Q3 2020 Medpace Holdings Inc Earnings Call

Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require operator assistance. Please press Star then zero on your Touchtone telephone.

As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference call, Kevin Brady met Paces Executive Director of Finance you may begin.

Good morning, and thank you for joining about paces third quarter 2020 earnings conference call also.

Also 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 our remarks and responses to your questions. During this teleconference. May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These.

These statements involve inherent assumptions with known and unknown risks 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 COVID-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 if estimates change.

Accordingly, you should not rely on any of today's forward looking statements as representing our views as of any date 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. We believe these measures help investors gain a more complete understanding of results era.

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 todays call.

Slides are available in the Investor Relations section of our website at Investor <unk> that pace Dot com.

With that I would now like to turn the call over to August Twond.

Good day.

I would like to provide an update on code work, if you're involved with to alleviate any concern about concentration margin for cancellation risk.

Our backlog is crazy related work, including pass to amounts is less than $45 million at September 30.

Our year to date 66 basis revenue from Cogent related work is less than $10 million as of September 30.

Although pass through bouncer proportionately larger or create awards. This difference is roughly 15% relative to non coogan studies and not the large differential often seen with vaccine studies.

Most of our backlog relates to treatment studies, rather than vaccine studies.

In summary, it has been a slow and painful recovery, but we're now in a sustainable growth path that should accelerate into 2021 independent of Cosan work.

She will now review, our third quarter financial results and forward guidance.

Thank you all based and good morning, everyone.

Net new business awards entering backlog in the third quarter increased 10.5% from the prior year to 315.4 million.

Resulting in a 1.37 net book to Bill.

Ending backlog as of September Thirtyth.

It was 1.4 billion.

An increase of 16.7% from the prior year.

Revenue was 230.4 million in the third quarter of Twentytwenty, which represents year over year increase of 6.5% on a reported basis and 5.8% on a constant currency organic basis.

EBITDA of 51.9 million increased 49.4% compared to 34.8 million in the third quarter of 2019.

On a constant currency basis third quarter, EBITDA increased 49.9% compared to the prior year.

EBITDA margin in the third quarter was 22.5% compared to 16.1% in the prior year period.

The higher margin was primarily attributable to lower reimbursed out of pocket expenses and lower S. DNA cost on higher revenue.

In the third quarter of Twentytwenty GAAP net income was 41.5 million compared to GAAP net income of 24 million in the prior year period.

Net income increase was primarily driven by higher EBITDA and a lower effective tax rate.

GAAP net income per diluted share for the quarter was one dollar a nine cents compared to 63 cents in the prior year period.

Regarding customer concentration our top five and top 10 customers represent roughly 17% and 25% respectively of our total year to date revenue.

In the third quarter, we generated 59.8 million in cash flow from operating activities and our net days sales outstanding increased compared to the second quarter from negative 30.2 days to negative 27.4 days.

During the quarter, we did not repurchase any shares and we had 49.2 million remaining under our share repurchase authorization at the end of the quarter.

Additionally, our board of directors has authorized additional share repurchases, which brings the total current authorization up to 100 million.

We ended the third quarter with 219.2 million of cash.

No outstanding debt.

And $50 million of Undrawn capacity on our revolving line of credit.

Our guidance for Twentytwenty is unchanged from the last quarter.

And we are now in a position to provide initial 2020 one guidance for revenue and EBITDA.

For the full year 2021, we expect revenue in the range of 1.25 billion to 1.125 billion.

<unk> EBITDA to be in the range of 200 million to 220 million.

Additionally, we are expecting a full year 2020, one tax rate between 16 and 20%.

And we plan to provide additional detailed full year 2021 guidance on our fourth quarter earnings call in February.

With that I will turn the call back over to the operator, so we can take your questions.

At this time, if you would like to register a question. Please press Star then the number one on your telephone keypad.

That was star then the number one.

Our first question comes from the line of John Kreger with William Blair.

