eResearchTechnology, Inc (ERES)

Q3 2010 Earnings Call

November 04, 2010 05:00 p.m. ET

Executives

Michael McKelvey - President & CEO

Keith Schneck - EVP & CFO

Analysts

James Kumpel - Madison Williams

Raghavan Sarathy - Dougherty & Company

Gene Mannheimer - Auriga

Mitra Ramgopal - Sidoti

Presentation

Operator

(Operators Instructions), please note this even is being recorded, I would now like to turn the conference over to Dr. McKelvey, please go ahead.

Michael McKelvey

Thank you, Jamie, and good afternoon. Thank you for joining us for ERT's third quarter 2010 earnings results conference call. A press release announcing the third quarter results was released this afternoon and is available at the ERT.com and most financial websites. This press release includes the financial results for the third quarter which includes three months of our recent acquisition of CareFusion's Research Services division or RS. As a reminder the second quarter of 2010 only included one month June of RS operations.

Joining me today is Keith Schneck, Executive Vice President and Chief Financial Officer.

Prior to beginning the call, I would like to read the forward-looking event statement. Certain statements in today's call may constitute forward-looking statements which involve known and unknown risks and uncertainties, actual results may differ materially from those in the forward-looking statements. Information about these risks and factors that could cause actual results to vary and it's disclosed in the press release announcing our results and in the risk factor section of form 10Q and our 2009 for 10K.

Guidance is based on management's good faith expectations given current market conditions, but any further deterioration of general economic conditions in addition to other factors cited elsewhere, could result in the company not achieving the revenue and diluted net income per share figures provided in our guidance.

Our forward-looking statements speak only as of the date made. We do not undertake and expressly disclaim any obligation to update forward-looking statements to reflect events or circumstances after the dates of these statements, except as required by law. You are cautioned not to place undue reliance on our forward-looking statements.

In addition to GAAP financial measures, we used certain non-GAAP financial measures that exclude charges related to amortization of the acquired intangible assets and the acquisition and other costs related to the recent acquisition of RS and related income tax effects. A discussion of the use of non-GAAP measures and the reconciliation to GAAP amounts is contained in the press release that we issued this afternoon.

I will first give highlights for the third quarter and details on new bookings and our operations. Keith will then discuss the detailed financials for the quarter. I will then provide some further comments on the business and then open the call up to questions.

The third quarter saw the first full quarter impact of our resent acquisition of RS. This has significantly increased our market opportunity and has given us a much broader set of products and services to offer to the clinical trials industry and potentially in the future to the healthcare industry.

Specifically, we now have an industry leading suite of products in respiratory diagnostics for clinical trials that encompass the primary respiratory diseases of COPD, asthma, and cystic fibrosis. We have added significant additional capabilities to our ePRO product and service lines by adding a PDA like device VIAPad as well as a pen based device VIAPen. We have also added a whole dimension to the products and services that we can offer our own proprietary diagnostic devices for clinical trials.

These devices give us an expanded approach to offer and customize product solutions using multiple modalities for the acquisition of important information in clinical trials. We believe this offers us a key strategic competitive advantage in our industry.

Several clients have expressed support for buying multiple services from one vendor especially vendors with a strong reputation for quality and service that ERT and RS have in the marketplace.

Other advantages decided by clients are bringing together the combined medical expertise of two of the leading providers of technology and services used in clinical trials. The increased resources that the combined company can bring, the increased global foot print of a combined company and the advantages of working on a company whose sole current focus is on clinical trials.

The third quarter of 2010 showed the highest quarterly level of revenue ever recorded by ERT, 45.1 million. Revenue in the third quarter increased 55% sequentially and 99% from the year ago.

Almost all of the increased revenue came from RS with only a small increase in revenue from legacy ERT. Legacy ERT revenue was impacted by delays and the start of both routine and Thorough QT trials as well as by seasonality in the third quarter.

These trial delays are consistent with what seems to be experienced reported by several large CROs recently. Although our cardiac safety bookings continue to be strong, the conversion of these bookings and the revenue continues to take longer.

Legacy ERT revenues increased 4% in the third quarter compared to a year ago. This year-over-year increase in legacy ERT revenues was primarily due to a pick up in routine ECG revenues and the strong increase in ePRO revenue albeit it from a low base offset by a decline in revenues from zero QT trials.

Legacy RS recorded 21.5 million in revenues for the third quarter. The RS revenues in the second quarter were 5.7 million while this represented just one month June of revenues.

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