR
 
Other
 
Total Number of Shares
 
Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2016
136

 
347

 
7

 
490

 
$
49.86

Granted (based on performance at 100% of targeted levels)
—

 
223

 
16

 
239

 
46.45

Adjustment related to expected performance
—

 
(88
)
 
—

 
(88
)
 
53.64

Vested
(136
)
 
(164
)
 
—

 
(300
)
 
38.47

Forfeited
—

 
(6
)
 
—

 
(6
)
 
68.61

Nonvested at March 31, 2016
—

 
312

 
23

 
335

 
$
56.30

The total fair value of PBRSUs vested during the three months ended March 31, 2016 and 2015 was $10.0 million and $10.6 million , respectively. As of March 31, 2016 , there was $17.1 million in unrecognized compensation cost related to all nonvested PBRSUs. This cost is expected to be recognized over a weighted-average remaining period of 2.30 years .
Employee Stock Purchase Plan
The fair value of ESPP shares was estimated using a Black-Scholes pricing model with the following weighted-average assumptions:
 
Three Months Ended
March 31,
 
2016
 
2015
Expected volatility
46
%
 
51
%
Expected life
1.68 years

 
1.56 years

Risk-free interest rate
0.58
%
 
0.35
%
Dividend yield
—

 
—

No shares were purchased under the ESPP during the three months ended March 31, 2016 and 2015 . As of March 31, 2016 , there was $3.7 million in unrecognized compensation cost related to ESPP shares. This cost is expected to be recognized over a weighted-average remaining period of 1.16 years .
Modifications
Net incremental expense associated with modifications during the three months ended March 31, 2016 was $0.2 million in the aggregate and immaterial on an individual basis.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in the balances of each component of accumulated other comprehensive loss during the three months ended March 31, 2016 are as follows (in thousands):
 
Foreign currency translation adjustments
 
Unrealized gains (losses) on marketable securities
 
Total
Balance as of January 1, 2016
$
(2,405
)
 
$
(999
)
 
$
(3,404
)
Other comprehensive income, net of tax
(87
)
 
1,308

 
1,221

Balance as of March 31, 2016
$
(2,492
)
 
$
309

 
$
(2,183
)
For the three months ended March 31, 2016 and 2015 , reclassifications of items from accumulated other comprehensive loss to net income were insignificant.

- 15 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

9. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted-average number of shares outstanding during the period. The holders of unvested RSAs do not have nonforfeitable rights to dividends or dividend equivalents and therefore, such unvested awards do not qualify as participating securities and are excluded from the basic earnings per share calculation. Diluted earnings per share includes the determinants of basic net income per share and, in addition, gives effect to the potential dilution that would occur if securities or other contracts to issue common stock are exercised, vested, or converted into common stock, unless they are antidilutive. As the Company intends to settle the principal amount of the Notes (see Note 6 , "Debt") in cash upon conversion, their dilutive effect, if any, will be reflected in diluted earnings per share using the treasury stock method, which considers the number of shares that would be required to settle any premium above principal at the average stock price for the period. During the three months ended March 31, 2016 , the average price of the Company's stock was below the conversion price of the Notes; as a result the Notes were not dilutive for this period.
A reconciliation of the numerator and denominator of basic earnings per share and diluted earnings per share for the three months ended March 31, 2016 and 2015 is shown in the following table (in thousands, except per share data):
 
Three Months Ended
March 31,
 
2016
 
2015
Numerator
 
 
 
Net income
$
5,848

 
$
157

Denominator
 
 
 
Denominator for basic earnings per share:
 
 
 
Weighted average common shares outstanding
55,119

 
53,257

Denominator for diluted earnings per share:
 
 
 
Dilutive potential common shares:
 
 
 
Stock options
744

 
985

Restricted stock awards and units
341

 
499

Performance-based restricted stock units
161

 
917

Weighted average common shares outstanding with assumed conversion
56,365

 
55,658

Basic earnings per share
$
0.11

 
$
0.00

Diluted earnings per share
$
0.10

 
$
0.00

Antidilutive common stock equivalents excluded from the calculation of diluted earnings per share for the three months ended March 31, 2016 and 2015 are shown in the following table (in thousands, except per share data):
 
Three Months Ended
March 31,
 
2016
 
2015
Stock options
616

 
452

Restricted stock awards and units
72

 
13

Performance-based restricted stock units
131

 
128

Employee stock purchase plan
417

 
306

Total
1,236

 
899

10. INCOME TAXES
The Company had approximately $4.6 million and $8.1 million of gross unrecognized tax benefits as of March 31, 2016 and December 31, 2015 , respectively. The $3.5 million decrease in gross unrecognized tax benefits during the three months ended March 31, 2016 was primarily the result of the Internal Revenue Service ("IRS") concluding its examination of the Company's 2012 federal income tax return. The Company redetermined its unrecognized tax benefits, including similar items in open tax years, based on the agreed adjustments with the IRS and other associated information and analysis, resulting in a discrete item in the quarter.

