PharmaNet Development Group, Inc. (NASDAQ: PDGI), a leading
provider of global drug development services to branded
pharmaceutical, biotechnology, generic drug and medical device
companies, today reported GAAP net earnings from continuing
operations for its first quarter 2007 of $6.0 million, or $0.32 per
diluted share, compared to $3.3 million, or $0.18 per diluted
share, in the first quarter 2006. "With the improvement in the
operating performance of the early stage segment, record direct
revenues in the late stage segment and significant backlog growth,
we are continuing to see the results of our organizational and
operational improvements, business development initiatives and
capacity expansions,� commented Jeffrey P. McMullen, president and
chief executive officer. Basis of presentation Due to the Company's
decision to discontinue certain operations in 2006, all financial
results for the periods presented reflect the Company's continuing
operations only, unless otherwise stated. To better reflect ongoing
operations to investors for the periods presented, adjusted
(non-GAAP) results are used throughout this press release and the
accompanying tables. For the first quarter 2007, adjusted financial
results exclude $0.7 million for the amortization of
acquisition-related intangibles and $0.2 million non-cash
compensation expense related to Statement of Financial Accounting
Standards No. 123R (�FAS 123R�). For comparative purposes, first
quarter 2006 adjusted financial results exclude $0.8 million for
amortization of acquisition-related intangibles and $0.5 million
non-cash compensation expense related to FAS 123R. Effective
January 1, 2007, the Company began reporting the business
operations of Specialized Pharmaceutical Services (�SPS�), formerly
CPS, in the late stage segment. First quarter 2006 results reflect
SPS in the late stage segment rather than the early stage segment
as previously reported. A reconciliation of GAAP results to
adjusted (non-GAAP) results, and SPS historical performance can be
found in the unaudited financial tables included in this press
release. A further explanation of the reasoning behind the use of
non-GAAP financial results can be found at the end of this press
release. First Quarter 2007 Financial Summary Direct revenue, which
does not include reimbursed out-of-pocket expenses, increased 13.9%
to $84.8 million in the first quarter 2007 compared to $74.4
million in the first quarter 2006 due to growth in both the early
and late stage segments. GAAP corporate selling, general and
administrative (SG&A) expenses increased to $5.2 million in the
first quarter 2007 compared to $5.1 million in first quarter 2006.
Adjusted corporate expenses, which exclude non-cash FAS 123R
expense and non-recurring legal and professional fees, increased to
$4.5 million in the first quarter 2007 compared to $3.9 million in
the first quarter 2006 primarily due to higher non-cash
compensation expense related to restricted stock units (RSUs).
Non-cash compensation expense related to RSUs was $1.0 million in
the first quarter 2007 compared $0.3 million in the first quarter
2006. GAAP operating margin increased to 10.2% in the first quarter
2007 compared to 8.4% in the first quarter 2006. Adjusted operating
margin for the first quarter 2007 increased to 11.2% from 10.2% in
the first quarter 2006 primarily due to higher revenue in both
segments. GAAP net earnings increased to $6.0 million, or $0.32 per
diluted share, in the first quarter 2007 compared to $3.3 million,
or $0.18 per diluted share, in the first quarter 2006. Adjusted net
earnings for the first quarter 2007 were approximately $6.7
million, or $0.35 per diluted share, compared to approximately $4.4
million, or $0.24 per diluted share, for the first quarter 2006
primarily due to higher profits in both segments and the favorable
impact of foreign currency exchange partially offset by a higher
tax rate. The Company�s backlog increased to $431.5 million at
March 31, 2007 compared to $352.7 million at December 31, 2006.
