An improved book-to-bill ratio and growth in its backlog for the third quarter of fiscal 2010 have confirmed indications earlier this year that Parexel was catching a wave of renewed demand in the market for outsourced development services.

The US-based contract research organisation’s (CRO) performance in the quarter ended 31 March 2010 “clearly demonstrates a return to growth”, said chairman and chief executive officer Josef von Rickenbach. Ignoring restructuring charges deferred from the second quarter, both income and service revenues were ahead of the analyst consensus.

Parexel reported consolidated service revenues of US$291.2 million for the third quarter, up by 10.1% on the same quarter of fiscal year 2009. Analysts polled by Thomson Reuters were expecting revenues of US$290.8 million. Currency translation added US$14.9 million to the revenue line and without it growth would have been around 4.5%.

Service revenues in the core Clinical Research Services (CRS) segment improved by 10.9% year on year to US$221.5 million in the quarter. The eClinical business, Perceptive Informatics, reported a 7.4% increase to U$38.3 million, while revenues from Parexel Consulting & Medical Communications Services (PCMS) were US$31.5 million, 8.0% ahead of last year’s quarter.

On a Generally Accepted Accounting Principles (GAAP) basis, Parexel’s operating income for the third quarter dipped by 2.2% to US$25.8 million, or 8.9% of consolidated service revenues, from US$26.4 million (10.0% of revenues) a year earlier.

Without the restructuring charges of US$4.1 million (US$0.5 million in facility-related costs and US$.6 million in severance costs), non-GAAP operating income for the latest quarter was US$29.9 million, an increase of 13.1%.

Diluted earnings per share (EPS) were US$0.22 against US$0.25 in the third quarter of fiscal 2009. On a non-GAAP basis, diluted EPS for the latest quarter were US$0.28. The analyst consensus, which normally excludes exceptional items, was for diluted EPS of US$0.27.

The gross margin for the CRS business in the third quarter was 37.3%, up from 36.0% a year previously. Gross margins for the Perceptive Informatics and PCMS segments were 13.2% (13.5% in Q3 of fiscal 2009) and 40.9% (38.9%) respectively.

Better backlog

Parexel’s backlog at the end of March stood at US$2.38 billion, a year-on-year improvement of 16.9%. This included record gross new business wins of US$606.9 million, cancellations amounting to US$140.3 million and a negative foreign exchange impact of US$103.7 million.

The net book-to-bill ratio, defined as gross new business, minus cancellations and divided by service revenue, was 1.60 for the quarter compared with 1.41 in the second quarter of the current fiscal year.

Given the strong new business wins and growth in backlog, “we are now looking forward more confidently into the future”, Rickenbach commented. “As we move into our fourth fiscal quarter and gain better perspective on calendar year 2010, we believe that the market for our services is continuing to recover.”

In this respect, Parexel has seen “a significant increase in the volume and value of pending requests for proposals from our clients”, Rickenbach noted. “We anticipate a solid finish to our fiscal year, and will work to maintain our momentum during Fiscal Year 2011, as the benefits of our strategic investments in our global footprint, technology capabilities, and process enhancements further take hold.”

The company has raised its financial guidance for the whole of fiscal year 2010 to consolidated service revenues of US$1.130 billion-US$1.140 billion; GAAP diluted EPS of US$0.73 to US$0.75; and adjusted (non-GAAP) diluted EPS of US$1.04 to US$1.06. The previous forecast was for consolidated service revenues of US$1.125 billion-US$1.145 billion; GAAP diluted EPS of US$0.66 to US$0.72; and adjusted diluted EPS of US$1.00 to US$1.06.