- 16 -
MEDIDATA SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

11. COMMITMENTS AND CONTINGENCIES
Legal Matters — The Company is subject to legal proceedings and claims that arise in the ordinary course of business and records an estimated liability for these matters when an adverse outcome is considered to be probable and can be reasonably estimated. Although the outcome of the litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, which could materially and adversely affect its financial condition or results of operations, the Company does not believe that it is currently a party to any material legal proceedings.
On March 4, 2011, DataTrak International, Inc. ("DataTrak") filed a complaint for alleged patent infringement against the Company in DataTrak International v. Medidata Solutions, C.A. No. 1:11-cv-00458 in the U.S. District Court for the Northern District of Ohio (the "NDOH District Court"). The complaint asserted infringement of U.S. Patent No. 7,464,087 (the “'087 Patent”). On November 6, 2015 the NDOH District Court granted the Company's motion to dismiss DataTrak's complaint on the grounds that the '087 Patent is invalid for lack of patentable subject matter under 35 U.S.C. §101. On January 5, 2016, the Company entered into a settlement agreement resolving all related aspects of its litigation with DataTrak. No monies were exchanged.
Contractual Warranties — The Company typically provides contractual warranties to its customers covering its solutions and services. To date, any refunds provided to customers have been immaterial.
Change in Control Agreements — The Company has change in control agreements with its chief executive officer and certain other executive officers. These agreements provide for payments to be made to such officers upon involuntary termination of their employment by the Company without cause or by such officers for good reason as defined in the agreements, within a period of 2 years following a change in control. The agreements provide that, upon a qualifying termination event, such officers will be entitled to (a) a severance payment equal to the officer’s base salary plus target bonus amount; (b) continuation of health benefits for 12 months ; and (c) immediate vesting of remaining unvested equity awards, unless otherwise specified in the equity award agreements.

12. SUBSEQUENT EVENT
On April 1, 2016 , the Company acquired Intelemage, LLC ("Intelemage"), a medical image sharing and workflow management company. This acquisition broadens the Company's offerings with the addition of digital image management, enhancing its value proposition for medical device companies that rely heavily on these capabilities. Total cash consideration associated with the acquisition is expected to be approximately $19 million, subject to purchase accounting adjustments. The accounting for this business combination is not yet complete; the Company's consolidated financial statements for the three and six months ending June 30, 2016 will reflect such purchase accounting and the revenues and expenses of the acquiree since the date of acquisition.

- 17 -

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences include, but are not limited to the factors discussed under the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission ("SEC") on February 29, 2016 .
The following is a discussion and analysis of our financial condition and results of operations and should be read together with our condensed consolidated financial statements and related notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes to audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 .
Overview
We are the leading global provider of cloud-based solutions for life sciences, transforming clinical development through our applications and data analytics. Our platform technology brings new levels of productivity and quality to the clinical testing of promising medical treatments, from study design and planning through execution, management, payments, and reporting. We are committed to powering smarter treatments and healthier people while advancing the competitive and scientific goals of our customers, which include over 90% of the top 25 global pharmaceutical companies measured by revenue.
Subscription revenues, which are comprised of fees from clients accessing our cloud-based solutions, represented 86% of our revenues for the first three months of 2016. Professional services revenues, which are derived from the provision of services that help our clients realize higher value in their clinical development processes, represented 14% of total revenues.
First Quarter 2016 Highlights
•
Total revenues increased 13% compared with the first quarter of 2015, with subscription and professional services revenues growing 14% and 4% , respectively.
•
We ended the first quarter with 630 clients, up 22% compared with this time last year.
•
We continued to make strategic investments in research and development and in our sales force. As compared with the first quarter of 2015, research and development expenses increased 29% and sales and marketing expenses increased 5% .
•
Operating income was $6.6 million , up 92% compared with $3.5 million in the first quarter of 2015.
•
Net income for the first quarter of 2016 was $5.8 million compared with $0.2 million in the first quarter of 2015.


- 18 -
Table of Contents

Results of Operations
Revenues
Revenues for the three months ended March 31, 2016 and 2015 were as follows:
 
Three Months Ended March 31,
 
2015
 
2015
 
Change
Revenues:
(amounts in thousands except percentages)
Subscription
$
89,968

 
$
78,749

 
14.2
%
Percentage of total revenues
86.3
%
 
85.2
%
 
 
Professional services
14,270

 
13,691

 
4.2
%
Percentage of total revenues
13.7
%
 
14.8
%
 
 
Total revenues
$
104,238

 
$
92,440

 
12.8
%
Year-over-year growth in subscription revenues resulted from major platform customer wins and increased sales to our existing large and mid-size customers, both from expanded usage of current solutions and adoption of additional solutions from our technolo gy platform, such as our offerings for risk-based monitoring, mobile and patient data capture, and randomization. We added 36 customers in the three months ended March 31, 2016 to end the quarter with 630 customers, up 22% compared with March 31, 2015 . Of the 36 new customers added during the quarter, 19% were from APAC, a direct result of our level of investment in the region. As of March 31, 2016 we had remaining subscription backlog of $235 million , representing the future contract value of outstanding arrangements, billed and unbilled, to be recognized during the rest of 2016, excluding renewals. This reflects an increase of 12% compared with remaining subscription backlog of $209 million at March 31, 2015 .
Year-over-year growth in professional services revenues for the three months ended March 31, 2016 resulted from increased demand from new and existing customers for implementation and other professional services.
Cost of Revenues
Cost of revenues for the three months ended March 31, 2016 and 2015 was as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
Cost of revenues:
(amounts in thousands except percentages)
Subscription
$
14,329

