PAREXEL International Reports Third Quarter Fiscal Year 2014 Results

-- Company increases Fiscal Year 2014 revenue and EPS guidance

-- 8.3% year-over-year growth in third quarter consolidated service revenue to $492.4 million

-- Gross margin of 34.4%, up 300 basis points year-over-year

-- Operating income grew 42.5% year-over-year to $52.2 million

-- GAAP operating margin of 10.6% (adjusted operating margin of 10.8%)

-- Diluted earnings per share of $0.60 grew 20.0% year-over-year in the quarter

-- Cash flow from operations of $76.4 million

-- Net new business wins of $572.9 million; net book-to-bill ratio of 1.16; backlog at $4.93 billion

BOSTON, April 29, 2014 -- PAREXEL International Corporation (NASDAQ: PRXL) today reported financial results for the third quarter of Fiscal Year 2014, which ended on March 31, 2014. 

In commenting on the results of the quarter, Mr. Josef H. von Rickenbach, PAREXEL's Chairman and Chief Executive Officer, stated, "In the third quarter, we delivered revenue in line with guidance, solid operational improvements, earnings that exceeded our expectations, and positive new business results.  Our third quarter GAAP operating margin of 10.6% is an all-time record for the Company.  We are pleased that the productivity and efficiency-related investments we have made, particularly in the Clinical Research Services business, have continued to pay off."

Mr. von Rickenbach continued, "We are on track to execute our strategy and deliver on our commitments for Fiscal Year 2014.  We are experiencing positive momentum in the marketplace, especially with mid and small clients, and we have successfully captured new business from all market segments. Our ongoing strategic operational initiatives across all of our service offerings, combined with our healthy backlog, give us confidence in the Company's outlook for the future.  We continue to have a keen focus on maximizing shareholder value and driving shareholder returns through revenue growth, margin improvement, strong free cash flow generation, and return on invested capital."

For the three months ended March 31, 2014 consolidated service revenue increased by 8.3% to $492.4 million compared with$454.5 million in the prior year period.   The positive impact from foreign exchange movements on revenue in the quarter was$1.8 million.  The HERON acquisition contributed approximately $2.5 million to revenue in the quarter.  On a constant currency, same store basis, revenue growth was 7.4% year-over-year.  Operating income as reported under Generally Accepted Accounting Principles (GAAP) totaled $52.2 million, or 10.6% of service revenue, in the third quarter of Fiscal Year 2014, as compared with $36.6 million, or 8.1% of service revenue, in the comparable quarter of the prior year.  GAAP net income for the quarter totaled $34.7 million, or $0.60 per diluted share, compared with GAAP net income of $29.5 million, or $0.50 per diluted share for the quarter ended March 31, 2013.  GAAP diluted earnings per share grew 20.0% year-over-year.

The financial results of the March quarter in the current and prior year period each included special items, as detailed in the financial charts within this press release.  Excluding the impact of these special items, adjusted operating income in the third quarter of Fiscal Year 2014 was $53.2 million, or 10.8% of service revenue.  Excluding the impact of these special items, adjusted operating income in the third quarter of Fiscal Year 2013 was $37.3 million, or 8.2% of service revenue.  Excluding the impact of these special items, adjusted net income was $32.3 million, or $0.56 per diluted share in the quarter ended March 31, 2014, and was $29.5 million, or $0.50 per diluted share in the quarter ended March 31, 2013.  Adjusted earnings per share grew 12.0% year-over-year.

On a segment basis, service revenue for the third quarter of Fiscal Year 2014 was $373.2 million in Clinical Research Services (CRS), $51.9 million in PAREXEL Consulting (PC), and $67.3 million in PAREXEL Informatics (PI).

For the nine months ended March 31, 2014, consolidated service revenue was $1.429 billion versus $1.271 billion in the prior year period, an increase of 12.4%.  GAAP operating income for the current nine-month period was $140.7 million, or 9.8% of service revenue, compared with GAAP operating income of $97.8 million, or 7.7% of service revenue in the prior year period.  GAAP net income for the nine months ended March 31, 2014 was $89.0 million, or $1.55 per diluted share, compared with GAAP net income of $65.9 million, or $1.10 per diluted share, in the prior year period.  Excluding the impact of special items as detailed in the financial charts within this press release in both nine month periods, adjusted operating income was $142.9 million or 10.0% of consolidated service revenue for the nine months ended on March 31, 2014, compared with $99.2 million or 7.8% of consolidated service revenue for the nine months ended on March 31, 2013.  On an adjusted basis, net income for the nine months ended March 31, 2014 was $87.3 million, or $1.52 per diluted share, compared with $71.4 million or $1.19 per diluted share in the comparable prior year nine-month period.

