Q1 2021 Medpace Holdings Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Med piece first quarter 2021 earnings conference call at the.
This time all participants are in a listen only mode. 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 of death call maybe recorded I would now like to M.
Each of these your host for today's conference call, Kevin Brady Med pays executive director of Finance you may begin.
Good morning, and thank you for joining med paces first quarter 'twenty to 'twenty two 2021 earnings conference call also on the call today is our president and CEO August Troendle, and our CFO and C. O O of laboratory operations Jesse Geiger before we began I would like to remind you that our remarks and responses.
Chances to your questions. During this teleconference may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to the 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 SEC.
Please note that we assume no obligation to update forward looking statements, even if estimates change of.
Accordingly, you should not rely on any of the 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 for a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.
The reconciliation of such non-GAAP financial measures for 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.
The slides are available in our Investor Relations section of our website at Investor Dot net tastes dot com.
With that I would now like to turn the call over to Jesse Geiger to discuss our financial results and guidance.
Thank you Kevin and good.
Morning, everyone.
Net new business awards entering backlog in the first quarter increased 44, 2% from the prior year to $356 2 million.
Resulting in a 1.37 net book to Bill.
Ending backlog as of March 31 was $1 6 billion in.
An increase of 26, 1% from the prior year.
Revenue was $260 million in the first quarter of 2021.
Which represents a year over year increase of 12, 6% on a reported basis and 11, 6% on a constant currency organic basis.
EBITDA of $53 6 million increased 32, 1% compared to $40 6 million in the first quarter of 2020.
On a constant currency basis first quarter, EBITDA increased 34, 1% compared to the prior year.
EBIT margin for the first quarter was 26% compared to 17, 6% in the prior year period.
The higher margin was primarily attributable to lower reimbursed out of pocket expenses as a percentage of revenue.
In the first quarter of 2021 net income was $43 3 million compared to net income of $29 million in the prior year period.
Net income growth was primarily driven by higher EBITDA as well as a lower effective tax rate.
Net income per diluted share for the quarter was $1.14 compared to 76 cents in the prior year period.
Regarding customer concentration our top five and top 10 customers represent roughly 16% and 24% respectively of our first quarter revenue.
In the first quarter, we generated $57 3 million in cash flow from operating activities and our net day sales outstanding decreased compared to the fourth quarter from negative 33, six days to negative 48 days.
We ended the first quarter with $332 $9 million of cash.
No outstanding debt.
$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 1.09 billion to 1.15 billion for the full year 2021.
Representing growth of 17, 7% to 24, 2% over 2020 total revenue of $925 9 million.
This reflects our current view of a slightly slower return of reimbursed out of pocket costs and the associated revenue related to investigator site payments.
Our 2021 EBITDA is expected in the range of $205 million to $215 million.
Representing growth of nine 2% to 14, 5% compared to EBITDA of $187 8 million in 2020.
This updated EBITDA guidance reflects increased cost expectations.
Related to our strong hiring in the first quarter and anticipated continued robust head count growth.
We anticipate our 2021 effective tax rate to be in the range of 12% to 13%.
We have assumed 37 9 million fully diluted shares for 2021, and there are no share repurchases in our guidance.
We forecast 2021 net income in the range of $160 6 million to $167 6 million and earnings per diluted share in the range of $4.24 to $4 42.
With the increased expectations for net income and earnings per diluted share driven by the anticipated lower tax rate.
With that I will turn the call back over to the operator, so we can take your questions.
Operator.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Sandy Draper with surety of Securities. Your line is open.
Good morning.
And just wanted to the first question Jess.
Yes, yes, I think I heard you right just confirm it sounds like the the trending off of the top end.
Of guidance is pretty much solely due to lower pass through revenue youre not looking at the lower expectation for service revenue is that correct.
That's the largest driver Sandy we're just seeing a slightly slower return of of the burn rate and it's particularly new.
Influenced by the by the pass through costs in particular site payment activity.
Okay.
Net somewhat go ahead August sorry.
I just wanted to understand obviously that reflects a little bit slow down in <unk>.
Our expected overall activity of sites that does slow things overall a bit.
It is disproportionately.
Yes, throughs, but it also slows service revenue to the extent.
Got it.
<unk> indicated that youre seeing a slowdown of rfps or proposal or broad demand. It's just more of a near term dynamic related to.
Getting sites back and running in the we're still sort of obviously coming out of the backend thats still in a pandemic.
Correct, that's right yes.
Okay.
Good business environment, we're still seeing good good RFP flow.
Good good funding dynamics in biotech those fundamentals are still intact.
Okay, Great and then my follow up unrelated follow up and I'll ask you about this a lot but just in terms of the hiring obviously you said you did a good job hiring you've got the aggressive plans is it still the same strategy have you changed anything to try to accelerate that and then it looks like the success is happening but just.
The thoughts on.
