PAREXEL International's Management Presents at Citi 2013 Global Healthcare Conference (Transcript)

| About: PAREXEL International (PRXL)

PAREXEL International Corporation (NASDAQ:PRXL)

February 27, 2013 10:20 am ET

Executives

James F. Winschel - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Analysts

Garen Sarafian - Citigroup Inc, Research Division

Garen Sarafian - Citigroup Inc, Research Division

My name is Garen Sarafian. I'm an analyst within Citigroup's Healthcare Technology and Distribution team. Today we welcome PAREXEL. We have Jim Winschel here, the CFO; as well as Jill Baker, Corporate Vice President and Investor Relations.

So this morning we'll have a hybrid approach. I think, Joe will have a few slides just to give you introduction of PAREXEL and then for the majority of the discussion, we'll have Q&A from the audience as well as questions that we've prepared. Jim?

James F. Winschel

Thanks, Garen. Good morning, everyone. And thanks for attending today. Before we dive in, we'd like to share with you our Safe Harbor disclosure language which you see there, read it carefully.

PAREXEL is strongly positioned in a growing vibrant market. We have a well-differentiated set of services that we house in 3 business segments. We seize the opportunity to enhance the outsourcing model by moving into strategic partnerships with many of our clients that are a recognized leader in this area. We have an exciting opportunity in front of us to drive shareholder value as we scale the business and further leverage our global infrastructure to improve margins. Our new business wins have been strong and our backlog positions us well for continued revenue growth and profitability improvement.

Our largest business segment is clinical research services, or CRS, with the core being Phase II -- Phase II 3 clinical trials. However, our services cover the full clinical development spectrum from Early Phase First-in-Man studies through to Phase IV programs.

Over the 30 years that we've been in business, we've proven ourselves in thousands of successfully managed, large global trials that accrued hundreds of thousands of patients virtually across all therapeutic areas and geographies. In fact, we played a role in developing approximately 90% of the top 200 bio-pharmaceutical products on the market today. Our PAREXEL Consulting and Medical Communications business is one of the largest bio-pharmaceutical product development consultancies in the world. It has 3 distinct service lines as shown on this slide.

Our largest service line is regulatory and compliance consulting. In this business area, we help clients with a range of services including overall product development planning, worldwide regulatory strategies and compliance advice. Our commercialization consulting practice provides clients with market access strategies, economic modeling and other value-added services. And lastly, our medical communication service line helps clients with publication strategies, medical writing and event planning such as investigator meetings for the large clinical trials.

In Perceptive Informatics, we've driven strong growth to become one of the world's leading eClinical technology companies. Clinical research is all about capturing and analyzing data, and Perceptive is all about making the collection and analysis of data simpler and more effective, whereby reducing cost and accelerating timelines on clinical trials. We provide software and services to 28 of the top 30 pharmaceutical companies and an increasingly large number of mid- and small-sized companies as well.

We deliver all of our services on a global basis. Outsourcing to a large global CRO makes it possible for biopharma companies to sponsor trials around the world without having to invest in a global clinical infrastructure of its own. Our geographic span covers 74 locations in 51 countries, and our site network enables us to recruit patients and run studies in more than 100 countries. PAREXEL was an early innovator in establishing strategic partnerships. And to date, we publicly announced strategic relationships with Bristol-Myers Squibb, GlaxoSmithKline, Eli Lilly, Merck, Pfizer and UCB. We also have many other strategic deals with large and mid-sized pharma companies that have not been publicly disclosed and other potential relationships that are in the works as well. Our assessment of the marketplace is that roughly half of the partnerships that could be awarded have actually been awarded. So we believe there still remains a lot of opportunity out there.

In late December, we announced the acquisition of Liquent, Inc., which has become part of the Perceptive Informatics segment. Liquent is the leading provider of regulatory information management or RIM solutions and also offers other associated professional services. The addition of Liquent software solutions which have been specifically built for regulatory submissions and product registration management are a strong addition to the technology offerings of Perceptive. Our PCMS business will also benefit from this acquisition by leveraging the significant expertise that Liquent has in the outsourced regulatory information management arena. We anticipate that increasing adoption of Perceptive's technology solutions will be an important growth driver for the company.

I'd like to spend a few minutes at this point to describe how we plan to profitably execute the projects that we have in backlog. This slide lays out our areas of focus, property margin improvement and expansion. And while we don't have time to discuss each one of these, I'd like to highlight 3 areas of opportunity.