Backlog at the end of March 2014 was $4.93 billion, an increase of 9.4% year-over-year.  The reported backlog included gross new business wins in the quarter of $781.6 million, cancellations of $208.7 million, and a positive impact from foreign exchange rates of $32.0 million. The net book-to-bill ratio was 1.16 in the quarter. 

The Company issued forward-looking guidance for the fourth quarter of Fiscal Year 2014 (ending June 30, 2014) and increased guidance for Fiscal Year 2014 as described in the text and chart below.  The guidance takes into account a number of factors, including recent exchange rates, tax rates, and the Company's updated overall outlook.

The Company's guidance is:

 

Guidance Issued 4/29/14

Guidance Issued 1/29/14

Q4 FY 2014 Revenue

$507 - $513 million

N/A

Q4 FY 2014 GAAP EPS

$0.59 - $0.63

N/A

FY 2014 Revenue

$1.936 - $1.942 billion

$1.920 - $1.930 billion

FY 2014 GAAP EPS

$2.13 - $2.17

$1.99 - $2.09

FY 2014 Non-GAAP EPS

$2.11 - $2.15

$2.01 - $2.11

In addition to the financial measures prepared in accordance with 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.

A conference call to discuss PAREXEL's Third Quarter Fiscal Year 2014 earnings, business, and financial outlook will begin at10:00 a.m. ET on Wednesday, April 30, 2014 and will be broadcast live over the internet via webcast.  The webcast may be accessed in the "IR Calendar" portion of the main page of the Investors section of the Company's website atwww.PAREXEL.com.   Users should follow the instructions provided to assure that the necessary audio applications are downloaded and installed.  A replay of this webcast will be archived on the website approximately two hours after the call and will continue to be accessible for approximately one year following the live event.  To participate via telephone, dial +1 (408) 940-3886 and ask to join the PAREXEL International Third Quarter Fiscal Year 2014 earnings conference call.

A presentation of Third Quarter Fiscal Year 2014 results, as well as certain trended financial information, may be found in the Investors section of the Company's website under the "Financial Information" section, in a report titled "Additional Financials". 

About PAREXEL International

PAREXEL International Corporation is a leading global biopharmaceutical services organization, providing a broad range of knowledge-based contract research, consulting, medical communications, and technology solutions and services to the worldwide pharmaceutical, biotechnology and medical device industries. Committed to providing solutions that expedite time-to-market and peak-market penetration, PAREXEL has developed significant expertise across the development and commercialization continuum, from drug development and regulatory consulting to clinical pharmacology, clinical trials management, medical education and reimbursement. Perceptive Informatics, Inc., a subsidiary of PAREXEL, provides advanced technology solutions, including medical imaging, to facilitate the clinical development process. Headquartered nearBoston, Massachusetts, PAREXEL operates in 75 locations in 50 countries around the world, and has approximately 15,335 employees.  For more information about PAREXEL International visit www.PAREXEL.com.

PAREXEL, PAREXEL Informatics, Perceptive, Perceptive MyTrials, and "Your Journey.  Our Mission." are trademarks or registered trademarks of PAREXEL International Corporation or its affiliates.

This release contains "forward-looking" statements regarding future results and events, including, without limitation, statements regarding expected financial results, future growth and customer demand.   For this purpose, any statements contained herein that are not statements of historical fact may be deemed forward-looking statements.  Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends," "appears," "estimates," "projects," "will," "would," "could," "should,"  "targets," and similar expressions are also intended to identify forward-looking statements.  The forward-looking statements in this release involve a number of risks and uncertainties.  The Company's actual future results may differ significantly from the results discussed in the forward-looking statements contained in this release.  Important factors that might cause such a difference include, but are not limited to, risks associated with: actual operating performance; actual expense savings and other operating improvements resulting from recent and anticipated restructurings; the loss, modification, or delay of contracts which would, among other things, adversely impact the Company's recognition of revenue included in backlog; the Company's dependence on certain industries and clients; the Company's ability to win new business, manage growth and costs, and attract and retain employees; the Company's ability to complete additional acquisitions, and to integrate newly acquired businesses including the recent acquisitions of LIQUENT, Inc. and HERON Group Ltd., Inc., or enter into new lines of business; the impact on the Company's business of government regulation of the drug,  medical device and biotechnology industry; consolidation within the pharmaceutical industry and competition within the biopharmaceutical services industry; the potential for significant liability to clients and third parties; the potential adverse impact of health care reform; and the effects of exchange rate fluctuations and other international economic, political, and other risks.   Such factors and others are discussed more fully in the section entitled "Risk Factors" of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 as filed with the Securities and Exchange Commission (SEC) on January 31, 2014, which "Risk Factors" discussion is incorporated by reference in this press release.  The Company specifically disclaims any obligation to update these forward-looking statements in the future.  These forward-looking statements should not be relied upon as representing the Company's estimates or views as of any date subsequent to the date of this press release.

