Q2 2020 Medpace Holdings Inc Earnings Call
Ladies and gentlemen, and welcome to the Medsafe second quarter earnings Conference call.
This time, all participants are in the listen only mode.
Ladies or we won't be dossier question answer session.
And instructions will follow what Todd.
If anyone should require operator assistance. Please press star then zero on her touched on the telephone.
As a reminder, that's called maybe a recorded.
I wouldn't know likes to introduce your host for todays conference call, Kevin Baby Nice things Executive Director of Finance you may begin.
Good morning, and thank you for joining met pace of second quarter 2020, <unk> earnings Conference call.
So on the call today is our president and CEO August Trundle, and our CFO and COO of laboratory operations Jesse Geiger.
Before we begin I would like to remind you that a remarks in responses to your questions. During this teleconference may include forward looking statements within the meaning of the private Security Litigation Reform Act of 1995.
Statements involve inherent assumptions with known and unknown risk and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations.
These factors, including the ongoing impact of carbon 19 on our business are discussed in our form 10-K, and other filings with the FCC.
Please note that we assume no obligation to update forward looking statements even its estimates change accordingly, you should not rely on any of today's forward looking statements as representing our views as of any day after today.
During this call we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.
A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call.
Slides are available in the Investor Relations section of our web site at Investor documentation Dot com.
With that I would now like to turn the call over to August Trundled.
Good day.
I have a few comments to put her financial numbers in context.
Q2 revenue was reduced by 15% to 20% below plan as result of the pandemic disruptions.
We believe future quarters, we'll see a lesser impact and expect to get back on a more normalized growth path in 2021.
Compared to pre March 11 run rates.
Lab sample volumes continued to be depressed approximately 20%.
Sure nickel monitoring visitor, improving but remain about 20% about 30% low levels prior to March.
For second half margin is projected to be significantly above that the recent past driven to a large extent find anticipated reduction in the expected rates of growth below original plan.
Heavy investment hiring and training CAD.
In advance and to permit rapid organic growth has compressed our margins significantly over the past few years.
Chose cruise costs will be significantly reduced in the second half twentytwenty.
Starting in Q4, this year and continuing into 2021 do you expect ramp up hiring activity, which should bring 2021 margin back down as revenue accelerates.
Although Q2 net new business awards recognized as backlog were down 9% compared to Q2 2019.
This is a misleading measure of demand in the current environment.
Many trials Reinhold awaiting more stable health care environment prior to moving forward.
Unlike or peers, we do not recognize an award even went under contract until the study starts recruiting patients.
The demand environment is stronger than implied or reported new business Awards.
Covert 19 studies represented 11% of New business Awards in Q2, and 22% of total award notifications.
Majority these wars represent treatment studies.
Jesse now with you or second quarter financial results.
Thank you all this and good morning, everyone.
Net new business awards entering backlog in the second quarter decreased 9% from the prior year to 254.1 million.
Resulting in a 1.24 net book to Bill.
Ending backlog as of June Thirtyth was 1.3 billion.
Increase of 14.6% from the prior year.
Revenue of 205 million in the second quarter of Twentytwenty.
Represents.
A year over year decrease of 4.3% on a reported basis and 4.1% on a constant currency organic basis.
EBITDA of 35 million decreased 12.9% compared to 40.2 million in the second quarter of 29 team.
On a constant currency basis second quarter, EBITDA decreased 15% compared to the prior year.
EBITDA margin for the second quarter was 17.1%.
Appeared to 18.8% in the prior year period.
The decrease was primarily attributable to higher employee related cost including severance.
Partially offset by lower reimbursed out of pocket expenses on lower revenue.
And the second quarter of 2020, GAAP net income was 24.1 million.
Compared to GAAP net income of 27.5 million in the prior year period.
Net income decline was primarily driven by lower revenue and higher employee related costs, including severance.
Partially offset by lower reimbursed out of pocket expenses and interest expense.
GAAP net income per diluted share for the quarter was 64 cents compared to 73 cents in the prior year period.
Regarding customer concentration north top five and top 10 customers represent roughly 18% and 27% respectively of our total revenue for the first half of the year.
In the second quarter, we generated 44.3 million and cash flow from operating activities.
And our net days sales outstanding decreased compared to the first quarter from negative 21 days.
The negative 30.2 days.
During the quarter, we repurchased approximately 110000 shares at an average price of $68.65.
