Early indications of another strong reporting season for contract research organisations (CROs) were borne out as US-based Parexel International Corporation notched up increases of 26.1% and 46.0% respectively in consolidated service revenues and operating income for the first quarter of fiscal year (FY) 2008.
The quarterly growth more than matched Parexel’s performance in the year ended 30 June 2007, when consolidated service revenues rose by 20.7% and operating income by 44.4% over FY2006. In the latest quarter, service revenues (excluding reimbursement revenues) came in at $208.1 million, slightly ahead of analysts’ expectations. They were also at the upper end of the revised guidance for first-quarter revenues – $203-$210 million – given by Parexel earlier this month when it announced the acquisition of Taiwan-based CRO Apex International Clinical Research Co, Ltd for around $50.9 million.
Operating income for the three months ended 30 September 2007 was $16.5 million – giving an operating margin of 7.9% – compared with $11.3 million (6.9% margin) for the first quarter of FY2007. Net income for the latest quarter was $13.9 million, nearly double the $7.0 million recorded in Q1 FY2007, while net earnings per diluted share (EPS) also nearly doubled, from $0.25 to US$0.49.
Both net income and EPS were boosted, however, by one-off, non-US net tax adjustments of $4.0 million and $0.14 per diluted share respectively, partly related to a recent change in German tax rates. Without these exceptional gains, Parexel noted, net income and EPS would have been $9.9 million (+42%) and US$0.35 (+40%) respectively.
PCMS improvement
One drag on Parexel’s growth in FY2007 was the relatively sluggish performance of its Consulting and Medical Communications Services (PCMS) business, which led to some redundancies in an effort to turn the segment around. In the first quarter the PCMS business continued to show some modest improvement, with service revenues rising by 4.1% to $30.5 million, although their share of overall service revenues dropped to 14.7% from 17.8% in the first quarter of fiscal year 2007. Gross profit in this segment was 4.7% higher at US$9.58 million.
Revenues in the core Clinical Research Services unit continued to supply the main growth impetus, climbing 32.5% to US$159 million in the quarter and generating gross profit of US$55.2 million (+33.6%). The technology division, Perceptive Informatics, delivered service revenues of US$18.3 million, 17.8% more than in the first quarter of FY2007, while gross profit was 19.7% ahead at US$7.32 million.
Parexel chairman and chief executive officer Josef von Rickenbach said the integration process for Apex, in which the US company previously held a minority stake, was “well underway”. Parexel was “confident that Apex will enable us to achieve our objectives, better serve clients, and solidify our global footprint in the rapidly growing Asia Pacific market”, he commented.
The order backlog at the end of the first quarter was worth $1.57 billion, an increase of 31.3% year on year and of 4.2% from the previous quarter. Gross new business wins were $349.2 million in the quarter and cancellations amounted to $78.0 million, giving a net book-to-bill ratio of 1.31. “We believe that the market demand for our services remains solid,” von Rickenbach said.
Parexel has once again raised its guidance for consolidated service revenues in fiscal year 2008. These are now expected to be in the range of $890-$920 million, as opposed to $875-$910 million at the time of the Apex acquisition. Earnings per diluted share for the year, including the one-time net tax benefit of US$0.14 recognised in the first quarter, are projected at US$1.75-US$1.81 (previous guidance: $1.58-$1.66).
Consolidated service revenues and earnings were diluted share in the second quarter of FY2008 are forecast at $220-$230 million and $0.37-$0.39 respectively.
