PAREXEL third quarter revenue increases 3.5% to $301.4 million

PAREXEL International Corporation (Nasdaq: PRXL) today announced its financial results for the third quarter ended March 31, 2011.

For the three months ended March 31, 2011, PAREXEL’s consolidated service revenue increased by 3.5% to $301.4 million, compared with $291.2 million in the prior year period.  Excluding the positive impact from foreign exchange movements of $3.3 million, revenue increased 2.4%, to $298.1 million.  As reported under Generally Accepted Accounting Principles (GAAP), the Company generated operating income of $21.9 million, or 7.3% of consolidated service revenue, in the third quarter of Fiscal Year 2011, versus GAAP operating income of $25.8 million, or 8.9% of consolidated service revenue, in the comparable quarter of the prior year.   On this basis, GAAP operating income declined 15.3% year-over-year.  The financial results of the March quarter in the current and prior periods each included special items, as detailed in the financial charts within this press release.  Excluding these special items in the current period, adjusted operating income totaled $22.4 million, or 7.4% of consolidated service revenue.  Excluding the special items referenced above in the prior year period, adjusted operating income totaled $29.9 million, or 10.3% of consolidated service revenue.  On this adjusted basis, operating income in the current quarter declined 25.1% year-over-year.  GAAP net income for the current quarter totaled $15.7 million, or $0.26 per diluted share, compared with GAAP net income of $12.8 million, or $0.22 per diluted share, for the quarter ended March 31, 2010.  On a GAAP basis, net income in the current quarter increased by 23.1%, and earnings per diluted share increased by 18.2%.  Adjusted net income in the current period (which excludes the special items referenced above) was $16.1 million, or $0.27 per diluted share.  Adjusted net income in the prior year quarter (which excludes the special items referenced above) was $16.8 million, or $0.28 per diluted share. Using adjusted numbers, net income in the current quarter declined by 4.5%, and earnings per diluted share declined by 3.6%.

The financial results in the third quarter were adversely impacted by a revenue shortfall in the Early Phase operating unit of Clinical Research Services, slower than expected revenue conversion from backlog related to strategic partnerships, and client delays on some large projects.  In addition, the Company continues to have a disproportionate number of projects in the lower revenue generating start-up stage.

The Company’s current quarter tax benefit of approximately $900,000 resulted from a reduction in the estimated full-year tax rate due to a more favorable geographic mix of pre-tax profitability.  At the same time, the Company experienced higher-than-anticipated foreign exchange losses on the Other Expense line, due in part to cash flow variability caused by implementation of the Company’s new billing system and the resulting delay in intercompany settlements.  

The quality of the Company’s net receivables continued to improve with sequential increases in both billed receivables and deferred revenue coupled with a decrease in unbilled receivables.  However, Days Sales Outstanding (DSO) increased to 72 days at March 31, 2011 as a result of lower gross revenue.  On a related note, operating cash flow was $27.2 million in the quarter.

On a segment basis, consolidated service revenue for the third quarter of Fiscal Year 2011 was $227.0 million in Clinical Research Services (CRS), $34.1 million in PAREXEL Consulting and Medical Communications Services (PCMS), and $40.3 million in Perceptive Informatics, Inc.

For the nine months ended March 31, 2011, consolidated service revenue was $901.6 million versus $835.7 million in the prior year period, an increase of 7.9%.  GAAP operating income for the current nine-month period was $80.1 million, or 8.9% of consolidated service revenue, compared with GAAP operating income of $63.0 million, or 7.5% of consolidated service revenue in the prior year period.  GAAP net income for the nine months ended March 31, 2011 was $50.4 million, or $0.84 per diluted share, compared with GAAP net income of $28.7 million, or $0.49 per diluted share, in the prior year period.  Excluding the impact of certain special items as detailed in the attached financial charts in both nine month periods, adjusted operating income was $79.6 million, or 8.8% of consolidated service revenue, for the nine months ended on March 31, 2011, compared with $75.3 million or 9.0% of consolidated service revenue for the nine months ended on March 31, 2010.  On an adjusted basis, net income for the nine months ended March 31, 2011 was $50.8 million, or $0.85 per diluted share, compared with $44.4 million, or $0.76 per diluted share, in the comparable prior year nine month period.

Backlog at the end of March was approximately $3.19 billion, an increase of approximately 34% year-over-year.  Backlog included gross new business wins in the quarter of $566.5 million, cancellations of $132.4 million (4.4% of beginning backlog), and a positive impact from foreign exchange rates of $33.6 million. The net book-to-bill ratio was 1.44 in the quarter.

