Q2 2022 Science 37 Holdings Inc Earnings Call
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Hello, Thank you for standing by and welcome to the Science 37 second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and.
Answer session to ask a question. During this session you will need to press star one one on your telephone. Please be advised that today's conference maybe recorded I would now like to hand, the conference over to your speaker today, Caroline Paul Investor Relations. Please go ahead.
Thank you and thank you all for participating in today's call. Joining me are David common Chief Executive Officer, and Mike ceramic Chief Financial Officer.
Earlier today, we signed 37 released financial results for the quarter ended June 30th 2022.
A copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
These forward looking statements are based upon our current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
We encourage you to review our filings made with the Securities and Exchange Commission for a discussion of these risk factors, including our quarterly report on Form 10-Q for the quarter ended June 32022, which was filed earlier today.
You are cautioned not to place undue reliance on these forward looking statements, which we speak only as of today and the company disclaims any obligation to update such statements from your information.
We believe that certain non-GAAP metrics are useful in evaluating our operational performance. We use these non-GAAP measures to evaluate our ongoing operations and for internal planning and forecasting purposes.
Information about non-GAAP financial measures referenced including a reconciliation of those measures. The most comparable GAAP measures can be found in our SEC filings in the earnings materials.
On the Investor Relations portion of our website at investors clients thirty-seven dotcom.
I would now like to turn the call over to David Colman.
Thanks, Caroline and good morning, everyone and thank you for joining us.
During the second quarter, we made meaningful progress on our strategic priorities positioning size 37 for long term profitability.
Pending our market leadership position through investments in our operating system and enhancing our commercial efforts for topline growth.
With intentional focus on our path to profitability, we were able to achieve significantly significant gains quarter over quarter.
Second quarter revenues remained strong at $19 $3 million and cost containment enabled us to grow adjusted gross margins sequentially from 17% in the first quarter and more than 30%.
Second quarter, while also reducing SG&A, excluding stock based compensation sanction like almost 10%.
With this level of focus we remain committed to our plan.
As noted in our first quarter earnings call should continue to drive towards profitability by the end of 2024 with our existing cash on hand.
While our highest priority has been to pave our path to profitability, we have and will continue to invest in our operating system in order to extend our market leadership position.
As Youll recall, we made significant investments to enable the next generation technology platform release in the second quarter and we're very pleased with the market receptivity.
Qualitatively customer feedback has been extraordinarily positive both in terms of the platform's flexibility and the breadth of capability to deliver a cost across all of the centralized components such as the consent.
What source adverse effects tracking medical record retrieval, concomitant medicine tracking and telemedicine.
All in one platform.
This is in addition to unifying the workflow to enable a patient mobile nurse remote coordinator and telemedicine investigator to triangulate care all from the comfort of the patients living room with consistency across each patient and each visit along the vertical.
Quantitatively or sales pipeline activity for new Tech only opportunities in the second quarter was five times greater than that in the first quarter levels.
Our new platform released it has already generated its first award with a top 20 pharma company.
Underwent an exhaustive DCT tech RFP, where we displaced a competitor to become its new provider of choice.
As we continue to invest in the platform to drive market adoption. We're also investing in automating our market, leading workflow capability to continue to reduce human interaction and subjectivity, which will reduce cost and improve compliance and quality.
Beyond the core technology platform, we continue to invest in our patient recruitment capabilities and are excited about the upcoming launch of our new CRM system to streamline the patient enrollment process, which we've coupled with investments our call center technology to ensure that every patient who expressed interest in participating as a fee.
Loss experience from contact to consent in order to efficiently maximize study enrollment.
These enhancements will build upon our current patient recruitment success rate, where we're happy to report we are delivering well above our 100% on time targets across the blended mix of active studies.
This of course can be juxtaposed with traditional clinical trial timelines, which are reportedly late more than 80% over time.
Our final area of focus enhancing our commercial effort continues to produce both volume and larger deal sizes across large pharma midsized pharma and biotech.
