Q4 2020 Medpace Holdings Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Med pace fourth quarter and full year 2020 earnings conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will be followed at that time.
If anyone should require operator assistance. Please press Star then zero on your Touchtone phone.
As a reminder, this call maybe recorded.
I would now like to introduce the host for today's conference Kevin Brady met Paces Executive Director of Finance you may begin.
Good morning, and thank you for joining med cases fourth quarter 2020 earnings conference call.
Also on the call today is our president and CEO August Troendle and our C. F O N C O of laboratory operations Jesse Geiger.
Four we began I would like to remind you that our remarks and responses to your questions. During this conference teleconference. May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
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 on 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, 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.
The slides are available in the Investor Relations section of our website at Investor that med taste Dot com.
With that I would now like to turn the call over to Jesse Geiger to discuss our financial results in 'twenty 'twenty one guidance.
Thank you, Kevin and good morning, everyone.
Our net new business awards entering backlog in the fourth quarter increased 27, 6% from the prior year to 358.
Point $6 million.
Bolting on a 1.38 net book to Bill.
For the full year 2020, net new business awards were $1 2 billion.
An increase of seven 4%.
And ending backlog as of December 31 was $1 5 billion.
An increase of 21% from the prior year.
Revenue was $259 7 million in the fourth quarter of 2020.
This represents a year over year increase of 13% on a reported basis and.
And 12, 2% on a constant currency organic basis.
Full year 2020 revenue was $925 9 million.
Which represents a seven 5% increase from 2019 or seven 3% on a constant currency organic basis.
EBITDA of $60 2 million increased 46, 3% compared to $41 1 million in the fourth quarter of 2019.
Full year 2020, EBITDA increased 25, 5% to $187 8 million compared to $149 6 million in 2019.
On a constant currency basis fourth quarter, and full year, EBITDA increased 46, 4% and 24, 6% respectively compared to the prior year.
EBITDA margin for the fourth quarter was 23, 2% compared to 17, 9% in the prior year period.
For the full year 2020, EBITDA margin was 23% compared to 17, 4% in 2019.
The higher margin was primarily attributable to lower reimbursed out of pocket expenses and employee related expenses as a percentage of revenue.
In the fourth quarter 2020, net income was $50 9 million compared to net income of $29 8 million in the prior year period.
For the full year 2020, net income was $145 4 million compared to $104 million in 2019.
Net income growth was primarily driven by higher EBITDA as well as lower amortization effective tax rate and interest expense.
Net income per diluted share for the quarter was $1.35 compared to 78 cents in the prior year period.
For the full year 2020, net income per diluted share was $3.84 compared to net income per diluted share of $2 67 in 2019.
Regarding customer concentration our top five and top 10 customers represented roughly 17% and 25% respectively of our 2020 revenue.
In the fourth quarter, we generated $105 5 million in cash flow from operating activities and our net day sales outstanding decreased compared to the third quarter from negative 27.4 days from negative $33 six days.
During the quarter, we repurchased approximately 411000 shares at an average price of $115.42.
For a total of $47 4 million.
And we have $102 6 million remaining under our current share repurchase authorization.
We ended the fourth quarter with $277 8 million of cash.
No outstanding debt.
And $50 million of Undrawn capacity on our revolving line of credit.
Moving now to our guidance for 2021.
We are now forecasting total revenue in the range of 1.075 billion to $1 175 billion for the full year 2021.
Representing growth of 16, 1% to 26, 9% over 2020 total revenue of $925 9 million.
Our 2021 EBITDA is expected in the range of $205 million to $225 million representing growth of nine 2% to 19, 8% compared to EBITDA of $187 8 million in 2020.
We anticipate our 2020 effective tax rate to be in the range of 15% to 16%.
We have assumed $37 8 million fully diluted shares for 2021, and there are no share repurchases in our guidance.
We forecast 2021 net income in the range of $154 5 million to $175 million and earnings per diluted share in the range of $4.08 to $4.50.
With that I will turn the call back over to the operator, so we can take your questions.
Thank you as a reminder, in order to ask an audio question. Please press star followed by the number one on your telephone keypad. Once again that is star one to ask a question.