The first area is strategic partnerships. In the partnership model, significantly higher level of predictable work is achieved as opposed to other outsourcing models. In addition, operational efficiencies are gained through standardized processes and the use of integrated technology platforms between PAREXEL and the client. This helps to create a much more stable planning and operating environment for our business, especially as these relationships mature.

The second area for margin improvement is reducing the use of contractors in the CRS businesses. Our rapid revenue growth required us to bring in contractors which are more expensive than employees. In reducing the use of contractors and converting them into lower cost FTEs should lead to improved margins especially in CRS.

In Perceptive Informatics, we are also continuing our focus on growth and improved profitability. On the revenue front, we expect our converged e-Clinical solution, MyTrials, to continue to gain traction in the marketplace. On the margin side of the equation, a number of functions that are currently conducted in high-cost countries can be deployed as effectively in lower cost locations. And we intend to increase the portion of our headcount in low-cost countries over the coming years, and this is expected to have the effect of both increasing our price competitiveness and also improving our margins. As I noted, we do have a number of other margin improvement initiatives, and I'd be happy to discuss some of those in the Q&A session.

Our new business wins over the past years have led to record backlog levels. Backlog at the end of fiscal year 2004 was 4.4 -- or 2012 was $4.4 billion, an increase approximately 64% over the past 2 years, and more than 27% year-over-year. Our new business performance is translated into healthy revenue growth as well. Over the 6 fiscal years ending in 2012, service revenue increased at a CAGR of 14.7%. For fiscal year 2013, service revenue is expected to be in the range of $1.695 billion to $1.71 billion, which would represent an increase of approximately 22% year-over-year, taking the midpoint of the range.

For the second quarter of fiscal year 2013, we reported an operating margin of 7.6%, up 5/10 of a percent from 1 year ago. For the full fiscal year, we expect adjusted operating margin to be in the 8% range, which would be a 120-basis-point improvement over fiscal year 2012. We are focusing on several areas to achieve this goal as I just described a moment ago. Longer-term, we continue to work towards an operating margin target range of 12% to 14%. For fiscal year 2013, we expect GAAP EPS to be between $1.39 and $1.47, and adjusted EPS to be between $1.48 and $1.56. On an adjusted basis, this would represent growth of approximately 38% over fiscal year 2012 adjusted EPS.

Summing up, we believe that PAREXEL represents an attractive investment opportunity. Market trends continue to be favorable and PAREXEL has been a winner in the evolving landscape of strategic partnerships. Against this backdrop of growth, our strong global capabilities as well as our clinical IT leadership and deep expertise, differentiate PAREXEL from the competition. We believe our margin expansion initiatives have set the stage for increased EPS growth in fiscal year 2013 and beyond.

And thank you, and I'd like to turn things back over to Garen at this point.

Question-and-Answer Session

Garen Sarafian - Citigroup Inc, Research Division

Thank you, Jim. Maybe we could start with a big picture type of question. We don't always get to hear of the partnerships unannounced. So maybe from an insider's perspective, what are you seeing from big pharma as well as mid-sized pharma as to the willingness to partner more of what they did in house? And if you could just talk about how much more to go? Or is this in the next 12 months deal be as active as -- if you could quantify it anyway?

James F. Winschel

Yes. So there's a number of things that you could say about it. And let me use as an example a strategic partnership where the client was indicating that they would outsource in total about $600 million a year, $300 million to us and $300 million to the other CRO partner. What we're seeing is that, that $300 million estimate that we've gotten from the pharma company has tended to do be higher -- the actual results have tended to be higher than the initial promise of $300 million a year. And so the depth of the partnership has increased from that perspective. And they generally start with the Phase II 3 business and maybe with the consulting group involved. Beyond that, we've seen these partnerships then add Phase I services on the one hand. As we've gone along and the client has gotten more comfortable with the relationship, with Phase IV services and to the extent, that maybe Perceptive is not included initially, to expand into Perceptive's technology and require us, of course, to use that technology. The client uses that technology, in many cases, are reaching out to require the other CRO partner to use our technology. And so there, we've seen the breadth of the partnership relationship expand. And I think that's happened in almost every case as well. In PAREXEL's situation, we did announce 6 of the big partnerships. But we have other partnership arrangements and everything where the clients or the other CRO didn't want to make an announcement, and so we were unable to do that. And then even within our, for example, our Early Phase business, they'd enter into partnerships where the rest of the company is not initially involved but we have, I think, down the line, the opportunity for those partnership arrangements to extend into the other services of the company.

