Q2 2022 Medpace Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Med <unk> second 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 as a reminder, this call maybe recorded.
Good.
I would now like to introduce your host for today's conference Lauren Martin that he piece director of Investor Relations you may begin.
Good morning, and thank you for joining <unk> second quarter 2022 earnings conference call.
Well today is our CEO August Troendle, our president Jesse Geiger and our C F.
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.
Factors, including the ongoing impact of COVID-19 on our business are discussed in our Form 10-K filings with the SEC. Please note that we have no obligation to update forward looking statements.
Change Accordingly, you should not rely on any of today's forward looking statements as representing views as of any date after today.
During this call. We will also be certain non <unk> 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.
Reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at Investor Dot My taste Dot com with that I would now like to turn the call over to August Troendle.
Yeah.
Good day everyone.
Yeah.
Liquidity and sufficiency of trial funding for our clients, which are overwhelmingly pre commercial biotech companies remains a top focus for us.
To date, we've seen a low level of cancellations that are directly related to financial distress.
The risk of this accelerating depends upon the severity and duration of ongoing funding slowdown.
I would like to characterize it.
Get more detailed than usual our pipeline of business opportunities.
And to do this.
Uh huh.
P. I do this because RFP values in the quarter.
We're not necessarily reflective and present.
Complete and fair reflection of the landscape.
It's somewhat of a mixed picture.
Looking at the overall business, new business processing or industry opportunities generally progressed through three important steps.
As background I wanted to provide a kind of an overview of the steps.
Step one.
So you would request for proposal and RFP.
Is issued by sponsoring company of a clinical trial and multiple scenarios respond with formal proposals to perform the work.
Alright.
Tricks are generally not disclosed by our cro's.
<unk> and.
This is because a number does not do justice to the issue.
They are important qualitative differences, making a summary number because the value of these rfps largely meaningless.
E quality is more important than quantity.
Yeah.
Step two I'm going to call is.
The winnings here I was given an award notice.
And I'm going to call. This an initial award notifications.
The very fact that I have to make up a name for this suggests that this metric is also not shared by any reporting Crs.
The reason again is quality there is significant uncertainty.
At this point in the process.
As to.
The Val.
Value of the initial award.
Finding funding, sometimes overall scope is not fully defined.
However, one advantage of this metric as it can't be manipulated and timing is entirely dictated by the sponsor.
Step three.
Okay.
In step three.
Company specific criteria are applied and eventually the award may be recognized as a backlog bookings.
Generally this is called a new business award and used to calculate book to Bill.
This is generally reported by zeros.
But this number should not be confused with what I have named an initial award notification step two.
Heroes generally require verification or client funding execution contract.
Et cetera prior to recognition of an award in the backlog.
They also apply subjective and qualitative criteria.
May delay recognition of all or part of an award such.
Such as concerned about possible cancellation risk.
Now okay. So how are these steps are looking at med piece I want to review that.
If I look at step one rfps RFP flow is strong.
Q2 in Q2, it is up 31% from Q1 on a sequential basis.
However.
I had to point out that rapid growth in RFP volume is often.
And weak environment due to elevated scenario planning and to support fund raising efforts by small biopharmaceutical companies at least in our segment of the market because it can sometimes be driven by other things and just strong business environment.
So part of our assessment of RFP quality relates to anticipated timing of the programs start and the presence of a credible defined path towards startup.
This has slowed and is somewhat less clear in the current environment.
So I think I can summarize summarize this by saying that.
Quantitatively things look great, but it's hard to draw firm conclusions on.
Any impact of funding slowdown on.
Business.
If I look at step two initial award notifications.
Our initial award notifications are down in Q2 meaningfully down 45% year on year and 42% sequentially.
So they are.
Actually down and.
However on the other hand July initial award notifications have.
Recovered quite a bit and then look to be tracking more in line with the prior 12 month average.
And we're hopeful that the market weakness seen in Q2 was not lasting.
If I look at step three.
New business awards that are generally reported.
And recognize that into backlog.
