Q2 2021 Medpace Holdings Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the met the <unk> second quarter 'twenty 'twenty 1 earnings conference call. At this time, all participants are in a listen only mode.

Later, we will conduct.

Julian answer session and instructions will follow at that time, Inc.

Anyone should require operator assistance. Please press Star then zero on your Touchtone telephone.

As a reminder of this call maybe recorded.

I would now like to introduce your host for today's conference call Lauren Morris.

Quench East of Suez Associate director of investors Relations Lauren you may begin.

Good morning, and thank you for joining med paces second quarter 2021 earnings conference call on.

Also on the call today is our president and CEO August Troendle, our CFO and COO of laboratory operations.

That's the Geiger and our executive director of Finance, Kevin Brady.

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 statements involve inherent assumptions.

Jesse 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.

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.

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 of certain non-GAAP financial measures. These non-GAAP measures are not superior.

Your your 2 or replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results of.

A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in our earnings press release and earnings call presentation slides provided in connect.

With today's call the.

Slides are available in the Investor Relations section of our website at Investor Dot net dot com with that I would now like to turn the call over to August Troendle.

Thank you Lauren good morning, everyone.

In the press release issued yesterday, we announced several changes to our senior.

On your management team.

The August 1st Jesse Geiger will be elevated disposition of president and Kevin Brady will succeed Jessie as Chief Financial Officer.

I will continue to serve as chairman of the board and executive as the Chief Executive Officer.

Yes. He has served our as our chief financial.

Interest since 2011.

On the expanded that role in 2014 to include the title of Chief operating Officer of Laboratory operations Jesse.

Jesse has played key roles during a rapid growth from the past decade, and we are fortunate to have his leadership to drive our growth going forward.

Oversight of the operating activities of.

Often we will increasingly be of shared responsibility of GSE of myself.

Kevin has served as our executive director of finance and Treasurer since joining the pace from 2018.

With oversight of the company's finance function.

We're confident that Kevin's current and previous experience in public company finance will serve net base.

Of the compound in his new role.

And now I'd like to turn the call over to Jesse.

Thank you all based on good morning, everyone.

In the second quarter, the business and funding environment remained strong.

We continue to see robust RFP flow.

And our competitive win rate also remained strong.

We did see some improvement in flight activity in the quarter. Despite COVID-19 challenges.

Our revenue for the second quarter of 2021 was $278.3 million.

Each represents a year over year increase of 35, 8%.

Net new business Awards.

Entering backlog in the second quarter increased 52, 5% from the prior year to $387.6 million.

This resulted in a 139 net book to Bill.

Ending backlog as of June 30 was $1.7 billion.

An.

The increase of 29, 8% from the prior year.

And overall, our COVID-19 related work represented only 2% of both revenue and net new business awards in the second quarter.

We projected approximately $925 million of backlog will convert to revenue in the next 12 months.

And the backlog conversion in the second quarter was 17, 1% of beginning backlog.

And with that I will turn the call over to Kevin to review, our financial performance in more detail.

Thank you Jessie and good morning to everyone listening in as Jesse mentioned revenue was 200.

The $78.3 million in the second quarter of 2021, which represented year over year gross of 35, 8% on a reported basis and 34, 4% on a constant currency organic basis.

The EBITDA of $47.9 million increased 36.

9% compared to $35 million in the second quarter of 2020.

On a constant currency basis second quarter, EBITDA increased 41, 5% compared to the prior year.

EBITDA margin for the second quarter was 17, 2% compared to 17.1.

In the prior year period.

As expected EBITDA margin declined sequentially, reflecting increased costs related to the robust hiring.

In the second quarter of 2021, net income was $39.9 million compared to net income of $24.1 million in the prior year peer.

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 $1.6.

Compared to <unk> 64 cents in the prior year period.

Regarding customer concentration our top 5.

On top 10 customers represent roughly 17% and 24% respectively of our first half of 2021 revenue.

In the second quarter, we generated $62.8 million in cash flow from operating activities and our net day sales outstanding.

Was negative 39.5 days.

During the quarter, we repurchased approximately 343000 shares at an average price of $163.61.

For a total of $56.1 million.

We have 190.

<unk>, 1.4 million remaining under our current share repurchase authorization.

We ended the second quarter with $339 million of cash new.

No outstanding debt and $50 million of Undrawn capacity on our revolving line of credit.

Moving now to our updated.

The guidance for 2021.

We are now forecasting total revenue in the range of $1..1 1 billion to 1.15 billion for the full year 2021.

Representing growth of 19, 9% to 24, 2% over 2020 total revenue of 9.

$625.9 million.

Our 2021 EBITDA guidance is unchanged in the range of $205 million to $215 million representing growth of 9.2% to 14, 5% compared to EBITDA of 187.

$908 million in 2020.

We anticipate our 2021 effective tax rate to be in the range of 11% to 12%.

We have assumed 37.7 million fully diluted shares for 2021.

And there are no additional share repurchases in our guide.

Adams, we forecast 2021 net income in the range of $162.5 million to $169.5 million and earnings per diluted share in the range of $4.31.

The $4.50.

With the increased expectation for net income and earnings per diluted share.

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.

Thank you at this time he would like to ask the question. Please press Star then the number 1 on your telephone keypad once again Thats star 1.

On your telephone keypad will posture of moment to compile the Q&A roster.

Thank you. Our first question comes from the line of John Kreger from William Blair. Your line is open.

Okay.

Hello.

Good morning. This is.

Justin Lin speaking on behalf of John Kreger.

So just the guys quick question on margin. So we see the margins were softer in Q2 than we expected.