Backlog consists of anticipated direct revenue from written awards,
letters of intent and contracts that either have not started or are
anticipated to begin in the near future. Verbal awards are not
included in backlog. Cash, cash equivalents, and investments in
marketable securities at March 31, 2007 were $47.4 million compared
to $53.8 million at December 31, 2006. Net cash used in continuing
operations was $6.9 million in the first quarter 2007. Capital
expenditures were $10.8 million in the first quarter 2007 compared
to $4.2 million in the first quarter 2006. Excluding the portion of
capital expenditures for the new Quebec City facility, which will
be paid for by the investor that purchased the building as part of
the sale-leaseback transaction announced in October 2006, capital
expenditures would have been $5.3 million in the first quarter 2007
compared to $3.6 million in the first quarter 2006. The $5.3
million of capital expenditure includes $3.7 million for equipment
and leasehold improvements in the Quebec City and Toronto
facilities paid for by the Company. Depreciation expense was $2.9
million and amortization of intangibles was $0.7 million in the
first quarter 2007 compared to $2.9 million and $0.8 million,
respectively, in the first quarter 2006. Net days sales outstanding
(DSO), which includes accounts receivable and unbilled services
less current and long-term advanced billings, was 43 days at March
31, 2007 and 34 days at December 31, 2006. The Company�s effective
tax rate in the first quarter 2007 was 22.5% compared to 18.4% in
the first quarter 2006. Effective January 1, 2007, the Company
adopted Financial Accounting Standards Board Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No.109, Accounting for Income Taxes" ("FIN 48"). The
cumulative effect adjustment of $2.9 million was charged to
retained earnings to increase the accrued liability for uncertain
tax positions. On an annual basis, we do not believe that FIN 48
will have a significant impact on our operations. Going forward,
the tax provision could vary from quarter to quarter as we adjust
tax positions as events occur, consistent with FIN 48. For the
quarter ended March 31, 2007, the Company recorded an interest
charge of $0.1 million as a result of the adoption of FIN 48. For
the segment financial results provided below, the Company has
excluded an allocation of corporate expenses related to certain
adjusted SG&A expenses. Early Stage PharmaNet Development
Group, Inc.�s early stage segment primarily includes the areas of
Phase I clinical trials, support services, bioequivalency trials
and bioanalytical services. For the early stage segment, GAAP
direct revenue, which does not include reimbursed out-of-pocket
expenses, increased approximately 14.0% to $29.7 million in the
first quarter 2007 compared to $26.1 million in the first quarter
2006. Direct revenues were higher in the first quarter 2007
compared to the first quarter 2006 due to higher volume in the
Company�s bioanalytical laboratories for both branded and generic
clients and increased pricing in generic segment of the clinics.
Early stage segment GAAP operating margins increased to 17.0% in
the first quarter 2007 compared to 12.3% in the first quarter 2006.
Early stage segment adjusted operating margins increased to 17.4%
in the first quarter 2007 compared to 13.1% in the first quarter
2006 primarily due to higher direct revenues and the
reclassification of the SPS division which more than offset higher
executive severance costs of $0.8 million. The backlog for the
early stage segment increased to $54.4 million at March 31, 2007
from $42.3 million reported at December 31, 2006 due to new branded
and generic Phase I business, bioequivalency projects and
bioanalytical business. The new Quebec City, Canada facility, which
replaces two existing facilities and houses the new clinic,
laboratory and offices, has opened. The move of staff and equipment
began in March and is expected to be completed by end of May 2007.