They remained strong with a book to Bill of 128 and.
In Q2.
Okay.
But again you should recognize that this largely represents initial award notifications from prior quarters that have now reached contract execution nearing first patient first visit in the study and therefore meet our.
Backlog recognition criteria.
Sure.
Business development in this era of industry has.
Long cycle lengths.
Covid opportunities moved very quickly, but the average RFP takes considerable time and there can be several quarters lag between initial award notification and new business Award backlog recognition.
Thus Q2 weakness in initial award notifications might not meaningfully impact backlog bookings until Q4.
So we do have some concern but.
Things are looking.
Yeah.
By a number of metrics reasonably good particularly.
RFP volume.
And other factors cancellations cancellations can occur at any stage. After initial award notification, but they are most impactful if the program is in backlog and ongoing.
As mentioned at the start of my remarks cancellations in Q2 remain modest and do not signal a problem.
I do remain confident in our future success and above.
Above industry organic revenue growth over the longer term.
And this confidence is reflected in our stock purchases in Q1 and Q2.
With that I'll, let Jesse and Kevin update in more detail our Q2 results.
Jessie thank.
Thank you <unk> good morning, everyone.
Our revenue for the second quarter of 2022 was $351 2 million.
This represents a year over year increase of 26, 2%.
Net new business awards entering backlog in the second quarter increased 16, 3% from the prior year to $456 million. This.
This resulted in a 1.28 net book to Bill.
And ending backlog as of June 30 was approximately $2 2 billion.
An increase of 24, 4% from the prior year.
We projected that approximately $1, one 3 billion of backlog will convert to revenue in the next 12 months and.
And backlog conversion in the second quarter was 16, 8% of beginning backlog.
In 2022, we continued to make progress in hiring adding 8% from the end of 2021 and 16, 8% from the prior year.
With that I'll 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 $351 2 million in the second quarter of 2022.
This represented a year over year increase of 26, 2% on a reported basis and 27, 7% on a constant currency organic basis.
EBITDA of $68 1 million increased 42% compared to $47 9 million in the second quarter of 2021.
On a constant currency basis second quarter, EBITDA increased 35, 3% compared to the prior year.
EBITDA margin for the second quarter was 19, 4% compared to 17, 2% in the prior year period.
The increased EBITDA margin was driven by net foreign exchange benefits behind the strong U S dollar and slower head count growth in 2021.
In the second quarter of 2022 net income of $49 4 million increased 23, 6% compared to net income of $39 9 million in the prior year period.
Net income growth over the prior year was primarily driven by higher EBITDA offset by a higher effective tax rate.
Net income per diluted share for the quarter was $1 46 <unk>.
Compared to $1.06 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 17% and 25% respectively of our year to date revenue.
In the second quarter, we generated $96 6 million in cash flow from operating activities and our net days sales outstanding was negative 45 five days.
During the quarter, we repurchased approximately two 7 million shares at an average price of $137 86.
For a total of $374 6 million.
During the second quarter, our board of directors approved increases of $110 million to our share repurchase program.
As of the end of the quarter, we had no share repurchase authorization remaining.
Year to date, we have repurchased five 5 million shares, which represented 15, 2% of our common stock outstanding at the end of 2021.
Our net position at the end of the quarter was $207 1 million.
Composed of debt of $249 7 million in cash of $42 6 million.
Our net leverage ratio is approximately 0.8 times last 12 months EBITDA.
Moving now to our updated guidance for 2022.
Full year 2022 total revenue is now expected in the range of $1 405 billion to $1 43 5 billion.
Representing growth of 23% to 25, 6% over 2021 total revenue of $1 $1 2 billion.
Our 2022 EBITDA is now expected in the range of 268 million to $280 million.
Representing growth of 21%.
To 25, 5% compared to EBITDA of $223 1 million in 2021.
Based on foreign exchange rates as of June 30th. This revised guidance includes an additional foreign exchange headwind on revenue of approximately $4 million and a foreign exchange tailwind on EBITDA of approximately $3 million related to the strengthening of the U S. Dollar.