Save time to reduce burn and to accelerate time to commercialization.
As of the end of the second quarter and as we sit here today.
Our sales pipeline continues to set new highs.
In addition to the pipeline growth for our new technology, offering, which I talked about a moment ago.
Our <unk> pipeline is up 70% quarter over quarter much of which is the result of our metastatic light and matter of fact rescue product offerings that we announced in.
In the second quarter.
The composition of our pipeline continues to lean toward deals that are greater than $10 million.
Many of which are from repeat customers, which we believe is a testament to the maturation of the PCT market and our ability to effectively enhance speed and productivity for our existing customers.
For perspective.
The dollar volume of $10 million plus opportunities in our pipeline is up nearly 400% year over year.
And these larger opportunities now represent almost 50% of our qualified sales pipeline on a dollar basis.
Well, we're excited to see the rapid growth in our sales pipeline. We're also seeing longer sales cycles, particularly on larger studies, which is reflected in our net bookings of $25 4 million for the second quarter.
The elongated sales cycles are directly correlated to the size of the opportunities in our pipeline.
Given the criticality of the studies, we are supporting and the number of people who are often involved in the decision making process.
While others in the industry are reporting longer decision, making timelines amongst sponsors it's unclear how much of that may be impacting us.
Regardless, we remain optimistic about our ability to convert our growing pipeline and strong bookings over the long run.
With that I'll now turn the call over to Mike <unk>, Our Chief financial officer to provide additional detail regarding our financial performance.
Thank you, David and Hello, everyone I plan to take us through the second quarter results for the three months ended June 32022, and then our outlook for the full year of 2022.
We are pleased to report revenues for the quarter of $19 3 million, which represents a 54% increase from the $12 5 million in the same period of the prior year.
David noted we finished the quarter with net bookings of $25 4 million compared to $44 1 million in the second quarter of 2021.
It's important to note that while our sales pipeline is growing and overall size and composition with nearly 50% of that pipeline comprised of deals larger than $10 billion.
These larger opportunities take significantly longer to contract, which has negatively impacted short term bookings conversions.
As expected our cancellation rate in the quarter reverted back close to our historical average versus what we had experienced in the first quarter with the two large coca cancellations, which we discussed during our last earnings call.
Our second quarter cancellation rate was under 12%, which was roughly in line with what we saw in 2021 and lower than what we see across the industry, which we believe to be 15% to 20%.
Now turning to gross profit.
Our adjusted gross profit for the second quarter was $5 9 million compared to five 4 million in the same period for the prior year adjusted.
Adjusted gross margin was 36% compared to 43, 2% for the same period of the prior year.
As you May recall, our 36% adjusted gross margin for the second quarter was up significantly compared to the 17, 2% in the first quarter of this year as two of our largest studies based on our old pricing model came to conclusion, and we were effectively able to absorb some of the excess capacity we have in the first quarter.
In addition to the significant gains in adjusted gross margin, we were able to take significant cost out of the business by sharing our reliance on third party resources, improving processes and deploying automation to reduce our need for excess hiring.
As a result, selling general and administrative expenses inclusive of $5 7 million of stock based compensation.
Were $28 2 million in the second quarter, a decrease from $30 2 million in the first quarter of 2022.
Adjusted EBITDA, which we calculate by adding back depreciation and amortization taxes interests transaction expenses and stock based compensation and adjusting for the impact of the change in fair value of the earn out liability with a loss of $16 5 million in the quarter, representing a 17% sequential improvement from the first quarter loss.
Of $19 8 million.
You will note our GAAP net loss of $5 8 million reflects a gain of $20 9 million related to the change in fair value of the earn out liability, which was part of the original transaction with this back.
As a reminder, upon the stock price meeting certain thresholds within a 36 month period of the transaction closing the equity holders of the former sigh of 37 S&P would receive additional shares under U S. GAAP, we're required to reevaluate the potential value of that arrangement on a quarterly basis.