Garen Sarafian - Citigroup Inc, Research Division

So it sounds more of the deeper penetration side, but how about when it comes to new partnerships? Would it be -- there wouldn't be any backlog number, of course, but would it be in the number of meetings you take in, the number of clients that -- your incoming calls? How do you want to measure it?

James F. Winschel

Yes. So as I said in my opening remarks, we think only about half of the overall number of partnerships that could be entered into have actually been entered into. And we are in discussions with a number of companies, some big pharma companies, some midsized companies who are exploring possibility of entering into a partnership relationship with us. And you might be surprised at how long it takes before the final decisions on these things are made, but -- and I don't know at this point whether they'll be announced or not announced, but we're certainly continuing those discussions. And I think we have a very compelling presentation that we do on the advantages of the partnerships and things that turns out to be very attractive to clients.

Garen Sarafian - Citigroup Inc, Research Division

You've been a clear winner in the strategic outsourcing and the partnerships story with big pharma, with Pfizer being one of them. With Pfizer having concluded its 18 months ramp up, what lessons have you learned from that partnership, from such a large client that you can now apply to future partnerships? And the flip side is, how have clients perceive PAREXEL post the large implementation of Pfizer now in its run rate?

James F. Winschel

So all of the partnerships have some different elements to them. And I think, the Pfizer relationship is probably the most unique of the bunch because not only are they awarding us new work to start from scratch, but we also took over a huge number of files that were in midstream, in other words, another provider was providing us services, and we agreed to take over those trials. And this is a -- it's a more complicated proposition. If you think of it kind of Friday, let's say, XYZ, 0 is doing the work for that particular drug, and that particular project and maybe on Monday or Saturday, I guess, if you look at it that way, suddenly, it's our responsibility and we go in and have to do an audit of each of those trials in advance so that we understand exactly what we're taking on. But I think it does actually add a degree of difficulty to the situation. But I think if we had another opportunity with another pharma company that did the same thing, we wouldn't shy away from it at all. But I think both companies, PAREXEL on the one hand, as the CRO, and whoever the client might be, you do go up a learning curve over the course of these things. And you find out that things don't necessarily happen as quickly as everybody talks in the beginning. And these are big decisions for these pharma companies to decide to outsource a large proportion of the work that they're doing. It's fundamental to their futures and their future success. And has a big impact on the employees in that particular company. And so what you -- what I found is that initially, when we got into these things, we were more aggressive thinking that the work was going to come to us more quickly than it eventually did. And in some cases, in other words, we hired resources and then had some delays and things like that. So I think as we get into newer partnerships we've learned that lesson a bit, and being a little bit more careful on emphasizing the need for clearer communication with the client and having them understand yes, there's a big impact in your company, for sure. There's also a big impact on our company, and we both have to take these things into account when we're moving forward.

Garen Sarafian - Citigroup Inc, Research Division

How clients perceive the fact that you as of now Pfizer as a potential partner? Are your win rates going up? Are you able to use the people that you had used on that implementation for other things, how is that impacting?

James F. Winschel

Yes. So we went into the month of January for example with a near record level of pending proposals and this is from both strategic partners and just normal clients. So from that perspective, things seemed to be going very well. We have seen a year ago or so that our win rate with respect to small pharma client had actually come down. And I think part of the reason for that was that the midsized CROs who would largely shut out of the partnership arena, were left to really scrap for these things. And we saw our win rate for those small biopharma clients come down, and we saw the reason that we were not being successful, being pricing. So back about 9 months ago, we started our small -- our biopharma initiative, to focus more intensely on that particular client segment. And we've seen success there. And even now, when those small biopharma clients want to do a global trial, they still need some -- a partner that's got the global capabilities that we have, some of those midsize CROs just don't have that capability or the result of the merger of 3 or 4 different companies and they're still going through a lot of transition activities, are not effectively able to do that. And a lot of these companies did tell us "Dude, we're so glad that you're here, and that you're interested in our work. We thought maybe with Pfizer that we were going to be a secondary thought for you" and I think with the group that we put together to go after this business, we've convinced them that, that's not the case.

