Q2 2023 Science 37 Holdings Inc Earnings Call
Spot treatment.
Greetings and welcome the Science 37 second quarter 2023 earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Steven Halper lifestyle Advisors. Please go ahead.
Thank you Brendan and thank you all for participating in today's call. Joining me are David Coleman, Chief Executive Officer, and Mike <unk>, Chief Financial Officer.
Earlier today Science 37, released financial results for the quarter ended June 30th 2023, a copy of the press release is available on the company's website.
Before we begin I would like to remind you that the math 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 of various assumptions.
And they 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 in the risk and 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 those measures to the most comparable GAAP measures can be found in our SEC filings and earnings materials available on the Investor Relations portion of our website at investors Dot science thirty-seven Dot Com I would now like to turn the call over to David Colman David.
Thank you, Steve and thank you everyone for joining us today for our second quarter 2023 earnings call I'm really pleased to report that the strategies, we've implemented over the past several quarters as discussed on these calls including fully transforming our commercial model becoming laser focus.
In the metastatic value proposition investing in patient recruitment and quality as key differentiators.
Cutting expenses that don't support the meadows site.
And investing in near and offshore centres of excellence to improve our unit economics.
Have all really started to pay dividends.
Quarter over quarter, our RFP dollar volume is up more than 50%.
Our gross bookings are up more than 60%.
Our net bookings are up nearly 15% our revenue is up nearly 10%.
Our gross margin.
Margins are more than 13%.
Percentage points higher EBITDA is nearly 40% better than our cash burn is more than 30% lower.
You'll note in our press release that we released some of our backlog this quarter, our bookings adjustment was $24 $6 million $20 8 million or about 85% of the total comes from Covid risk mitigation studies, where we were contracted in 2000 22021, just supplement traditional site.
Activity.
We were only compensated when sites used our services.
Given the incredibly poor site adoption rates for these studies, we agreed to discontinue these contracts with the sponsors and the second quarter.
While this has enabled us to free up some carrying costs and in some cases or cases accelerate revenue as part of our modest closeout provisions.
We had very low expectations for these studies.
It'll impact on our second quarter, P&L and do not have a material impact on our 2023 guidance.
We have about $8 million in similar similar COVID-19 risk mitigation work in our backlog that we are watching very closely.
We're also watching a handful of other studies in our backlog totaling about $25 million in contract value that may be amended this year not unlike traditional.
Clinical trial sites or Cro's reason for these potential amendments include early endpoint detection sponsored funding and sponsor pipeline prioritization. None of these potential adjustments that were watching our quality or execution related.
It's important to note that we've anticipated these potential adjustments and we have adjusted our guidance or what we call our phase backlog with these expectations.
We expect our normalized realization rate to be around the industry average out between 15% to 20% of our gross bookings in 2024 and beyond.
Putting this together from a forward looking perspective, given our increasing RFP volume, we expect gross bookings in the second half of the year to exceed the first half with heavier weighting in the fourth quarter, giving given bookings seasonality.
In regards to forward looking revenue, we are taking into account that gross bookings for the first half were greater than expected.
RFP flow continues to accelerate and we expect continued momentum given the recent FDA draft guidance documents regarding the acceptance of the centralized clinical trials and the need for greater participants diversity.
As a result, we are raising our 2023 revenue guidance to approximately $60 million, which was the top end of our previous guided range.
With our continued focus on cost management, we expect 2023 EBITDA to be.
Loss of approximately $35 million, which is much stronger than our previous guidance.
If you recall during our first quarters quarter earnings release, we set the expected burn rate.
$10 million of cash in the fourth quarter of 2023, given our first half 2023 performance and cost containment efforts to date, we're now expecting to burn less than $10 million of cash in the third quarter of 2023 and less than $15 billion of cash over the second half of this year.
Exiting 2023 with more than $50 million on hand.
We expect continued bookings and revenue growth in 2024 with a similar approach to cash management and have been consistent in our communication that we expect to exit the fourth quarter of 2024, EBITDA positive with ample cash on hand.
Without having to raise additional capital.
We have implemented the right strategy to achieve this objective and we're starting to see the positive effects of these changes.
With that I will turn the call over to Mike <unk>, Our Chief financial officer to provide additional details.
Thank you David and good morning, everyone I'll discuss the second quarter results for the quarter ended June 32023, and then we'll discuss our outlook for the full year 2023.
To start with I'm pleased to report that we have improved sequentially in each key financial metrics in the second quarter of 2023.
Well, we've reported consistent improvements to our cost basis over the past 18 months, we are particularly pleased to have added sequential revenue growth in the second quarter.
We finished the quarter with $38 2 million in gross bookings and $13 6 million net bookings as David mentioned, approximately $20 8 million in the second quarter adjustments related to Covid mitigation solutions that were contracted during the pandemic.
Nearly $16 4 million of this coming from a single Covid mitigation follow up study with greater than eight years remaining.
As such these adjustments made during the second quarter had minimal second quarter revenue implications relative to our previous guidance.
Excluding the Covid mitigation adjustments.
Our cancellation rate for the second quarter was 10%, which is lower than the 15% to 20% industry cancellation rate that we expect over time.
It is important to note that of our 168 million in backlog as of June 32023.
Approximately $8 million remaining of Covid mitigation contracted work.
Consistent with standard industry practice, we review project status on no less than a monthly basis and as David mentioned.
Of our entire project portfolio. There are a handful of studies that we're monitoring totaling about 25 million aggregate contract value, which spans out over multiple years to.
To be clear we have derisked. These in our revenue guidance and have a high degree of visibility to near term revenues second quarter.
Other revenues were $15 4 million, which was $3 9 million or <unk> 24.
Percent decrease from the same period of the prior year or $1 3 million.