And your first question is from on line of Dave Windley of Jefferies.
Hi, good morning, Thanks for taking my questions.
Wanted to.
I understand a little bit better your expectations.
Expectations, Jesse around kind of backlog conversion I know on the slide deck, you give the percentage of the or the portion of your backlog that you expect to convert over the next 12 months.
But also looking at your conversion rate as it has recovered from the Covid impact in <unk> of 'twenty.
How are you thinking about backlog conversion and maybe just help us with a little bit with the cadence on.
Of of revenue is as it progresses through 'twenty one.
Just.
Yeah. Thanks, Thanks, Dave.
As it relates to revenue cadence.
We are anticipating.
Our revenue to increase as we move through the year.
So do expect revenue to be a potentially slightly backend weighted second half versus first half of the year.
But as you know quarter to quarter, a number of different things can cause some volatility in the quarter to quarter revenue. So that that's also a factor there on.
The burn rate the it did tick up in the fourth quarter.
The average for 2020 was in the 17, I think 17, 3%.
So what you know how that burn rate continues through the next four quarter you know it really depends on the on the strength of the business environment meant but I think a kind of a 16% to 18% range is a reasonable expectation.
So if am I right to interpret that.
From what you just said that the the burn rate comes down a little bit sequentially in <unk>.
In the first quarter or maybe more than a little bit of 16 is the lower end of your range I mean, that's a couple percentage points lower.
Does it does it drop kind of within that range and in the first quarter or the first half and then and then scale back up over the course of the year is that how you're.
Thinking about that not necessarily I mean, I think it could be it could be up or down on any sequentially any quarter to quarter. As we go through these next couple of quarters and it really depends on the on the.
The size of the August.
The awards, obviously relative to the.
To the revenue sequence, but yeah, I think I would not expect it to it to necessarily stay at or above Q.
Q4 Q4 levels.
Necessarily.
And then a follow up on on the cost side.
On August I hear your voice and I wasn't sure if you're on the call or not but you've talked in the past about.
20% top line growth being.
The upper bound of of a comfort.
Level for med pace.
I'm, obviously not guiding higher than that.
I'm wondering if you know if we if there's anything we should know in there about you know relative pass through versus direct service fee, but I'm thinking more in terms of your your staffing levels and ability to meet that level of growth I noted that your head count growth and in 2020 was about 3% so so slower than your.
Then your revenue growth for 2000 Twenty's zone. So maybe you could talk about where you you currently stand as it relates to the.
On the billable head count to get those projects done.
Yeah, I think hi, Dave.
So I think we're in pretty good shape, we went into <unk>.
2020, with considerable excess amount of staff, because we're expecting growth.
We're actually hoping for growth in above 20% in 2020.
That didn't happen. So we didn't need all that staff and so we in fact, we probably didn't need to hire anybody.
In 2020, we really didnt despite the ramp in.
In revenues later in the year.
So we are we always are hiring ahead.
And I think we know or as you saw on the fourth quarter. We are now starting to add head count, but we were kind of using slack capacity.
Till then.
You're right the revenue growth will be a little bit skewed.
Potentially towards.
Pass throughs as investigator site payments increase ramp a little bit faster than direct costs.
Sure.
During the year. So that is part of it so not all of it is revenue that requires a scaled.
People.
But we will be scaling along with revenue through this year now in anticipated a continued strong growth into the future and remember I did say you know kind of at 20%.
<unk> is.
A good target.
And it's difficult to grow a lot more than that on a on a multiple year basis of course in any given year, we built up quite a bit of slack capacity going into it and it's a matter of.
Keeping up with that over time, so I think we're in good shape now, we'll see how things pan out towards 2022.
But we do anticipate we'll be hiring a pretty much in line with.
Revenue.
At least direct revenue.
On a growth over this year.
Got it thank you.
Thank you. Your next question is from the line of Donald Hooker of Keybanc.
Great Great. Good morning. Good morning, Thank you for taking my questions.
You guys recently.
<unk> announced a collaboration partnership with a I guess the consulting firm called Green leaf health I believe.