The Company also announced its plans to commence a restructuring program beginning in the fourth quarter of Fiscal Year 2011, primarily focused on Early Phase capacity reductions.  The amount of the restructuring is estimated to total approximately $15.0 million (equating to approximately $0.18 per diluted share), of which approximately $4.0 million is expected to be recorded in the fourth quarter, negatively impacting earnings per diluted share by approximately $0.06.  The remaining $0.12 is expected to be recorded in the second half of calendar year 2011.  The restructuring is expected to generate cost savings in the range of $0.15 to $0.20 per diluted share during FY 2012.  These amounts have been factored into the Company’s forward-looking guidance.

Mr. Josef H. von Rickenbach, PAREXEL’s Chairman and Chief Executive Officer, stated “The Early Phase market is clearly in transition.  As industry conditions shift, our business must also adapt.  To continue to serve our clients well in the future, it is essential that we become more agile in our Early Phase business.  I believe that this restructuring will allow us to deploy our assets more productively.  We are also strategically positioning the business to take advantage of new market opportunities.”

Mr. von Rickenbach noted, “During the third quarter, a shortfall in Early Phase revenue and slower than expected revenue conversion from backlog in the rest of CRS negatively impacted the quarter’s results.  Delays with a few key programs have pushed revenue out to future quarters, while, at the same time, we have a significant number of large projects in backlog that continue to be in the lower revenue generating start-up stages.”

He continued, “With regard to new business, PAREXEL again achieved a very strong book-to-bill ratio, coming in at 1.44 this quarter.  I am very pleased with our robust level of new business wins and the success that we continue to have in the marketplace.  Also, the strength of our established Asia Pacific infrastructure continues to be very well received by clients.”

In discussing the future outlook for the Company, Mr. von Rickenbach stated, “While revenue continues to convert out of backlog more slowly than had been expected, cancellations were within normal levels this quarter, and our opportunity pipeline and backlog remain very solid.  Given our new business performance and our expected growth, we are accelerating recruitment of additional direct labor staff in our Clinical Research Services business to ensure that we meet the future project needs of our clients.  This ramp-up in hiring is taking place ahead of significant levels of revenue being generated from these projects, which will put pressure on operating margins in the near-term.  I believe that our future is promising.  Based on our current backlog and outlook, we anticipate mid-teens revenue growth in the second half of Fiscal Year 2012.  This is an exciting time for our industry, and we believe that we are well-positioned to continue to increase our share of the market.”

The Company issued forward-looking guidance for the fourth quarter of Fiscal Year 2011 (ending June 30, 2011), for Fiscal Year 2011 and for Calendar Year 2011 using recent exchange rates.   For the fourth quarter, the Company anticipates reporting consolidated service revenue in the range of $300.0 to $310.0 million, GAAP diluted earnings per share in the range of $0.00 to $0.04 and adjusted diluted earnings per share (which excludes the aforementioned restructuring charge) of $0.05 to $0.09. For Fiscal Year 2011, consolidated service revenue is expected to be in the range of $1.202 to $1.212 billion (previously issued revenue guidance was $1.220 to $1.240 billion).  GAAP earnings per diluted share for Fiscal Year 2011 are projected to be in the range of $0.84 and $0.88 (previously issued GAAP earnings per diluted share guidance was $1.17 to $1.23), and adjusted earnings per diluted share (which excludes the restructuring charge and the special items referenced above) are projected to be in the range of $0.90 and $0.94.  For Calendar Year 2011, consolidated service revenue is expected to be in the range of $1.245 to $1.275 billion (previously issued revenue guidance was $1.260 to $1.295 billion), GAAP earnings per diluted share are expected to be in the range of $0.57 to $0.70 (previously issued guidance was $1.21 to $1.31), and adjusted earnings per diluted share (excluding the restructuring charge and the special items referenced above) are projected to be in the range of $0.76 and $0.89.

Certain trended financial information may be found in the Investor Relations section of the Company’s website under the “Additional Financials” section.  

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures.  The Company believes that presenting the non-GAAP financial measures contained in this press release assists investors and others in gaining a better understanding of its core operating results and future prospects, especially when comparing such results to previous periods or forecasted guidance, because such measures exclude items that are outside of the Company’s normal operations and/or, in certain cases, are difficult to forecast accurately for future periods.  Management uses non-GAAP financial measures, in addition to the measures prepared in accordance with GAAP, as the basis for measuring the Company’s core operating performance and comparing such performance to that of prior periods and to the performance of its competitors for the same reasons stated above.  Such measures are also used by management in its financial and operating decision-making.  Non-GAAP financial measures are not meant to be considered superior to or a substitute for the Company’s results of operations prepared in accordance with GAAP.