Wuxi Pharmatech (Cayman) Inc. (WX)

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WuXi PharmaTech (Cayman) (WX)

Q4 2012 Earnings Call

March 08, 2013 8:00 am ET


Ronald Aldridge - Director of Investor Relations

Ge Li - Co-Founder, Chairman, Chief Executive Officer, Member of Strategy Committee and Member of Compensation Committee

Edward Hu - Chief Financial Officer and Chief Operating Officer


David H. Windley - Jefferies & Company, Inc., Research Division

Ingrid Yin - Oppenheimer & Co. Inc., Research Division

John Kreger - William Blair & Company L.L.C., Research Division

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Jack Hu - Deutsche Bank AG, Research Division

Christopher Eoyang - Goldman Sachs Group Inc., Research Division

Bryan Kipp

Isabella Zhao - Morgan Stanley, Research Division



Ladies and gentlemen, thank you for standing by, and welcome to WuXi PharmaTech Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 8th of March 2013.

I would now like to hand the call over to your first speaker for today, Mr. Ron Aldridge. Sir, please go ahead.

Ronald Aldridge

Thank you, Chi, and good morning or good evening to everyone participating in our fourth quarter 2012 earnings conference call. Hosting this conference call is Dr. Ge Li, Chairman and Chief Executive Officer; and joining him is Edward Hu, our Chief Financial Officer.

During today's presentation and question-and-answer session, we will make forward-looking statements. These forward-looking statements represent only our belief regarding future events, any of which, by their nature, are inherently uncertain and partially or completely outside our control. I would also like you to refer to the risk factors inherent in our business that you see here and that have been filed with the SEC and are on our company website under the Investor Relations section. Actual results can be materially different from any forward-looking statements we make today.

Also, in discussing our financials, we will use certain non-GAAP measures, which exclude share-based compensation expenses; amortization and the deferred tax impact of acquired intangible assets; impairment charges for goodwill and intangible assets relating to the Abgent acquisition; and revaluation of contingent consideration relating to Abgent . We believe these non-GAAP operating measures are useful for understanding and assessing underlying business performance and operating trends. Reconciliations of our GAAP to non-GAAP fourth quarter and full year 2012 results of operations are found in today's earnings release, which has been posted to our website and in the appendix to this presentation.

[Operator Instructions] Now it's my pleasure to introduce Dr. Ge Li to review our fourth quarter 2012 performance and to discuss our first quarter and full year 2013 business outlook. Dr. Li?

Ge Li

Thank you, Ron, and good evening or good morning, everyone. Slide 3, please. I'm glad to report that WuXi completed a successful 2012, with a solid fourth quarter. Our company is succeeding on 3 fronts: growing, investing and then returning capital to shareholders. We achieved double-digit revenue growth in the fourth quarter and the full year 2012, and despite continuing margin pressure, we also achieved double-digit EPS growth on both a GAAP and non-GAAP basis for the full year of 2012. We continue to invest to build capabilities and the capacity in order to sustain revenue growth and EPS growth for the long term.

Our dream is to build a comprehensive open-access technology platform of integrated service offerings that will enable anyone and any company to discover and develop medicines more efficiently and cost-effectively. We are making a substantial progress toward achieving this dream. And while we are growing and investing to sustain our growth, we also are returning capital to shareholders through share buyback programs while generating strong free cash flow that allow us to purchase our shares, which we believe are undervalued. We purchased a sizable number of our shares last year, and today, we're announcing another substantial share repurchase program of $100 million over the next 18 to 24 months.

Slide 4, please. This slide shows the result of our 12 years of growth on the investment, WuXi's integrated R&D service platform as it stands today. We have built our R&D service platform for 3 product areas: small molecules, biologics and the medical devices. This service platform is one of the broadest of any CRO and possibly the broadest. The service runs from the earliest discovery work, synthetic chemistry and the monoclonal antibody discovery through our broad program of preclinical service to Phase I through Phase IV clinical trials. I would not take the time to go over every service but you can do so to fully understanding the breadth and the specification of our service offerings and the value of this continuing service to help our customers advance their products as quickly and efficiently as possible. And we'll continue to add capabilities and the capacity to better serve the needs of the world's life science companies.

Slide 5, please. Here you'll see our fourth quarter 2012 financial results. We achieved strong broad-based year-over-year revenue growth of 15.8%, driven by continuous growth in demand for WuXi's comprehensive, integrated service platform. That growth was led by China-based Laboratory Service, which grew 22.2% year-over-year, so virtually, all areas of China Lab Service grew. Growth was particularly strong in drug development service, which are newer and in the early phase of their revenue ramp-up. We were pleased to achieve higher quarterly GAAP and non-GAAP gross margin and operating margin versus the first 3 quarters of 2012. And as we have done for much of the past 4 years, we met or exceeded our financial guidance for the quarter.

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