Science 37 Holdings Inc. Q1 2023 Earnings Call
Greetings and welcome to the Science 37 first quarter 2023 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please pause for the rest of the program and make sure that everyone knows their or their
Thank you all for participating in today's call. Joining me are David Komen, Chief Executive Officer, and Mike Zarenak, Chief Financial Officer. Earlier today, Science 37 released financial results for the quarter-ended March 31, 2023. A copy of the press release is available on the company's website.
Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal security 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 of various assumptions.
of these risk factors, including in the Risk Factors section of the company's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today and the company disclaims any obligation.
to update such statements for new 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 financial statements and financial information is also available to us.
to turn the call over to David Cohen. David?
Thank you, Steve, and thanks everyone for joining us for our first quarter of the 2023 series call.
First code of revenue was $14.1 million and adjusted EBITDA loss was...
12.4 million, both of which were better than expected.
More than 80% of our first quarter back, our bookings rather, came from repeat customers.
including four projects worth more than $3 million each.
First quarter gross bookings total 23.6 million dollars and that bookings were just under 12 million dollars.
As referenced in our business update last month, approximately two-thirds of our realization adjustments was from the cancellation of a single study that was previously placed non-holed and was not included in our original phased backlog assumption for this year.
The cancellation has no impact on our previously stated 2023 revenue guidance.
Today, we are confirming our 2023 revenue guidance of $50 million to $60 million.
Despite the continued challenging macroeconomic conditions, we're pleased to see some progress in our pipeline now that Michael Shipton, our new Chief Commercial Officer, has had two full quarters under his belt.
quarter over quarter RFP volume.
Dollar volume is up approximately 25% at the end of the first quarter.
and it includes a number of exciting new opportunities from our top 20 pharma, CRO, and real-world evidence channels where Michael has placed specific emphasis.
In the past few weeks, we announced a couple exciting new additions to our team, including Erica Prolyzer and Irina Lambridas, who are leading our patient recruitment and quality efforts respectively, and have really hit the ground running.
These are two important strategic additions for us. Recruiting patients faster is expected to drive new business growth and should accelerate the conversion of our backlog.
Quality is equally important, particularly for repeat business, and as we execute on our Centers of Excellence, or CRE, strategy, we introduced on the business update call last month.
Our COE strategy is going very well and is fully on track. We noted that this strategy will help us focus attention and resources to our unique metasite offering while driving costs out of the business. As a result of this strategy and our continued commitment to cost containment, we have been able to achieve a very high level of COE.
41 million to 39 million, which represents a nearly 20 percent improvement in the EBITDA compared to our previous guidance provided last quarter.
made possible by the great work being conducted by Troy Bryanton, our Chief Technology Officer, who joined us last fall.
He's brought on some incredible talent, including our head of technology operations, Christiane Boutendak, our head of architecture and interoperability, Paul Kalin, and the newest member of our technology team, Jeff Richardson, who now heads data and analytics.
some incredible talent including our head of technology operations Christian Christian Putin doc our head of architecture and interoperability Paul Kalin and the newest member of our technology team Jeff Richardson who now heads data and analytics. These new hires
came to us with significant leadership experience from companies that include Thermo Fisher, IQVIA, Cineos, and Javara, and ample background in effectively managing near and offshore teams, as well as integrating new technology.
Speaking of new technology integrations, we are very pleased with the addition of the vault assets that we acquired earlier this year.
the integration of the volt scheduling capabilities.
of the vault scheduling capabilities, the team.
and additional workflows are expected to lead to material efficiencies in our delivery model going forward. In summary, putting a tough year behind us, we're coming into 2023 with solid results and renewed optimism in our ability to accelerate top-lying growth once again.
We have made some transformative changes to our infrastructure that are already producing a significant impact on our cost structure.
These changes give us confidence that we will reach our goal of adjusted EBITDA positive by the end of 2024 without having to raise additional capital and with ample cash on hand.
Now, before turning it over to Mike for the financial highlights from the quarter, I wanted to call your attention to the recent draft guidance issued by the FDA regarding the use of decentralized clinical trials for drugs, biological products, and devices.
Overall, we believe the draft guidance makes great strides to codify areas of operational ambiguity. We believe the draft guidance makes great strides to codify areas of operational ambiguity.
patient-friendly clinical research with our standard operating procedures as best practice.