A week or two ago, and I, just would love to hear kind of maybe.
On your press release I, just wanted to hear maybe kind of what that our regulatory affairs consulting firm, who med pace that you didn't already have.
And why you chose the partner there instead of build it yourself as traditionally is the med pass met pathway.
Yes.
Hi, it's really a.
A partnership.
Because.
The unique staff that they have their they have on a number of.
Ex FDA relatively recent ex FDA senior individuals that bring a very.
Strong.
Important view into.
Regulations on how they're evolving and I think as we scale our regulatory group.
We have.
I think we're never going to hire.
So it was time to kind of individuals.
I think that.
And they are located in the Washington D C area near that.
We're fda's located.
And so I think they offer unique capabilities that we don't generally we don't we don't do consulting we don't do in a regulatory consulting by itself we do.
<unk>.
Good regulatory individuals' for.
Trial execution and.
Developing protocols et cetera, but generally evolving trends at FDA youre going to want individuals who have recent experience there and real insight and.
That's a opportunity for us too.
Tap in tap into that and.
As I said, we don't generally do.
Consulting per se as a standalone, we don't do so.
So we the partnership as we can bring them clients debt.
Can benefit from their expertise and they can.
Bus B top of our game in terms of.
Knowing expectations an evolving field.
Yes.
Regulatory affairs, so it's I.
I think a really.
Good opportunity for us and a strong partnership and I think we'll have real benefits on both sides.
Sure.
You don't mind, maybe just as a follow up to your comments there you referenced sort of evolving trends in the regulatory area. There are a lot of evolving trends on the regulatory area. Obviously, but are there particular examples are case studies, where does that maybe concretize it a little bit better for us.
Kind of what Theyre going on what Theyre going to give I assume this is going to help you guys grow overtime.
Got it alright.
No it's across a whole spectrum, but I think a kind of a little bit of a focus for us was sort of the changes towards.
Limiting.
Patient access limited patient access and virtualization of trials and.
New technologies.
Their acceptability as endpoints for.
For trials and how that's viewed and so on.
Yeah.
I think it's it's kind of played off of.
Some of the changes that have been.
<unk> accelerated by.
The pandemic and but our evolving trends in the industry. Overall, so that was kind of one of the starting places, but they have expertise across.
Really a breadth of regulatory affairs.
Sure maybe I'll just ask one other follow up and I'll, let other people jump on the I don't think you've commented I, just maybe get some clarity around free cash flow going into next year.
Kind of what what what a good capex and number should be so we can get that kind of on free cash flow.
Thank you Mike mentioned that I know you guys had done some build outs in the headquarters and they're just saying if we can get from some thoughts around working capital on free cash flow on working capital on Capex to get to.
Some directionality around pre cash flow next year would be helpful. Thanks, Jesse yes.
Thanks, John let's.
Lets see so for Capex were anticipating around $44 million.
Capital expenditures in 2021.
And then Dsos have has continued to be favorable.
For us and so from a free cash flow conversion standpoint.
Had we had pretty high.
On a pretty high conversion in the fourth quarter.
162%.
EBITDA.
For the full year it was lower it was 121% as we think about going into 2021.
<unk>.
We certainly like when.
When the environment.
It gives us that kind of cash flow conversion, but as we think about our internal modeling, we we do tend to model something less than.
Less than that but it would not be it would not be out of question to have.
100% or high 90% EBITDA to get to free cash flow conversion.
Well that's great.
Thanks, so much.
Thanks, gentlemen.
Your next question is from the line of Erin Wright with credit Suisse.
Hi, Thanks, I just wanted an update on how underlying fundamentals are trending now whether its RFP flow or site accessibility of study start out things generally normalizing what are you seeing kind of across the market.
As it stands today and kind of what youre anticipating as being.
Potentially normalized hopefully over the course of this year.
Sure.
Hi.
I think from a safety perspective and kind of on.
Operational challenges of the pandemic I don't think anything's changed materially since September.
So I think Q4 and into <unk>.
Into Q1 things are pretty.
Consistent in terms of access or use of.