 
$
11,473

 
24.9
 %
Percentage of total revenues
13.8
%
 
12.4
%
 
 
Professional services
10,339

 
10,703

 
(3.4
)%
Percentage of total revenues
9.9
%
 
11.6
%
 
 
Total cost of revenues
$
24,668

 
$
22,176

 
11.2
 %
Percentage of total revenues
23.7
%
 
24.0
%
 
 
 
 
 
 
 
 
Gross profit
$
79,570

 
$
70,264

 
13.2
 %
Gross margin
76.3
%
 
76.0
%
 
 
 
 
 
 
 
 
Subscription margin
84.1
%
 
85.4
%
 
 
Professional services margin
27.5
%
 
21.8
%
 
 
Year-over-year growth in cost of subscription revenues was primarily due to increased expenses associated with software-related contracts with outside vendors and higher third-party cloud hosting costs resulting from increased platform activity and platform enhancements. Additionally, our business growth drove a year-over-year headcount increase of roughly 10%, resulting in increased personnel-related costs. Subscription gross margin decreased to 84.1% for the three months ended March 31, 2016 compared with 85.4% for the three months ended March 31, 2015 as a result of investments in our service delivery and hosting infrastructure and staff to support future growth.
Aside from a benefit related to the recognition of the New Jersey Business Employment Incentive Program ("NJ BEIP") grant during the three months ended March 31, 2016 , cost of professional services revenues remained consistent year-over-year due to strong utilization of resources. Refer to "Operating Costs and Expenses" below for further information on the NJ BEIP.

- 19 -
Table of Contents

Overall gross margin increased to 76.3% for the three months ended March 31, 2016 compared with 76.0% for the three months ended March 31, 2015 , driven by significant growth in our higher-margin subscription revenues and improved professional services margin.
Operating Costs and Expenses
Operating costs and expenses for the three months ended March 31, 2016 and 2015 were as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
Operating costs and expenses:
(amounts in thousands except percentages)
Research and development
$
28,228

 
$
21,911

 
28.8
 %
Percentage of total revenues
27.1
%
 
23.7
%
 
 
Sales and marketing
25,458

 
24,318

 
4.7
 %
Percentage of total revenues
24.4
%
 
26.3
%
 
 
General and administrative
19,246

 
20,569

 
(6.4
)%
Percentage of total revenues
18.4
%
 
22.3
%
 
 
Total operating costs and expenses
$
72,932

 
$
66,798

 
9.2
 %
Percentage of total revenues
69.9
%
 
72.3
%
 
 
 
 
 
 
 
 
Operating income
$
6,638

 
$
3,466

 
91.5
 %
Operating margin
6.4
%
 
3.7
%
 
 
The year-over-year growth in research and development expenses was primarily driven by a net increase in personnel-related costs of $4.1 million for the three months ended March 31, 2016 , resulting from a 24% headcount increase due to our hiring of skilled engineering talent. Increased fees for specialized consultants and outside experts of $1.7 million, associated with investments to enhance the value of our platform, also contributed to the growth in research and development expenses.
The year-over-year growth in sales and marketing expenses was predominantly driven by a net increase in personnel-related costs of $0.6 million for the three months ended March 31, 2016 , resulting from a 17% headcount increase to expand our global sales organization and partner team, partially offset by a decrease in stock-based compensation expense due to certain material equity awards becoming fully vested during the fourth quarter of 2015 and first quarter of 2016.
The year-over-year decline in general and administrative expenses was largely driven by a decrease in stock-based compensation expense of $1.3 million for the three months ended March 31, 2016 associated with certain material equity awards becoming fully vested during the fourth quarter of 2015 and first quarter of 2016, as well as lower legal fees.
In the first quarter of 2016, the state of New Jersey enacted legislation that allows us to recognize grants associated with the NJ BEIP, which incentivizes businesses to locate and expand jobs in New Jersey. The benefits of these grants have been applied against the underlying salary expense relating to our employees in research and development, sales and marketing, and general and administrative functions in New Jersey, reducing total operating expenses by $2.3 million for the three months ended March 31, 2016 .
Income Taxes
Provision for income taxes for the three months ended March 31, 2016 and 2015 was as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
(amounts in thousands)
Provision for income taxes
$
(2,469
)
 
$
(149
)
The difference between our effective tax rate and the U.S. statutory rate is primarily due to the relative mix of pre-tax income subject to tax in various jurisdictions, non-deductible expenses, investment in U.S. property under Internal Revenue Code Section 956, change in tax reserves, and U.S. tax incentives. In the first quarter of 2016, the Internal Revenue Service concluded its examination of our 2012 federal income tax return. As a result, we redetermined our unrecognized tax benefits for previously recorded reserves, resulting in a material discrete item in the quarter.
Our quarterly tax provision and quarterly estimate of the annual effective tax rate are subject to significant variation due to several factors, including variability in accuracy of predictions of pre-tax book and taxable income or loss, the mix of jurisdictions to which they relate, and changes in tax law in the jurisdictions in which we conduct business. We expect our annual effective tax rate for 2016 to be closer to the U.S. statutory rate.

