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Parexel sees revenue and income growth in fiscal Q4 but margins slide

09-Aug-2012

US CRO Parexel saw revenue and income growth in fiscal Q4 but margins shrank in the firm’s clinical research and eClinical business.

New revenue for the three months to June 30 increased by 26 per cent to $392m (EUR318m), with the contribution from clinical research services (CRS) climbing 13 per cent to $292m and that from Parexel’s consulting business growing 41 per cent to $49.7m.

Perceptive informatics – Parexel’s eClinical services unit – generated revenue of $50m from $42.4m in comparable quarter last year. Overall net income was $17.7m, up from a net loss of $1.5m last year.

The firm also saw a significant increase in bookings in the final three months of its fiscal year with new business wins of $601.9m giving it a book-to-bill (B2B) ratio of 1.53 and generating a backlog of approximately $4.4 bn.

Call today

Parexel will hold its earning call later today and will probably have to field questions about its gross margin - which declined from 31.4 per cent to 28.7 per cent.

Similarly the CRO can expect to be quizzed about margins in its eClinical and clinical business, both of which declined in developments that were not missed by analysts.

John Kreger from William Blair & Company said: “While revenues were better than our model in the quarter and bookings came in line with the range communicated during the late-May investor day, margins took a bigger step backward from what we expected and were down more than 160 basis points sequentially.”

We maintain our Outperform rating at this time, but caution that bottom-line results could continue to be volatile as management strives to manage margins in light of the surprising degree of bookings growth of late.

Tim Evans from Wells Fargo Securities expressed similar sentiments.

Margins in both CRS and Perceptive were weak, though reasons were not provided in the press release” he said, adding that “While the backlog conversion story is clearly playing out in the revenue growth margins are not following along, probably because of hiring after last quarter's 2.2 B2B and this quarter's 1.5 B2B.”

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