Pharmanet Development Grp (MM) (NASDAQ:PDGI)
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PharmaNet Development Group, Inc. (NASDAQ: PDGI), a leading provider of
drug development services to branded pharmaceutical, biotechnology,
generic drug and medical device companies, today reported GAAP net
earnings from continuing operations for its third quarter ended
September 30, 2006 of $3.0 million or $0.16 per diluted share.
“PharmaNet Development Group, Inc. had another
solid quarter resulting from excellent late stage revenue growth,
partially offset by lower revenues from the early stage segment,”
commented Jeffrey P. McMullen, president and chief executive officer.
“In addition to strong operational
performance, we recently achieved two major financial objectives with
the amendment of the credit facility and the execution of the agreement
for the sale and subsequent lease of the Quebec City site.”
Basis of presentation
Due to the Company's decision to discontinue certain operations earlier
this year all financial results for the periods presented reflect the
Company's continuing operations only, unless otherwise stated.
To better reflect ongoing operations for investors for the periods
presented Adjusted (non-GAAP) results are used throughout this press
release and the accompanying tables. The three months ended September
30, 2006 adjusted financial results exclude the following costs: a)
non-cash amortization ($0.7 million) and b) non-cash compensation
expense resulting from the adoption of SFAS 123(R) ($0.1 million). The
Company adopted SFAS No. 123(R), Share Based Payment, on January 1, 2006.
A reconciliation of GAAP results to Adjusted (non-GAAP) results can be
found in the unaudited financial tables included in this press release.
Third Quarter 2006 Financial Summary
GAAP Direct revenue, which does not include reimbursed out-of-pocket
expenses, increased 5.7% to $76.0 million compared to $71.9 million in
the third quarter of 2005 primarily due to higher late stage revenues,
offset partly by lower early stage revenues.
GAAP corporate expenses increased to $5.0 million in third quarter
2006 compared to $3.2 million in third quarter 2005. Adjusted
corporate expenses increased to $4.9 million in the third quarter of
2006 from $3.2 million in the third quarter of 2005 primarily due to
the non-cash amortization of restricted stock units (RSUs), higher
legal and professional fees, increased bonus and compensation expense
resulting from organizational changes and the additional costs
relating to the Company name change.
GAAP operating margin was 7.8% in the third quarter 2006 compared with
16.2% in the third quarter 2005. Adjusted operating margin for the
third quarter 2006 decreased to 8.9% from 17.6% in the third quarter
of 2005 primarily due to lower direct revenues in the early stage
segment, continued investment in early stage clinical and laboratory
facilities and higher corporate expenses.
GAAP net earnings were $3.0 million in the third quarter 2006 compared
to $7.1 million in the third quarter 2005. Adjusted net earnings for
the third quarter of 2006 were approximately $3.7 million compared to
$8.0 million for the third quarter of 2005 primarily due to lower
profits in the early stage segment and increased corporate expenses
partly offset by increased profitability in the late stage segment.
The Company’s backlog increased sequentially
to $357.0 million at September 30, 2006 from $353.5 million at June
30, 2006. Backlog consists of anticipated direct revenue from signed
contracts and letters of intent that either have not started or are in
process and have not been completed. The combined book-to-bill ratio
was 1.05:1.
Cash, cash equivalents, and investments in marketable securities at
September 30, 2006 were $53.8 million compared to $59.6 million at
June 30, 2006. In October 2006, the Company received approximately
$9.9 million in cash proceeds from the sale of the new Anapharm Quebec
City headquarters currently under construction.
Net cash provided by operating activities from continuing operations
was $3.6 million. Capital expenditures were $7.8 million, depreciation
was $2.8 million and amortization was $0.7 million in the third
quarter 2006 compared with $2.8 million, $2.5 million and $1.0
million, respectively, in the third quarter 2005. Included in the $7.8
million is $4.4 million related to the construction of the new Quebec
City facility.
Net Days Sales Outstanding (DSO) for continuing operations, which
includes accounts receivable and unbilled services less current and
long-term advanced billings, were 31 days at September 30, 2006,
reflecting a more normalized level, compared with 14 days at June 30,
2006.
The Company’s effective tax rate in the
quarter was 14.4% compared to 14.1% in the third quarter of 2005.
For the segment financial results provided below, the Company has
excluded an allocation of corporate expenses related to certain adjusted
selling, general and administrative ("SG&A") expenses.
Early Stage
PharmaNet Development Group, Inc.’s early
stage segment primarily includes the areas of Phase I clinical trials,
support services and bioanalytical services.
For the early stage segment, GAAP direct revenue, which does not include
reimbursed out-of-pocket expenses, was approximately $25.9 million in
the third quarter 2006 compared to approximately $31.4 million in the
third quarter 2005 primarily due to lower pricing and volume resulting
from a more competitive market environment.
Early stage segment GAAP operating margins decreased to 15.4% in the
third quarter 2006 compared to 30.0% in the third quarter 2005. Early
stage segment adjusted operating margins decreased to 15.9% in the third
quarter 2006 compared to 31.0% in the third quarter 2005 primarily due
to lower direct revenues while maintaining the existing operational
infrastructure.
The backlog for the early stage segment increased 22% to approximately
$37.6 million from $30.8 million reported at June 30, 2006 due to new
generic, Phase I and bioanalytical business.