The new clinics will house approximately 200 beds. There is
specific accounting treatment for sale-leaseback transactions
involving real estate. As a result, the construction and land costs
of approximately $21.3 million appear on the Company�s balance
sheet as assets held for sale, along with a liability for the same
amount. Both the asset and liability balance will be netted against
each other and no longer appear on the balance sheet once the final
building documentation is completed. Completion of the
sale-leaseback transaction for accounting purposes will have no
impact on the Company�s liquidity or the line of credit. The
Company has substantially completed the leasehold improvements at
its new Toronto site. The Company expects the building to be
operational mid-year 2007 with ninety beds and will add another
sixty beds as client demand requires. The Company is also
completing leasehold improvements to expand the laboratory capacity
of its Barcelona joint venture. The Company expects to occupy the
new Barcelona facilities mid-year 2007. 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,
increased approximately 13.9% and achieved record levels of $55.1
million in the first quarter 2007 compared to $48.4 million in the
first quarter 2006. Late stage segment GAAP operating margins were
16.0% in the first quarter 2007 compared to 16.9% in the first
quarter 2006. Late stage segment adjusted operating margins were
17.0% in the first quarter 2007 compared to 18.1% in the first
quarter 2006 primarily due to the reclassification of the SPS
business into the late stage segment and higher direct costs. The
backlog for the late stage segment was $377.1 million at March 31,
2007 compared to $310.4 million at December 31, 2006. Conference
Call and Webcast A conference call and webcast to discuss first
quarter 2007 financial results will be held on Thursday, May 3,
2007 at 8:30 a.m., EDT. Dial-in: (888) 396-2386 for U.S. (617)
847-8712 for International Pass code: 40038227 Dial-in Replay:
(888) 286-8010 for U.S. (617) 801-6888 for International Pass code:
83884265 The dial-in replay will be available approximately two
hours after the call Through Thursday, May 10, 2007. Webcast:
Please visit www.pharmanet.com and select the investor tab to
access the webcast or alternatively, you may click on the following
hyperlink: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=124176&eventID=1523683 The archived webcast
will be available for approximately thirty (30) days following the
conference call. Non-GAAP Financial Measures This press release
contains certain non-GAAP financial measures, which exclude, among
other items, amortization of acquisition-related intangible assets
and non-cash compensation expense related to restricted stock and
RSUs issued to employees and directors of the Company. Share-based
compensation is an important part of our employees� compensation
and impacts their performance. PDGI considers these non-GAAP
financial measures to be useful metrics because management and
investors can compare the Company�s recurring operating results and
make more meaningful comparisons between PDGI�s recurring operating
results and those of other companies. In addition, management can
use this important tool for financial and operational decision
making and for evaluating recurring operating results over
different periods of time. There are a number of limitations
related to the use of non-GAAP operating income versus operating
income calculated in accordance with GAAP. Non-GAAP operating
income excludes certain costs, including, share-based compensation
and amortization related to acquisitions that are recurring and
have been and will continue to be for the foreseeable future a
significant recurring expense in PDGI�s business. The components of
the costs that we exclude from our calculation of non-GAAP
operating income may differ from the components that our peer
companies exclude when they report their results of operations. The
Company compensates for these limitations by providing specific
information regarding the GAAP amounts excluded from non-GAAP
operating income and evaluating non-GAAP operating income together