Garen Sarafian - Citigroup Inc, Research Division

So what's your -- because of your -- the success of your strategic partnerships, you have a small number of clients that make up a larger portion of revenues. What's your comfort level of that around your current client mix of I think I forget the number, I think it was the top 15 or 20 to make up the 70-some percent of revenues. So what's your comfort level around it? And what's your target and when can you get that?

James F. Winschel

Yes, so our top 20 clients right now represent actually about 80% of our overall business. Now, if you went back and compare that to a year ago, we were down in the 70s. And if you went back before that, it was even a much lower number. So our plan is certainly not to turn down any business from these partners just because they're becoming a greater piece of the pie. But we're projecting this year to have about $1.7 billion in revenue. Our largest client in the December period was 17% of that total. And so we are continuing to work on expanding the number of people that we're doing work for. But not -- I have no plans to turn down any work just because the client is getting to some particular high-level of the overall business. And yes, there's probably some small degree of greater risk there and everything. But even if one of these big strategic partnership clients were to decide to switch and use someone else, you wouldn't see a precipitous drop in our revenue. It wouldn't be taking business back from us, unless it was going well, then yes, there might be a reason for it. But I think what you'd see is we just wouldn't get new awards going forward, either way that that would work. And it is what it is and we have to manage it and take due care and all those types of things and that's what we're doing.

Garen Sarafian - Citigroup Inc, Research Division

Okay, fair enough. And then maybe moving to your CRS segment, drawing down a bit on profitability. How is your labor cost, from utilizing more expensive contractors have been an issue in the past for PAREXEL? So could you maybe just -- I appreciate that slide by the way? I think it's a new one on operating margin improvement, so thank you for that. But could you just elaborate a little bit more on what lessons PAREXEL has learned and what the plan is and what time period that you could -- how quickly can you transfer the contractor awards in-house?

James F. Winschel

Right. So if you go back and look at our fiscal year 2012, for example, we had a net increase in employees or FTEs of over 2,100 employees. And if you think about the fact that, that was a net number, so that there was some resignations or turnover in employment levels, the number of new employees that we actually have in the company was a very large number in the last couple of years. And so the first thing is to get those employees up the learning curve and go through all the training that we're required to provide to them before they get out in the front lines for us. And so that was part of the challenge. But as we were doing the transition studies with Pfizer and all of the other partnerships and all the other work that we had to do, we were unable through our own internal resources to hire sufficient numbers of people. So what we did is go into the contractor market and get those people in with the idea that we would continue to work to hire full-time employees and reduce the number of contractors going forward. Now, in the December quarter, as an example, we had expected to decrease the number of contractors by about 100. And instead, the revenue demands continued up and we actually -- I think we had been projecting revenue in the 400 to 410 range, and we ended up with 422. And so rather than actually be able to reduce the number of contractors, we increased the number of contractors in that quarter. As we've now started off in the March quarter, we have actually been able to reduce the number of contractors and we have a target level that we're trying to get to for the period. So I think there's been a -- I don't have any problem with us having to hire the contractors in the first place. We needed to get the people in to be able to do the work. But over time, we'll be able to then reduce those and see a big savings from that. In addition to the savings that we'll see from just people getting more and more experience in the company.

Garen Sarafian - Citigroup Inc, Research Division

But so far in this calendar year you've been on track to reduce the number of contractors?

James F. Winschel

Right. So back in the September quarter, we actually reduced the number of contractors by 200. But then we increased in the December quarter by 100 then. And now we've been able to decrease again in the March quarter.

Garen Sarafian - Citigroup Inc, Research Division

That's good news. Moving to Phase IIIb and Phase IV. We're hearing more about that in the industry. So maybe if you can just elaborate as to what's the benign [ph] profile looking -- what is it looking like? Are you hearing more from payers as well?

James F. Winschel

Yes. I mean, I don't see much interaction or much in the way of commentary directly towards us from payers. But certainly, this is a very rapidly growing portion of our business as well. And not just doing Phase III b studies but expanding into other observational research studies and the like and I think this is another area where we have global capabilities and we have some great software that supports the work that we do there. It continues to be a nice growth area for us.

Garen Sarafian - Citigroup Inc, Research Division

Moving into your Perceptive Informatics segment. That's the unique differentiator for PAREXEL with about 10% of your revenues. And you're in the midst of revitalizing that business. So you have a new person to get announced. How do you think he'll choose the path of that business? So what are your expectations?