For a total of 7.6 million.
We have 49.2 million remaining under our current share repurchase authorization.
We ended the second quarter with 160.9 million of cash.
No outstanding debt.
And 15 million of Undrawn capacity on our revolving line of credit.
Moving now to our updated guidance for 2020.
We now forecast total revenue in the range of 880 to 920 million for the full year Twentytwenty.
Representing growth of 2.2% to 6.9% over 2019 total revenue of 861 million.
Our Twentytwenty EBITDA is expected in the range of 180 to 190 million.
Representing growth of 20.3% 27 per cent compared to EBITDA of 149.6 million in 29 team.
We anticipate our 2020 effective tax rate to now be in the range of 15% to 16%.
We have assumes 37.6 million fully diluted shares for 2020.
And there are no additional stock repurchases in our guidance.
We forecast 2020, GAAP net income in the range of 136 to 144 million and GAAP earnings per diluted share in the range of $3.62 to $3.83.
With that I will turn the call back over to the operator, So we can take your question.
Ladies.
Have question at this time, please press the Star and then the number one key on their touchstone telephone.
Yeah Fair question it sounds to be answered all your restoring move yourself from the Q. Please press the pound key.
Your first question comes from the line of Dave Windley from Jefferies. Your line is now open.
Hi, Good morning, Thanks for taking my question or questions. The I guess, the the push I wanted to get that that August she touched on is around the second half implied margin.
Could you, perhaps give us a a few different perspectives on that one the drop that we saw in in one Q2 Q1 on pass through costs is that.
Reflective of what we should expect in second half and then maybe more strategically in terms of shutting off hiring in the short term.
I guess can you just give us a little bit more color on on the magnitude of that and what will be the triggers for you to turn that back on.
Sure.
Okay.
Certainly the first part of your question about a margin I'm sure pass through like I've figured the <unk>, yeah reduction in pass throughs, having an impact here, yes, I'm, sorry that pass through should accelerate in the second half also so that would have a little bit of a negative effect on our margin.
In that yeah without pass throughs, obviously margins much higher closely what kind of six so five basis, you know reporting so that that that should should be at all or a little bit above a drag on margin itself, but a push on on revenue getting us back up because pass through should come back.
To some extent, but still it meaningfully below prior years and a you know first quarter. So that that will still have Ah Ah Hey, and effect and then in terms of hiring you know whiskey, you know gating or hiring.
Really just our projections on when things are going to move forward, we have a lot of Oh sorry.
Business that is kind of on hold and ER here waiting for the right time to move forward and I think it will begin to move forward ER and the exact timing of that's going to determine when you start pushing harder on hiring but oh, we have adequate you know buffer okay for so.
I ask currently for that you know for trials, we anticipate moving forward and we're just playing it cautiously, but oh, we will begin hiring certainly in the second half year.
Okay, maybe the <unk>.
Triangulate on this and put a finer point if I were to think about roughly no taking since you do report reimbursed to other pockets.
If I were to think about using that to kinda back into a rough six so five number are we talking about.
Kind of a thirtyish percent EBITDA margin in the second half if I think about that on a six so five and you know again I'm trying to get a sense for the magnitude of the reimbursed.
Yeah, I can't think of another six if I I would just saying you pull out you strip battled pass throughs and yet do you get get close to close to their old though yeah. There are lot of Ah that's effects Uh huh.
That are kind of an anticipated it's not so it's not so easy Jesse do yeah, Yeah, Yeah. Let me see it's kind of margin is stripping that out yeah. Let me jump in on this one so today pass through cost you know August mentioned.
Well accelerate but but still be depressed, we had weed out of pocket costs as a percent of revenue around 30% in the second quarter anticipate that to go up a little bit but not much. So I think 30, 31%.
Might be a good assumption for out of pocket cost.
We have an EBITDA margin for though for the full year and our at the midpoint of our guidance of around 20.6% and then filling in somebody other holes. There now SGN a you know in the first half was about 10.6% or you know expect you know that to be flat to maybe a little bit down in the second half so call. It.
10% for the full year.
And then and then the balance would be.
Direct cost of around for the year on the guide they'd point, probably 39% or so if if that all add up.
That helps a lot I'll hand, it off thanks very much for the color there yeah. Thanks, Dave.
Your next question comes from the line after John Kreger from William Blair.
I will open.