Your go to market strategy for hiring people is it still pretty much the same approach.
That's correct.
I think we got any real change in hiring we will be hiring throughout the year, we think.
Great News for my two questions. Thanks, so much.
Your next question comes from the line of John Kreger with William Blair.
Your line is open hi.
Hi, Thanks, very much just to follow up on that if you think about your revenue guidance for the full year, what sort of hiring.
Our staff increase would you expect by year end.
We don't really try.
Tried to project debt out but.
I think.
I think we're going to continue to get to higher relatively rapidly through the year I don't think it'll be good match. The first quarter's hiring rate, but we will continue to hire pretty strongly okay. So sort of catching up to revenue growth, but maybe maybe maybe not quite getting there.
Okay.
As possible.
Okay. Thanks, and then August maybe just to follow up on your comments to Sandy's question can you just talk a little bit more about what caused the backlog conversion to revenue in the first quarter to come down a little bit M D.
I know there is just general variability on that metrics, but would you expect it to trend back up as we move through the rest of the year.
Yes, I do.
I think it's going to go down but I E.
It's hard to predict and you're right. There's a lot of volatility there, but I think fundamentally there has been.
Greater.
Delay related to COVID-19 and we would have had a couple of studies that.
Were held up in the first quarter for other reasons for actually drug availability reasons, but.
The.
The biggest thing I think is just a.
The little bit of headwind from COVID-19 activity at sites et cetera.
There was a little bit more than we had anticipated at this point, we kind of hopes of things, we're going to lift and.
The things, we're really going to run quickly we're still hoping that you should get later in the year of this is going to be the dynamic, but I think things have moved a little bit the hasnt been much much change at sites over the last.
Several months.
And maybe just one more follow up on that.
That comment sort of a global one or are you seeing a disparity in site accessibility in the U S versus Europe versus Asia.
I mean, certainly they differ by region, but it is generally pretty broad.
Statement that we've seen a little bit more slowly than we'd anticipated.
Okay. Thank you.
Your next question comes from the line of Dave Windley with Jefferies. Your line is open.
Hi, Good morning, Thanks for taking my questions I wanted to just try to clarify a little bit on the.
On the margin first so understand your comments about predominantly.
Pass through impact on revenue, which I understand it's not a big change, but would have at least the slight impact positive impact on mix.
Toward.
Toward margin driving revenue, but your margin for the balance of the years is down on the hiring can you help.
Just help to understand a little bit more of the magnitude of the moving parts there.
We're hiring and a lot of that didn't hit first quarter, but they were hired late in the first quarter and we're continuing to hire and so I think it kind of layers in as you go through the year, but Jesse you want to address yes, you're right on it's the.
The the driver on margin.
Is really the elevated hiring we had we had a strong strong hiring in Q1 as.
As of August mentioned it.
Didn't necessarily happen literally of sequentially ratably across the quarter.
But then we are continuing.
<unk> of hiring as we move through these next couple of quarters.
Based on the view of strong strong demand in the market.
<unk>.
The personnel related cost.
Driving the margin as we make investments.
Got it and on that relative to.
Burn rate and maybe August your answer too.
John or Sandy's question might of been thinking service revenue, but.
The revenue guidance does seem to suggest that at least at the midpoint.
Your burn rate.
You know, maybe maybe ticks down ever so slightly for the balance of the year, but lets say it basically doesn't change.
On.
Can you can you help me understand it sounds like you're you're aggressively.
The accelerating hiring or at least in the first quarter it was pretty rapid.
But you're not really expecting say a return to higher conversion out of backlog and so again, just trying to understand the hiring need versus the pace at which you expect revenue to come out.
Yeah sure day.
We hired towards the longer term needs and the.
The business environment is very strong our backlog is growing.
26% year over year debt.
That the conversion rate will come back and the <unk>.
We will unwind will get.
A substantial surge in.
The revenue growth.
So.
We we do hire ahead of the curve I think our utilization rates running in the low to mid <unk>, which is a good place for us but.
We do think it given the environment and it will continue for a while and in fact, we've got a lot of kind of pent up.
Backlog that will eventually convert at a more normalized rate were going to need we're going to need the staff so we'd like to get.
Well out in front of debt, but we don't.
Look at it in terms of well, we're not going to have the activity of this next quarter.
Yeah.
So we feel of let's not higher.
I think we have the.
Luxury of being able to look out quite a ways and.
Not trying to defend the particular margin.
Got it and then maybe last question your your backlog coverage metric.
Improved <unk>.
Very nicely.
Certainly it was above where we were looking for kind of the the coverage ratio.
As the result of that ticks up a few percentage points.
Should should we interpret that as.
M.
Covering you know, maybe maybe impacted by fourth quarter first quarter kind of the outer quarters of that timeframe or maybe another way to ask the question is.