The construction plan is in place and on schedule for the new Quebec
City facility, which will house the staff and operations of the two
existing facilities that comprise the Anapharm headquarters. As
previously disclosed, the Company recently executed an agreement for the
sale and subsequent lease of the Quebec City site. The Company continues
to expect to occupy the facility in the second quarter 2007.
The Company is completing the leasehold improvements at its Toronto site
which will house clinical facilities. Based on forecasted operating
levels, the Company continues to assess the time at which to commence
operations in this location.
Late Stage
PharmaNet Development Group, Inc.’s late stage
segment primarily conducts Phase II through IV clinical trials, data
management and biostatistics, medical and scientific affairs, regulatory
affairs and submissions, and provides software tools and services for
use in clinical trials.
For the late stage segment, GAAP direct revenue, which does not include
reimbursed out-of-pocket expenses, reached record levels increasing
23.8% to $50.1 million in the third quarter 2006 compared to $40.5
million, in the third quarter 2005.
Late stage segment GAAP operating margins were 13.9% in the third
quarter 2006 compared to 13.5% in the third quarter 2005. Late stage
segment adjusted operating margins were 15.1% in the third quarter 2006
compared to 15.2% in the third quarter 2005.
The backlog for the late stage segment is approximately $319.4 million
compared to $322.7 million reported at June 30, 2006.
Discontinued operations
The Company has a remaining balance of expected cash costs relating to
discontinued operations, totaling $3.6 million, for demolition and
asbestos remediation, severance, contracted services and healthcare
costs. The Company continues to proceed toward demolition of the
building and is assessing options with respect to the sale of the land.
Guidance
For continuing operations in the fourth quarter 2006, the Company expects
direct revenues to be in the range of $68.1 - $74.3 million,
adjusted pre-tax earnings to be in the range of $3.2 - $5.2 million,
adjusted fully diluted EPS of $0.16 - $0.22,
capital expenditures to be in the range of $4.0 - $5.0 million,
depreciation to be in the range of $2.8 - $3.1 million,
amortization to be approximately $0.7 million,
and the tax rate to be in the range of 10% to 20%.
The Company expects to provide guidance for 2007 in its fourth quarter
and year-end 2006 earnings press release.
Conference Call and Webcast
A conference call and webcast to discuss the third quarter financial
results will be held on Thursday, November 2, 2006 at 8:30 a.m., Eastern
Time.
Dial-in: (866) 831-6272 for U.S.
(617) 213-8859 for International
Pass code: 24262818
Dial-in Replay: (888) 286-8010 for U.S.
(617) 801-6888 for International
Pass code: 94602754
The dial-in replay will be available approximately
two hours after the call through Thursday,
November 9, 2006.
Webcast: Please visit www.pharmanet.com and select the
investor tab to access the webcast. The archived
webcast will be available for approximately thirty
(30) days following the conference call.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, which exclude,
among other items, amortization of acquisition-related intangible
assets, non-recurring charges related to financing, and non-cash
impairment charges. PDGI excludes these items from the non-GAAP
financial measures because they are outside of its operations and are a
useful indicator, which allows management to monitor PDGI’s
underlying business performance.
Non-GAAP results also allow investors to compare the reported GAAP
results and the non-GAAP First Call consensus estimate and to compare
the Company’s operations against the
financial results of other companies in the industry. The non-GAAP
financial measures included in this press release should not be
considered superior to or a substitute for results of operations
prepared in accordance with GAAP. Reconciliations of the non-GAAP
financial measures used in this press release to the most directly
comparable GAAP financial measures are set forth in the text of, and the
accompanying tables to, this press release, and can also be found on the
Company’s website.
About PharmaNet Development Group, Inc.
PharmaNet Development Group, Inc. is an international drug development
services company offering a comprehensive range of clinical development,
clinical and bioanalytical laboratory, and consulting services to the
branded pharmaceutical, biotechnology, generic drug and medical device
industries. PharmaNet Development Group, Inc. has more than 30 offices,
facilities and laboratories with more than 2,000 employees strategically
located throughout the world. For more information, visit the Company's
website at http://www.pharmanet.com.
Forward-Looking Statements
Certain statements made in this press release are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Act"). Additionally words such as "seek,"
"intend," "believe," "plan," "estimate," "expect," "anticipate" and
other similar expressions are forward-looking statements within the
meaning of the Act. Some or all of the results anticipated by these
forward-looking statements may not occur. Factors that could cause or
contribute to such differences include, but are not limited to, industry
trends and information; whether adverse publicity relating to the Company’s
discontinued Florida operations causes clients to select competitors,
not only for early stage branded clinical trials but also for other
aspects of the Company’s business; its
ability to comply with the timeline agreed upon in the settlement
reached with the Miami-Dade County Unsafe Structures Board and any
related fines or expenses if we are unsuccessful complying with such
timeline; the associated costs and expenses with discontinuing the
Company's operations in Florida, including the potential costs of the
demolition of the Miami facility; the Company's ability to determine its
impairment charges and costs of discontinued operations; whether the
Company will achieve its estimated value for its Miami property;
developments with respect to the SEC's inquiry and securities class
action lawsuits and derivative lawsuits; the Company’s
ability to successfully achieve and manage the technical requirements of
specialized clinical trial services, while complying with applicable
rules and regulations; regulatory changes; changes affecting the
clinical research industry; a reduction of outsourcing by pharmaceutical
and biotechnology companies; the Company’s
ability to compete internationally in attracting clients in order to
develop additional business; the Company’s
evaluation of its backlog and the potential cancellation of contracts;
its ability to retain and recruit new employees; its clients' ability to
provide the drugs and medical devices used in its clinical trials; the
Company’s future stock price; its assessment
of its effective tax rate; the Company’s
financial guidance; our future effective tax rate; our anticipated 2006
capital expenditures; our 2006 costs of compliance of Section 404 of the
Sarbanes-Oxley Act; our ability to remediate our material weaknesses;
the impact of foreign currency transaction costs and the effectiveness
of any hedging strategies that we implement; and the national and
international economic climate as it affects drug development operations.