James F. Winschel

Well, I mean, we have a strategic -- 3-year strategic plan in place, to continue to drive up the possibility in that business. And just to refresh people's memories, we have a leading Medical Imaging business there. Our randomization and cross management, our GSM business is the number 1 in its space that we have our clinical trials, management system that's used by 8 of the top 10 pharmaceutical companies in the world. Our electronic data capture tool, DataLabs is number 3 in the market behind Medidata and the Oracle space forward operation. We have e-Clinical Suite where we converge these offerings into 1 single sign-on and everything. So all of that is good demand there and we continue to have success. If we struggled at all, for example, in the RTSM business, we haven't always had the capacity in-house to take on. We have had to turn down some work there or didn't win the work because we couldn't meet the timelines and I think we'll have that issue fixed fairly shortly. In addition to that, we've moved a lot of the workforce into low cost countries, India being one example. On the other hand, we used to do our -- the reads. We have engaged people to read the images from the studies that we're working on, so this would be radiologists who were reading studies. And we used to do that strictly as a pass-through, but we realized that we could do a lot of these reads in-house and get a margin. That's not the same margin that you might selling some software or even doing a normal RTSM deal, but in terms of dollars of margin, it does increase the numbers nicely. But in terms of the percentage margin, it's not as attractive. So I think the good news about Xavier Flinois as the new head of the business, is that he's a very experienced guy in his own right. Steve Kent, who he's replacing, is leaving the company for personal reasons, is going to hang in there for a number of months here to make sure there's a very smooth transition. And so at this stage, I'm not expecting some dramatic change in the approach that we might take. But the plan is clear that we need to continue to improve the profitability in that business and we think we'll get to at least the 10% operating margin in the not-too-distant future and then see where we are from there.

Garen Sarafian - Citigroup Inc, Research Division

Great. And just to clarify, the 10% operating margin, would that be perhaps in this calendar year versus fiscal or?

James F. Winschel

I'd say more or less fiscal year '14, type of range.

Garen Sarafian - Citigroup Inc, Research Division

Okay, great. Moving onto competition, 2 questions blended into 1 which is in the CRO space, you have had 1 competitor about a year ago, go probably -- 1.5 year I think right now go private, and how has that impacted the level of competition? And with one of your major private competitors filing an S1, how do you think that, that will impact the landscape in the upcoming months?

James F. Winschel

Okay, so with the company that went private, I would say I didn't notice much of a change at all. So I guess, that's nothing more to say there. We didn't see much of a change other than you lose the visibility as to exactly what they're doing. Of course, we can see them on a regular basis. So we see them in a market place, but exactly how successful they are and those kind of things. Because they're not having to report their numbers on a quarterly basis, you lose that visibility. So I don't like that element of it. And on the other hand, with the company that is -- appears to be coming public, what I like about it is now getting the visibility. I think they went private back in early 2000s and we know that they're still very successful company and everything, but they're not required to report quarterly results, and so therefore, you don't exactly know how well they're doing and those kinds of things. So I didn't like that. They did get, I would say, in calendar year 2012, more recent times, they did get more aggressive in the marketplace. And I think they're trying to position themselves well for when they did eventually come public or assuming that that is exactly what's going to happen and there is enough one out there now, I guess.

Garen Sarafian - Citigroup Inc, Research Division

And has that continued on through year to date '13 or has that updated?

James F. Winschel

I don't know that it's changed all that much. I don't have any current information, so my information would be like 2012.

Garen Sarafian - Citigroup Inc, Research Division

Got it. And does that also offer you an opportunity to people they do go, should they go that way, when a private competitor goes public, that there's some sales that you have whether it be management distraction, whether it be, I guess in this case, it wouldn't be maintaining margin perhaps, but any opportunities that gives PAREXEL opportunity to get in business?

James F. Winschel

Maybe, I'd like that, but I don't have any information that has happened at this point.

Garen Sarafian - Citigroup Inc, Research Division

At this point, are there any, I have more questions, of course, but maybe we can go to the audience if the audience has any questions that they'd like to ask. Just raise your hand? Super. I will just proceed. Moving on to capital deployment and M&A. I guess, first, with your most recent acquisition, Liquent, how is that proceeding? Is it going to plan? Was it better, was it worse?