 

Click to view table full screen

PAREXEL International Corporation

 Consolidated Condensed Statement of Operations

(Unaudited)

                     
                     
     

Three Months Ended

 

Nine Months Ended

 

(in thousands, except per share data)

 

March 31, 2014

 

March 31, 2013

 

March 31, 2014

 

March 31, 2013

 
                     

Service revenue

   

$                  492,375

 

$                  454,493

 

$               1,428,765

 

$               1,271,314

 

Reimbursement revenue

   

85,543

 

68,958

 

252,453

 

197,794

 

Total revenue

   

577,918

 

523,451

 

1,681,218

 

1,469,108

 
                     

Costs and expenses:

                   

Direct costs

   

323,149

 

311,917

 

950,850

 

892,646

 

Reimbursable out-of-pocket expenses

 

85,543

 

68,958

 

252,453

 

197,794

 

Selling, general and administrative

 

96,602

 

88,038

 

277,042

 

229,975

 

Depreciation

   

16,802

 

15,773

 

48,848

 

46,030

 

Amortization

   

3,725

 

2,891

 

11,383

 

6,018

 

Restructuring benefit

   

(74)

 

(732)

 

(74)

 

(1,150)

 

Total costs and expenses

   

525,747

 

486,845

 

1,540,502

 

1,371,313

 
                     

Income from operations

   

52,171

 

36,606

 

140,716

 

97,795

 
                     

Other expense, net

   

(2,364)

 

(773)

 

(9,036)

 

(3,370)

 
                     

Income before income taxes

   

49,807

 

35,833

 

131,680

 

94,425

 
                     

Provision for income taxes

   

15,068

 

6,309

 

42,658

 

28,494

 

Effective tax rate

   

30.3%

 

17.6%

 

32.4%

 

30.2%

 
                     

Net income

   

$                     34,739

 

$                     29,524

 

$                     89,022

 

$                     65,931

 
                     

Earnings per common share:

                   

Basic

   

$0.61

 

$0.51

 

$1.58

 

$1.12

 

Diluted

   

$0.60

 

$0.50

 

$1.55

 

$1.10

 
                     

Shares used in computing earnings per common share:

             

  Basic

   

56,713

 

58,024

 

56,494

 

58,942

 

  Diluted

   

57,673

 

59,074

 

57,486

 

60,005

 
                     
                     

Balance Sheet Information

   

Preliminary

             
     

March 31, 2014

 

March 31, 2013

 

June 30, 2013

     

Billed accounts receivable, net

   

$                  522,850

 

$                  404,956

 

$                  457,155

     

Unbilled accounts receivable, net

   

229,019

 

246,071

 

248,219

     

Deferred revenue

   

(494,782)

 

(395,438)

 

(408,336)

     

Net receivables

   

$                  257,087

 

$                  255,589

 

$                  297,038

     
                     

Cash and marketable securities

   

$                  298,655

 

$                  288,360

 

$                  274,164

     

Working capital

   

$                  397,085

 

$                  410,292

 

$                  403,229

     

Total assets

   

$               1,873,285

 

$               1,693,955

 

$               1,779,624

     

Short-term borrowings

   

$                    10,533

 

$                    10,002

 

$                    20,399

     

Long-term debt

   

$                  290,000

 

$                  390,000

 

$                  427,500

     

Stockholders' equity

   

$                  670,764

 

$                  551,924

 

$                  538,946

     
                     

 

Click to view table full screen

PAREXEL International Corporation

  Reconciliation of Non-GAAP Measures

Certain Line Items

(Unaudited)

                           
                           
     

Three Months Ended

 

Three Months Ended

(in thousands, except per share data)

 

March 31, 2014

 

March 31, 2013

     

GAAP Measure

 

Adjustments

 

Non-GAAP 
Measure

 

GAAP Measure

 

Adjustments

 

Non-GAAP 
Measure

                           

Selling, general and administrative 

   

$           96,602

 

$       (1,084)

(a)

