Q3 2021 Medpace Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the <unk> third quarter 2021 earnings conference call.
This time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instruction will follow at that time.
If anyone should require operator assistance. Please press Star then zero on your catch to telephones.
As a reminder, this call maybe recorded.
I would now like to introduce your host for today's conference call Lorin Morris mid stages director of Investor Relations you may begin.
Okay.
Good morning, and thank you for joining <unk> third quarter 2021 earnings Conference call also on the call today is our CEO August Troendle, our president Jesse Geiger and our CFO 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 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 SEC.
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.
<unk> 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 <unk> Pastes Dot com with that I would now like to turn the call over to August Troendle.
Thank you Lauren.
I would like to make just a few comments.
End of quarter, three our backlog of $1 85 billion was up 29% from the end of quarter three last year.
51% from the end of quarter three of 2019.
This book of future programs is well diversified.
Contains only a small component of Covid work.
All of this change is organic.
Over the last several years, we've improved our technology global footprint and overall competitive position in the clinical CRO industry with a focus on biotechnology firms.
Organic backlog and revenue growth from biotechnology firms has historically been above that of our peers and as COVID-19 becomes less of a driver of the clinical trial business over the next few years, our superior organic growth characteristics will become all the more evident.
Jesse will now make some remarks on our performance and then Kevin will review our quarter's results in more detail as well as your guidance. Thank you.
Thank you Augusta and good morning, everyone.
In the third quarter, the business and funding environment remains solid.
We continue to see good RFP flow and our competitive win rates remained strong.
This translated into a strong results in the third quarter and improved guidance for 2021.
We also expect a robust growth to continue into 2022.
And in a moment, Kevin will take you through our guidance expectations for the balance of 'twenty one.
And our initial guidance for 2022.
Revenue for the third quarter of 2021 was $295 6 million.
Which represented a year over year increase of 28, 3%.
Net new business awards entering backlog in the third quarter increased 29, 4%.
From the prior year to $408 million, resulting.
Resulting in a 1.38 net book to Bill.
Ending backlog as of September 30th was one 8 billion.
An increase of 29% from the prior year.
Overall, our COVID-19 related work year to date represented only two 5% of revenue and less than 1% of net new business Awards.
Backlog conversion in the third quarter was 17% of beginning backlog.
And we project that approximately 1.015 billion of backlog will convert to revenue in the next 12 months.
And with that I will turn the call over to Kevin to review, our financial performance in more detail Kevin.
Thank you Jessie and good morning to everyone listening in.
As Jesse mentioned revenue was $295 6 million in the third quarter of 2021.
Which represented year over year growth of 28, 3% on a reported basis and 28, 1% on a constant currency organic basis.
EBITDA of $60 1 million increased 15, 7% compared to $51 9 million in the third quarter of 2020.
On a constant currency basis third quarter, EBITDA increased 16, 3% compared to the prior year.
EBITDA margin for the third quarter was 23% compared to 22, 5% in the prior year period.
EBITDA margin declined from the prior year, reflecting increased employee related costs and higher reimbursed out of pocket expenses.
In the third quarter of 2021 net income was $48 6 million compared to net income of $41 5 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 29 compared to $1.09 in the prior year period.
Regarding customer concentration our top five and top 10 customers represent roughly 17% and 24% respectively of our year to date 2021 revenue.
In the third quarter, we generated $72 4 million in cash flow from operating activities.
And our net days sales outstanding was negative $36 six days.
During the quarter, we repurchased approximately 35000 shares at an average price of $171 50.
For a total of $5 9 million.
We have $195 million remaining under our current share repurchase authorization.
We ended the third quarter with $398 million of cash and no outstanding debt and $15 million of Undrawn capacity on our revolving line of credit.
Moving now to our updated guidance for 2021.
We are now forecasting total revenue in the range of $1 135 billion to $1 145 billion for the full year 2021, representing.
Representing growth of 22, 6% to 23, 7% over 2020 total revenue of $925 9 million.
Our 2021 EBITDA guidance is in the range of $216 million to 222 million representing.
Representing growth of 15% to 18, 2% compared to EBITDA of $187 8 million in 2020.
We anticipate our 2021 effective tax rate to be in the range of nine 5% to 10, 5% and there are no additional share repurchases in our guidance.
We forecast 2021 net income in the range of $176 million to $180 million.