Further information can be found in the Company’s
risk factors contained in its Annual Report on Form 10-K for the year
ended December 31, 2005, which were originally filed as SFBC
International (NASDAQ: SFCC) and its most recent Quarterly Report on
Form 10-Q. The Company does not undertake to update the disclosures made
herein, and you are urged to read our filings with the Securities and
Exchange Commission.
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Statement of Operations (Unaudited)
For the Three Months Ended September 30, 2006 and 2005
(As Revised)
2006
2005
REVENUE
Direct revenue
76,018,774
71,890,582
Reimbursed out-of-pockets
27,235,490
21,852,492
TOTAL REVENUE
103,254,264
93,743,074
COSTS AND EXPENSES
Direct costs
45,769,899
40,099,096
Reimbursable out-of-pocket expenses
27,235,490
21,852,492
Selling, general and administrative expenses
24,337,454
20,166,287
Impairment of goodwill
-
-
Impairment of long-lived assets
-
-
TOTAL COSTS AND EXPENSES
97,342,843
82,117,875
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
5,911,421
11,625,199
OTHER INCOME (EXPENSE)
Interest income
153,557
140,309
Interest expense
(1,676,517)
(1,780,407)
Foreign exchange transaction gain (loss), net
(647,315)
(1,456,276)
TOTAL OTHER INCOME (EXPENSE)
(2,170,275)
(3,096,374)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
3,741,146
8,528,825
Income tax (benefit)
538,771
1,204,844
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
IN JOINT VENTURE
3,202,375
7,323,981
Minority interest in joint venture
222,835
192,590
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
2,979,540
7,131,391
Earnings (loss) from discontinued operations, net of tax
(3,242,289)
2,030,825
NET EARNINGS (LOSS)
(262,749)
9,162,216
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
$0.16
$0.39
Discontinued operations
($0.17)
$0.11
Net earnings (loss)
($0.01)
$0.50
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
$0.16
$0.37
Discontinued operations
($0.17)
$0.11
Net earnings (loss)
($0.01)
$0.48
NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic
18,348,322
18,459,258
Diluted
18,473,375
19,158,308
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Reconciliation of GAAP Operating Margin for Continuing Operations
to Non-GAAP Operating Margins for Continuing Operations
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended
Nine Months Ended
2006
2005
2006
2005
DIRECT REVENUE
76,018,774
71,890,582
223,280,143
193,053,706
EARNINGS FROM CONTINUING OPERATIONS GAAP
5,911,421
11,625,199
5,582,388
20,266,138
OPERATING MARGIN GAAP
7.8%
16.2%
2.5%
10.5%
ADD BACK:
FAS 123(R) expense
149,063
-
958,515
-
Amortization of acquisition related intangibles
703,646
993,798
2,274,359
3,031,317
Impairment of goodwill
-
-
7,873,000
-
NON-GAAP OPERATING EARNINGS
6,764,130
12,618,997
16,688,262
23,297,455
NON-GAAP OPERATING MARGIN
8.9%
17.6%
7.5%
12.1%
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 2006 and 2005
(As Revised))
2006
2005
REVENUE
Direct revenue
223,280,143
193,053,706
Reimbursed out-of-pockets
80,119,231
65,340,179
TOTAL REVENUE
303,399,374
258,393,885
COSTS AND EXPENSES
Direct costs
135,884,050
112,089,743
Reimbursable out-of-pocket expenses
80,119,231
65,340,179
Selling, general and administrative expenses
73,940,705
60,697,825
Impairment of goodwill
7,873,000
-
Impairment of long-lived assets
-
-
TOTAL COSTS AND EXPENSES
297,816,986
238,127,747
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
5,582,388
20,266,138
OTHER INCOME (EXPENSE)
Interest income
1,050,060
694,641
Interest expense
(6,432,619)
(10,344,371)
Foreign exchange transaction gain (loss), net
(3,002,126)
(678,259)
TOTAL OTHER INCOME (EXPENSE)
(8,384,685)
(10,327,989)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(2,802,297)
9,938,149
Income tax (benefit)
(5,874,452)
1,131,324
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY
INTEREST IN JOINT VENTURE
3,072,155
8,806,825
Minority interest in joint venture
516,798
366,855
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
2,555,357
8,439,970
Earnings (loss) from discontinued operations, net of tax
(26,667,552)
12,865,324
NET EARNINGS (LOSS)
(24,112,195)
21,305,294
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
$0.14
$0.48
Discontinued operations
($1.47)
$0.73
Net earnings (loss)
($1.33)
$1.21
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
$0.14
$0.46
Discontinued operations
($1.45)
$0.71
Net earnings (loss)
($1.31)
$1.17
NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic
18,150,182
17,543,438
Diluted
18,376,696
18,217,963
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Earnings for Continuing Operations to
Non-GAAP Net Earnings from Continuing Operations
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
2006
2005
2006
2005
Net earnings from continuing operations GAAP
2,979,540
7,131,391
2,555,357
8,439,970
Add: Impairment of goodwill
-
-
7,873,000
-
Add: Non-recurring charge related to financing
-
-
1,214,306
3,278,279
Add: FAS 123R expense
149,063
-
958,515
-
Add: Amortization of acquisition related intangibles
703,646
993,798
2,274,359
3,031,317
Subtotal
3,832,249
8,125,189
14,875,537
14,749,566
Less: Tax effect of non-GAAP adjustments (1)(2)(3)
122,790
140,126
4,207,249
909,430
Non-GAAP net earnings
3,709,459
7,985,063
10,668,288
13,840,136
Diluted non-GAAP net earnings per share
$0.20
$0.42
$0.58
$0.76
Number of shares used in computing diluted non-GAAP earnings per
share
18,473,375
19,158,308
18,376,696
18,217,963
(1) The revised tax rate used for the nine months ended September
30, 2006 is approximately a benefit of (17.5%) after taking into
account adjustments reflected in this summary.