with operating income calculated in accordance with GAAP. 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., a global drug development services
company, provides a comprehensive range of services to the
pharmaceutical, biotechnology, generic drug, and medical device
industries. The Company offers clinical-development solutions
including early and late stage consulting services, Phase l
clinical studies and bioanalytical analyses, and Phase II, III and
IV clinical development programs. With approximately 2,300
employees and more than 40 facilities throughout the world,
PharmaNet is a recognized leader in outsourced clinical
development. For more information, please visit our website at
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; the Company's ability to determine
its impairment charges and costs of discontinued operations;
whether the Company will achieve its estimated value relating to
discontinued operations; 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; the
Company�s assessment of its effective tax rate and tax allowance;
the Company�s financial guidance; the Company�s future effective
tax rate; the Company�s anticipated capital expenditures; the
Company�s costs associated with compliance of Section 404 of the
Sarbanes-Oxley Act; the impact on the Company of foreign currency
transaction costs and the effectiveness of any hedging strategies
it implements; 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, 2006 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 March 31, 2007
and March 31, 2006 � 2007� 2006(1) � � � � (revised) REVENUE � � �
� Direct revenue � $ 84,781,481� $ 74,423,994� Reimbursed
out-of-pockets � � 22,961,582� � � 29,076,785� TOTAL REVENUE � �
107,743,063� � � 103,500,779� COSTS AND EXPENSES � � � � Direct
costs 50,477,967� 45,328,662� Reimbursable out-of-pocket expenses
22,961,582� 29,076,785� Selling, general and administrative
expenses � � 25,690,442� � � 22,858,685� TOTAL COSTS AND EXPENSES �
� 99,129,991� � � 97,264,132� EARNINGS FROM CONTINUING OPERATIONS �
� 8,613,072� � � 6,236,647� OTHER INCOME (EXPENSE) � � � � Interest
income 541,838� 345,478� Interest expense (1,643,291) (1,776,241)
Foreign exchange transaction loss, net � � 392,505� � � (526,568)
TOTAL OTHER INCOME (EXPENSE) � � (708,948) � � (1,957,331) EARNINGS
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES � � � 7,904,124� � �
4,279,316� Income tax (benefit) � � 1,783,152� � � 786,215�
EARNINGS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN
JOINT VENTURE � � 6,120,972� � � 3,493,101� Minority interest in
joint venture � � 129,169� � � 188,786� NET EARNINGS FROM
CONTINUING OPERATIONS � � 5,991,803� � � 3,304,315� Earnings (Loss)
from discontinued operations, net of tax � � 640,349� � �
(7,438,695) NET EARNINGS (LOSS) � $ 6,632,152� � $ (4,134,380) � �
� � � BASIC EARNINGS (LOSS) PER SHARE: � � � � Continuing
operations $ 0.32� $ 0.18� Discontinued operations $ 0.04� $ (0.41)
Net earnings (loss) � $ 0.36� � $ (0.23) DILUTED EARNINGS (LOSS)
PER SHARE: � � � � Continuing operations $ 0.32� $ 0.18�
Discontinued operations $ 0.03� $ (0.41) Net earnings (loss) � $
0.35� � $ (0.23) SHARES USED IN COMPUTING EPS: � � � � Basic
18,630,234� 17,947,477� Diluted � � 18,857,543� � � 18,316,002� �
(1) Prior year balances have been revised to reflect discontinued
operations. PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
Reconciliation of GAAP Operating Margin for Continuing Operations
to Non GAAP Operating Margins for Continuing Operations - Unaudited
For the Three Months Ended March 31, 2007 and 2006 � 2007� 2006(1)
(revised) � � � � � DIRECT REVENUE � $ 84,781,481� � $ 74,423,994�
� � � � � EARNINGS FOR CONTINUING OPERATIONS GAAP � � 8,613,072� �
� 6,236,647� � � � � � OPERATING MARGIN GAAP � � 10.2% � � 8.4% � �
� � � ADD BACK: � � � � Share based compensation expense 165,190�
524,296� Amortization of intangible assets � � 688,774� � �
801,993� NON GAAP OPERATING EARNINGS � $ 9,467,036� � $ 7,562,936�
� � � � � NON GAAP OPERATING MARGIN � � 11.2% � � 10.2% � (1) Prior
year balances have been revised to reflect discontinued operations.