And earnings per diluted share in the range of $4 66.
To $4 77.
With the increased expectations for net income and earnings per diluted share driven by the anticipated lower tax rate.
As Jesse mentioned, we are providing initial 2022 guidance for revenue and EBITDA.
For the full year 2022, we expect revenue in the range of $1 4 billion to $1 $4 6 billion and EBITDA to be in the range of $262 million to $278 million.
We plan to provide additional detailed full year 2022 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.
As a reminder to ask a question.
Press Star one on your telephone to withdraw your question press the pound key.
And by while we compile the Q&A roster.
Okay.
First question comes from the line of John Kreger from William Blair. Your line is open.
Hey, guys. Thanks.
A question about the 'twenty two guidance I think the implied topline growth is in that 25% range, which is.
Impressive and certainly higher than what you guys have guided in the past can you talk a bit about what is driving that.
Does that feel more like just a higher win rate on your part or more robust activity levels in the broader market.
Yes, John this is Kevin it's really a combination of all those things you know that the current business environment.
RFP flow or existing backlog position really position us well for really good growth in 2022.
On top of that we'll continue to hire along those expectations.
Okay. Thanks, and then a follow up.
Can you talk about how.
Just the ability to execute on the high growth.
How are you doing in terms of hiring staff utilization.
And any other infrastructure investment you might need to deliver that sort of growth.
Yes, John it's Jesse.
We're doing pretty well, we're well positioned for it.
The current work, we're well positioned for upcoming projects.
We do see a good a good pipeline, we've reflected that in our in our guidance and were hiring against that.
We have had pretty good.
Pretty good success in both.
Recruiting and retention.
Of employees, we do intend to continue to hire aggressively here into the fourth quarter, although historically, we have seen.
Slightly softer candidate flow in the fourth quarter as we approach year end, but.
I think we're well positioned now and continue to hire.
To support the.
The growth that we anticipate.
Great. Thanks, and one last one you've been living with as we all have with Covid for the last 18 months. What are your latest thoughts on any kind of structural changes in drug development that are likely to emerge from this.
I mean, I think technology is the obvious one you know a lot of adaptations were made in acceleration in technology throughout the pandemic.
A lot of that is here to stay so as we think about DC.
Decentralized clinical trials now and into the future I believe technology is going to continue to play an important role there.
I think we're well positioned to operate in this environment, we continue to make.
Ongoing investments in technology to support.
Support the changing environment, but I think a lot of it is going to be technology technology, driven as far as some of the changes that were made during the pandemic and how those.
How they stick around on into the future.
Great. Thank you.
Thanks, John.
Your next question comes from the line of Donald Hooker from Keybanc. Your line is open.
Great. This is going to good morning, and congrats on the great results.
So this might overlap a bit with the last question, but I guess I'm just trying to get into your head in terms of providing 2022 guidance, which is wishes bold.
I know you did it last year because of Covid Covid I'm, just wondering has something really.
Maybe can you elaborate on your thinking as to providing 2022 guidance at this point.
Things are more stable now versus can you just what sort of caused you to do that.
Yes.
The rationale behind providing guidance now.
As opposed to.
In.
In February as well.
One reason is beyond what what Kevin had cited earlier is that we want to make sure that.
Everyone's models are well aligned going into the end of the year and as we report on our final Q4 results.
In February and and fine tune and enhance the guidance that were.
Fill out the rest of the guidance in February we want to make sure that we at least had a baseline.
For everyone going into the end of the year.
And.
We feel like based on the business environment and based on our backlog, we have pretty good visibility to be able to do that at this time.
And then Theres ago, there was a bit of a disconnect between.
Analyst models.
Our thinking and I think we just didnt kind of anticipated because we weren't looking at next year's.
Models.
So.
The last few years.
With total, but also but have decided.
Give that clarity if we think there is a need.
Growing a bit of disconnect and of course, we are we believe a very rapid growth environment. We felt we could put out a reasonably conservative.
Projections and.
Guidance.
And and help with that.
That's a disconnect.
Super and I guess, the other thing as we think about sort of thank you.
As a.
Pass through revenues and expenses this year and next year, that's always hard to model on the outside as we look at your revenues can you maybe give us some directional guidance there in terms of what Youre thinking in the 2022 guidance with respect to pass throughs versus 2021 and 2020.
Yes, Dan This is Kevin I think as you as you kind of look at the progression from kind of a low base in 2020.