This guidance assumes a full year 2022 effective tax rate of 14, 5% to 15, 5% and $33 8 million diluted weighted average shares outstanding for 2022.
There are no additional share repurchases in our guidance.
We forecast 2022 net income in the range of $205 million to $215 million, which includes $4 3 million of interest expense on our outstanding debt.
Earnings per diluted share is now expected to be in the range of $6 seven.
The $6 36.
With that I will turn the call back over to the operator, so we can take your questions.
Thank you to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
And our first question comes from the line of.
Dave Windley with Jefferies. Your line is open. Please go ahead.
Hi, Thanks, good morning.
I wanted to take your comments and tie them in with comments you made last quarter in the last quarter you described to us.
In air quotes cancellations too.
What might be called a pre bookings bucket of awarded programs that had not advance the backlog yet so I'm using your terminology today I'm interpreting that those would have been at.
Past that initial.
Initial award notification stage.
And then today, you're talking about that initial award notification.
Being down that being the bucket that is down substantially.
Are those one and the same or are your comments today kind of adding to what you told us last quarter and how should we think about those two descriptions impacting bookings in the second half of 2022.
Okay, Yeah. Thanks, Dave.
Yes, I think my comments are really independent we did mention that we have seen some evidence of some canceled projects again youre right that were in that bucket of awarded to us. So.
That initial award notification, but had not been recognized in the backlog and so we're not backlog cancellations.
But I'm not talking about the.
When I talked about our numbers being down for the quarter Im not talking about the bucket, which of course would have been influenced by prior cancellations I'm talking about the new flow into the bucket. So I'm not talking about the level of bucket I'm talking about new flows and so it has nothing to do with the cancellations in the prior quarter.
It is new activity is down in the second quarter. So the bucket, which of course is continually emptying into.
Backlog.
Is is getting lower but I'm not talking about the level I'm talking about flows.
There were substantially down so it's kind of a real time look at how things are progressing in business development and that's the kind of.
Thing you'd see if people were slowing down decisions and not.
We're canceling things before they even award.
Award them.
You then that wouldn't be a cancellation for us we'd never got the award but.
It does represent a weakness.
And the pipeline.
And as I said, that's something that does tend to feed through.
A couple of quarters out.
So it would affect bookings.
In the later in the year.
But there is there is a delay.
From getting from that.
That bucket of initial award notifications, all the way into.
Backlog and then of course have a revenue impact even even beyond that.
Okay. Thank you for that.
On the on the guidance for the remainder of the year.
You, obviously had a very nice to Q, some upsides on both revenue and EBITDA.
When we take those in combination.
FX impact.
For the second half you appear to be.
Trimming ever so slightly.
Your revenue and EBITDA expectations on a constant currency basis is that a reflection.
Some of these issues that you are highlighting is it a reflection of.
Clients, maybe not starting projects as quickly as you had anticipated or perhaps not being able to hire quite as many people as you hoped or is it just kind of rounding error.
Hey, Dave This is Kevin on the margin side of the equation you can see that.
At the midpoint, we do still expect.
Margins to decline a bit further in the second half and it's pretty consistent with what we said in the first quarter call.
We do see.
Some inflationary costs still coming in and we are continuing to hire.
We have a lot of retention efforts in place to reduce some of the attrition that we've seen in.
In previous quarters, we've got some some office expansion coming up that are offsetting some of that tailwind that we're seeing on FX.
Okay. Thank you very much I'll yield thanks.
Thank you and our next question.
There's going to be from the line of Cristina <unk> with William Blair. Your line is open. Please go ahead.
Hi, Thank you for taking the question My first one is that I appreciate your commentary on cancellations.
Curious if you have noticed a notable increase in project delays.
Yes.
No I wouldn't say that we've specifically seen a large number of.
Of delays, but there is there is some of that we've seen that.
Weakening and more clients are.
Fishing for funding et cetera.
It's hard to it's hard to give a measure for them to have a consistent.