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Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about certain items and future events. These estimates inherently involve levels of subjectivity and judgment and may have a material impact on our financial condition or results of operations. Accordingly, actual results could differ from those estimates. Our critical accounting estimates as of March 31, 2016 are the same as those at December 31, 2015 , which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 . Also see Note 1 , "Summary of Significant Accounting Policies," to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which discusses our significant accounting policies.
Effects of Recently Issued Accounting Pronouncements on Current and Future Trends
Refer to Note 1 , "Summary of Significant Accounting Policies — Recently Issued Accounting Pronouncements," to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. No other recently issued accounting pronouncements have had or are expected to have a material impact on our current or future trends.
Liquidity and Capital Resources
We believe that our cash flows from operations, cash and cash equivalents, and highly liquid marketable securities will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for the foreseeable future. Our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors, including any expansion of our business that we may complete. The following table presents selected financial information related to our liquidity and capital resources as of March 31, 2016 and December 31, 2015 , and for the three -month periods ended March 31, 2016 and 2015 (in thousands):
 
March 31,
2016
 
December 31,
2015
Cash, cash equivalents, and marketable securities
$
476,624

 
$
478,729

Furniture, fixtures and equipment, net
51,919

 
51,043

1.00% convertible senior notes, net
252,895

 
249,487

 
 
 
 
 
Three months ended March 31,
 
2016
 
2015
Cash provided by operating activities
$
12,463

 
$
16,865

Cash provided by investing activities
32,948

 
18,658

Cash used in financing activities
(7,477
)
 
(3,501
)
Cash, Cash Equivalents, and Marketable Securities
For the three months ended March 31, 2016 , cash provided by operating activities of $12.5 million was driven by strong customer collections, partially offset by operating expenditures and cash interest expense on our 1.00% convertible senior notes. Cash provided by investing activities of $32.9 million consisted of net sales of marketable securities of $40.5 million partially offset by cash payments for capital expenditures of $7.6 million . Cash used in financing activities of $7.5 million resulted primarily from the acquisition of $10.8 million of treasury stock in connection with equity plan participant tax withholdings upon vesting, partially offset by equity plan proceeds of $2.0 million .
For the three months ended March 31, 2015 , cash provided by operating activities of $16.9 million was driven by strong customer collections, partially offset by operating expenditures and cash interest expense on our 1.00% convertible senior notes. Cash provided by investing activities of $18.7 million of net sales of marketable securities of $22.1 million partially offset by cash payments for capital expenditures of $3.5 million . Cash used in financing activities of $3.5 million resulted primarily from the acquisition of $8.9 million of treasury stock in connection with equity plan participant tax withholdings upon vesting, partially offset by equity plan proceeds of $5.2 million .
Capital Assets
We acquired $3.8 million in capital assets during the three months ended March 31, 2016 , predominantly related to our new office spaces in Iselin, NJ and San Francisco, CA. Our actual cash payments for capital expenditures during the three months ended March 31, 2016 were $7.6 million . We expect to acquire approximately $11 to $13 million in additional capital assets during the remainder of 2016, primarily related to data center investments.

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Debt
In August 2013, we issued $287.5 million of 1.00% convertible senior notes (the "Notes") that will mature on August 1, 2018 unless earlier repurchased or converted. Upon conversion, we will deliver to the holders of the Notes either cash, shares of our common stock, or a combination thereof, at our election. If converted, we intend to settle the principal amount of the Notes in cash and any excess conversion value beyond the principal amount in shares of our common stock, cash, or a combination thereof. As of March 31, 2016 , the Notes are not convertible and therefore are classified as long term liabilities in our condensed consolidated balance sheet. For further information, see Note 6 , “Debt,” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Contractual Obligations, Commitments and Contingencies
The table below summarizes the aggregate effect that our material contractual obligations as of March 31, 2016 are expected to have on our cash flows in the periods indicated (in thousands):
 
Payments Due by Period
 
Total
 
Remainder of 2016
 
2017 - 2018
 
2019 - 2020
 
2021 and later
Contractual Obligations:
 
 
 
 
 
 
 
 
 