$        95,518

 

$        88,038

 

$         (1,446)

(e)

$        86,592

                           

Restructuring benefit

   

$                (74)

 

$              74

(b)

$                  -

 

$           (732)

 

$              732

(b)

$                  -

                           

Income from operations

   

$           52,171

 

$         1,010

 

$         53,181

 

$        36,606

 

$              714

 

$         37,320

                           

Other expense, net

   

$           (2,364)

 

$          (196)

(c)

$         (2,560)

 

$           (773)

 

$                93

(f)

$            (680)

                           

Income before income taxes

   

$           49,807

 

$            814

 

$         50,621

 

$        35,833

 

$              807

 

$         36,640

                           

Provision for income taxes

   

$           15,068

 

$         3,210

(d)

$         18,278

 

$          6,309

 

$              866

(g)  

$           7,175

                           

Net income

   

$           34,739

 

$       (2,396)

 

$         32,343

 

$        29,524

 

$              (59)

 

$         29,465

                           

Diluted earnings per common share

   

$               0.60

 

$         (0.04)

 

$             0.56

 

$            0.50

 

$                   -

 

$             0.50

                           

Effective tax rate

   

30.3%

     

36.1%

 

17.6%

     

19.6%

                           
                           

(a) Adjustments include $0.9 million of legal settlements and acquisition and integration related charges, and $0.2 million loss related to the revaluation of HERON earn-out contingent consideration liability

(b) Decrease in facility-related charges associated with restructuring plans

(c) Recovery from bankruptcy settlement on previously impaired investment

               

(d) Tax effect on non-GAAP adjustments, and a $3.0 million adjustment due to reserve release

           

(e) Adjustment for legal settlements and acquisition and integration related charges

(f) Accelerated amortization of deferred financing fees related to credit facility modification

(g) Tax effect on non-GAAP adjustments, and a $0.5 million adjustment due to state valuation allowance release 

       
         
Click to view table full screen

PAREXEL International Corporation

  Reconciliation of Non-GAAP Measures

Certain Line Items

(Unaudited)

                           
                           
     

Nine Months Ended

 

Nine Months Ended

(in thousands, except per share data)

 

March 31, 2014

 

March 31, 2013

     

GAAP Measure

 

Adjustments

 

Non-GAAP 
Measure

 

GAAP Measure

 

Adjustments

 

Non-GAAP 
Measure

                           

Selling, general and administrative 

   

$   277,042

 

$       (2,236)

(a)

$     274,806

 

$       229,975

 

$         (2,603)

(e)

$      227,372

                           

Restructuring benefit

   

$          (74)

 

$              74

(b)

$                 -

 

$         (1,150)

 

$           1,150

(b)

$                  -

                           

Income from operations

   

$   140,716

 

$         2,162

 

$      142,878

 

$         97,795

 

$           1,453

 

$         99,248

                           

Other expense, net

   

$     (9,036)

 

$          (196)

(c)

$        (9,232)

 

$         (3,370)

 

$            (302)

(f)

$         (3,672)

                           

Income before income taxes

   

$   131,680

 

$         1,966

 

$      133,646

 

$         94,425

 

$           1,151

 

$         95,576

                           

Provision for income taxes

   

$     42,658

 

$         3,685

(d)

$        46,343

 

$         28,494

 

$         (4,366)

(g)  

$         24,128

                           

Net income

   

$     89,022

 

$       (1,719)

 

$        87,303

 

$         65,931

 

$           5,517

 

$         71,448

                           

Diluted earnings per common share

   

$         1.55

 

$         (0.03)

 

$            1.52

 

$             1.10

 

$             0.09

 

$             1.19

                           

Effective tax rate

   

32.4%

     

34.7%

 

30.2%

     

25.2%

                           
                           

(a) Adjustments include $2.3 million of legal settlements and acquisition and integration related charges, partially offset by $0.1 million gain related to the revaluation of HERON earn-out contingent consideration liability

(b) Decrease in facility-related charges associated with restructuring plans

(c) Recovery from final bankruptcy settlement on previously impaired investment

(d) Tax effect on non-GAAP adjustments, and a $3.0 million adjustment due to reserve release

(e) Adjustment for legal settlements and acquisition and integration related charges

(f) Adjustment includes $0.4 million gain on facility sale previously impaired and $0.1 million in accelerated amortization of deferred financing fees related to credit facility modification