James F. Winschel

Well, we did a lot of work with Liquent previously. And sort of just they had the software, we had a lot of expertise and we worked with them frequently on bids some, and won a fair amount of work, working side by side with them but with respect to the software that they have itself, we didn't have that capability. So from that perspective, this is a great acquisition and this software is in great demand from the pharma companies. It's very, very helpful for them. One of my guys have actually got responsibility for all of the integration efforts and it seems like culturally the 2 companies have a really good fit. And we expect -- what they like about the combination is that we will give them broader access to the market. And what we like about the acquisition is it's providing something that our clients need and it's something that's actually even helpful to our consulting business as well to have that software in-house.

Garen Sarafian - Citigroup Inc, Research Division

And on share buyback, can you just remind us where you are in the process?

James F. Winschel

Right. Last September, we announced 2 programs. The first was accelerated share repurchase where the broker that we are working with went out and borrowed the shares in the marketplace, sold them for us. We paid $50 million initially, got about 1.3 million shares. The program designed to last somewhere between 4 and 6 months scheduled to end sometime in March. And at the time of the termination of the program, we'll have another final settlement and expect to get somewhere in the neighborhood of another 300,000 shares from them. So largely speaking from our perspective, this program's done. We're just waiting to get the final 300,000 or so shares. But at that same time, we announced an open market purchase program as well, also in the amount of $50 million, and that program was completed in December. And I believe, over the course of the 3 or 4 months that the program was active that we got in about another 1.6 million, a little over 1.6 million in shares as well. And so when we're all done here, there should be a reduction of somewhere between 3.2 million and 3.3 million shares.

Garen Sarafian - Citigroup Inc, Research Division

And how about the $100 million in authorized amount that has not been allocated yet?

James F. Winschel

Right. So what Garen is referring to is the fact that last August, the Board of Directors authorized us to buy back in cold, 200 million shares. So we're in the process of working on the next stage of this program. And up through the end of January, we were unable to do anything because we're in blackout so you can't start a new open market purchase program and we weren't finish with the existing ASR. But I think what people could expect is that we will be coming out with more news on this relatively near term.

Garen Sarafian - Citigroup Inc, Research Division

And then just maybe more broadly, what are your thoughts on your capital deployment strategies? Would your interest in acquisitions optimize that levels and the like?

James F. Winschel

Yes. So you'd be probably surprised to learn that we look at somewhere around 15 to 20 potential acquisitions every month. And my M&A team is based in part in U.K. and in part here in the U.S., but since August 2008 when we acquired ClinPhone, we actually only did 1 acquisition Liquent which we did in late December. And we're continuing to work and sometimes we see companies that we're very attracted to but the price is just out of this world type thing and so we don't go forward. But I wouldn't be surprised to see acquisitions in either more in the technology area or in the consulting area. I don't think we need to -- we're covering all the therapeutic areas that we want to cover. We're in all the geographies that we think we need to be, although there's some small expansion in maybe in the Middle East and places like Turkey. So I wouldn't think in the II, III Phase business that we would end up doing anything new there or in the early stage of business. We'd be surprised if we would have taken any action there. So as I said, we continue to look at that acquisition possibility.

Garen Sarafian - Citigroup Inc, Research Division

So then it would mean it would be in the Perceptive segment as well as...

James F. Winschel

Either Perceptive or PCMS, one of those two. Now, with respect to cash, our capital structure and all that, we have a situation in PAREXEL that's very common I think in companies these days, which is that a large amount of our cash is outside of the U.S. And if we wanted to bring it all in right now, we would be required to pay some substantial additional taxes and so we're not interested in doing that, and all of our debt meanwhile is pretty much in U.S. And we can't use cash from outside the U.S., for example, to fuel the stock buyback program. I've heard President Obama talk about a 25% corporate tax rate, I've heard the Republicans talk about a 25% corporate tax rate. But it doesn't seem like anybody can come to -- other than maybe that broad agreement, they don't seem to be able to -- because that would be one thing that would solve part of the issue for us in terms of repatriating the cash. There's a bill in front of the Congress right now to have some kind of special deal in repatriation. But that hasn't really gone anywhere either. We think that we don't want a debt to EBITDA ratio that's maximum is in the 2x to 2.5x range. And preferably closer to 2x. But the profitability has been growing nicely so there's still a fair amount of debt capacity out there that we have. We certainly want to be efficient as we can with our capital structure and make sure that we're doing the right thing, making the right investments and part of that is of course, the buyback program as well, and returning some money to the shareholders.

Garen Sarafian - Citigroup Inc, Research Division

Got it. Great. Well we've run out of time, so thank you so much, Jim.

James F. Winschel

Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!