1.00% convertible senior notes
$
287,500

 
$
—

 
$
287,500

 
$
—

 
$
—

Interest payments on convertible senior notes
7,188

 
1,438

 
5,750

 
—

 
—

Operating lease obligations
116,163

 
10,206

 
28,068

 
28,566

 
49,323

Total
$
410,851

 
$
11,644

 
$
321,318

 
$
28,566

 
$
49,323

Legal Matters
For a discussion of legal matters, refer to Note 11 , "Commitments and Contingencies — Legal Matters," to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 3.     Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
We had unrestricted cash and cash equivalents totaling $87.7 million at March 31, 2016 . Our cash equivalents are invested principally in money market funds. We also had investments in marketable securities, which we classify as available-for-sale securities, totaling $389.0 million at March 31, 2016 . Substantially all of our marketable securities are fixed income securities, which primarily consist of high quality commercial paper and corporate bonds. Due to the short duration, laddered maturities, and high credit ratings of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.
Exchange Rate Sensitivity
Our five non-U.S. operating subsidiaries are located in the United Kingdom, Japan, South Korea, Singapore, and China. The functional currencies for these subsidiaries are the respective local currencies. We have exposure to exchange rate movements that are captured in translation adjustments for these subsidiaries. Such cumulative adjustments are recorded in accumulated other comprehensive income (loss). The estimated potential translation loss for the three months ended March 31, 2016 resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounted to $1.5 million .
We bill our customers primarily in U.S. dollars. Any billings in foreign currency are billed from Medidata Solutions, Inc., a U.S. entity, and are mainly denominated in Euros, British pounds sterling, Australian dollars, and Canadian dollars. Our foreign currency-denominated costs and expenses are mainly incurred by our five non-U.S. operating subsidiaries. Accordingly, future changes in currency exchange rates will impact our future operating results. For the three months ended March 31, 2016 , 5.3% of our revenues and 14.7% of our expenses were denominated in foreign currencies. Gains and losses arising from transactions denominated in foreign currencies are recorded as foreign currency transaction gains (losses) in general and administrative expenses on our condensed consolidated statements of operations and amounted to $0.4 million for the three months ended March 31, 2016 .
Inflation
We do not believe that inflation has had a material impact on our business, financial condition, or results of operations.

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Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2016 , an evaluation was performed with the participation of our Disclosure Committee and our management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon such evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2016 .
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

- 23 -

PART II - OTHER INFORMATION
Item 1.    Legal Proceedings
See Note 11 , “Commitments and Contingencies – Legal Matters,” to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of current legal proceedings.
Item 1A.    Risk Factors
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 are those that we believe are the material risks we face. There have been no material changes in our risk factors since our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 . Any of those disclosed risk factors or additional risks and uncertainties not presently known to us, or that we currently deem immaterial, could have a material adverse effect on our business, financial condition and results of operations.
Item 2.     Unregistered Sale of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
From time to time, we grant nonvested restricted stock awards, restricted stock units, or performance-based restricted stock units to our employees pursuant to the terms of our Second Amended and Restated 2009 Long-Term Incentive Plan ("2009 Plan"). Under the provisions of the 2009 Plan, unless otherwise elected, participants fulfill their related income tax withholding obligation by having shares withheld at the time of vesting. On the date of vesting, we divide the participant's income tax withholding obligation in dollars by the closing price of our common stock and withhold the resulting number of vested shares.
A summary of our repurchases of shares of our common stock for the three months ended March 31, 2016 is as follows: 
 
 
Total Number of Shares Purchased (1)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet be Purchased under the Plans or Programs
January 1 – January 31, 2016
 
886

 
$
48.48

 
—

 
—

February 1 – February 29, 2016
 
256,146

 
$
33.51

 
—

 
—

March 1 – March 31, 2016
 
846

 
$
35.72

 
—

 
—

Total
 
257,878

 
$
33.57

 
—

 
—

(1) Represents the number of shares acquired as payment by employees of applicable statutory minimum withholding taxes owed upon vesting of restricted stock awards, restricted stock units, or performance-based restricted stock units granted under the 2009 Plan.
Item 3.    Defaults upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.     Other Information
None.
Item 6.    Exhibits
The information required by this Item 6 is set forth on the exhibit index that follows the signature page of this report.

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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
MEDIDATA SOLUTIONS, INC.
 
 
 
 
By:
/s/ ROUVEN BERGMANN
 
 
Rouven Bergmann
Chief Financial Officer (Principal Financial and Principal Accounting Officer)
Date: May 6, 2016

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EXHIBIT INDEX
Exhibit No.
Description
10.1*
Form of Medidata Solutions, Inc. Performance-Based Restricted Stock Unit Agreement
31.1*
Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act
31.2*
Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act
32.1**
Certification of CEO pursuant to Rules 13a-14(b) or 15d-14(b) under the Exchange Act and 18 U.S.C. 1350
32.2**
Certification of CFO pursuant to Rules 13a-14(b) or 15d-14(b) under the Exchange Act and 18 U.S.C. 1350
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
 
*
Filed herewith.
**
Furnished herewith.