It should give great comfort to sponsors going forward that the Science 37 metasite fully complies with the FDA regulations for drug development.
Their draft guidance reinforces the benefits of DCT in regards to recruitment, retention, and patient centricity.
It doubles down on FDA's commitment to diversity and endorses the model as a means through which to deliver more diversity in clinical research.
Of course, we'll have to wait for the full final guidance, but we believe even this draft guidance is a big win for Science 37, our sponsors, and for patients everywhere. With that, I will now turn the call over to Mike Zaranek, our Chief Financial Officer, to provide additional details. Thank you, David, and good morning, everyone.
I will discuss the first quarter results for the period ended March 31st, 2023, and then we'll affirm our outlook for full year 2023. In the first quarter, we reported revenues of $14.1 million, which was ahead of our expectations.
It represents a 25% decrease from the same period last year. However, excluding COVID and COVID-related mitigation work, our year-over-year revenues increased 28%, which is a testament to the underlying growth of business. We finished the first quarter with $23.6 million of gross bookings and $11.7 million of net bookings.
and realization adjustments relate to a single investigational program from 2018 for which the sponsor had previously directed multiple starts and stops over the last four plus years.
The program was on pause when we prepared our 2023 guidance, so this program was not included in our 2023 phase backlog or revenue guidance.
The customer ultimately terminated the program in the first quarter of 2023, at which point we completely removed it from the total backlog, consistent with historical practice.
We exited the first quarter with a combined phase backlog plus realized year-to-date revenue of $52.3 million for 2023.
and $170.5 million in total backlog.
COVID-related projects represent only approximately 10% of the total backlog.
Just the gross margin was 22.9% for the first quarter compared to 17.2% for the same period last year.
Adjusted gross profit in the first quarter was $3.2 million, effectively flat as compared to the same period in the prior year.
Selling general and administrative expenses, excluding $5.1 million of stock-based compensation and depreciation, were $15.6 million in the first quarter. This was down approximately 32% compared to the same period from last year. Adjusted EBITDA, which we calculate by adding back depreciation, amortization, taxes, and
Amongst other things, this was a result of our market capitalization, which was less than the cash and book value for a sustained period. This is an accounting assessment and does not necessarily reflect our view of the longer term potential of our platform. US GAAP net loss was $16.8 million versus GAAP net income of $44.9 million in the first quarter a year ago, which if you recall, included a $75.5 million positive non-cash reversal and fair value of the earn out liability.
The adjusted net loss for the first quarter was $12.6 million, which compared to an adjusted net loss of $23.3 million in the same period last year. Now, turning to cash. We ended the quarter with $82.6 million in cash and cash equivalents.
In the first quarter, our cash burn was approximately $25 million, which included one-time costs and seasonal costs, including our annual cash bonus payout, the purchase of the Vault Health platform, and cash payments related to previously announced restructuring actions.
Cash burn excluding these items was in line with the fourth quarter at approximately $20 million.
As we noted in our SEC filings on October , I'm sorry, as we noted in our SEC filings on April 28th
We completed a tender offer for certain outstanding options.
As you may have seen in our 8K that we filed at the end of December 2022, we have until June 26, 2023 to become compliant with the NASDAQ continued listing requirements. If the compliance requirements are not met prior to the June 26 deadline, we intend to seek a 180-day extension.
which would push the deadline to regain compliance to late December 2023, at which point we are afforded several options which we will consider if necessary.
Now let's turn to the outlook for 2023.
This morning we are reconfirming the 2023 revenue guidance of $55 million to $60 million.
First quarter gross bookings and revenues were consistent or slightly above our expectations, and we continue to have strong visibility into our phase backlog.
We expect the introduction of our Centers of Excellence, or COEs, and the corresponding restructuring that we announced previously, to have a positive effect on our profitability this year.
As a reminder from our business update call in April , we noted that these changes would provide an additional $8 to $10 million of savings in 2023 relative to our original adjusted EBITDA guidance of negative $48 million to negative $50 million that we announced on our fourth quarter earnings call. These incremental savings are reflected in our latest guidance for 2023 adjusted EBITDA loss.
in the range of $39 million to $41 million.
and then a full benefit from the savings in both the third and fourth quarters respectively.
Finally, we wanted to provide some additional color on our path to profitability by the end of 2024.
We remain highly optimistic about our bookings and revenue growth, as evidenced by the improvements to our RFP flow.