Kind of heavily influenced by Covid, you can see the progression from 2020 to 2021.
I want to say it increased year to date about 100 basis points.
Towards more of our historical average and we would expect as we head into 2022.
That will probably continue to get closer to that historical average.
Okay, and then maybe one last one for me I just I can't you guys talked about decentralized clinical trials and virtual clinical trials, whatever you want to call them.
It doesn't look like it's having any negative effect, obviously on your 2022 guidance, but as we think longer term does that does that impact pricing and margins I might think that it would pressure pricing, but might be upside to margins how do we think about.
<unk> in the context of your economics.
Yes.
It has that big of an impact.
Okay.
That's the simple answer thank you very much thank.
Thanks, Tom.
Okay.
Again to ask a question you will need to press star one on your telephone to ensure your question. Please press the pound key.
Our next question comes from the line of Dave Windley from Jefferies. Your line is open.
Hi, Good morning, I had some technical difficulties. This morning, so I apologize if I'm asking things you've already touched on but wanted to.
Wanted to focus on kind of more revenue factors your I guess at a high level.
Biotech funding for the last 12.
12 months to 18 months, if not lower than that has been certainly strong and very strong through the pandemic.
Enough so that I am sure your clients have pretty robust balance sheets. It has slowed in the last.
Three to five months.
And I guess I'm wondering.
How you would characterize RFP flows as you enter the fourth quarter.
You commented about.
A good funnel.
And then perhaps more strategically.
Strategically.
What.
Leading indicators what.
Our systems are you putting in place.
To kind of keep close tabs on.
The funding that your clients have backing their projects as your business development folks are pursuing those in the event that funding does say as low as it has been in the last few months.
Yeah, Dave RFP environment has continued to be good.
Sure.
Our win rate has been very strong.
Over the past several quarters.
And from a biotech funding standpoint.
We're continuing to see.
Clients with good access and good access to money and we're not seeing.
<unk>.
Of slowdown as far as.
How long it takes companies to get access to money.
When they are when they are starting to engage with us.
Systems and key indicators that we've put in place on the front end or.
As you mentioned with.
Our BD group.
A lot of questions.
Prospective clients, we do analysis upfront to assess their funding status and where they are in their funding process.
As we're bidding on.
Opportunities and.
And then as the studies get awarded we continue to keep tabs on.
The financial status of companies as they are progressing through the development.
Process.
Got it Okay and then.
Maybe a little bit more granular to someone dawns questions on on guidance, Kevin you mentioned that.
You do expect pass throughs to continue to recover toward a more normal level I would think that would contribute to burn rate I think.
Med patients also.
Probably not had the benefit of Covid work really influencing your burn rate, but has been impacted by say sites not being fully open anyway punch line here is your burn rate is still running.
Below what would historically have been normal for you is that something that you expect to recover to normal in 'twenty two.
Yeah.
Dave I think it really depends right I mean, you got to kind of think about book to bill in conversion.
Kind of together.
We've not been in a position, where we've had five quarters in a row where were 137138.
To build numbers and so thats influencing.
To a degree our conversion rate now how quickly that conversion rate comes back to.
To more historical levels, I think kind of depends on.
Future growth in awards looked like.
I wouldn't say that we necessarily expect it to come bouncing back in 2022.
Okay.
I guess Conversely that suggests that maybe you are expecting continued high book to bills going forward is that I mean is it I guess.
Simple question is the current level is sustainable.
I think so.
It depends on the on the business environment Dave.
Certainly if this if the funding environment continues, albeit a little softer as you mentioned than it had been.
In previous quarters, but still we're seeing a good level of biotech.
New development and biotech access to capital.
If this business environment continues.
And as I mentioned, we've had a really good win rate.
We could see book to bills, continuing at this level, but it kind of depends on the outside market.
You can have a look at too far for.
Future bookings, but in the environment currently it looks like the next quarter. The next couple of quarters are going to be strong bookings.
Thats.
Things can change but.
That's about as far out as we can really look it could soften next year, but we don't expect a softening in the near term.
Got it that's helpful. Thank you.
We have no further questions I would now like turn the conference back to Lauren Morris for any closing remarks.
Thank you for joining us on today's call and for your interest in mandate. We look forward to speaking with you again on our fourth quarter 2021 earnings call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
[music].
[music].
[music].