(2) The revised tax rate used for the nine months ended September
30, 2005 is approximately 12.6% after taking into account
adjustments reflected in this summary.
(3) The quarterly tax effect for 2006 and 2005 have been tax
effected at their respective quarterly tax rates.
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Summary of Operations of Early and Late Stage Clinical
Development Segments
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
EARLY CLINICAL DEVELOPMENT
2006
2005
2006
2005
Direct revenues
25,909,168
31,419,515
76,692,015
77,462,605
GAAP operating earnings (loss)
3,991,997
9,412,359
(377,141)
15,598,571
Amortization of intangibles
128,846
315,746
549,959
1,017,358
Non-GAAP operating earnings (loss)
4,120,843
9,728,105
172,818
16,615,929
GAAP operating margin
15.4%
30.0%
-0.5%
20.1%
Non-GAAP operating margin
15.9%
31.0%
0.2%
21.5%
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
LATE CLINICAL DEVELOPMENT
2006
2005
2006
2005
Direct revenues
50,109,606
40,471,067
146,588,128
115,591,101
GAAP operating earnings (loss)
6,983,946
5,454,775
22,418,455
12,694,977
Amortization of intangibles
574,800
678,052
1,724,400
2,013,959
Non-GAAP operating earnings (loss)
7,558,746
6,132,827
24,142,855
14,708,936
GAAP operating margin
13.9%
13.5%
15.3%
11.0%
Non-GAAP operating margin
15.1%
15.2%
16.5%
12.7%
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Selected Consolidated Balance Sheet Information
September 30, 2006 and 2005
(Unaudited)
(As Revised)
September 30,
December 31,
2006
2005
ASSETS
Cash, equivalents and investments in marketable securities from
continuing operations
53,820,203
37,413,251
Cash, equivalents and investments in marketable securities from
discontinued operations
-
1,421,451
Total cash, equivalents, and investments in marketable securities
53,820,203
38,834,702
Accounts receivable from continuing operations
109,782,587
91,446,190
Accounts receivable from discontinued operations
6,289,490
26,425,479
Accounts receivable
116,072,077
117,871,669
Current assets from continuing operations
180,061,293
148,692,703
Current assets from discontinued operations
6,397,498
29,335,006
Total current assets
186,458,791
178,027,709
Fixed assets from continuing operations
61,796,913
48,563,461
Fixed assets held available for sale from discontinued operations
3,487,415
24,701,651
Total fixed assets
65,284,328
73,265,112
Total assets from continuing operations
555,070,421
514,328,567
Total assets from discontinued operations
9,884,913
58,208,529
Total assets
564,955,334
572,537,096
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities from continuing operations
125,070,285
120,493,672
Current liabilities from discontinued operations
5,624,726
5,940,389
Total current liabilities
130,695,011
126,434,061
Total liabilities from continuing operations
292,629,463
284,315,108
Total liabilities from discontinued operations
5,642,726
5,940,389
Total liabilities
298,272,189
290,255,497
Stockholders' equity
266,683,145
282,281,599
Total liabilities and stockholders' equity
564,955,334
572,537,096
PharmaNet Development Group, Inc. (NASDAQ: PDGI), a leading
provider of drug development services to branded pharmaceutical,
biotechnology, generic drug and medical device companies, today
reported GAAP net earnings from continuing operations for its third
quarter ended September 30, 2006 of $3.0 million or $0.16 per diluted
share.
"PharmaNet Development Group, Inc. had another solid quarter
resulting from excellent late stage revenue growth, partially offset
by lower revenues from the early stage segment," commented Jeffrey P.
McMullen, president and chief executive officer.
"In addition to strong operational performance, we recently
achieved two major financial objectives with the amendment of the
credit facility and the execution of the agreement for the sale and
subsequent lease of the Quebec City site."
Basis of presentation
Due to the Company's decision to discontinue certain operations
earlier this year all financial results for the periods presented
reflect the Company's continuing operations only, unless otherwise
stated.
