Parexel Upbeat After Strong Quarter, Acquisition of Heron

06-May-2013 - Last updated on 07-May-2013 at 21:40 GMT

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With a more than 27 percent increase in revenue for Q3 of FY 2013 over the same quarter last year, CRO Parexel has raised its guidance for both the fiscal and calendar year.

The biggest chunk of the company’s revenue growth occurred in North America, though the largest client accounted for 20 percent of revenue, which was double what the company saw in the same quarter a year earlier, Parexel CEO and chairman Josef H. von Rickenbach, said in a conference call last week.

“We remain committed to our goal of achieving Fiscal Year 2013 earnings per share growth in the range of 44% to 48%, driven by continued revenue growth, effective cost management, margin expansion, and the previously announced stock buyback,” Parexel chairman and CEO Josef H. von Rickenbach, said.

Analysts also seemed upbeat about Parexel’s quarter. “Areas preventing it from being a perfect quarter weren’t many, but included some client delays in awarding new projects, uptick in SG&A, and inconsistent early phase performance. But with solid top line growth in the mid 20% range, improving margins…we continue to like [Parexel] as our Most Preferred CRO,” Garen Sarafian, VP of healthcare technology & distribution at Citi Research, said in an analyst note titled, “Charging Ahead on Multiple Fronts.”

Moving ahead, the company also expects it won’t have to hire so many new employees because most of the hiring was done in anticipation for this ramp up of revenue. Von Rickenbach said in the conference call that when the company’s margins declined, “significant numbers of new employees” were hired “ahead of the revenue curve,” and most of those new employees were converted contractors. He added that “we clearly are expecting ongoing benefits from not having to hire so many people.”

Heron Acquisition

In addition to the announcement of its finances for the quarter, Parexel last week also announced that it would acquire the consulting company Heron Group for about $24mn in cash.

If specific financial targets are met by Heron, an additional $14.2mn could be made over the next 26 months.

Citi’s Sarafian said that given “the value of people within a consultancy, we appreciate the substantial $14mn additional fees paid only if certain financial targets are met.” He also noted that the acquisition “is a logical strategic acquisition to expand Parexel’s offerings across the drug development spectrum.”

“Similar to its recent acquisition of Liquent, it extends the firm’s reach into the later stages of drug trial development,” Sarafian said.

For the fourth quarter of FY 2013, Heron is expected to contribute between $3.0 and $4.0mn in service revenue to Parexel, and to contribute between $11.0 and $14.0mn for the calendar year 2013, according to the company.

"The acquisition of Heron further strengthens our ability to offer our clients a full spectrum of services that aid in developing products with reimbursement and market access in mind,” Von Rickenbach said. “Over the past thirteen years, Heron has built one of the largest independent evidence-based consultancies, and has achieved a market leadership position.”