With a strong headwind from revenue growth and a little help from its recent acquisition of regulatory specialist Liquent, as well as a US$108,000 restructuring benefit, Parexel International saw its operating income rise by 39.1% year on year to US$31.4 million in the second quarter of the 2013 fiscal year.
The US-based biopharmaceutical services provider delivered above analysts’ estimates on both service revenues and adjusted earnings per share (EPS) for the three months ended 31 December 2012.
Service revenues for the reporting period (missing out reimbursement revenues) wereUS$422.1 million, up by 26.7% over the second quarter of FY2012. Wall Street analysts were looking for revenues of US$414.8 million on average.
Diluted EPS for Q2 of fiscal year 2013 were up by 71.4% years on year to US$0.36 on a Generally Accepted Accounting Principles (GAAP) basis and by 78.3% to US$0.41 on an adjusted basis.
The latter figure included restructuring charges of US$1.16 million in the year-before quarter, the aforementioned restructuring benefit in Q2 of FY2013, and US$807,000 in legal and acquisition charges for the latest quarter.
Analysts polled by Thomson Reuters (who usually ignore special items) were expecting Parexel to report EPS of US$0.33 per share for the second quarter.
Delayed decisions
However, new business awards were “somewhat light compared to recent periods” during the second quarter, as “several clients delayed making decisions or withdrew opportunities for a variety of reasons”, noted Josef von Rickenbach, Parexel’s chairman and chief executive officer.
Nonetheless, von Rickenbach added, the “flow of proposals for new projects in the second quarter remained healthy, and we continue to target a 1.2 book-to-bill ratio going forward”.
The net book-to-bill ratio for Q2 of the 2013 fiscal year was 1.06. Backlog at the end of December 2012 was around US$4.54 billion, an increase of 21.4% year-over-year.
It included gross new business of US$719.8 million in the quarter, backlog of US$14.1 million related to the acquisition of Liquent, cancellations of US$274.5 million, and a negative impact from foreign exchange fluctuations of US$29.5 million.
High level of hiring
According to von Rickenbach, the second-quarter gains were despite “a high level of hiring and continued elevated use of contract staff, which negatively impacted the gross margin in our Clinical Research Services business”.
Parexel expects hiring levels to moderate going forward, “enabling us to convert high cost contract staff to full-time employees”, von Rickenbach commented.
“Combined with increasing productivity from our recently hired employees, this should lead to improved gross margins.”
Revised guidance
The company has revised upwards its financial guidance for both service revenues and earnings per share in the whole of FY2013.
The guidance takes into account the acquisition of Liquent, recent exchange rate movements, lower projected tax rates, the estimated impact of Parexel’s ongoing share repurchase programme, and the company’s updated overall outlook.
The Liquent acquisition is expected to contribute between US$19.0 million and US$21.0 million in service revenue during the second half of fiscal year 2013, and between US$38.0 million and $44.0 million in calendar year 2013.
Full-year revenue is now projected at US$1.695 billion to US$1.710 billion, compared with the guidance of US$1.675 billion to US$1.695 billion given on 27 December 2012, when Parexel announced the acquisition of Liquent for around US$72 million.
The revised forecast for earnings per share in FY 2013 is US$1.39 to US$1.47, up from US$1.32 to US$1.39 previously.