Is the cadence of revenue through the year fairly gradual or are you seeing because of the impact of what youre describing pass through payments or is that more of an immediate impact on <unk> and then the steeper inflection after that just trying to get a sense of cadence. Thanks.
Jesse you one day from a cadence standpoint, we still.
We still do expect revenue to be slightly back end weighted kind of second half versus first half.
As we think about the the move.
Movement of it through the year.
Got it. Thank you appreciate the answers.
Your next question comes from the line of Erin Wright with.
Credit Suisse. Your line is open.
Great. Thanks, obviously, a lot of conversion and the euro stays right now several pending strategic reviews and transaction day.
I assume you don't see a need for a competitive response, given given your unique focus, but but have you already been seen some benefit potentially from disruption in terms of win rates or customer dynamics or hearing anything from your customers or the number of resumes that you're seeing I'm curious if you're seeing anything.
Yeah sure I don't think we've seen anything.
I think.
Yes.
We have not.
I heard of any kind of disruptions or work being brought our way because of concerns or anything like that.
The environment is.
Strong for us anyway.
In terms of.
Activity on the recruitment, we have kind of geared up our recruitment.
And whether there is.
We did hire pretty strongly in the first quarter and.
Net.
Some individuals from the debt that came from competing companies, but I can't say that it was any relation to.
Any of the pending deals.
Okay, Alright, and then can you speak a little bit to the nature of the new business wins in the first quarter of looking at the therapeutic mix or customer mix was there anything that was disproportionately like outside of larger contracts that were implementing the new business wins I'm curious if there's anything to call out on the front.
No I don't think Theres anything unusual in terms of.
Size or.
Therapeutic area oncology kind of lead.
In terms of our awards.
So.
I don't really see any kind of the.
The unusual nature to it.
Okay perfect. Thank you.
Again, ladies and gentlemen, if you have questions at this time. Please press Star then the number one key on your debt still telephone if for your question has been answered or you wish to remove yourself from the queue. Please press the pound key and our next question comes from the line of Donald Hooker with Keybanc.
Your line is open.
Great Good morning.
Maybe some more granular questions.
Not sure if I missed this but the tax rate for this year looks pretty favorable can you walk through some of the moving parts there it looks like you're benefiting from a particularly of low tax rate.
What would you recommend we expect beyond the current year kind of on on one of a more normalized basis.
Yes, Thanks John.
The Q1 rate.
Is highly influenced by.
Our deduction for employee stock option exercises.
These are just discrete items that we take the deduction in the quarter of the exercise.
And these are options largely issued at the time of the IPO the invest it.
Latter part of last year.
And so we do anticipate some of that to continue and that's why we've lowered our tax rate guidance for.
15% to 16% down to the 12% to 13% range.
Longer term.
I would say our current.
Our current longer term tax rate assumption right now is around 20%.
That's based on current laws.
And that does not impact any.
Early analysis of any of the proposed.
Changes in tax law that are being considered.
Okay Super and maybe last one.
The other one for me.
In terms of and obviously another very topical area.
Is the use of virtual clinical trials decentralized clinical trials telehealth on those concepts.
Would love your kind of maybe broader perspective as of the question, we could probably be asking you every quarter.
In terms of any changes you're seeing there in terms of acceptance and use of some of these virtual technologies.
With respect to your business on the industry.
Yes, yes, yes, John nothing that we've really changed or that we're seeing changing.
Kind of from last quarter, where I think we're operating well.
A hybrid.
Decentralized environment.
We have the tools we need.
We're always investing in technology enhancements for different things like remote data capture remote data review.
Platforms for wearable technologies those are the the themes of kind of where we're where we're making some investments, but that's all kind of factored into our ongoing our ongoing cost nothing that we see there.
Sure.
Any sort of major investment, but net for.
For active and I think.
On the environment is going to continue to be one.
That is operating in some sort of hybrid style versus what it had been pre.
Pre pandemic.
Super Thanks, so much.
Thanks, Doug.
Again, ladies and gentlemen, if you have questions at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or any of restarting the yourself from the queue. Please press the pound key.
I'm showing no further questions at this time I would now like to turn the conference back to Kevin Brady.
Thank you for joining us on today's call and for your continued interest in med pace. We look forward to speaking with you again on our second quarter 2021 earnings call. Thanks, and have a good day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
During the year.
Moving on here.
Yes.
Okay.
Okay.
Okay.
[music].
Yeah.
Yes.
Okay.
[music].
Yes.
For us.
Okay.
Okay.
[music].
Yes.
Sure.
[music].
Yes.
[music].
Yes.
[music].
One of them.
One of them.
[music].
Yes.
Okay.
Yes.
Okay.
[music].
Both of us.
Okay.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
[music].
Yes.
Okay.
No.
Okay.
Yes.
Okay.
[music] line.
True.
Your line.
Yes.
Okay.
[music].
Yes.
Moving on.
[music].