Q1 2022 Medpace Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Med piece first quarter 2022 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 follow at that time, if anyone should require operator assistance. Please press Star then zero on your Touchtone telephone.
Minder. This call may be recorded I would now like to introduce your host for today's conference call Lauren Mark <unk> Director of Investor Relations you may begin.
Good morning, and thank you for joining med paces first quarter 2022 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 Mi.
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 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 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.
They are available in the Investor Relations section of our website at Investor Dot Med tastes dot com with that I would now like to turn the call over to August Troendle.
Good morning.
I'm going to provide a quick update on the business environment.
Softening of RFP flow observed in the first few quarters stabilized and.
And I'm happy to say that overall Q1 2022 rfps.
That's total volume came in roughly flat with Q1 of 2021.
On the other hand at the time of our last call. We had seen little to no evidence of funding challenges by our clients just has evolved and more recently, we have seen a number of delayed or canceled programs due to funding.
Looking at programs either put on hold or terminated early select funds. The dollar value in the first four five months of 2022 has already exceeded the total for calendar year 2021.
If the funding environment for our clients does not improve in the next few months. This could pose a challenge to our 2022 and 2023 gross plans.
However at this point.
Continue to anticipate 2022 revenue and profit fall within our prior guidance.
Guidance ranges.
Earnings per share will exceed prior guidance due to share repurchases in Q1.
Jesse will now provide some commentary on our results Jesse.
Thank you and good morning, everyone.
Our revenue in the first quarter of 2022 was $339 million.
Which represents a year over year increase of 27.3%.
Net new business awards entering backlog in the first quarter increased 18, 8% from the prior year.
423 million.
Resulting in a 1.28 net book to Bill.
And ending backlog as of March 31 was approximately $2 1 billion.
An increase of 28% from the prior year.
We projected approximately 1.07 billion of backlog will convert to revenue in the next 12 months and our backlog conversion in the first quarter was 16, 6% of beginning backlog.
In the first quarter, we continued to make progress in hiring getting 4% from the end of 2021 and over 20% from the prior year.
And in this challenging and competitive labor environment employee retention and hiring for future business continues to be a top priority.
With that I will turn the call over to Kevin to review, our financial performance in more detail and discuss our updated 2022 guidance.
Kevin.
Thank you Jessie and good morning to everyone listening in.
As Jesse mentioned revenue was $330 9 million in the first quarter of 2022.
This represented a year over year increase of 27, 3% on a reported basis.
And 28, 1% on a constant currency organic basis.
EBITDA of $70 4 million increased 31, 3% compared to $53 6 million in the first quarter of 2021.
On a constant currency basis first quarter, EBITDA increased 29, 5% compared to the prior year.
EBITDA margin for the first quarter was 21, 3% compared to 26% in the prior year period.
The increased EBITDA margin was driven largely by the impact of an R&D tax credit received in the quarter.
In the first quarter of 2022.
Net income was $61 3 million compared to net income of $43 3 million in the prior year period.
Net income growth over the prior year was primarily driven by higher EBITDA as well as a lower effective tax rate.
Net income per diluted share for the quarter was $1.69.
Compared to $1.14 in the prior year period.
Share repurchases during the quarter benefited EPS by <unk> <unk>.
Regarding customer concentration our top five and top 10 customers represent roughly 16% and 24% respectively.
Our first quarter revenue.
In the first quarter, we generated $46 3 million in cash flow from operating activities and.
And our net days sales outstanding was negative $38 seven days.
During the quarter, we repurchased approximately two 7 million shares at an average price of $155 and nine.
For a total of $425 9 million.
On March 16, 2022, our board of Directors also approved an increase of 200 million to our current share repurchase program.
We had $264 6 million remaining under our current share repurchase authorization at the end of the quarter.
We ended the first quarter was $82 $8 million of cash.
No outstanding debt.
$250 million of Undrawn capacity on our revolving line of credit.
Moving now to our updated guidance for 2022.
Full year 2022 total revenue remains unchanged in the range of $1 4 billion to $1 $4 6 billion Rep.
Representing growth of 22, 6% to 27, 8% over 2021 total revenue of $1 142 billion.
Our 2022 EBITDA is also unchanged and expected in the range of $262 million to $278 million.
Representing growth of 17, 4% to 24, 6% compared to EBITDA of $223 1 million in 2021.
This guidance assumes a full year 2022 effective tax rate of 13, 5% to 14, 5%.