I guess hard day trending versus internal expectations, and what exactly is causing the pressure.

In addition to the increased hiring of pressure.

Yeah, Justin this is Kevin I would say that the overall day.

Is in line with with what we were expecting as we had stated and in the first quarter.

We were.

Anticipating some robust hiring.

Carryover from the first quarter and further end of the second quarter.

Thank you.

Got it thank you.

And I have a second 1 if I can see that in.

So just a question on your DCT capabilities.

Currently I guess what percentage of your clients are asking for this and how do you feel about your current capabilities you know 2 to enroll interact with the monitor patients remotely.

Yes, Justin decentralized trial.

It's really a function of a component of a.

Lot of different trials I don't have an exact percentage, but we're operating well in.

In the hybrid environment.

With our activities being.

The somewhat in person.

Visiting sites and somewhat a remote based monitoring as.

As well as utilizing <unk>.

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Sounds good thank you.

Thank.

Next question comes from the line of Dave Windley from Jefferies. Your line is open.

Hi, good morning, Thanks for taking my question.

Wanted to ask in broad terms, if if there are factors that are of limiting.

Your ability to execute work.

Work and in the Spirit I don't I'm trying to get at.

Based on the demand based on the backlog that you have could you be growing even faster. It was obviously very fast growth.

If sites, we're fully open or if you were able to hire faster are those rate limiting steps or are you basically keeping up.

Yeah, Dave maybe I'll take that question.

Yeah look I think we're keeping up well, but we it is.

A robust environment.

And opportunities are plentiful and so we have been a fair amount of more restrictive for selective in the or.

Twice of programs to go after.

So yes, I think there are opportunities to grow faster. If we were to approach other companies, but we'd have to scale more rapidly and and of course, we want to.

Scale in a controlled way and so I think the the.

Or is it in that way kind of overheated.

But we will.

I found that we can grow at this at this rate roughly 20 plus percent.

That's sustainable for a while this environment glass.

That's very helpful August thank.

The environment.

In the.

The restriction on our U.

You know maybe it's all of the above but are you limiting on.

The more attractive margin or less likely to cancel or what are the factors that are influencing what you're taking what you pass on.

Yes.

Thank you.

There are a number of factors, but critical is the.

Likelihood of we feel.

Likelihood of the program progressing.

So, yes lack of cancellation risk.

Good solid science looks like Theres further program.

So.

We may bid on a study that's a phase III, but we think theres the phase III program opportunity ahead.

But its relationship with the.

The client is also critical so prior relationship obviously takes.

The priority then.

The 1 that we don't have.

On the hedge it with.

So it's the midst multiple factors but.

Generally.

What's the future potential is for that client.

Very good thank you on and on the on the Labor side, you had signaled that you would be hiring fairly aggressively it sounds like that did happen is that.

That is that of pace that you expect to either continue at or accelerate from for the rest of the year.

And then would you describe the the cost pressure in the quarter from that labor is it simply volume of hires or are you also seeing some wage rate pressure.

Sure of that is influencing that that cost line. Thanks.

We're continuing to hire.

In line with.

The first 2 quarters, but late new year does get a little bit more challenging in terms of adding staff.

Seasonally but Jesse go ahead no no you hit it August yes, we can.

Continue to.

The plan to continue hiring.

I had a pretty good pace as we move through the year.

Fast as we can.

From a cost pressure standpoint, it is the competitive market as August mentioned earlier, we are seeing some pressures there. So it is a function of both the volume of hiring and some wage.

Wage rate pressure, which is both factored into our guidance range.

Got it and then last question from me.

I appreciate the the updates on on the management from progression congrats to the 2 of those with promotions August I wondered if you'd be willing to.

And on if this influences any of it very significantly your thoughts about your longevity within your current role of.

Or not should we should we read anything into the announcements yesterday. Thank you.

Yeah, well I think what you would read the announcements as I feel comfortable.

The comment if I were to step away that the company would be well handled.

So I think there isn't a concern of whether its day.

But I have no.

Near term expectation of leaving my role as CEO and even when I do that I would.

Continue with involvement with the company I think so yes, so I think it's the longer term planning.

And.

Gross of Ste.

What we have.

Very good. Thank you appreciate it.

Thank you once again, if you would like ask the question. Please press Star then the number 1.

1 on your telephone keypad.

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

Hi, This is mitchell on for Sandy.

Thanks for taking my question.

Thank you guys sort of answered it pretty well because it was mostly around the wage inflation, but.

I'm just wondering if you could add anything else to how youre going about the hiring environment and like what you're doing to recruit and retain people differently I guess nowadays.

Yeah.

Yeah. Thanks, Thanks Mitchell.

The approach to the hiring is.

Pretty consistent with what we've done in the past we target.

We target new hires new grads.

A lot of folks fresh out of school, we target people with experience in healthcare background.

But really just more attention companywide.

And each area too to.

The numbers that we need to add 2 to.

The different departments too.

Keep up with the continued growth.

The heavy area of focus, but we really haven't changed on strategy as it relates to hiring.

And then on retention.

We are deploying.

And the number of different strategies, making sure that.

Compensation is well aligned with the market.

And then also the hiring also helps with retention of of those that are that are dealing with the volume of work that we have right now.

Thank you.

Yeah.

Thank you.

And I would like to turn the call over to you Lauren mores for in for closing remarks.

Thank you for joining us on today's call and for your interest in mandate and we look forward to speaking with you again on our third quarter 2020.1 earnings call.

That concludes today's conference call. Thank you for participating you may now disconnect have a great day.

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