Metric that I could point to but anecdotally, we see some <unk>.
Can't say that it is.
Concerning at this point.
Great. Thanks, and then just an update would be appreciated on staffing overall as it relates to turnover in hiring.
Typically I noticed the cases had pouch growth slowed from the mid twenty's in the back half of the year to 20% last quarter, 17%. This quarter. So just in general you're moderating your hiring plans at all or do you expect an uptick as the year progresses.
Yes. This is jesse.
We are moderating a little bit.
Just given the business environment, I think we're well positioned for.
Current work that we have we're well positioned for upcoming projects.
As Kevin mentioned, we are continuing to hire.
But just at a slightly slower rate than than we've had.
Last year.
In 2021.
Turnover has come down too so our.
We're just spending efforts on retention.
For now that seems to have.
Improved.
And hopefully that continues.
Great. That's all for me thank you.
Thank you.
Our next.
Comes from the line of Sandy Draper with Guggenheim Partners. Your line is open. Please go ahead.
Thanks, so much.
Just a couple of.
Keeping items and start to start probably for Kevin.
Can you remind me Kevin.
If I just do the simple math of taking ending backlog from last quarter and the bookings and subtract revenue.
That number doesn't quite foot im assuming FX is the majority of that it's not a huge difference, but just can you remind me.
Why that simple math doesn't necessarily always lineup yes.
Youre right Sandy has the biggest impact there is going to be just changes in FX that don't allow you to do the basic math.
Okay, Okay got it.
Second question can you so the debt remind me destruction of the deck, because it's showing up on the balance sheet as at.
All $250 basically current portion.
It.
This revolver is that is that necessarily do you have to pay it off next 12 months.
Yes.
Sandy it's a one year revolver.
Term is in March of 2023.
Obviously, we've got the intent and ability to refinance that but yeah. That's why it's classified as short term.
Okay. So is there any.
What is sort of thinking of refinancing and putting that out longer versus let's just try to get it down and we're comfortable any thought to that just sort of the long term.
Comfort with with the debt.
I think our intent right now is to go ahead and start paying that facility off.
We generate significant some significant amounts of free cash flow and so we will start to pay that debt facility down.
We do want to make sure that we keep an eye on the stock price and what's going on there and so there is some ability to also.
Look at additional share repurchases, but yes, the intent is to pay down that facility.
And we're in discussions with our with our banking partners and we'll kind of see what makes sense.
The coming quarters in terms of refinancing.
Okay, and then Sandy we are we are comfortable with the leverage we're comfortable with with leverage on the balance sheet and it's something that we're considering right now is how much do we need for how long do we need and as Kevin mentioned.
Primary use of that would be for potential share repurchases.
Working through evaluation of capital structure.
<unk>.
Okay, Great and then.
I'm sure it's out there what remind me what the rate is on that is it for.
Loading or is it fixed and what is it.
It's floating it so far plus 1%.
Okay, Okay got it.
Obviously in a rising rate environment makes you I would assume.
More focused on paying it down.
And I guess there was a final wondering what she led me into Kevin which is.
The board has not expanded at share repo at this point I would assume that because you've tapped out on the current line you are in the process of reevaluating, but it's not a signal one way or the AD that you are absolutely not alright, I'd say arent, just you're reassessing your balance sheet and where the stock is.
If you think there is an opportunity you can pursue that but it's at this point youre going through the evaluation process and completed without trying to put words in your mouth is that sort of fair summary of what's exactly right Sandy will continue to evaluate.
Facility and what the little bit longer term nature of what we want to do looks like.
It will determine what's in the best interest of the company in the coming quarters here, but youre exactly right.
Okay, Great. Thanks, and then my last one just following up on that on the hiring question Jackie can you remind me.
Said a.
A little bit slower hiring this quarter, but still at a pretty reasonable level.
Yes.
The market really comes back how long does it take you to rebuild so an RFP pipeline not a deal done.
Of resumes.
He has come back what's the lag time before you can really tried to step on the gas and start hiring.
Aggressively obviously slowing down it's probably easier.