- 26 -

MEDIDATA SOLUTIONS, INC. 2016 PERFORMANCE-BASED
RESTRICTED STOCK UNIT AGREEMENT
THIS AGREEMENT is made as of February 26, 2016, by and between MEDIDATA SOLUTIONS, INC. (the “ Company ”), and ___________________ (the “ Participant ”).
1. Award . In accordance with the Medidata Solutions, Inc. 2009 Long-Term Incentive Plan (the “Plan”), the Company hereby grants to the Participant a target incentive award for a total of ______________ (the “Target Number”) performance-based restricted stock units (“PBRSUs”). Each PBRSU represents a contingent right to receive one share of the Company’s common stock (a “Share”). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them by the Plan.
2.     Certain Defined Terms . The following capitalized terms shall have the meanings set forth below for the purposes of determining the number of PBRSUs earned by the Participant under Section 3 and Exhibit A of this Agreement.
(a)     “Company TSR” means, the percentage difference (positive or negative) between (i) the Value per Share on January 1, 2016, and (ii) the sum of (A) the Value per Share on the last day of the Performance Period, plus (B) the amount of any dividends (including the cash value of non-cash dividends) paid or payable with respect to such share during such period. For this purpose, dividends will be taken into account on the ex-dividend date.
(b)    “Performance Period” means the period starting on January 1, 2016 and ending on December 31, 2018.
(c)    “Russell Index TSR” means the percentage difference (positive or negative) between (i) the Value per share of the most widely publicly traded class of stock of each company in the Russell 2000 Index on January 1, 2016, and (ii) the sum of (A) the Value per share of such stock on the last day of the Performance Period, plus (B) the amount of any dividends (including the cash value of non-cash dividends) paid or payable with respect to such share during such period. For this purpose, dividends will be taken into account on the ex-dividend date.
(d)    “TSR Performance Percentage” means the percentage determined under the table set forth in Exhibit A, based upon the difference (positive or negative) between the Company TSR and the 50th percentile of the Russell Index TSRs during the Performance Period.
(e)    “Value” means, with respect to the stock of either the Company or a company in the Russell 2000 Index: (i) as of January 1, 2016, the average closing price per share for the preceding thirty trading days; and (ii) as of the last day of the Performance Period, the average closing price per share for the last thirty trading days of such Performance Period.
3.     Earning of PBRSUs . The Participant will earn a number of PBRSUs equal to the product of (i) the TSR Performance Percentage determined under Exhibit A (which may range from 0% to 200%), multiplied by (ii) the Participant’s Target Number. The number of PBRSUs (if any) earned by the Participant will be determined as soon as practicable after the end of the Performance Period by the Compensation Committee of the Company’s Board of Directors (the “Committee”), acting in accordance with this Agreement (including Exhibit A) and the Plan. All such determinations will be evidenced in writing by the Committee and will be final and binding on the Company, the Participant and any other interested persons. PBRSUs earned by the Participant under this Agreement will be settled in the form of Shares and/or cash in accordance with Section 5 below.
4.     Termination of Employment During the Performance Period; Effect of a Sale Event .
(a)     General . If the Participant’s employment terminates during the Performance Period, then, except as otherwise specified in this Section 4, the Participant will earn no PBRSUs, and this Agreement will thereupon terminate and be of no further force or effect. For the purposes of this Agreement, the Participant’s employment will be considered terminated if (and only if) the Participant is no longer employed by or providing services to the Company or any of its subsidiaries.