With respect to cash we ended the quarter with approximately $148 3 million of cash and cash equivalents.
This would imply a cash burn of $31 million in the quarter down from $35 million cash burn in the first quarter.
However, if you account for a couple of large receivables totaling approximately $3 3 million from two customers who were not biotech small pharma.
Which were due to the last week of June and came in in the first week of July as well as a number of onetime items, including the payout of accrued vacation hours as we switched to a flexible time off policy or.
Our normalized quarterly cash burn would have been approximately $24 million in the second quarter.
Now, let's turn to the outlook for the remainder of 2022.
As a result of the longer booking conversion timelines associated with the larger opportunities we are seeing in our pipeline.
We are adjusting our full year 2022 projected revenues to be in the range of 76 million to $86 million.
Representing a 28% to 44% year over year growth.
We expect third quarter gross margins to be similar to our second quarter performance with additional gross margin expansion in the fourth fourth quarter close to 40%.
We continue to expect adjusted EBITDA for the full year 2022 to be between negative $65 million to negative $69 million.
Looking beyond 2022, as David noted, we expect to be both quarterly EBITDA breakeven and cash neutral by the end of 2024.
Based on our current operating plan, we expect to be able to reach cash flow positivity with our existing cash on hand.
As of June 32022, we had approximately $116 3 million shares outstanding.
As we currently anticipate having an adjusted net loss in the upcoming quarter and year any converted options would be deemed anti dilutive and therefore on a GAAP basis, we expect the basic and diluted share counts to be the same.
In summary, we remain optimistic about our continued growth trajectory with qualified sales pipeline at a record level and larger $10 million plus opportunities representing nearly half of that pipeline, which is up nearly 400% year over year.
We remain committed to delivering long term profitability and are pleased with our recent strides in that direction, particularly in regards to sequential gross margin expansion.
G&A reduction and reduced cash burn at this point I would like to turn it back the call over to David for closing costs.
Thank you Mike.
Very pleased with both the continued strong execution by our team and progress achieved in our strategic priorities as we continue to pioneer decentralizing the clinical trial industry. We remain focused on building on this positive momentum with a keen eye toward our objective of long term profitability and maximizing value for our shareholders.
With that I will now turn it over to the operator to open it up for questions.
Thank you.
Reminder, to ask a question you will need to press star one one on your telephone please limit yourself to one question and one follow up please standby will compile the Q&A roster.
Our first question comes from Charles <unk> with Cowen You May proceed.
Yes, thanks for taking the questions guys.
David Mike just wanted to talk a little bit about.
The shift in really focusing on larger deals obviously, that's a good sign.
Our term can you can you talk a little bit about.
Why the shift now and.
Sort of about sort of resources internally to be able to go after larger deals.
Continue to go after smaller deals at the same time.
No.
You asked about that and then secondly, the timelines what would you expect because I would imagine over time.
As greater than $10 million deals become more the norm for you. So converting what is what is your expectations for how long the sales cycle will be relative to what we've been seeing historically.
Yes so.
Thanks for the question Charles Thanks for joining us today too.
Regarding the larger deals it's really always been.
Yes.
Okay pushing for as a company is to continue to be.
To provide more utility to sponsors continue to.
Gain a larger.
Electric electric trial.
And Mark pivotal trial in pivotal trials and that's exactly what's happening as a result.
I think thats.
Really.
Okay. Good reflection of the positivity of the model in terms of what we've been able to achieve for our customers.
I think the acceptance of DCT in general so I think that.
In terms of.
Thanks, a lot and building, what we think about for the future.
In terms of timelines for the for the closing these trials I think it's a little bit to be determined.
It's definitely longer.
Have.
Some of the smaller deals can close in 30 days, but the larger deals can be 120, or even more and so.
Any of these larger opportunities we're talking about we've been working through all the details on them for quite some time as you might.
You might expect when you are talking about a larger.