To better reflect ongoing operations for investors for the periods
presented Adjusted (non-GAAP) results are used throughout this press
release and the accompanying tables. The three months ended September
30, 2006 adjusted financial results exclude the following costs: a)
non-cash amortization ($0.7 million) and b) non-cash compensation
expense resulting from the adoption of SFAS 123(R) ($0.1 million). The
Company adopted SFAS No. 123(R), Share Based Payment, on January 1,
2006.
A reconciliation of GAAP results to Adjusted (non-GAAP) results
can be found in the unaudited financial tables included in this press
release.
Third Quarter 2006 Financial Summary
-- GAAP Direct revenue, which does not include reimbursed
out-of-pocket expenses, increased 5.7% to $76.0 million
compared to $71.9 million in the third quarter of 2005
primarily due to higher late stage revenues, offset partly by
lower early stage revenues.
-- GAAP corporate expenses increased to $5.0 million in third
quarter 2006 compared to $3.2 million in third quarter 2005.
Adjusted corporate expenses increased to $4.9 million in the
third quarter of 2006 from $3.2 million in the third quarter
of 2005 primarily due to the non-cash amortization of
restricted stock units (RSUs), higher legal and professional
fees, increased bonus and compensation expense resulting from
organizational changes and the additional costs relating to
the Company name change.
-- GAAP operating margin was 7.8% in the third quarter 2006
compared with 16.2% in the third quarter 2005. Adjusted
operating margin for the third quarter 2006 decreased to 8.9%
from 17.6% in the third quarter of 2005 primarily due to lower
direct revenues in the early stage segment, continued
investment in early stage clinical and laboratory facilities
and higher corporate expenses.
-- GAAP net earnings were $3.0 million in the third quarter 2006
compared to $7.1 million in the third quarter 2005. Adjusted
net earnings for the third quarter of 2006 were approximately
$3.7 million compared to $8.0 million for the third quarter of
2005 primarily due to lower profits in the early stage segment
and increased corporate expenses partly offset by increased
profitability in the late stage segment.
-- The Company's backlog increased sequentially to $357.0 million
at September 30, 2006 from $353.5 million at June 30, 2006.
Backlog consists of anticipated direct revenue from signed
contracts and letters of intent that either have not started
or are in process and have not been completed. The combined
book-to-bill ratio was 1.05:1.
-- Cash, cash equivalents, and investments in marketable
securities at September 30, 2006 were $53.8 million compared
to $59.6 million at June 30, 2006. In October 2006, the
Company received approximately $9.9 million in cash proceeds
from the sale of the new Anapharm Quebec City headquarters
currently under construction.
-- Net cash provided by operating activities from continuing
operations was $3.6 million. Capital expenditures were $7.8
million, depreciation was $2.8 million and amortization was
$0.7 million in the third quarter 2006 compared with $2.8
million, $2.5 million and $1.0 million, respectively, in the
third quarter 2005. Included in the $7.8 million is $4.4
million related to the construction of the new Quebec City
facility.
-- Net Days Sales Outstanding (DSO) for continuing operations,
which includes accounts receivable and unbilled services less
current and long-term advanced billings, were 31 days at
September 30, 2006, reflecting a more normalized level,
compared with 14 days at June 30, 2006.
-- The Company's effective tax rate in the quarter was 14.4%
compared to 14.1% in the third quarter of 2005.
For the segment financial results provided below, the Company has
excluded an allocation of corporate expenses related to certain
adjusted selling, general and administrative ("SG&A") expenses.
Early Stage
PharmaNet Development Group, Inc.'s early stage segment primarily
includes the areas of Phase I clinical trials, support services and
bioanalytical services.
For the early stage segment, GAAP direct revenue, which does not
include reimbursed out-of-pocket expenses, was approximately $25.9
million in the third quarter 2006 compared to approximately $31.4
million in the third quarter 2005 primarily due to lower pricing and
volume resulting from a more competitive market environment.
Early stage segment GAAP operating margins decreased to 15.4% in
the third quarter 2006 compared to 30.0% in the third quarter 2005.
Early stage segment adjusted operating margins decreased to 15.9% in
the third quarter 2006 compared to 31.0% in the third quarter 2005
primarily due to lower direct revenues while maintaining the existing
operational infrastructure.
The backlog for the early stage segment increased 22% to
approximately $37.6 million from $30.8 million reported at June 30,
2006 due to new generic, Phase I and bioanalytical business.
The construction plan is in place and on schedule for the new
Quebec City facility, which will house the staff and operations of the
two existing facilities that comprise the Anapharm headquarters. As
previously disclosed, the Company recently executed an agreement for
the sale and subsequent lease of the Quebec City site. The Company
continues to expect to occupy the facility in the second quarter 2007.
The Company is completing the leasehold improvements at its
Toronto site which will house clinical facilities. Based on forecasted
operating levels, the Company continues to assess the time at which to
commence operations in this location.
Late Stage
PharmaNet Development Group, Inc.'s late stage segment primarily
conducts Phase II through IV clinical trials, data management and
biostatistics, medical and scientific affairs, regulatory affairs and
submissions, and provides software tools and services for use in
clinical trials.
For the late stage segment, GAAP direct revenue, which does not
include reimbursed out-of-pocket expenses, reached record levels
increasing 23.8% to $50.1 million in the third quarter 2006 compared
to $40.5 million, in the third quarter 2005.