Thanks, very much I guess, you mentioned demand trends were better than what you're a new business trends or a would imply could you just give us a little bit more about that what what sort of proposal volumes, where are you seeing either on a unit or dollar basis in the quarter.
Again, I I don't go off of just.
Dollar number for RFP flow it was.
Relatively consistent but I think they are more important thing is ah things that.
Sponsors have lined up and committed to go forward that's not a number we report I didn't report.
Yes, the discrepancy between kind of New awards.
Income from coded studies.
Being twice what actually wound up.
Getting into backlog because they had not started yet and that's just a matter of timing coach studies were actually moving along rather rapidly. So the lag there is much less but like in general we don't break out kind of the new authorizations as opposed to our backlog awards, but.
It certainly in this environment, there's much more that has held up of the new non coupon studies, particularly moving forward at this at this time.
Great. Thanks, and and that was my second question. If you just think about some of the operational constraints that you're having to get these studies up and running can you just expand on that it and from your view are you thinking about sort of a gradual return towards normalcy in the third quarter or are you thinking that the sort of.
On hold node is going to persist for a while as we watch infections go up across the country.
Yeah. So operational issues is largely not a major factor right now I mean, certainly there could be specific centers et cetera that are impacted but by and large that's not the issue. It's one of.
How rapidly recruitment is going to happen and Ah you know that took the risks of bad.
Being impacted that clients are kind of so a little one on edge weakness.
I'm certain about but so I I don't think it's really just an operational you know couldn't get that study started right now, but so I bet. If I guess the the ultimate a issue is recruitment insights and availability and.
To patients.
We are seeing positive trends you know do I I do believe that but many of these studies will move forward. This year, a you know there.
Clients are committed to moving the project forward Yeah. The kind of you know holding pattern right now, but I do think that most will move forward and it later in the here.
Okay. Thank you and then one last one I ER in terms of Youre hiring plans I think you were up about 5%.
And the end of the second quarter should we assume more of a flattish number in terms of us staff in the second half.
No we do anticipate a expanding staff in the second half.
And I said, it was sort of accelerate into the third quarter into fourth quarter and then into next year. Okay. Great. Thank your hiring or even high right now and we're just not.
Not as rapidly as we intend to later.
Excellent. Thank you.
I've got ladies and gentleman. If you have question at this time. Please press Star then the number one key on your talks don't tell us though.
Your next question comes from the line of Sandy Draper from Suntrust. Your line is now open.
Thanks, very much maybe first just a couple of quick housekeeping ones. Jesse I think you made your maybe August you mentioned there was severance in the quarter can you just breakout how much the severance charge was.
Yeah. Thanks, Sandy that was 2.3 million in Q2.
Okay, Great and then.
Just as I as I look at the expenses, just you know, especially if it's not factor in that 2.3 million plus I believe I think you brought on the expenses in this facility then the new headquarters or does that start next quarter I'm, just trying to think of what sort of a normalized you gave us some color about I'm just trying to try.
Thank you like how much cost went down a you know what's hot strip out severance, but then add back in some cost level for the new headquarters I'm, just trying to understand sort of all the puts and takes that are that are there are allowing the s. Yoo naylon to stay so low.
Yes, I do the building we did incur some additional rent cost on the new building in the.
In the.
Second quarter, it'll be about a 2 million dollar quarterly clip in each of Q3 in Q4, but in Q2. It was like 1.3 million because we were we were coming in.
Mid quarter.
Okay, Great. That's really helpful. And then maybe the last question for for August.
In General you you guys talk about that you operate at a different part of the market than a lot of the other publicly traded CR rose, but I'm just curious in in a in this environment, where there's a lot of business, but a lot of concerns are you finding customers reacting more positively to you guys.
Because you have they focus on the small players and you know they're gonna be important to you or is it basically the customers is lucky for anybody who will could do their work and so it is there any change in the competitive environment or at least how customers are reacting to your model versus say the larger publicly traded peers.
Thanks.
Yeah I don't think this environment has led to any differences in the dynamic a you know we do think we have a strong.
Position in the market, but I don't think that is changed relative to this environment.
Great I appreciate those are my questions.
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Your next question comes from the line of Dave with Lee from Jefferies. Your line is now open.
It's accuse short I'll jump back in.
You mentioned August the <unk> the comments around hiring and that you would expect those to then has.