Opportunity or a more pivotal trial, there's more people who are involved in the decision making process.
Because of the criticality of the trial itself and so I think we're seeing that as a reflection and if I could add one more thing in terms of those larger opportunities.
We're really encouraged by the fact that a number of those larger opportunities are coming from existing customers.
And so its customers that we've demonstrated our ability to deliver for in the past they are coming back for more and larger opportunities.
And thats supplemented by some new customers as well in that cohort of $10 million plus opportunities.
I appreciate that and just to follow up on that would you expect over time is just part of the extended timeline for these deals in part because this is still relative relatively novels, where some of these companies, particularly for as you can see as big of trials would you expect these timelines to perhaps shorten in the future.
Yes.
As clients become more comfortable and confident in the model.
I think its little bit too early to tell I think.
We would hope to see that.
Yes, I think time will tell a little bit more on that and I think as you.
As we get.
<unk>.
The repeat buyers as well I think that you expect to get some of those transactions to come in much more quickly as well so over time, I guess I would expect it but time will tell all of it.
Great and then Mike just one follow up on cash is at $24 million sort of if we adjust for some items is that what you would expect for a third is that a good run rate for the rest of the year.
I think our expectation is that we will see sequential improvements in that cash burn as we move through the rest of the year.
Great. Thanks, a lot I appreciate it.
Thanks Charles.
Thank you one moment for questions.
Our next question comes from Justin Lin with William Blair You May proceed.
Hi, good morning.
I guess a question on guidance, what's driving the $10 million reduction in your revenue guidance at the midpoint does that have something to do with certain legacy projects being pulled forward or cancelled.
Which might help explain.
The implied sort of higher implied margins with the unchanged EBITDA guide or is that truly just a matter of better cost controls.
Are you talking about revenue guidance.
Right.
Yes, I think we ended the quarter at.
$25 million to a little bit lower than what we had expected.
I think if you take a look at our backlog I think is very strong.
But what we want to do is to Derisk variability a little bit on our guidance that we're providing.
And then just to add to that I think.
In terms of the guidance that we're providing now.
As David said on the DRAM side, we have substantially all of the low end and the backlog as of the end of the second quarter.
Okay. That's helpful.
I guess, just a follow up question on bookings.
Obviously, you talked about these larger opportunities any notable shift one way or another towards a certain offering I'm, referring to sort of <unk> here and any color you can give regarding how these are trending would be helpful.
Yes.
I had noted we're super excited about it.
Technology platform and the.
Rapid pipeline expansion as a result of that and so I think that that's.
One area I think the other area is on the heels of the announcement for our satellite and matter of fact rescue.
Solutions and I think you've got a lot of strong growth in the metastatic area as well <unk> continues to grow as well, but I think that.
It's probably safe to say that tech and metastatic or growing a little bit faster than TCT for PCT only.
Got it thank you very much.
Thanks for the question.
Thank you one moment for questions.
Our next question comes from Matt Hewitt with Craig Hallum, You May proceed.
Good morning, and thank you for taking the questions.
Maybe one follow up on the sales strategy shift.
As you look at the opportunities today is it something that was kind of a market driven.
Where you were seeing some changes in the market and Thats what prompted you to make the change now.
Or was it a function of kind of as you're talking to your existing customers and seeing what's in their pipelines. It just became apparent that you needed to kind of put yourself in a position to win those awards.
Yes.
The shift happened a while ago I mean, we've been very intentional about our desire to.
Work larger opportunities to be a more critical part of the trials that our sponsors are running and so our focus has really been on expanding our utility I think it's a natural progression for us.
From being.
Sometimes.
More of a quick fix or a proof of concept into.
Our mature.
Nicole Research organization that has the ability to deliver a lot more on behalf of our customers.
Okay, and then maybe shifting gears, you've got partnerships with some pretty big <unk> like PPD. What are you seeing in terms of business coming from those relationships.
Yes.