And $35 6 million fully diluted shares for 2022.
There are no additional share repurchases in our guidance.
We forecast 2022 net income in the range of $204 million to $216 million.
Earnings per diluted share is now expected to be in the range of $5 72.
The $6 six to reflect the share repurchases in the first quarter.
With that I will turn the call back over to the operator, so we can take your questions.
Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And our first question comes from the line of Dave Windley with Jefferies. Your line is open. Please go ahead.
Hi, Good morning, Thanks for taking my questions August your comments about the delayed or canceled programs that you're seeing I'd be curious for you to elaborate there, but maybe specifically on that.
How are you handling them I'm sure the canceled ones you you've treated as cancellations. The delays how are you treating the delays.
Sure It does.
They wouldn't change its status you know some of these things are awarded and.
All the revenue isn't necessarily in backlog.
Our policy on backlog is.
Pretty late and there are stages to it.
So it is handled just as.
Any other project to delay until it to cancellation wouldn't be pulled out of backlog.
<unk> General policy.
Right.
So it would just stay wherever it was.
In the pipe.
Yeah, and further detail on it.
What are the data give it you know it's kind of spur.
Sporadic and across therapeutic.
Therapeutic areas is now it would be like a.
Particular focus or anything like that it's not highly concentrated in a single client or two you know, but there's been no evidence of.
Considerable strain in a in a in a segment of.
Our clients.
Okay.
So I think one of the.
One of the arguments that we hear poses that these companies pre revenue biotechs that you work with a lot.
Or kind of you know.
Exist for the purpose of developing a new drug and moving that through the pipeline I guess, if there's no money there theres no money, but.
Or is there.
Is there any.
Perspective on they're they have two programs in their canceling. This one that you have to focus on the other ore.
Yeah.
How are they.
How are they canceling something that's in clinical with you I guess, that's what I'm trying to get at.
Okay.
So some of them are.
I guess first off take your question about is it generally clients with multiple products I would say no generally we're talking to clients that task. One main project that is their focus and that is the project that is maybe <unk>.
Baird.
Sometimes there is just a restructuring of the project so it's delayed and.
Maybe.
Re organized in terms of how they're going to execute it to try to minimize our spend over periods of time.
Other times it.
He's stopped before we get patients in the trial. So I mean, we're talking about these things you know you get an award and it takes quite a while to get to start up so.
Generally most of these projects or not.
Actively ongoing you know there has been.
Some.
Sort of restructuring those projects that are ongoing but.
Generally we're talking about things that have not yet.
Enrolled a patient and.
<unk> they didn't close funding they hope they were going to were right. It looks it looks not possible at this point, so you're right there aren't many.
<unk>.
Cancellations were mixed.
At this stage.
And the product.
And of course, that's pretty unlikely unless the product itself is failing but there's a lot of overlap there in terms of the client might think it's still good enough profile, but you can get through a funding environment, where this hasn't happened yet but where.
The data isn't looking as positive as they would like in order to be able to do the raise for the remainder of the program.
So those things happen too but.
In general, we're talking about cancellations or restructuring of projects that have not entered the clinic or if they are in the clinic already are just restructuring how they're performing.
Okay and then my last question related to this is.
Like slower gross new business in a quarter or might be reflective or might have impact on revenue a little bit further out on the horizon cancellations on the other hand might have a little near term impact how should we think about.
The cadence of revenue through the year from here based on the update you've given us today.
I don't really see.
<unk> impact on our cadence I don't think we've given specific guidance and I guess I'll turn it back to Kevin and he wants to comment on that but I don't think there should be a large disruption we just wanted to.
Okay.
The risks there and I think the risks are mainly in that the funding environment continues to be bad I mean, we think our current guidance is in place.
And we can.
Can execute on those.
<unk> currently.
Yes.
For another six months, we continue to have the sort of funding environment. We're in currently I think that that poses a real challenge for late late in the year and next year, but I don't expect.
A big impact yet.
In terms of cadence I don't Kevin I don't know if you wanted to comment on that yeah, no just to kind of reinforce what August and said you know we do expect in the current environment.
Revenue to grow throughout the year you have to have some sequential growth quarter over quarter now as you know EBITDA for us can be very lumpy.
But we do expect revenue growth throughout the year.
Great I'll leave it at that thank you for the answers.