Late stage segment GAAP operating margins were 13.9% in the third
quarter 2006 compared to 13.5% in the third quarter 2005. Late stage
segment adjusted operating margins were 15.1% in the third quarter
2006 compared to 15.2% in the third quarter 2005.
The backlog for the late stage segment is approximately $319.4
million compared to $322.7 million reported at June 30, 2006.
Discontinued operations
The Company has a remaining balance of expected cash costs
relating to discontinued operations, totaling $3.6 million, for
demolition and asbestos remediation, severance, contracted services
and healthcare costs. The Company continues to proceed toward
demolition of the building and is assessing options with respect to
the sale of the land.
Guidance
For continuing operations in the fourth quarter 2006, the Company
expects
-- direct revenues to be in the range of $68.1 - $74.3 million,
-- adjusted pre-tax earnings to be in the range of $3.2 - $5.2
million,
-- adjusted fully diluted EPS of $0.16 - $0.22,
-- capital expenditures to be in the range of $4.0 - $5.0
million,
-- depreciation to be in the range of $2.8 - $3.1 million,
-- amortization to be approximately $0.7 million,
-- and the tax rate to be in the range of 10% to 20%.
The Company expects to provide guidance for 2007 in its fourth
quarter and year-end 2006 earnings press release.
Conference Call and Webcast
A conference call and webcast to discuss the third quarter
financial results will be held on Thursday, November 2, 2006 at 8:30
a.m., Eastern Time.
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Dial-in: (866) 831-6272 for U.S.
(617) 213-8859 for International
Pass code: 24262818
Dial-in Replay: (888) 286-8010 for U.S.
(617) 801-6888 for International
Pass code: 94602754
The dial-in replay will be available approximately
two hours after the call through Thursday,
November 9, 2006.
Webcast: Please visit www.pharmanet.com and select the
investor tab to access the webcast. The archived
webcast will be available for approximately thirty
(30) days following the conference call.
*T
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, which
exclude, among other items, amortization of acquisition-related
intangible assets, non-recurring charges related to financing, and
non-cash impairment charges. PDGI excludes these items from the
non-GAAP financial measures because they are outside of its operations
and are a useful indicator, which allows management to monitor PDGI's
underlying business performance.
Non-GAAP results also allow investors to compare the reported GAAP
results and the non-GAAP First Call consensus estimate and to compare
the Company's operations against the financial results of other
companies in the industry. The non-GAAP financial measures included in
this press release should not be considered superior to or a
substitute for results of operations prepared in accordance with GAAP.
Reconciliations of the non-GAAP financial measures used in this press
release to the most directly comparable GAAP financial measures are
set forth in the text of, and the accompanying tables to, this press
release, and can also be found on the Company's website.
About PharmaNet Development Group, Inc.
PharmaNet Development Group, Inc. is an international drug
development services company offering a comprehensive range of
clinical development, clinical and bioanalytical laboratory, and
consulting services to the branded pharmaceutical, biotechnology,
generic drug and medical device industries. PharmaNet Development
Group, Inc. has more than 30 offices, facilities and laboratories with
more than 2,000 employees strategically located throughout the world.
For more information, visit the Company's website at
http://www.pharmanet.com.
Forward-Looking Statements
Certain statements made in this press release are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Act"). Additionally words such as "seek,"
"intend," "believe," "plan," "estimate," "expect," "anticipate" and
other similar expressions are forward-looking statements within the
meaning of the Act. Some or all of the results anticipated by these
forward-looking statements may not occur. Factors that could cause or
contribute to such differences include, but are not limited to,
industry trends and information; whether adverse publicity relating to
the Company's discontinued Florida operations causes clients to select
competitors, not only for early stage branded clinical trials but also
for other aspects of the Company's business; its ability to comply
with the timeline agreed upon in the settlement reached with the
Miami-Dade County Unsafe Structures Board and any related fines or
expenses if we are unsuccessful complying with such timeline; the
associated costs and expenses with discontinuing the Company's
operations in Florida, including the potential costs of the demolition
of the Miami facility; the Company's ability to determine its
impairment charges and costs of discontinued operations; whether the
Company will achieve its estimated value for its Miami property;
developments with respect to the SEC's inquiry and securities class
action lawsuits and derivative lawsuits; the Company's ability to
successfully achieve and manage the technical requirements of
specialized clinical trial services, while complying with applicable
rules and regulations; regulatory changes; changes affecting the
clinical research industry; a reduction of outsourcing by
pharmaceutical and biotechnology companies; the Company's ability to
compete internationally in attracting clients in order to develop
additional business; the Company's evaluation of its backlog and the
potential cancellation of contracts; its ability to retain and recruit
new employees; its clients' ability to provide the drugs and medical
devices used in its clinical trials; the Company's future stock price;
its assessment of its effective tax rate; the Company's financial
guidance; our future effective tax rate; our anticipated 2006 capital
expenditures; our 2006 costs of compliance of Section 404 of the
Sarbanes-Oxley Act; our ability to remediate our material weaknesses;
the impact of foreign currency transaction costs and the effectiveness
of any hedging strategies that we implement; and the national and
international economic climate as it affects drug development
operations.
Further information can be found in the Company's risk factors
contained in its Annual Report on Form 10-K for the year ended
December 31, 2005, which were originally filed as SFBC International
(NASDAQ: SFCC) and its most recent Quarterly Report on Form 10-Q. The
Company does not undertake to update the disclosures made herein, and
you are urged to read our filings with the Securities and Exchange
Commission.
