(Source: PRNewswire-FirstCall)
BOSTON, Aug. 10 /PRNewswire-FirstCall/ -- PAREXEL International Corporation today reported financial results for the fourth quarter and Fiscal Year ended June 30, 2009. The Company has determined the need to correct certain accounting errors in the recently acquired ClinPhone business, as described in greater detail below. These changes relate to (1) the ClinPhone Interactive Voice Response (IVR) component of the Perceptive Informatics business segment, and (2) purchase accounting for ClinPhone, which the Company acquired in August 2008. The changes do not have an impact on the Company's fundamental business or on its economics in terms of cash or cash flow.
The accounting changes for ClinPhone IVR relate to Staff Accounting Bulletin (SAB) No. 104 "Revenue Recognition" and Emerging Issues Task Force (EITF) Issue 00-21 "Revenue Arrangements With Multiple Deliverables," and has resulted in the need to defer certain previously recognized revenue and direct cost amounts into future periods. In the course of finalizing financial results for the fiscal year, the Company determined that revenue and direct costs for ClinPhone IVR contracts should have been recognized ratably over the estimated "hosting" period of each study once an application went live. The Company had been recognizing these revenue and direct cost amounts during the "start-up" periods (i.e., design, development, and validation) of the contracts. Consequently, certain IVR-related start-up revenue and costs originally recorded during the first three quarters of Fiscal Year 2009, and amounts originally expected to be recorded in the fourth quarter, needed to be deferred into future periods. The adverse impact of this change was magnified because purchase accounting rules prohibit recognition of any start-up revenue from projects on-going in an acquired entity if the start-up work was completed prior to the acquisition. The full year and fourth quarter impact of this change resulted in a reduction to consolidated service revenue of $16.9 million, reduced costs by $4.9 million, and decreased operating income by $12.0 million.
The purchase accounting change for ClinPhone related to guidance included in Emerging Issues Task Force (EITF) Issue 01-3 "Accounting in a Business Combination for Deferred Revenue of an Acquiree," which states that deferred revenue can only be included in the opening balance sheet of an acquired entity, and subsequently recognized into revenue, if the acquiring company will be required to do additional work in future periods to earn that deferred revenue. It also requires certain adjustments to ensure that an appropriate margin is recognized on that revenue. A misapplication of this guidance caused PAREXEL to recognize revenue for which it was either not required to provide additional services, or for which margin-related adjustments required under purchase accounting were not appropriately taken into account. The transition from International Financial Reporting Standards (IFRS), under which ClinPhone previously reported, to reporting under U.S. Generally Accepted Accounting Principles (GAAP) added complexity to the situation. Under U.S. GAAP purchase accounting, certain deferred revenue at the time of an acquisition is not recognized in the income statement by either the acquired or the acquiring Company for financial statement reporting purposes. To correct these entries, full year and fourth quarter service revenue was reduced by $4.1 million, expenses were reduced by $0.2 million, and operating income decreased by $3.9 million. The total adjustments described above were recorded in the fourth quarter because the impact on prior quarters was not material to the consolidated financial results of the Company.
On a GAAP basis, taking all of these adjustments into account, PAREXEL's consolidated service revenue for the three months ended June 30, 2009 was $247.4 million compared with $272.2 million in the prior year period. The Company reported operating income of $19.5 million, or 7.9% of consolidated service revenue, in the fourth quarter of Fiscal Year 2009, versus operating income of $26.9 million, or 9.9% of consolidated service revenue, in the comparable quarter of the prior year. Net income for the quarter totaled $6.3 million, or $0.11 per diluted share, compared with net income of $25.0 million, or $0.43 per diluted share, for the quarter ended June 30, 2008. The prior year quarter included tax adjustments totaling $8.7 million, which represented a favorable $11.1 million reversal of U.S. tax valuation reserves, partly offset by a $2.4 million adjustment to The Netherlands tax reserves.
Excluding the aforementioned adjustments, on a non-GAAP basis for the three months ended June 30, 2009, PAREXEL's consolidated service revenue would have been $268.4 million, operating income would have been $35.5 million, taxes would have been $10.9 million, net income would have been approximately $15.6 million, and earnings per diluted share would have been approximately $0.27.
On a GAAP basis, consolidated service revenue for the fourth quarter of Fiscal Year 2009 was $200.8 million in Clinical Research Services (CRS), $30.6 million in PAREXEL Consulting and Medical Communications Services (PCMS), and $16.0 million in Perceptive Informatics, Inc.