Hi, Thanks, very much I just can you talk about your ability to to start studies up and get them enrolled or given the pandemic. Your are there any metrics you could share with us versus let's say a year ago.

No I don't really think as metrics to provide you but is that there's still a significant.

Reduction.

In recruitment rates for many studies there is still some times.

Delays and in start up related to.

Great staff and availability and.

Operational difficulties, but I think things have improved considerably we certainly have.

From a total activities standpoint are back to baseline or above you know certainly for startups were above the level we were.

A year ago, a that is a reflection of both some delays and.

You know difficulty of sites as well as gross you know kind of growing around it. So I think the environment is strong but there still is a.

You know some difficulties and recruitment rates, particularly based on therapeutic area or or are impaired you know at that time. It had many sites and of course it changes over time and so I think what we see at the current moment may not be what we see three months from now but I.

I do think that everyone is adapting very well and you know the business environment a strong.

Great. Thank you and then a follow up are you seeing any signs.

Sort of changes in behavior on the part of your clients given that significant funding boost that we've seen over the last couple of quarters or are they trading at more as sort of a not sustainable new trend. Thanks.

Well I guess I'm not sure how much I gotta go into their head to figure that out but.

I do think the environment's very strong or do you think there was up quite a bit of reluctance to move forward, even having the cash and you know authorization program.

Due to due to cope with it I think that is alleviating I think people are saying well you know what kind of into Oh, maybe up.

A headwind in terms of Oh difficulties sites, but things have normalized enough that we can proceed and waiting another six months may not be the most productive use of.

The time and resources.

I think things are moving forward in spite of the difficulties and so I think that's what's really changed is I agree. There's good funding environment. I think there is a lot of programs that I want to go forward. Many of them were being held I think some still are being held but I think more and more people are saying.

Now is the time to move forward.

Weve evaluated the situation. We are we can do this it may take a little bit more resources than it might have a year ago, but.

This is something that should be moved forward.

Thank you very much.

Your next question comes from the line of Sandy Draper with tourists.

Okay.

Oh, Thanks, very much I guess, the first question when I when I look at the reader writer of revenue guidance and even.

The revenue guidance for next year, it seems like you've got factored in there.

Potential for another could slow down when I, just think about the low end of your revenue guidance at 80 would assume a pretty sharp drop just trying to think what what were the key inputs you put into your guidance is assuming that around up the covenant.

Jesse.

Yeah. Thanks, Andy you know as it relates to.

2020.

Yeah, I hit that first and then they move into 21 or the you know that the guidance range that we maintain or or held it does contemplate the continued voluntary oh.

All the two environment. So we did decide to hold hold the range.

You know we are tracking well within the range one potential headwind could be increased cobot related lockdowns on restrictions and site restrictions.

Yeah that would be factored into Oh, a low end of the range scenario and.

A potential tailwind that could be.

In there on on revenue would be faster increase in the investigator site payment activity. You know this would push revenue up in margin percentage down would have little impact on EBITDA and that's the other that the site activity is progressing but you know the trajectory of that is still somewhat.

On certain.

And then as it relates to 2021.

You know we thought it was important to come out with.

With a range I'm here as early as we could given the environment and this does contemplate or our current view of the range of possibilities for 2021, and you know that the kind of some of the similar themes would hold true you know at the at the low end of 2020.

Revenue you know there that could contemplate some turbulence in site access ER and ER and then are you know at the high end of the range that would include things like a continued robust business environment and things continuing to progress positively.

Great. That's really helpful and I guess my follow up again thinking about especially the guidance for 21 in terms of EBITDA. It if I'm doing the math correctly. It looks like it's a relatively low contribution margin. It's about 185 million units of incremental revenue midpoint to midpoint, but only 20000 that EBITDA.

What are the you know when we speak about the modeling or the incremental expenses coming in mostly the cost of goods side. Because this is a lot more pass through revenue or there should we really be thinking about it on s. today, just trying to think where that incremental expenses.