Thank you and our next question comes from the line of Eric Coldwell with Baird. Your line is open. Please go ahead.
Thanks very much.
A couple a couple of questions here, maybe in a similar vein first off August you mentioned that if the delays in cancels continue for an extended period, you could see growth challenges to your.
Growth plan in 'twenty, two and 23, but our.
I'm, sorry, 'twenty three and beyond.
I'm not sure.
The Street is fully aware of what your growth plan is for next year, you've talked in the past about as long as the environment is a strong funding environment, you could see 20% plus growth but.
We know that's not currently the case what is what is your outlook for growth in 'twenty, three and maybe longer term.
And.
I'm just seeing this in the context of the street is already modeling about a 10 point reduction in growth for next year compared to the growth forecasted this year.
I'm not sure if you're signaling that's realistic or if you think it could be below where the street currently is.
Yes, we don't comment on future out here.
Rose.
Until late in the year.
Cool.
Yeah.
Try to make sure that.
Projections by analysts or at least.
They are informed by as much information as we can but.
I, we don't we don't really provide that for years, we do have some internal plans.
We communicate that generally late the year for the following year.
Okay, if I could go back to the cancellation the dollar comments on four five months being.
Greater than 21 could you give us some context of where.
The aggregate either dollar volume or number of cancels were last year, where they are now maybe put this in historical context with.
Any any numbers, so we could get a better sense on the magnitude.
Yes.
I don't really have enough.
Our formal cancellation rates generally.
4% to 5%.
So opening backlog in each quarter.
I don't.
<unk>.
We look back for comparative numbers, because we were seeing an uptick in it.
Really signals from clients about.
Wanting to restructure delay or cancel projects specifically because of funding they didn't close the funding.
We're going to be unable to close funding.
And thats not a.
We see too often and so because of that look back at.
Specifically.
Those numbers and the trend and they ticked up in.
Through the more recent six months and.
Is kind of really took off.
The first quarter and entering second quarter of this year. So I just have I don't have specific numbers on those.
We did look at that we don't want to talk about the actual dollars of that component of total cancellations, but that's what I'm, referring to and I have not signaled an overall increase in.
Backlog cancellations beyond our 4% to 5% and when that gets really out of range. We do comment on that also so it's still within the usual sort of range.
In that.
45% bound.
Substantially more than that we would call that out also.
And then I think last one for now.
In the past you've talked about the backlog lagging RFP activity and you've said that you've suggested obviously that it could take up to several quarters for rfps to translate to backlog.
Is there any.
Availability to provide a mean or median timeline what are what.
What an average or a range might be on translation of RFP activity to backlog and perhaps how that is.
If it has how would that has changed over the last.
Year or two.
Okay.
Yeah, and I don't I don't think we'd see it I don't know I haven't looked at metric, but I don't think we would see probably a change in the overall range meaningfully but the range is quite broad, but I do think.
Sometimes there is a.
Okay.
Misperception that.
These are relatively quick events generally we get rfps and youre not going to see any of that.
Come into backlog in the quarter in which we see an RFP and in fact very little of it would get into the next quarter.
And back.
Back into backlog.
We see Rfps and <unk>.
Some of them.
We don't hear again for four months and months, sometimes a year.
Sometimes we get and Thats why you see I generally don't like looking at.
<unk> P dollars as a very strong predictor of future events, and I've said that before because sometimes you get into a weak environment and you see a lot of RFP requests that are kind of fund raising.
<unk>.
Our scenario planning and so you can actually get a pickup in rfps when the environment is weak.
So it is a difficult.
But we sometimes get an RFP and then the client goes for our client group. This isn't this isn't like large pharma large pharma I think extend their RFP. They havent intend to do a program there is generally.
<unk>.
A timeframe that's relatively short over months in which they are planning on going forward with this project and Theyre going to given award and it's going to go towards startup.
And things can happen in the interim and they can re prioritize and there could be manufacturing problems or whatever but it's generally pretty reliable in our clients. A good segment of our clients. This is not very reliable we get an RFP.
And that may be so that they can then go back and start looking for funding, which can take years.
Get an RFP and you know they go silent for a year on US and then come back and yeah. We finally closed on Sunday.
So.
It is quite a while.
Sometimes they don't make a decision for for a year as I say or more.
Sometimes it.
They give the award, but it's planned for quite a ways out and of course that doesn't make it into our backlog because our clients generally don't have or very frequently don't have the financing to do it.