Got it.
Trying to think about if you're on a more moderate pace right now.
When things come back at some point how quickly can you start ramping hiring back up.
Yes.
<unk>.
Rather quickly sub.
Subject to what the what the labor market.
Competitiveness is there.
But just as a reminder, it does take a little bit longer couple of quarters up to a year sometimes four.
For people to get fully trained and new hires to be.
Good.
Utilization and contribution so there is there is a lead time there.
We're not talking about a significant pullback in hiring we still anticipate hiring at a good rate and more importantly, with retention is a key focus.
It's much easier and more productive to hang onto to somebody who is already functioning inactive then.
Then attention on hiring a new individual so.
So I think there is a combination of retention effort focused and just keeping an eye on the pulse of the business environment and how we modulate the the rate of gross new hires.
Thats our strategy here as we navigate through the coming business environment.
Great and then my question. Thanks, so much.
Okay.
Thank you.
And again, if you have a question at this time. Please press Star then one one.
And our next question comes from the line of Eric Coldwell with Baird. Your line is open. Please go ahead.
Eric.
Mr. Caldwell your line might be on mute.
Okay.
Okay.
We will go ahead and move to our next question. We do have a follow up question from the line of Paul Knight.
With Keybanc.
The notification stage decline of 45% year over year in the second quarter.
And then it recovered in July was that July recovery kind of back to what backlog growth has been meaning around mid twenties and then why do you think it declined happened and then maybe there was a rally do you think there.
Reevaluating budgets, what's your thoughts on why maybe there was this drop and then recovery.
Yes.
I have no idea.
I'm hopeful that there was.
I've got a pause here.
And things.
Things are now rolling along.
There is a there's a fair amount of volatility on a month to month basis.
And.
The only reason I would call out the prior quarters.
Yes.
Reduction, usually I wouldn't but in the current context of us being.
Being very vigilant around.
Looking at impact of funding flows and the fact that rfps are not particularly reflective.
The environment that we have actually a very strong RFP I didn't want to leave the impression that rfps are great and so things look fantastic there was a what.
What is really a rather substantial.
Reduction in those awards.
There is initial awards.
In Q2.
They snapped back in in July not to the extent of like.
Things were all backed up and then there was a.
A huge outflow that but the July numbers are looking in line for a <unk>.
A quarter similar to the.
The prior four quarters, so it looks like it's come back to.
Kind of our baseline run rate.
But that's that's.
A partial month so far.
Ah.
I don't know that Thats reflective of the next quarter, but we are hopeful it is.
And.
This up.
The volatility Youre seeing is it concentrated in that small biopharma group of customers.
79% of our revenue year to date that we see.
Yes, yes.
That drives our numbers and yes, thats exactly where we see this.
Quite a quite a I mean look you're going to see volatility in.
Initial awards.
Independent of the size of the company look sometimes the company has.
There's a lot of work coming along and and so there can be volatility just in general, but I think the weakness that we're seeing is being driven by that smaller biotech companies.
Okay and then just last question is do you see any therapeutic area that so weaker like us.
Cell therapy is that seems to be the most troublesome spot in the clinical trial market right now, but what are your thoughts.
That's a small enough area for us that it's not going to drive any of the larger numbers.
Is it the.
The slowdown I do not have a particular.
Categorization of the therapeutic area or type of study.
It's broad as far as I can see.
Okay. Thanks.
Okay.
Thank you.
And our next question is a follow up question from the line of Cristina <unk> with William Blair. Please go ahead.
Hi, Thanks for taking the additional questions I was just wondering if you can comment on their historical delays from initial award two executed awards sort of in other words the progression from bucket to bucket three and should we assume that awards are lower in Q3, as a result or more like Q4, and just kind of what you are.
You're assuming in guidance.
Yeah and look at things.
Some things move faster some things move slower.
In times of.
If there is funding difficulties or sometimes in.
More difficult market things can slow down.
As I mentioned.
During Covid you guys used to things moving.
For Covid of course.