The recent investments in our patient recruitment function are expected to yield more predictable conversion of backlog into revenue. And we have taken action to ensure we execute with industry-leading quality while we increase profitability and dramatically reduce cash burn.
To provide a finer point, we see a clear, albeit partial, impact of the recent cost restructuring in the second quarter.
Over the course of the year we expect the full impact on the quarterly adjusted gross margins to improve from the low 20% range in the first quarter to the low to mid 30% range in the second half.
Additionally, we expect to see a sequential reduction in SG&A and a more dramatic reduction in the cash burn, exiting the fourth quarter 2023 with a cash burn rate of less than $10
As we progress into 2024, we expect the technology investments we are making this year will help us expand quarterly gross margins to 40% plus, delivering higher gross profit on a relatively fixed level of SG&A, and ending Q4 2024 EBITDA positive without raising additional capital.
having ample cash on hand and no debt.
In summary, we are encouraged by our first quarter 2023 gross bookings and cost structure initiatives.
Going forward, we are optimistic about the efficiencies of our cost center of excellence model and we will provide for our company and that will provide our company and customers as we march down the path to profitability. At this point, I'd like to turn the call back over to David for closing comments. Thank you.
optimistic about the efficiencies of our cost center of excellence model and will provide for our company and that will provide our company and customers as we march down the path to profitability. At this point I'd like to turn the call back over to David for closing comments. Thank you Mike.
Between improving commercial traction enhancements made to our patient recruitment quality and technology leadership, and the recent restructuring to improve our margins and cash position, our competence grew this quarter.
We're highly focused on protecting our cash runway for the benefit of our patients, sponsors, and shareholders. We do not view this as optional. We expect to come out of this period of transition as a much stronger company that is well positioned to profitably scale our business and create value for our key stakeholders.
With that, we will now open it up for questions and turn it back over to the operator.
Thank you. We'll now be conducting a question and answer session. If you would like to ask questions, please press star one on your telephone keypad. A confirmation phone will indicate your aligns in the question queue. You may press star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your hands and before pressing the star keys.
Our first question comes from Charles Rhee with TD Colin, please go ahead.
Yeah, thanks for taking the questions, guys. David, I just want to talk a little bit about what you're seeing now in terms of the markets, obviously with the draft guidance, I think large, somewhat expected. Maybe talk a little bit about the character of the discussions you're starting to have right now. restored is a series of hedged documents, and one of the kinds of stocks is cherry sugar. What do you see different from that? Well, we we're very much like a trade neutral stock market, we're in a situation where the market is not as much based off 3.75, the 1.0, or 1.0 PBE range, so it's a good position
whether this has increased the volume of inquiries into science. And then secondly, you know, if you could just remind us how you guys differentiate yourselves from, you know, obviously there's other players in the space, so small, and certainly some of the larger...
you know CROs, some of them claim to have very extensive PCP capabilities as well. Maybe if you can just remind us how you see yourselves positioned in the market and maybe a little bit more on the pipeline.
Sure, thanks for the question, Charles.
If you could just take the overall macroeconomic environment, I think that the same themes remain in terms of longer sales cycles, delays in project funding.
and general conservatism that we didn't experience back in 2021. But we really plan for that going forward. We've been talking about that for the last several quarters.
We're pleased to start seeing some traction on our RFP volume as it relates to the work that Michael Shipton and his team have been doing. You know, particularly focusing on the top 20 pharma, the CRO channel and RWE channels. I think those are been providing us with.
some significant traction. So the quality, I mean, I think the quality business flow is up and our win rate's up, and I think that's all very positive. In regards to the FDA guidance, we look at that as being super favorable for us, not just us, but also for sponsors and for patients.
I mean, it really does codify a lot of the ambiguity that has been out there.
But I like to, as we read through it, we compare that relative to our SOPs that we have in place today and it really...
It reads almost like a Science 37 handbook. So excited about what that means for us as we move forward. Now the draft guidance just came out, so I think it'll take a little bit of time for people to start digesting it, but it certainly should help us.
in the immediate time just from a wind rate perspective. The second question was in regard to the competitive environment and...
I think we still have framed ourselves in a really nice place with the metasite solution.
If you look at what is out there from a competitive standpoint, there are a lot of point solutions out there being advertised as a solution to decentralization. Could be just a nursing solution or combining a nurse solution with, you know, third-party technology solution. But the fact that we have...