And that's part of the equation that theyre going to solve before they get for.
They actually we get into startup so we want to see.
Ah patient.
Ready to go into the trial before we really want to put that in backlog and it's because we have sort of different client group.
But that can be.
Many quarters so the range is between.
A couple of quarters.
On the sort of low end too.
Many many quarters yet.
A few years on the on the longer end.
Thank you very much for all the details.
Thank you and again if you have a question at this time. Please press Star then one.
And our next question comes from the line of Kristine <unk> with William Blair. Your line is open. Please go ahead.
Hey, Good morning. My first question is just an update on staffing overall as it relates to staff turnover and hiring.
Typically SaaS growth was 24% last quarter versus 20% this quarter or you're moderating your hiring plans at all or do you expect an uptick.
<unk>.
I'll take that this is jesse.
Yes, thanks, the hiring in the first quarter was was good we add it.
Around 4% sequentially to two the head count growth, we still do.
Plan to hire try to hire at rates consistent with 2021.
Understanding that the first quarter was a little softer than we would've liked to.
To keep up with that pace, but as we continue to progress through the year.
We're focused on both retention and on.
New hires to meet continued business demand in this current environment.
Great. Thanks for that and then my second question is.
And how much of your enrolled patients are in China, and then the same kind of Ukraine, and Russia and is this disrupting in trial execution.
Very small percent.
In both places.
Pretty well distributed across.
Across a lot of countries with the trials that we're running we don't have any real concentration.
In the aggregate or an individual trials.
Other locations.
Okay. Thanks, and then lastly on <unk>.
On the technology front, what are your clients asking for now versus a few years ago and any specific tech areas of investment you want to highlight.
Yes, I mean really what's important to our client base is.
From a technology standpoint is that we have.
The appropriate tools and technology to <unk>.
Conducting the trials that were that were involved in and many of these tools.
Ones that we've had for quite some time, you know things like <unk>.
Remote data capture remote data review.
Abilities, Yeah, those are all important parts of how.
How we conduct.
Clinical trials.
We're always investing in technology and I wouldn't say there is any new new area to highlight other than just we're continuing to invest across the.
Entire technology platform that we're that we're utilizing.
Great. Thanks for the color.
Thank you and our next question comes from the line of Paul Knight with Keybanc. Your line is open. Please go ahead.
Yes, thanks for the color around.
The stage of.
What are your customers are delaying I guess the word for it.
Based on your experience with customers that are in clinical.
What kind of growth do they typically step up to in terms of.
Going from free to later stage is there a metric you think about in terms of growth.
I guess not.
Understanding what do you mean by gross gross of their outsourcing dollars group grosses.
I guess.
In a way digging around what 2023 could be I know youre not guiding to it but in terms of the customers that are in clinical trials.
What would you expect.
Their growth to be.
Based on what you've seen customers do in the past.
Okay. So we don't generally look at sort of gross and specific customer dollars slow.
Because our customer basis, rather dynamic.
In <unk>.
In this industry a lot of things drop out so.
A client today as a product.
It may not succeed at all.
The revenue goes to zero.
When this one study ends.
And then a different client.
B.
In the works for for next year, So we kind of don't follow that metric on.
<unk>.
I guess you could look at.
Look at certainly some of our largest clients and how they go over time, but.
We don't really use that as a metric so I do think.
Gross we've said before in a very strong environment that we had last year.
Earlier last year.
Pushing growth above 20% I think that's possible.
The environment comes back in the current environment, that's going to be challenging.
<unk>.
There is.
Real signs that.
And art and the substantial portion of our client base. They are challenged at closing the financing to go forward with their.
With our clinical trials and I think that's pretty much all we can say, yes and then.
Are you able to discern whether it's.
The funding is.
Public equity or in BC is there a difference in the tone in those two markets in your view.
I haven't tried to.
Sort that out whether the.
It's kind of a mix of <unk>.
Private fleet.
Held and public companies that have had.
Some finding financing problems.
So I think it's a mix I haven't looked at what percentage is which but.
It's both.
Is that R V.
VC or privately funded at least.
Sure.
Generally not partnered.
It is so privately so I guess, mostly VC funded or private public market funding.
Okay. Thank you.
Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to MS. Milan Morris for any further remarks.
Thank you for joining on today's call and for your interest in Med pace. We look forward to speaking with you again on our second quarter 2022 earnings call. Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
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