Remote monitoring and all the tools, we put in place.
Back early on in the pandemic.
Things have not have not opened up.
See even a trend towards improvement in the past four or five months.
So.
I do think that.
Still is ahead of us.
I, certainly think we will get back to.
Somewhat closer to normal and later in the year.
Hopefully by about mid year.
I think some of the tools, we've put in place will.
Potentially continue indefinitely, but I do think we are still faced with the same challenges we had back in September and dealing with them as well as we did I think that.
What has changed is I think more and more.
Companies moving forward.
Despite the challenges and the friction there but.
We've worked effectively around those challenges and I think our programs.
Programs are generally progressing pretty well so I think a lot more clients are moving forward. So as your question you know how is RFP flow and all the rest of it I think that's I think that is.
<unk> is doing well I think.
Again, I don't think there's been changes in the last five months I think it's been strong.
Through the fourth quarter and continuing we continue to see.
Quite a bit of opportunities and programs moving forward.
Okay, Great and then following up on hybrid virtual decentralized trials, how do you think about your competitive positioning there and do you think that you do need to make stepped up investments around that arena at this point I mean, you've clearly adapted well and this sort of environment, but.
I'm curious to know.
How things are shifting in a post COVID-19 world do you need to.
Stepping up investment.
Thanks.
Yeah, I don't think <unk> be material investments from a financial perspective, but I think we always are investing in.
Technologies Wearables technologies for remote.
Data review et cetera.
So kind of hybrid trials, we do and I think we were competitive I think we will continue to invest in the areas that evolves and as as we have in the past.
I think virtual trials and.
Truly site was trials and things like that.
I don't see that as a.
A meaningful part of the marketplace.
And in the foreseeable future for <unk>.
Where we operate.
So I.
We're not really investing significantly.
There.
Okay, great. Thank you.
Once again to ask on audio question. Please press star followed by the number one and your next question is from the line of Sandy Draper of truth to security.
Thanks very much.
I don't think this is a repeat question I got on a little bit light.
So I apologize for that.
Maybe a follow up to that last question.
August about.
We're not really looking at when we get back to whatever the new normal is but whenever that is what do you expect to go back to normal.
To change obviously, you guys on a lot of the industry is adapting pretty darn well, but what do you think I guess, both from the operational side.
Changes and then maybe Jessie from the financial perspective, what changes I mean, maybe one obvious answer as people get back to traveling on planes and so your expenses.
Have a lift but just trying to think about when we do start to see the.
On the everything opening back up what changes that because you've made a lot of adaptations both from an operational and financial perspective. Thanks.
Sure Sandy.
Yeah I think.
We are still seeing.
More virtual access to sites and we would prefer and I think that is most efficient.
The current design trials.
And.
So we are still having limitations on.
Direct site access that does cause some inefficiencies.
Our managing around it but I would not but there is.
Somewhat of a backlog in some cases of.
Review of some things that has to be done on site and.
So I do think that there will be a kind of a burst in.
Travel needs.
Two sites et cetera, I think Thats, one thing I think as we get back to normal there will be more.
General travel on the businesses as you say.
Some of our internal costs.
Collaboration.
Among <unk>.
Groups and teams within the company and also visit to clients I think will happen again I think debt.
I think the pandemic has provided an opportunity to see the the value of.
Collaboration.
Electronically through other means and.
And that's been better integrated into our routine.
Team interaction with clients on I think that will continue so I think the level will not be I don't think that things are going to snap back to the way. They were I think we will continue to work I think a bit more efficiently.
On that side, but certainly.
A number of those costs will come back in.
People will get traveling again.
The big change I see.
And of course look I think with that is going to come better.
Patient access to sites and hopefully in many therapeutic areas and increase in their recruitment rate et cetera, which is also going to drive additional needs to be on site.
Great. Thanks, so much August.
Thank you and that does conclude the Q&A session I will turn the call back over to Kevin Brady for any closing remarks.
Thank you for joining us on today's call on for your interest and we look forward to speaking with you again in the first quarter 2021 earnings call.
And have a good day.
Thank you that does conclude today's conference call you may now disconnect.