(g) Tax effect on non-GAAP adjustments; tax expense for one-time adjustments to deferred tax assets in Q1 FY13; a net $2.7 million expense due to changes in interest, penalties and a valuation allowance in a foreign jurisdiction in Q2 FY13; and a $0.5 million adjustment due to state valuation allowance release in Q3 FY13

         

 

PAREXEL International Corporation

 

Segment Information

 
 

(Unaudited)

 
             
             
     

Three Months Ended

 

Three Months Ended

 
 

(in thousands)

 

March 31, 2014

 

March 31, 2013

 
             
 

Clinical Research Services (CRS)

         
             
 

Service revenue 

 

$                           373,216

 

$                           342,387

 
 

% of total service revenue

 

75.8%

 

75.3%

 
 

Gross profit

 

$                           117,972

 

$                             95,505

 
 

Gross margin % of service revenue

 

31.6%

 

27.9%

 
             
 

PAREXEL Consulting Services (PC)

         
             
 

Service revenue

 

$                             51,880

 

$                             50,611

 
 

% of total service revenue

 

10.5%

 

11.1%

 
 

Gross profit

 

$                             21,460

 

$                             20,187

 
 

Gross margin % of service revenue

 

41.4%

 

39.9%

 
             
             
 

PAREXEL Informatics (PI)

         
             
 

Service revenue

 

$                             67,279

 

$                             61,495

 
 

% of total service revenue

 

13.7%

 

13.6%

 
 

Gross profit

 

$                             29,794

 

$                             26,884

 
 

Gross margin % of service revenue

 

44.3%

 

43.7%

 
             
             
 

Total service revenue

 

$                           492,375

 

$                           454,493

 
 

Total gross profit

 

$                           169,226

 

$                           142,576

 
 

Gross margin % of service revenue

 

34.4%

 

31.4%

 
             
             
 

Revenue by Geography 

         
             
 

The Americas

 

$                           245,093

 

$                           231,155

 
 

Europe, Middle East & Africa

 

185,086

 

161,747

 
 

Asia/Pacific

 

62,196

 

61,591

 
 

Total service revenue

 

$                           492,375

 

$                           454,493

 
             
             
 

Quarterly Supplemental Financial Data

         
             
 

Service revenue

 

$                           492,375

 

$                           454,493

 
 

Reimbursement revenue

 

85,543

 

68,958

 
 

Investigator fees

 

120,796

 

118,051

 
 

Gross revenue

 

$                           698,714

 

$                           641,502

 
             
 

Days sales outstanding

 

33

 

36

 
             
 

Capital expenditures

 

$                             15,636

 

$                             18,741

 
             
     

 

PAREXEL International Corporation

 

Segment Information

 
 

(Unaudited)

 
             
             
     

Nine Months Ended

 

Nine Months Ended

 
 

(in thousands)

 

March 31, 2014

 

March 31, 2013

 
             
 

Clinical Research Services (CRS)

         
             
 

Service revenue 

 

$                        1,069,675

 

$                           960,134

 
 

% of total service revenue

 

74.9%

 

75.5%

 
 

Gross profit

 

$                           321,012

 

$                           250,671

 
 

Gross margin % of service revenue

 

30.0%

 

26.1%

 
             
 

PAREXEL Consulting Services (PC)

         
             
 

Service revenue

 

$                           160,949

 

$                           148,236

 
 

% of total service revenue

 

11.3%

 

11.7%

 
 

Gross profit

 

$                             66,040

 

$                             59,673

 
 

Gross margin % of service revenue

 

41.0%

 

40.3%

 
             
             
 

PAREXEL Informatics (PI)

         
             
 

Service revenue

 

$                           198,141

 

$                           162,944

 
 

% of total service revenue

 

13.8%

 

12.8%

 
 

Gross profit

 

$                             90,863

 

$                             68,324

 
 

Gross margin % of service revenue

 

45.9%

 

41.9%

 
             
             
 

Total service revenue

 

$                        1,428,765

 

$                        1,271,314

 
 

Total gross profit

 

$                           477,915

 

$                           378,668

 
 

Gross margin % of service revenue

 

33.4%

 

29.8%

 
             
             
 

Revenue by Geography 

         
             
 

The Americas

 

$                           710,391

 

$                           638,634

 
 

Europe, Middle East & Africa

 

524,305

 

450,125

 
 

Asia/Pacific

 

194,069

 

182,555

 
 

Total service revenue

 

$                        1,428,765

 

$                        1,271,314

 
             

CONTACTS:

Ingo Bank, Senior Vice President and Chief Financial Officer

 

Jill Baker, Corporate Vice President of Investor Relations

 

+1-781-434-4118

 

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