You have essentially implied in the guidance you're going to be coming in.

Yes, primarily cost to goods you know as we've discussed you know here recently on costs. This year have been suppressed both in terms of the pace of the hiring that you know in headcount investments and growth this year as well as a number of.

Areas, where discretionary cost and travel and meeting expense and training and such have been or have been lower in this environment and so as we think about cost investments moving into 2021.

We do plan to hire aggressively and we do anticipate some of the upside of the cost categories that have been a little muted this year two to come back.

Great. Thanks for the comments, Jeff Yeah. Thanks Sandy.

Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Your next question comes from the line of Dave Windley with Jefferies.

Hi, Thanks for taking my question good morning.

I apologize if I missed it but did you comment on.

Or the percentage of your bookings that came from coded projects this quarter.

No we did.

Hey, Dave This August I, we just commented on kind of the cumulative.

Cosy bookings, we've had and.

Again, I I think it's probably you know maybe close that roughly half of that kind of was that last quarter, but down.

We didn't comment specifically on this quarter.

Okay, and then to John's question on Okay.

Clients willingness to move forward your answer if I interpreted your answer correctly was maybe awards that had already been made but clients.

You, maybe not setting a start date or been reluctant to do that if I back up a step into more the RFP pipeline and kind of press on that part of the question in relation to the funding environment are.

Are you still seeing.

Robust would you are you still seeing robust RFP activity and is that maybe even accelerating as as people get more comfortable.

I think we're seeing a very robust.

[noise] RFP environment.

Yes.

I think it's as strong as I as I've seen it.

Okay.

And then it's a similarly slightly different twist on Sandy's question, just see if I look at the progression.

Oh right.

Revenue relative to say backlog in the third quarter ending.

Ending backlog already established and then you know what might likely to be your backlog progression with a strong RFP environment.

It does look like especially the fourth quarter assumes that your burn rate drops back down you know really much closer to the twoq levels in the Threeq you level and and wondering just just kind of wondering the rationale.

There if that's deliberate or was it simply that yeah.

You didn't really want to signal anything by changing guidance, you're keeping guidance. The same in the end the low end of the range kind of or I should say the midpoint of the range kind of just implies that burn rate.

That's right I think that's correct that's more the case, Dave Yeah, I mean, though the range implies a oh revenue burn rate of I think 14.9% to 17.7% and we're tracking we're tracking well within that range favorably.

But but wanted to keep things a static on the guide.

Yeah, and then to the to the question on.

Site accessibility and and the headlines that we're seeing about.

Our regional outbreaks and European regions kind of contemplating.

Maybe not complete shutdowns, but certainly dialing back a the level of kind of a activity in their communities.

Is that are you seeing that effect site operations or are they still able you know are they better able to maintain levels of activity than they were say in the second quarter.

Currently there are up till now they've been maintaining activities pretty well much better than a you know back in March et cetera.

So you see I I think things are a manageable currently you know we'll have to see where things go but.

Are we are actively working throughout Europe and.

In general sites or our cope and you know with you know some some difficulties, but largely we're keeping things running.

Yeah.

Okay and then maybe just the last question quickly on on the cost and Sandy's question on on margin.

Is it possible to put a quantification on.

Either you sounds like head count is perhaps the biggest headwind.

Can you put a number on on say your your growth in head count or or you know growth in cogs or something to that effect that would give us a sense for.

Magnitude.

Jesse you want it yeah, we we plan to grow you know head count as rapidly as we can you know weve weekend and we look at the past couple of years and we've been able to do that it's it's been around the 20% level or so and some work we're hiring as aggressive as we can and we'll see how we can how we can do.

Okay alright, thank you.

And at this time there are no further questions I would like to turn the call back over to Mr., Kevin Brady for any further comments or closing remarks.

Kevin.

Thank you for joining us on todays call and for your interest in that space. We look forward to speaking with you again on our fourth quarter 2020 earnings call. Thanks.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participating you may now disconnect.

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