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PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Statement of Operations (Unaudited)
For the Three Months Ended September 30, 2006 and 2005
(As Revised)
2006 2005
----------------------------------------------------------------------
REVENUE
----------------------------------------------------------------------
Direct revenue 76,018,774 71,890,582
Reimbursed out-of-pockets 27,235,490 21,852,492
----------------------------------------------------------------------
TOTAL REVENUE 103,254,264 93,743,074
----------------------------------------------------------------------
COSTS AND EXPENSES
----------------------------------------------------------------------
Direct costs 45,769,899 40,099,096
Reimbursable out-of-pocket expenses 27,235,490 21,852,492
Selling, general and administrative
expenses 24,337,454 20,166,287
Impairment of goodwill - -
Impairment of long-lived assets - -
----------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 97,342,843 82,117,875
----------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 5,911,421 11,625,199
----------------------------------------------------------------------
OTHER INCOME (EXPENSE)
----------------------------------------------------------------------
Interest income 153,557 140,309
Interest expense (1,676,517) (1,780,407)
Foreign exchange transaction gain (loss),
net (647,315) (1,456,276)
----------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (2,170,275) (3,096,374)
----------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,741,146 8,528,825
----------------------------------------------------------------------
Income tax (benefit) 538,771 1,204,844
----------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST IN JOINT VENTURE 3,202,375 7,323,981
----------------------------------------------------------------------
Minority interest in joint venture 222,835 192,590
----------------------------------------------------------------------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 2,979,540 7,131,391
----------------------------------------------------------------------
Earnings (loss) from discontinued
operations, net of tax (3,242,289) 2,030,825
----------------------------------------------------------------------
NET EARNINGS (LOSS) (262,749) 9,162,216
----------------------------------------------------------------------
----------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE:
----------------------------------------------------------------------
Continuing operations $0.16 $0.39
Discontinued operations ($0.17) $0.11
Net earnings (loss) ($0.01) $0.50
----------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
----------------------------------------------------------------------
Continuing operations $0.16 $0.37
Discontinued operations ($0.17) $0.11
Net earnings (loss) ($0.01) $0.48
----------------------------------------------------------------------
NUMBER OF SHARES USED IN COMPUTING EARNINGS
PER SHARE:
----------------------------------------------------------------------
Basic 18,348,322 18,459,258
Diluted 18,473,375 19,158,308
----------------------------------------------------------------------
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PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Reconciliation of GAAP Operating Margin for Continuing Operations to
Non-GAAP Operating Margins for Continuing Operations
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended Nine Months Ended
2006 2005 2006 2005
----------------------------------------------------------------------
DIRECT REVENUE 76,018,774 71,890,582 223,280,143 193,053,706
----------------------------------------------------------------------
----------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS GAAP 5,911,421 11,625,199 5,582,388 20,266,138
----------------------------------------------------------------------
----------------------------------------------------------------------
OPERATING MARGIN GAAP 7.8% 16.2% 2.5% 10.5%
----------------------------------------------------------------------
----------------------------------------------------------------------
ADD BACK:
----------------------------------------------------------------------
FAS 123(R)
expense 149,063 - 958,515 -
Amortization of
acquisition
related
intangibles 703,646 993,798 2,274,359 3,031,317
Impairment of
goodwill - - 7,873,000 -
----------------------------------------------------------------------
NON-GAAP OPERATING
EARNINGS 6,764,130 12,618,997 16,688,262 23,297,455
----------------------------------------------------------------------
----------------------------------------------------------------------
NON-GAAP OPERATING
MARGIN 8.9% 17.6% 7.5% 12.1%
----------------------------------------------------------------------
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PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 2006 and 2005
(As Revised))
2006 2005
----------------------------------------------------------------------
REVENUE
----------------------------------------------------------------------
Direct revenue 223,280,143 193,053,706
Reimbursed out-of-pockets 80,119,231 65,340,179
----------------------------------------------------------------------
TOTAL REVENUE 303,399,374 258,393,885
----------------------------------------------------------------------
COSTS AND EXPENSES
----------------------------------------------------------------------
Direct costs 135,884,050 112,089,743
Reimbursable out-of-pocket expenses 80,119,231 65,340,179
Selling, general and administrative
expenses 73,940,705 60,697,825
Impairment of goodwill 7,873,000 -
Impairment of long-lived assets - -
----------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 297,816,986 238,127,747
----------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 5,582,388 20,266,138
----------------------------------------------------------------------
OTHER INCOME (EXPENSE)
----------------------------------------------------------------------
Interest income 1,050,060 694,641
Interest expense (6,432,619) (10,344,371)
Foreign exchange transaction gain (loss),
net (3,002,126) (678,259)
----------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (8,384,685) (10,327,989)
----------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (2,802,297) 9,938,149