I know they call everything that we do decentralized clinical research, but what we're really doing is centralizing the people, processes, and technology into one place in order to be able to deliver a fully decentralized or decentralized arm of a clinical trial. I think that puts us in a really nice place from a competitive standpoint.
There are a couple smaller companies that are out there trying to replicate the Science37 model. I even know of one that came out recently that had something like, were Science37, were like Science37 but less expensive or something like that on their website. I mean, I think it's... So again, it's
flattery a little bit, but we've been doing this since 2014 and have
flattery a little bit. But we've been doing this since 2014 and have gone through the process
companies to be able to catch up to be able to execute the way that Sites 37 can.
What about some of the larger, your larger peers, you know, a lot of them have been talking about their GCP capabilities.
for larger, far more sponsors. Does that make it a more difficult challenge for you when you're going in to explain what you do? Or do you feel sponsors are going to understand the different capabilities of all the players?
Yeah, I think as this market matures, that's all better for us. The more that inflammation is contained between the cell and the firing cells, the better
the model gets traction and interest. I think we continue to be perceived as the leader in the space and pioneer and all that.
I think is helping us in terms of our recent traction.
We are a bit different in that we have everything all in one place. I mean, we're really the only company of scale that has the technology, the processes, the people, combined into one entity to be able to execute.
decentralized clinical trials or the metastatic model on scale.
As far as CROs, I know you mentioned that in particular, and we continue to see CROs as great partners for us, as I noted in the prepared comments, CROs.
continue to be a really good channel for us. In fact, I think that's an area of traction for us today. Again, from previous discussions, Michael.
came from the CRO environment and has really embraced the CRO partnerships. And they've embraced it back. So it's been a good partnership for us. Thanks, Charles. Our next question comes from Max.
with William Blair. Please go ahead.
Good morning. It's Kristine Ahn from MAX. Thanks for taking our questions. Our first question is around your pipeline. You mentioned RFPs up 20 percent but can we have a quantitative update on win rate and thoughts on bookings for the rest of the year as a percent from new customers versus wins coming from existing customers? Thanks.
Well, we don't provide guidance on bookings and we haven't historically provided our win rates. And I can tell you anecdotally that—
Well, we don't provide guidance on bookings and we haven't historically provided our win rates. I can tell you anecdotally that the win rates have been very high.
gone up in recent months, and that's a really good sign for traction for us.
in recent months and that's a really good sign for traction for us and I think consistently across.
All of our channels were seeing a lot of creativity. We did give guidance for revenue for the year and we did note that we believe the second half revenue will be up.
Significantly, I think you said 25% greater than the original forecast or original guidance for the first half.
Hopefully that helps you in terms of growth going forward. And then on the repeat versus new, in the first quarter the repeat customer is accounted for about 80% of the total gross bookings. We look at that as a positive sign but also an opportunity.
I'm not sure that there's a right answer for the ratio between new customers and repeat customers, but there certainly is an opportunity for us to grow the new customer base with the repeat customer numbers coming in pretty strongly.
Great, that's really helpful. And then our second and last one is given Science 37's restructuring plan includes the addition of 115 employees in 2023 in those three regions of India, Pakistan and Slovakia, but the expected elimination is...
We're not the first company to do this in regards to shifting to a center of excellence model.
We did take the opportunity to take out some excess capacity when we actually executed this. And as we move forward into the COE model...
we're really taking advantage of near and offshore resources to
execute the strategy that we may have done in the, you know, all in the U.S. in the past.
So this gives us the flexibility to bring in additional resources at a significantly lower cost.
And we've also made investments in leadership to be able to make that transition as strong as possible, most notably the introduction of our new head of quality, Irena, who is really exciting. She hit the ground running for us. And the technology leadership that we brought on to be able to ensure that we're executing this on scale.
as efficiently and as effectively as humanly possible.
Our next question comes from Matt Hewitt with Craig Holland Capital Group.
Our next question comes from Matt Hewitt with Craig Holland Capital Group. Please go ahead.
Good morning, thank you for taking the questions. Maybe first up, the gross margin improvement that you spoke to not only for this year but for next year, I'm curious is that all in the cost and efficiency side or has there been some opportunities to take up pricing in some areas? Maybe I'll start if you want to jump in, Mike.