Impact on on margin next year, how do you think yes, I'm thinking about kind of the totality of your public experience your.
Your margins have been perhaps one of the <unk> one of the less predictable.
Lines for Us how do you think about sustainability, you're going to have a 500 basis point 400 basis point Delta between the first half and the second half.
At least is the is the right number somewhere in between <unk> <unk>, what should we think about for sustainable EBITDA margin.
Yeah.
Okay, you sustainably to EBITDA margins can depend upon how rapidly we're growing I mean look you have other other it appears talk about holding staffs and hiring aggressively in advance of a you know all this business development they sign grown it at 6% a year organically and and.
You know, saying that it's significantly affecting their margin.
Growing at 20 plus percent organically has a tremendous affect our March and you know I don't know how large that is gonna be but you know this year. There is a you there's a number of effects I mean.
George and you've got to reduce a pass through costs that does tend to you know propped up.
Our margin a you know a bit.
I think he hit it is hard to you know sort out all of the you know again, there's a lot of discretionary cost it's kind of you know internal travel.
There isn't pass through that's a business travel in of course, that's kind of current environment, because we aren't in light of business travel. So there are some savings on.
A number of our lines that normally would be there.
And so you know there's there's a push to our margin for several reasons I'm a big one is that growth rate and hiring ahead. It's not you know just hiring the bodies and having excess staff, which you do need you need a much larger.
Bench, when you're when you're growing very fast.
But if you have a lot of more junior staff that is.
Not productive you know there in training and you're carrying a lot of people that oh. It isn't just slack capacity they may not be capacity at all because people in in the in the process of being trained to to be able to enter projects when they get adequate experience.
So I don't have a good feel for that but it is up a rather sizable portion of our differential this year and is in general several points I think of of margin when when we're growing very rapidly growing organically at 20% year is very.
<unk> expenses, Oh, yes in our.
In terms of driving a lot of resource clustered around training and orientation.
Got it and then in terms of backlog policy, we talked about that a fair amount knows it years is very conservative.
You alluded to.
Other Covidien trial difference in if our understanding is correct that the industry has had.
A number of trials and maybe these are our bigger pharma companies that did this more often and so not a particular impact on you but.
But kinda pause tap the brakes on studies that were in flight and I'm wondering.
How if that if that did impact you. If you had studies that had started such that they would have under your policy been included in backlog and then the client is pausing that.
Would you cancel those out how do you handle that.
Yeah, no once it back once its backlog, we do not generally take it out unless there is a true cancellation or if there's a pause in the study it might slow burn down and it might even you could make push out some of the duration that's beyond our normal backlog gating Uh huh.
You know factors, but we would not generally pull that out of backlog just because they have but yes. We did have a number studies that were caused I suspect. It was less than was large pharma because I did hear from you know we did here a number of large pharma companies, saying are pausing abroad part of their portfolio. It at one time and it was.
Sorry, it was a relatively small number of studies, we had that were up in running recruiting and were put on hold for recruitment, but there were few and I think we gave in our car slides previously.
Breakout of different studies in different phases, including those that were ongoing but it you know not recruitment you know a significant up materially affected a et cetera, and some of those studies were put on hold for recruitment for a period of time.
And then last question for me is.
At our conference about six or seven weeks ago.
You talked about having seen covert related cancellations in the first quarter and ends and more sense and I think you said on a couple since the first quarter.
I.
Wouldn't I mean, you report net bookings so it's I'm not able to really see the gross and cancels there, but it wouldn't appear that either those cancellations were very big or.
Or they were more than overwhelmed by the demand coming in maybe you could talk about.
You know the stability as backlog or the kind of the internal churn in the backlog related to.
Oh studies kind of a related question last one I guess.
Yes. It kept cancellations were up up some we did have some cooked related cancellations Ah I did call out that works into this quarter ended this past quarter second quarter there.
In the last month or so there hasnt hasn't been any additional ones additional ones I think related to coated so I think that's kind of done they.
Papered off that we did it wasn't effect it was a little bit more than usual, but nothing to call out. So we didn't we can discuss.
Okay understood. Thank you very much.
I am showing no further questions at this time I wouldn't know lying to turn the conference back them Starbreeze.
Thank you for joining us on todays call and for your continued interest in that pace. We look forward to speaking with you again on our third quarter 2020 earnings call.
Thanks, and have a great day.
This concludes todays conference call. Thank you and have a great day.
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