Work I think everyone saw that there was a very rapid.
From award to execution was very very quick.
But on average it's a few quarters.
Yes.
I don't know how to characterize it.
Better than that.
There is quite a bit of variability but.
A slowdown in.
Things being initially awarded in Q2.
I pointed out.
My prepared remarks that.
We generally see that in Q4.
Is sort of the average timeframe.
Yeah.
Great that's helpful and so the Q4 I'm just to clarify what's included in guidance right now and then just as a follow up question.
Your your operating costs have been well below our expectations for the last two quarters I was just curious what youre, what youre eliminating right.
All for me thank you.
I'll take the first part of that.
We don't give guidance on bookings.
And bookings in Q4 that is things moving into backlog would have.
Immaterial impact on this year's <unk>.
Revenue and so it would not be part of guidance they would.
Potentially.
Perfect.
2023 guidance, when we get there but.
But they really wouldn't have any impact on this year's performance financially.
Christine what was the second part of your question I'm sorry.
It was just on operating costs.
Everybody at below expectations for the last few quarters, just curious what youre limiting on the cost front. Thanks.
Yeah as I had commented before we do expect.
The balance of this year for some of our cost to increase as you think about.
There is still inflation out there.
Some of our discretionary type activities, we're starting to see travel.
It will come back a bit.
Things like training come back a bit.
We are continuing to hire, albeit at maybe a slower slower pace, but we're continuing to hire and we've got a lot of retention efforts in place again.
To try to improve our attrition rate.
We've got some office expansions overseas that are going to be coming online.
In the second half so that's that's really what's driving some of those expected increases in cost in the second half.
Okay. Thank you.
Thank you.
And our next question comes from the line of Eric Coldwell.
With Baird. Your line is open.
Okay. Thank you I will try this on a new phone can you hear me now.
Yes.
Okay got it.
I was hoping and I'm sorry, if I missed this while I was dialing back in but.
Hit rate on your Rfps I'm curious if you could quantify.
What level of that is that and then qualify how that stands up versus.
The recent past and then perhaps your longer term averages.
And sort of what impact that might have.
It's a very good point, Eric it could also affect to the.
Award initial word notifications, obviously, that's what goes into that right.
They did so.
So yes, that's a very good question how much of it is slowing.
Overall decisions and how much of it is slowing and our wins are those decisions our hit rate did drop a little bit in the quarter.
But it was not the driver of that reduction I would've pointed out.
Hit rate rather than flow of product decisions.
It was that.
Central reduction in.
New award notifications was really driven by much fewer decisions.
In the quarter.
Rather than our win rate.
On those but there was a little a bit of a reduction in win rate.
We've had sort of a very high win rate the prior couple of quarters and it came down a bit closer to our average overtime.
Are you willing to share broadly what your average hit rate overtime is done.
Yes.
No I don't think we are.
But I don't think we've provided that capacity.
Don't see.
I need to hear.
Okay.
Second second topic is you had a very sharp snapback in free cash flow this quarter and I believe last quarter was chalked up to some timing.
You had obviously a very good quarter on cash flow.
Which.
<unk> tends to be indicative of a healthier environment.
Then.
As a follow on to that I would say that that is obviously a topic. We would want to look at if there is in fact, a slow down or financial distress in the client base. So I was hoping you could talk a bit about what youre seeing on the bad debt side or even leading indicators there.
And.
Any recent reviews of client credit worthiness.
You might be willing to discuss.
Yeah, Eric this is Kevin.
The bad debt side, specifically, we haven't seen an increase in bad debt.
If you look at the cash flow there is there's very little.
If any bad debt expense that was incurred in the quarter, we continue to.
To monitor.
Lions payments and expectations.
Our expectations and in funding very closely and we've been able to hold that down at this point in time.
It was the first part of your question there.
Just the strength in the free cash flow, which look to be a bit of a tire that from last quarter.
We saw similar timing on the other side so.
So we had great collections in the fourth quarter.
Resulted in kind of a slowdown in the first quarter and then things snap back on some.