There's certainly a significant expansion that we've been able to do from a pure cost standpoint. And so we have...
you know, we made those actions to be able to execute that, but there is a top line opportunity for us as well. I think about it twofold. One is in terms of growth of revenue, growth of bookings, and we're starting to see that RFP volume going up.
as I mentioned, so we expect that to be a nice knock-on effect, and we also expect revenues to increase based off of our ability to potentially accelerate some of our backlog with the introduction of our patient recruitment activities with Erica coming on board.
I'm not sure pricing has really been the area of focus for us. I think we've got competitive pricing in the marketplace today. We made some of those adjustments in late 2022. Don't expect to see a change there.
But definitely there is both a growth and a cost reduction component to it. Yeah, I mean I would just say I characterize it in four forms. One, we took out excess capacity in this latest round to restructuring, so we get a margin bump up from that. Two, we're making investments on the technology front, which we believe will yield additional improvements to the adjusted gross margin.
Three, as you think about some of the new hires that David referenced.
In terms of Erica and Irena, we believe that that will streamline some of the existing processes that will provide some uplift on the margin. And then four, as David mentioned, we should get some benefits as we scale the business. And if you look at our...
guidance that's effectively what we're implying here in terms of the back half of this year. Got it that's helpful thank you and then maybe a second question it you're pretty much through some of the tough COVID related comps is there an opportunity do you think for you to show a growth in net reported bookings here in the second quarter at 25 million last year I would think you're you'd be
year over year is up about 28% if you strip out COVID. And so the underlying fundamentals I think are still there. And when we look at RFP growth, that's in a non-COVID world.
Our next question comes from Frank Taccain with Lake Street Capital Markets. Please go ahead.
Thanks for taking the questions. I was hoping I could ask one more on the cancellations side of the equation. Clearly a couple anomalies occurred this quarter but maybe you speak to how you're thinking about a normalized cancellation rate going forward and specifically if there's any other projects that are on hold that could time out the backlog in the next...
12 months or so. Sure. Good morning, Frank. Thanks for the question. You know, I think what we've said historically is that over time we expect our cancellation rate to approach the industry norms of 15 to 20 percent. Obviously at our current size...
We're going to have some volatility. One project can make a positive or negative difference in a particular quarter. And then I just would remind you that from a cancellation rate perspective, just to sort of underscore that volatility point, we had cancellation rates below 10% in 2021, then about 38% in 2022. And longer term, we see a 15 to 20%.
rate is where we suspect will land. In terms of the question regarding anything else in the backlog there, I think consistent with other companies in the industry, and this has been our practice since we've gotten here as well, we review the backlog each month in light of any recent changes and trends.
to the specific projects that sit in the backlog. And we adjust that, of course, from a risk perspective if and when those changes occur.
Okay, that's helpful. Thinking about the cost cut implementation, I heard the comments, partial recognition in Q2, and then we should see the full recognition of those cost cuts in the second half of this year. Can you speak to an adjusted SG&A quarterly rate that you expect to reach versus this quarter at 15?
remarks is that we will have a sequential decline in SG&A over the remainder of 2023 from a dollar perspective and the reason we obviously we've gotten a partial impact this year is because we did the restructuring the majority of the restructuring here in the April timeframe
with the remainder to occur over the rest of Q2 of this year. So partial quarter versus permanent quarter in Q3.
Got it. Thanks for taking the questions. Thanks Frank. Thanks Frank. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
Our next question comes from Charles Rhee with TD Colin. Please go ahead. Yeah, I just want to follow up question. Mike, on the revenue guidance, I think last quarter you said, think about second half coming in 25% higher than the first half.
Given what we saw in the first quarter results, can you give us a sense how we should think about the cadence through the rest of the year? Yeah, sure. Absolutely right. And whenever we gave out our original guidance, we said second half would be up about 25% versus first half. We also mentioned
earlier in the prepared remarks that our first quarter revenues came in a bit better, and obviously we're holding revenues in the same, reaffirming where the revenue guidance was previously. So it won't be quite as pronounced, but it'll still be pretty significant, as David mentioned, second quarter versus first quarter.
Okay, so it's just maybe just the slope of it's a little bit less, but still full year, still second half higher than the first half. Yes, yes.
Okay, perfect. Thanks.
Okay, perfect. Thanks. Thanks, Charles. Thank you.
There are no further questions at this time. I would like to turn the floor back over to David Coleman, CEO , for closing remarks. All right. I'd just like to say thanks to everybody for joining us and we'll talk to you the next quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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