1


(b)     Termination Due to Death or Disability . If, prior to the end of the Performance Period, the Participant’s employment terminates by reason of the Participant’s death or the Company terminates the Participant’s employment by reason of “Disability” (as defined below), then the Participant will be deemed to have earned a pro-rata portion of the number of PBRSUs, if any, that the Participant would have earned under this Agreement for such Performance Period (including, if applicable, pursuant to Section 4(c) below) if the Participant’s employment had continued through the end of the Performance Period, based upon the ratio of (i) the number of full months elapsed from the first day of the Performance Period to the date the Participant’s employment terminated, to (ii) 36. For the purpose of this Agreement, the term “Disability” means the inability of the Participant to perform the essential duties of the Participant’s employment with the Company or a subsidiary for a period of 120 consecutive days or an aggregate of 180 days during any twelve-month period, by reason of a physical or mental illness or injury, as determined in the good faith by the Committee acting in accordance with its discretionary authority under the Plan.
(c)     Effect of a Sale Event . If a Sale Event (as defined in the Plan) occurs during the Performance Period and if the Participant’s employment has not previously terminated, then the Participant will be deemed to have earned a number of PBRSUs equal to (A x B), where—
A = the Total Target Number (specified in Section 1 above); and
B = the TSR Performance Percentage determined under the table in Exhibit A, based upon the Company TSR and the Russell Index TSRs for the period beginning January 1, 2016 and ending on the day preceding the date of the Sale Event.
Immediately prior to the Sale Event, the PBRSUs that are deemed to have been earned pursuant to this Section 4(c) shall be converted into the right to receive an amount of cash and/or a number of freely tradable shares of common stock of the acquiring or successor company or parent thereof having a value equal to the Sale Event transaction value of the Shares covered by such PBRSUs as if such Shares were issued and outstanding at the time of the Sale Event. If the settlement obligation with respect to such converted PBRSUs is assumed by the successor or acquiring company as part of the Sale Event transaction, the Participant’s right to receive such cash payment and/or shares of common stock will be conditioned upon the Participant’s continuing employment or service with the successor or acquiring company through the end of the Performance Period, provided that, if the Participant’s employment or service is terminated before the end of the Performance Period by the Company without Cause (as such term is defined in Medidata’s Executive Change in Control Agreement), by the Participant for Good Reason (as such term is defined in Medidata’s Executive Change in Control Agreement) or by reason of the Participant’s death, then the continuing service condition will thereupon be waived and the Participant will be entitled to immediate payment of such cash and/or shares in full and final settlement of the converted PBRSUs, and provided further that, if the Participant’s employment or service is terminated before the end of the Performance Period for any other reason, the Participant will thereupon forfeit any and all interest in and rights with respect to such converted PBRSUs. If the settlement obligation with respect to such PBRSUs is not assumed by the successor or acquiring company, then the converted PBRSUs will be deemed to be fully vested and will be settled upon and as part of the Sale Transaction.
5.     Settlement of Earned PBRSUs; Rights as a Shareholder .
(a)     General . The PBRSUs earned by the Participant for the Performance Period (including a short Performance period resulting from a Sale Event) will be settled in accordance with this Section 5 as soon as practicable after the end of the Performance Period (but in no event later than March 15 of the following calendar year). At the time of settlement, the Company will issue and deliver to the Participant the Shares represented by such earned PBRSUs in certificated or electronic form. Unless an insider trading blackout period is in effect and absent other extraordinary circumstances, the Company intends to complete the settlement promptly after the Committee determines the number of PBRSUs that are earned for the Performance Period. Notwithstanding the foregoing, if a Sale Event occurs, any earned PBRSUs that have not previously been settled (including any PBRSUs deemed to have been earned prior to the Sale Event pursuant to Section 4(c) above) will be settled (if at all) at the time and in the manner prescribed in Section 4(c).
(b)     Tax Withholding . As a condition of the issuance of Shares under this Agreement, the Company shall require the Participant to satisfy any applicable tax withholding obligations. Toward that end, the Company and its Subsidiaries may require the Participant to remit an amount sufficient to satisfy such withholding obligations or deduct or withhold such amount from any payments otherwise owed the Participant (whether or

2


not under this Agreement or the Plan). The Participant expressly authorizes the Company to deduct from any compensation or any other payment of any kind due to the Participant, including (if the Company so consents) withholding Shares that would otherwise be issued to the Participant in settlement of vested PBRSUs, for the amount of any such tax withholding obligations, provided, however, that the value of any Shares withheld may not exceed the statutory minimum withholding amount required by law.
(c)     Rights as a Shareholder . The Participant shall have no voting or other rights of a shareholder with respect to the Shares covered by PBRSUs unless and until such Shares are issued to the Participant in accordance with the provisions hereof.
6.     Transfer Restrictions . The Participant may not sell, assign, transfer, pledge, hedge, hypothecate, encumber or dispose of in any way (whether by operation of law or otherwise) any of the Participant’s rights under this Agreement, and none of such rights shall be subject to execution, attachment or similar process. Any attempt by the Participant or any other person claiming against, through or under the Participant to cause any of the Participant’s rights under this Agreement to be transferred or assigned in any manner shall be null and void and without effect upon the Company, the Participant or any other person. Notwithstanding the foregoing, if the Participant dies on or after the date that any PBRSUs have been earned and determined and before the settlement of such earned PBRSUs, the settlement will be made to the Participant’s Beneficiary (as determined under the Plan).
7.     Provisions of the Plan Control; Effect of Other Agreements . This Agreement shall be subject to the provisions of the Plan and to such rules, regulations and interpretations as may be established or made by the Committee acting within the scope of its authority under the Plan. The Participant acknowledges receipt of a copy of the Plan prior to the execution of this Agreement. If and to the extent that any provision of this Agreement (including the Plan, as it applies to this Agreement) is inconsistent with any provision of any employment, separation, change in control or other agreement between the Company or a subsidiary and the Participant in effect at any time or from time to time, the terms of this Agreement (including the Plan, as it applies to this Agreement) shall govern.
8.     No Employment Rights . Nothing contained herein or in the Plan shall confer upon the Participant any right with respect to the continuation of the Participant’s employment or other service with the Company or a subsidiary or interfere in any way with the right of the Company and its subsidiaries at any time to terminate such employment or other service or to increase or decrease, or otherwise adjust, the Participant’s compensation and any other terms and conditions of the Participant’s employment or other service.
9.     Recoupment . The Participant’s rights with respect to this award shall in all events be subject to (a) any right that the Company may have under any Company recoupment, claw back and/or forfeiture policy of the Company as in effect from time to time, and (b) any right or obligation the Company may have regarding the claw back of “incentive-based compensation” under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable securities law or the listing requirements of any national securities exchange on which the Company’s Shares are listed.
10.     Committee Determinations Final . The Committee shall have complete discretion in the exercise of its authority, powers, and duties under the Plan and this Agreement. Any determination made by the Committee with respect to this Agreement and the Plan shall be final, conclusive, and binding on all interested persons. The Committee may designate any individual or individuals to perform any of its ministerial functions to be performed hereunder.
11.     Successors . This Agreement shall be binding upon and inure to the benefit of the Company any of its successors and assigns, as well as the Participant and, if applicable, the Participant’s surviving spouse or estate. For the avoidance of doubt, if a Sale Event occurs, the term “Company” shall be deemed to include the successor or acquiring company, any parent company and any of its or their affiliates.
12.     Entire Agreement . This Agreement (including Exhibit A) constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended, except as provided in the Plan, other than by a written instrument executed by the parties hereto.