The partnerships.
I think we've been public with PPD in <unk> worldwide clinical trials in clinic.
Yes.
They offer nice opportunity in terms of additional pipeline for us I think.
Maybe even more importantly, I think that we offer a lot of utility to them in terms of having the ability to extend there.
Offering to think outside of just the traditional site based network to add on top of virtual site to their portfolio. In addition to our tech only solution that they might be able to use as well in order to be able to execute some of the point solutions that they're trying to deliver in the marketplace.
To be excited about those partnerships.
There are important part of our of our portfolio and we continue to extend our relationships with other <unk> as well.
More to come on that in the future.
Great. Thank you.
Thank you Matt really appreciate the question.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from Frank <unk> with Lake Street, You May proceed.
Hey, Thanks for taking my questions wanted to just try one more on the guidance and make sure I understand the <unk>.
Moving pieces you are at play.
Mid point guidance came down about $10 million seem like this quarter was in line. Obviously, there is a large backlog of over $180 million right. Now just trying to triangulate really what drove the guide down for the second half it sounds like.
The bookings commentary is more likely to be impactful to 2023, but obviously, we saw that 2022 guide come down so just trying to triangulate exactly what's going on with the guidance revision.
I'll start if you want to answer add on but yes.
We came in the bookings are a little bit disappointing for the quarter at $25 million frankly, and so.
Couple that with the pipeline that we currently have with that.
Larger 10 million dollar plus opportunities sitting there and the length of those decisions that are coming in.
We wanted to do is to issue guidance that.
Has.
The low end of that.
We have a ton of confidence and try.
Tried to de risk it for everybody a little bit.
And.
I think it's a.
A safe range for us to plan as a result.
I would echo that and I would say that from the encouraging standpoint, we still see very strong demand for the offerings that we provide as evidenced by the record level of pipe and larger opportunities.
Yes, absolutely second quarter bookings impacted some of that conversion to revenue in the second half of this year and then to David's points with some of these longer decision making timelines.
That impacts the ability to convert revenue here in the second half of the year as well.
Okay. That's very helpful and then maybe on <unk>.
Bookings more specifically.
Just kind of share your thoughts around the Lumpiness factor, obviously, we got the wrong end of the SOR at this time, but I have a sense with some of these larger contracts you could have some bookings significant bookings outperformance.
As well when some of these bigger.
<unk> Cross the goal line. So maybe just kind of walk through both sides of the Lumpiness factor with some of these bigger customers.
I think thats you fit to I mean over time do you stack up more and more of these opportunities in the pipeline and deal close more.
And deliver higher overall bookings and so that is exactly the thesis frankly hit right on it and so we're going to continue to go down this pathway and.
Over the long term not only do we provide greater utility to our sponsor customers, but we also deliver more in terms of bookings and ultimately shareholder value.
Okay, and then maybe just one last one.
Mike you touched on gross margins trending towards the 40% level for.
The last quarter of this year is that a reasonable run rate thinking about gross margins on a go forward basis or should we expect that to jump around with different seasonality factors et cetera.
Yes, as I said.
The prepared remarks, we would expect third quarter gross adjusted gross margins to be roughly in line with the second quarter.
Then with the expansion into the fourth quarter to approximate nearing the 40% level.
On a go forward basis.
I don't think we're issuing official guidance, but.
We have made changes to our pricing strategy at the end of 2020, and then we update that again at the beginning of this year too or minor fronts, but what I can say is that.
As we see the projects go out the door.
We are having high level of fidelity.
Two our minimum margin thresholds.
What goes out the door.
Yes, so I think building on that.
Aim here is for us to continue on that upward trajectory from a gross margin perspective correct.
Got it Okay. That's helpful. I'll stop there thanks for taking my questions.
Alright, thanks, so much for joining thanks for the question.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to David Goldman for any further remarks.
I'll just say thanks, everybody for participating and we look forward to.
Future conversations have a great day.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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