On a GAAP basis for the full fiscal year ended June 30, 2009, consolidated service revenue was $1,050.7 million versus $964.3 million in the prior year, a year-over-year increase of 9.0%. For Fiscal Year 2009, operating income was $75.6 million, or 7.2% of consolidated service revenue, compared with Fiscal Year 2008 operating income of $86.7 million, or 9.0% of consolidated service revenue. Net income for Fiscal Year 2009 was $39.3 million, or $0.68 per diluted share, compared with net income of $64.6 million or $1.12 per diluted share, in Fiscal Year 2008. The current fiscal year was impacted by the recording of a $15.0 million reserve in the second quarter for wind-down costs and bad debt expense related to a client's default on a contract, and a $7.1 million tax adjustment. The twelve month results ended June 30, 2008 included a non-U.S. tax benefit of $4.0 million in the first quarter, a favorable pre-tax restructuring benefit of $860,000 in the third quarter, and favorable net tax adjustments of $8.7 million in the fourth quarter mainly related to the reversal of U.S. tax valuation reserves.
Excluding the previously mentioned adjustments that were recorded during the fourth quarter, on a non-GAAP basis, PAREXEL's Fiscal Year 2009 consolidated service revenue would have been $1,071.7 million, operating income would have been $91.6 million, taxes would have been $30.6 million, net income would have been approximately $80.6 million, and earnings per diluted share would have been approximately $0.85.
On a GAAP basis, consolidated service revenue for Fiscal Year 2009 was $804.2 million in CRS, $121.8 million in PCMS, and $124.7 million in Perceptive Informatics, Inc.
The Company reported a Fiscal Year 2009 ending backlog of $2,176.4 billion, an increase of 5.7% over the ending backlog reported for Fiscal Year 2008. The reported backlog included gross new business wins of $316.6 million, $48.5 million in cancellations, a positive impact from foreign exchange rates of $123.9 million, and a negative impact of $4.6 million related to an adjustment to ClinPhone's backlog at the time of the acquisition. The net book-to-bill ratio was 1.08 for the quarter, and was 1.14 for Fiscal Year 2009 overall.
Mr. Josef H. von Rickenbach, PAREXEL's Chairman and Chief Executive Officer stated, "In addition to the difficult accounting adjustments that we had to make in the fourth quarter in connection with the ClinPhone acquisition, service revenue was negatively impacted by headwinds emanating from the broader economic environment, including the year-over-year negative impact of foreign exchange. However, cost controls and efficiency improvements enabled us to meet our earnings per share expectations, excluding the accounting changes previously explained. On the new business front, we were encouraged by a sequential increase in demand during the June quarter."
He continued, "Throughout the course of Fiscal 2009, we were diligent in managing our cost structure to match a slower growth pattern. We are proud of the efforts of our employees which have enabled us to achieve these results, especially during these challenging economic times. During the Fiscal Year we also made important strategic investments to further expand our portfolio of products and services. Of note, the acquisition of ClinPhone has strengthened our technology offering and has made us one of the leading clinical information technology providers in our sector."
Commenting on the outlook for the new Fiscal Year, Mr. von Rickenbach stated, "The duration of the global recession is clearly still undetermined at this point in time, and while we have developed plans to manage in the current environment, we enter Fiscal 2010 with caution. Nevertheless, over the past few months, we have experienced an increase in the value and volume of opportunities that are in the proposal pipeline, which leads us to expect a gradual improvement in new business activity over the second half of calendar year 2009. We believe that our strong and established global footprint, which is increasingly embraced by clients, will continue to enable us to increase market share, and will deepen penetration with our customer base. This estimate, combined with our internal financial projections for the run-off of the existing backlog, and the assumptions that we have made regarding our future new business wins, is reflected in the financial guidance that we have provided today for Fiscal Year 2010."
On a GAAP basis, the accounting changes previously discussed in this press release are expected to negatively impact Fiscal Year 2010 consolidated revenue by $16 to $18 million, and earnings per diluted share by $0.13 to $0.14. These impacts have been included in the Company's forward-looking guidance for Fiscal Year 2010 and for the first quarter (ending September 30, 2009), which is based upon recent exchange rates. For Fiscal Year 2010, consolidated service revenue is expected to be in the range of $1.120 to $1.150 billion, and earnings per diluted share are projected to be in the range of $0.85 to $0.95.