3


13.     Governing Law . All rights and obligations under this Agreement and the Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws.
14.     Counterparts . This Agreement may be executed in separate counterparts, each of which will be an original and all of which taken together shall constitute one and the same agreement.
[Signature Page Follows]

4



IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
MEDIDATA SOLUTIONS, INC.



By:_____________________________




_________________________________
Participant



5


EXHIBIT A

TSR PERFORMANCE PERCENTAGE
This Exhibit A is attached to and made a part of the Participant’s 2016 Performance-Based Restricted Stock Unit Agreement (the “Agreement”). Capitalized terms that are used but not defined in this Exhibit A will have the meanings ascribed to them in the main body of the Agreement, including with respect to the factors used in this Exhibit, Section 2 of the Agreement.
The number of PBRSUs the Participant will earn for the Performance Period (subject to the provisions of the Agreement) will be expressed as a percentage (from 0% to 200%) of the Participant’s Target Number. That percentage is called the TSR Performance Percentage.
The TSR Performance Percentage for the Performance Period is determined under the following table, based upon the difference (positive or negative) between the Company TSR for the Performance Period and the 50 th percentile of the Russell Index TSRs for that same period. If, the difference between the Company TSR and the 50 th percentile of the Russell Index TSRs is above one specified level and below another level, then the TSR Performance Percentage for the Performance Period will be increased accordingly by linear interpolation between the two levels.

TSR PERFORMANCE
PERCENTAGE TABLE
Difference Between Company TSR and the 50 th  Percentile of Russell Index TSRs
TSR Performance Percentage
Difference Between Company TSR and the 50 th  Percentile of Russell Index TSRs
TSR Performance Percentage
25% or more
200%
-5%
90%
20%
180%
-10%
80%
15%
160%
-15%
70%
10%
140%
-20%
60%
5%
120%
-25%
50%
0%
100%
-30% or more
0%

Example . Participant X receives a 2016 PBRSU award for a target number of 1,000 shares. .
(a)    Using the above table, if the Company TSR for the Performance Period is 10% higher than the 50 th percentile of the Russell 2000 Index TSRs for the same period, then the TSR Performance Percentage will be 140%. As such, X will earn a total of 1,400 PBRSUs (1,000 x 140%).
(b)    If the Company TSR for the Performance Period is 25% or more than the 50 th percentile of the Russell Index TSRs for the same period, then the TSR Performance Percentage for 2015 will be 200% and X will earn a total of 2,000 PBRSUs for the Performance Period (1,000 x 200%).
(c)    If the Company TSR for the Performance Period is 15% less than the 50 th percentile of the Russell Index TSRs for the same period, then the TSR Performance Percentage will be 70%, and X will earn a total of 700 PBRSUs.

6


Note that the TSR Performance Percentage will be based on the cumulative Company TSR relative to the 50th percentile of the cumulative Russell Index TSRs during the Performance Period.
 

7

Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Tarek A. Sherif, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Medidata Solutions, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:  May 6, 2016
 
By:
/s/ TAREK A. SHERIF
 
Tarek A. Sherif
Chairman and Chief Executive Officer
Medidata Solutions, Inc.



Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Rouven Bergmann, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Medidata Solutions, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:  May 6, 2016
 
By:
/s/ ROUVEN BERGMANN
 
Rouven Bergmann
Chief Financial Officer
Medidata Solutions, Inc.


Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. §1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Medidata Solutions, Inc. (the “Company”) for the period ended March 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tarek A. Sherif, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
 
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company
 
Date: May 6, 2016
 
By:
/s/ TAREK A. SHERIF
 
Tarek A. Sherif
Chairman and Chief Executive Officer
Medidata Solutions, Inc.

*
A signed original of this written statement required by Section 906 has been provided to Medidata Solutions, Inc. and will be retained by Medidata Solutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. §1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Medidata Solutions, Inc. (the “Company”) for the period ended March 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rouven Bergmann, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
 
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company
 
Date: May 6, 2016
By:
/s/ ROUVEN BERGMANN
 
Rouven Bergmann
Chief Financial Officer
Medidata Solutions, Inc.

*
A signed original of this written statement required by Section 906 has been provided to Medidata Solutions, Inc. and will be retained by Medidata Solutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.