Some advanced billings and collections.
In the second quarter.
Got it.
Last one for me and it's more thematic I'm not not asking you to give 'twenty three guidance, but.
In a scenario where the.
The small.
Biotech base does slow or really any channel slows, but obviously biotech is the majority of your book.
Youre hiring would slow I suspect some of your investments would slow you tightened the range a bit.
In this hypothetical scenario, where demand slows and therefore future revenue slows what do you see happening with margin is it a scenario, where you could actually have margin stability or expansion because your cost reduction in your hiring demands would come in so much or would there still potentially be some deleverage.
Across the organization on on fixed cost and.
Perhaps activities you wouldnt be willing to.
Any sort of slowed down because whatever the environment is perhaps its just a shortly shortlived nature.
Just getting a sense on what your considerations are for for future future margin. If in fact, there is a eventual.
More notable slowdown due to.
Due to lower bookings in the future.
Yes.
And there.
Historically speaking our margin increases in such an environment and I would expect that to be I would expect that to continue to be the case.
It does how much it does and whether it does is very dependent upon.
Not just.
Revenue.
Kris but.
Opportunities and what we're seeing in the future a few quarters.
But yes, there is really a slowdown and so we're seeing a slow fewer opportunities that's in.
The environment in which.
Our margin would tend to increase.
And may be materially because we.
We give up a lot of our hiring and acquisition, we're trying to stay well ahead of demand on SaaS. So I would expect.
The margin would go up.
Okay. Good. Thank you very much I'll, let others jump in.
Thank you.
And our next question is a follow up question from David Windley with Jefferies. Your line is open. Please go ahead.
Hi, Thanks for taking the follow up I wanted to.
Tie together a couple of Eric good questions. There So August almost last.
Your I just want to make sure I understand your point on opportunities that you take your cues on hiring based on opportunities coming into the top of the funnel and so.
The more true the opportunities are the better you are able to calibrate your hiring is that the right interpretation of what you said.
Thats right it would be a qualitative and quantitative assessment.
The funnel and what we see a couple of quarters out.
In.
And project ramp.
That's going to drive our hiring more than.
Current.
Correct.
Directly current environment.
Right and then the question on on hit rate and you kind of commented.
Commented that that was down but only only a very little.
Are you able to tell one of the comments I think you've made in the past is that it.
In a tight environment, a client might actually issue rfps more broadly kind of fishing for price so to speak.
In a way that would.
Kind of artificially inflate the RFP flow to the industry perhaps.
And that's something that you have to be wary of is are you able to tell if.
Like you mentioned in your response to Eric that decisions were down.
Into Q.
Is that.
Is that an indicator that some of the RFP flow.
Not.
Real.
<unk> is kind of that fishing.
Rice.
Type of stuff.
But yes, that's always hard to.
Yeah.
Come up with a single metric.
Anecdotal things, it's hard to get.
An assessment of whether that's driving how much of it.
But you are right, sometimes in a weak environment you see.
A lot of.
Some of it's fishing for price to try to get the price down.
A lot of it really is part of the funding process.
It's getting a.
Bid and go to look for funding.
And they need that in advance before they can raise funds and it's of course.
Many of our clients need to raise funds before initiating a trial, so thats hard to sort out where thats more or less can usual some.
Some of it is.
They have a certain budget and theyre doing scenario planning for what they could accomplish with different amounts of funding so they might have multi.
Multiple different type of.
Rfps for.
Really looking for what they can accomplish.
Youre right. Some of it is is a bit increased churn and less likely to move forward, but headache.
Quantitate that and say that that is what drove.
Fewer decisions in Europe .
That that drove rfps, it's hard for us to sort that out.
Okay I appreciate the answers thank you very much.
Thank you and I am showing no further questions and I would like to turn the conference back over to Loren Morris for any further remarks.
And thank you for joining us on today's call and for your interest and we look forward to speaking with you again on our third quarter 2022 earnings call.
This concludes today's conference. Thank you for participating you may all disconnect everyone have a great day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Yes.
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