----------------------------------------------------------------------
Income tax (benefit) (5,874,452) 1,131,324
----------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST IN JOINT VENTURE 3,072,155 8,806,825
----------------------------------------------------------------------
Minority interest in joint venture 516,798 366,855
----------------------------------------------------------------------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 2,555,357 8,439,970
----------------------------------------------------------------------
Earnings (loss) from discontinued
operations, net of tax (26,667,552) 12,865,324
----------------------------------------------------------------------
NET EARNINGS (LOSS) (24,112,195) 21,305,294
----------------------------------------------------------------------
----------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE:
----------------------------------------------------------------------
Continuing operations $0.14 $0.48
Discontinued operations ($1.47) $0.73
Net earnings (loss) ($1.33) $1.21
----------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
----------------------------------------------------------------------
Continuing operations $0.14 $0.46
Discontinued operations ($1.45) $0.71
Net earnings (loss) ($1.31) $1.17
----------------------------------------------------------------------
NUMBER OF SHARES USED IN COMPUTING EARNINGS
PER SHARE:
----------------------------------------------------------------------
Basic 18,150,182 17,543,438
Diluted 18,376,696 18,217,963
----------------------------------------------------------------------
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PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Earnings for Continuing Operations to Non-
GAAP Net Earnings from Continuing Operations
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
Net earnings
from
continuing
operations
GAAP 2,979,540 7,131,391 2,555,357 8,439,970
Add:
Impairment of
goodwill - - 7,873,000 -
Add: Non-
recurring
charge
related to
financing - - 1,214,306 3,278,279
Add: FAS 123R
expense 149,063 - 958,515 -
Add:
Amortization
of
acquisition
related
intangibles 703,646 993,798 2,274,359 3,031,317
Subtotal 3,832,249 8,125,189 14,875,537 14,749,566
Less: Tax
effect of
non-GAAP
adjustments
(1)(2)(3) 122,790 140,126 4,207,249 909,430
Non-GAAP net
earnings 3,709,459 7,985,063 10,668,288 13,840,136
Diluted non-
GAAP net
earnings per
share $0.20 $0.42 $0.58 $0.76
Number of
shares used
in computing
diluted non-
GAAP earnings
per share 18,473,375 19,158,308 18,376,696 18,217,963
(1) The revised tax rate used for the nine months ended September 30,
2006 is approximately a benefit of (17.5%) after taking into account
adjustments reflected in this summary.
(2) The revised tax rate used for the nine months ended September 30,
2005 is approximately 12.6% after taking into account adjustments
reflected in this summary.
(3) The quarterly tax effect for 2006 and 2005 have been tax effected
at their respective quarterly tax rates.
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PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Summary of Operations of Early and Late Stage Clinical Development
Segments
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
EARLY CLINICAL
DEVELOPMENT 2006 2005 2006 2005
----------------------------------------------------------------------
Direct
revenues 25,909,168 31,419,515 76,692,015 77,462,605
GAAP operating
earnings
(loss) 3,991,997 9,412,359 (377,141) 15,598,571
Amortization
of
intangibles 128,846 315,746 549,959 1,017,358
Non-GAAP
operating
earnings
(loss) 4,120,843 9,728,105 172,818 16,615,929
GAAP operating
margin 15.4% 30.0% -0.5% 20.1%
Non-GAAP
operating
margin 15.9% 31.0% 0.2% 21.5%
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
LATE CLINICAL
DEVELOPMENT 2006 2005 2006 2005
----------------------------------------------------------------------
Direct
revenues 50,109,606 40,471,067 146,588,128 115,591,101
GAAP operating
earnings
(loss) 6,983,946 5,454,775 22,418,455 12,694,977
Amortization
of
intangibles 574,800 678,052 1,724,400 2,013,959
Non-GAAP
operating
earnings
(loss) 7,558,746 6,132,827 24,142,855 14,708,936
GAAP operating
margin 13.9% 13.5% 15.3% 11.0%
Non-GAAP
operating
margin 15.1% 15.2% 16.5% 12.7%
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PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Selected Consolidated Balance Sheet Information
September 30, 2006 and 2005
(Unaudited) (As Revised)
September 30, December 31,
2006 2005
----------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------
Cash, equivalents and investments in
marketable securities from continuing
operations 53,820,203 37,413,251
Cash, equivalents and investments in
marketable securities from discontinued
operations - 1,421,451
------------- ------------
Total cash, equivalents, and investments in
marketable securities 53,820,203 38,834,702
Accounts receivable from continuing
operations 109,782,587 91,446,190
Accounts receivable from discontinued
operations 6,289,490 26,425,479
------------- ------------
Accounts receivable 116,072,077 117,871,669
Current assets from continuing operations 180,061,293 148,692,703
Current assets from discontinued
operations 6,397,498 29,335,006
------------- ------------
Total current assets 186,458,791 178,027,709
Fixed assets from continuing operations 61,796,913 48,563,461
Fixed assets held available for sale from
discontinued operations 3,487,415 24,701,651
------------- ------------
Total fixed assets 65,284,328 73,265,112
Total assets from continuing operations 555,070,421 514,328,567
Total assets from discontinued operations 9,884,913 58,208,529
------------- ------------
Total assets 564,955,334 572,537,096
----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Current liabilities from continuing
operations 125,070,285 120,493,672
Current liabilities from discontinued
operations 5,624,726 5,940,389
------------- ------------
Total current liabilities 130,695,011 126,434,061
Total liabilities from continuing
operations 292,629,463 284,315,108
Total liabilities from discontinued
operations 5,642,726 5,940,389
------------- ------------
Total liabilities 298,272,189 290,255,497
Stockholders' equity 266,683,145 282,281,599
Total liabilities and stockholders' equity 564,955,334 572,537,096
*T