As a result of the layoffs, Parexel hopes to achieve annual pre-tax savings of between $20m to $30m over the course of FY 2016, and between $50m to $60m in savings once the restructuring is complete.
The restructuring comes as the company also announced Wednesday that it’s raising its long-term adjusted operating margin target from 12%-14% of service revenue to 13%-15% of service revenue.
“We had a very high growth rate a couple of years ago and this has normalized to some extent,” CEO Josef von Rickenbach told investors on Wednesday. He also mentioned that new business wins have led to record backlog levels, and the company’s revenue has grown nearly twice as fast as the market.
A lot of the comments on the restructuring centered on the decision to use more resources in low-cost countries, particularly in Asia, Latin America and central and eastern Europe.
Mark Goldberg, COO of Parexel, told investors that revenue growth has been slower than expected as the company has “a relatively large number of studies in the start-up stage,” which means they generate less revenue and are more labor intensive. He added that a large number of studies also recently and simultaneously were completed.
The company’s stock was down more than 7% Wednesday, a day after the stock hit an all-time high.
Market Expectations
Von Rickenbach expressed some optimism around the growth prospects of the CRO industry, noting that top CROs are gaining a higher share of the market, which he said is growing at a 7% annual clip.
Top CROs could make up about 60% of the market, which is in contrast to 40% “not too long ago,” von Rickenbach said. By 2017, the global trials technology market is also expected to be worth about $4.1bn, he added, noting that trials are becoming larger and more complex.
As far as M&A, von Rickenbach said “bolt-on or tuck-in acquisitions are our preference” when they can provide complementary expertise and can be rapidly integrated.
Von Rickenbach also echoed a lot of the comments he told us last week at the DIA annual conference, including thoughts on the shift to strategic partnerships with clients and new technologies.