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Reconciliation
of GAAP Net Earnings for Continuing Operations to Non GAAP Net
Earnings for Continuing Operations - Unaudited For the Three Months
Ended March 31, 2007 and 2006 � 2007� 2006(1) � (revised) � Net
earnings from continuing operations GAAP $ 5,991,803� $ 3,304,315�
� � Add: Non-cash share based compensation 165,190� 524,296�
expenses � Add: Non-cash intangible assets amortization 688,774�
801,993� � Subtotal 6,845,767� 4,630,604� � Less: Tax effect of
non-GAAP adjustments 192,652� 243,672� � � Non-GAAP net earnings
from continuing operations $ 6,653,115� $ 4,386,932� � Diluted
non-GAAP net earnings per share $ 0.35� $ 0.24� � Number of shares
used in computing diluted non-GAAP earnings per share 18,857,543�
18,316,002� � (1) Prior year balances have been revised to reflect
discontinued operations. PHARMANET DEVELOPMENT GROUP, INC. AND
SUBSIDIARIES Summary of Operations of Early and Late Stage Segments
For the Three Months Ended March 31, 2007 and 2006 � EARLY STAGE
2007� 2006� % variation � � � � (revised) � � � Direct revenues $
29,704,489� $ 26,066,047� 14.0% � GAAP operating earnings
5,041,080� 3,196,464� 57.7% � Amortization of intangibles 133,717�
226,993� -41.1% � Non-GAAP operating earnings $ 5,174,797� $
3,423,457� 51.2% � GAAP operating margin 17.0% 12.3% � Non-GAAP
operating margin 17.4% 13.1% � � LATE STAGE 2007� 2006� % variation
� � � � (revised) � � � Direct revenues $ 55,076,992� $ 48,357,947�
13.9% � GAAP operating earnings 8,789,878� 8,180,019� 7.5% �
Amortization of intangibles 555,057� 575,000� -3.5% � Non-GAAP
operating earnings $ 9,344,935� $ 8,755,019� 6.7% � GAAP operating
margin 16.0% 16.9% � Non-GAAP operating margin 17.0% 18.1% � � SPS
OPERATING RESULTS(1) 2007(3) 2006(2) % variation � � � � � � � �
Direct revenues $ 921,394� $ 1,264,508� -27.1% � GAAP operating
earnings 206,778� 567,150� -63.5% � Amortization of intangibles -�
-� � GAAP operating margin 22.4% 44.9% � (1) This information is
provided to assist investors in determining the impact of the
reclassification of SPS operating results from the early stage
segment as originally reported in 2006, to the late stage segment
as revised for 2006. � (2) SPS operating results for 2006 have been
reclassified from the early stage segment to the late stage segment
and are included in the operating results noted above. � (3)
Included in 2007 late stage segment operating results noted above.
PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Selected
Consolidated Balance Sheet Information - Unaudited March 31, 2007
and December 31, 2006 � The allocation of assets and liabilities
between continuing and discontinued operations, in this selected
balance sheet information is preliminary and may change upon the
company's filing of its Form 10-Q for the period ended March 31,
2007 � March 31, December 31, 2007� 2006� � � � � (revised) ASSETS
� � � � � Cash, equivalents, and investments in marketable
securities $ 47,393,503� $ 53,754,183� � � Accounts receivable from
continuing operations 128,667,339� 109,187,958� Accounts receivable
from discontinued operations � 2,017,977� � 3,572,556� Accounts
receivable 130,685,316� 112,760,514� � Current assets from
continuing operations 211,355,830� 192,048,195� Current assets from
discontinued operations � 2,335,308� � 3,889,887� Total current
assets 213,691,138� 195,938,082� � � Fixed assets from continuing
operations 55,232,340� 52,234,890� Land held for sale from
discontinued operations � 3,046,619� � 3,286,619� Total fixed
assets and land 58,278,959� 55,521,509� � � Total assets from
continuing operations 570,652,130� 548,824,032� Total assets from
discontinued operations � 5,381,927� � 7,176,506� Total assets $
576,034,057� $ 556,000,538� � � � � � � LIABILITIES AND
STOCKHOLDERS' EQUITY � � � � Current liabilities from continuing
operations $ 136,325,313� $ 131,212,217� Current liabilities from
discontinued operations � 2,250,638� � 4,195,262� Total current
liabilities 138,575,951� 135,407,479� � � Total liabilities from
continuing operations 308,740,082� 293,726,169� Total liabilities
from discontinued operations � 2,250,638� � 4,195,262� Total
liabilities 310,990,720� 297,921,431� � � Stockholders' equity
265,043,337� 258,079,107� � � Total liabilities and stockholders'
equity $ 576,034,057� $ 556,000,538� � (1) Prior year balances have
been revised to reflect discontinued operations.
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