And 9% sequential improvement versus the first quarter.
Much of this increase was due to our ability to accelerate revenue given the impact of our new patient recruitment strategies that we discussed last quarter.
Adjusted gross profit for the second quarter was $5 5 million, which was down <unk> 4 million or 7% as compared to the same periods of the prior year and up $2 3 million or 72% sequentially.
Adjusted gross margin for the quarter was 36%, which was up five four percentage points from the same period last year and up 13, one percentage points from the first quarter of 2023.
Much of this gross margin improvement was the result of achieving higher utilization rates as well as increased velocity on our patient recruitment efforts, which we spoke about previously.
Yeah.
Moving over to SG&A, selling general and administrative expenses, excluding $3 6 million of stock based compensation and depreciation were $13 1 million in the second quarter. This was down $9 3 million or more than 40% compared to the same period from last year and down $2 5 million or 16% sequentially.
Much of our improvement in SG&A was the result of implementing our offshore centers of excellence strategy, which we announced in April in addition to setting costs that don't support our meta site strategy.
For perspective, the second quarter 2023 marks a nearly 50% reduction in our overall cost basis, which we defined as the difference between revenue and adjusted EBITDA compared to the fourth quarter of 2021, which was our first quarter operating as a public company.
As planned we made significant strides in taking cost out of the business as we move forward towards our path to profitability.
Adjusted EBITDA, which we calculate by adding back depreciation amortization taxes interest other income stock based compensation and other noncash charges was a loss of $7 6 million in the quarter, representing $8 9 million or 54% improvement compared to the same period in the prior year and $4 8 million.
39% sequential improvement this is our best quarterly adjusted EBITDA performance in two years.
Consistent with the factors we cited on our first quarter earnings call U S. GAAP required us to record a noncash impairment charge of $5 7 million related to our long lived assets in the second quarter.
Among other things. This continues to be a result of our market capitalization, which was less than the cash and book value for a sustained period of time.
This is an accounting assessment and does not reflect our view of the value of the platform or its longer term potential.
On a U S. GAAP net loss basis second quarter represented $19 6 million loss versus a GAAP net loss of $5 8 million in the second quarter a year ago.
The adjusted net loss for the second quarter of 2023 was $7 7 million, which compared to an adjusted net loss of $20 9 million in the same period last year.
Now turning to cash we ended the quarter with $65 million in cash and cash equivalents in the second quarter, our cash burn, which is the difference in balance sheet cash and cash equivalents from March 31 to June 30 was approximately $17 $6 million.
This included $3 1 million, approximately and onetime costs, such as cash payments related to previously announced restructuring actions.
Cash burn excluding these items was approximately $14 5 million, which is a sequential improvement of greater than $5 billion versus the first quarter of 2023.
Now, let's turn to the outlook for 2023.
As David noted previously given our stronger than expected gross bookings RFP volume increases and some positive tailwind from the recent FDA preliminary guidance documents, we are updating our full year 2023 revenue guidance from the previous range of $55 million to $60 million to the top end of that range.
Lee $60 million.
We expect third quarter revenues to be roughly flat or potentially even a little lighter than the second quarter as we accelerated some of our third quarter backlog into the second quarter through better patient recruitment velocity.
And we expect our fourth quarter to be sequentially higher.
On a revenue basis based on the timing of our new study starts and project ramps.
Yeah.
Okay.
While we will hold off providing 2024 guidance until a later date given our current momentum and visibility we expect solid continuing revenue growth in 2024.
Turning to our gross margin guidance, we indicated during our last quarterly earnings call that we expected adjusted gross margins to improve from the low 20% range in the first quarter of 2023 to the low to mid 30% range in the second half of 2023.
We achieved the top end of that range at 36% in the second quarter and we expect to stay in the mid 30% range for the remainder of this year.
In the first quarter earnings call. We also indicated we expected to see a sequential reduction in SG&A and a more dramatic reduction in cash burn exiting the fourth quarter with a cash burn of less than $10 million.
David noted we are tracking ahead of this from an expectation standpoint, and now anticipate our cash burn and third quarter to be less than $10 million one quarter ahead of schedule.
We expect our cash burn for the full second half of 2023 to be less than $15 million, thus exiting 2023 with more than $50 million of cash on hand.
As we progress into 2024.
We expect our investments in technology further increases in utilization and continued process improvements to help us expand quarterly gross margins to 40% or greater delivering a higher gross profit on a relatively fixed level of SG&A.
And thereby ending the fourth quarter of 2024 with positive adjusted EBITDA and cash flow.
Exiting that year with ample cash on hand without needing to have raised additional capital.
In summary, we are encouraged by our second quarter 2023, gross bookings and cost initiatives going forward. We are optimistic as we March down the path towards profitability at this point I'd like to turn the call back over to David for closing comments.
Thank you Mike.
We've been highly intentional with our strategy and have been explicit on these calls about our intentions.
Our strategy and the actions we've taken are clearly having the desired results and.
We're pleased with the recent outcomes and business momentum Rob.
We're optimistic about the future and are on track to reach our financial goal of adjusted EBITDA and cash flow positive by the end of the fourth quarter of 2024 without having to raise additional capital.
With that we'll now open it up for questions.
Yeah.
Thank you.
Well now be conducting a question and answer session. If you would.
Ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please hold while we poll for questions.
Yeah.
Thank you. Our first question comes from Charles <unk> with Cowen and company.
Yeah.
Oh, yes.
This is Charles from Cowen.
You know guys well congrats on the acceleration here and it looks like things are starting to you.
Proven and I guess to start with is if we think about.
You know in the past you've talked about.
The deals were taking longer in the sales cycle was was stretching. This this gross bookings that's accelerating that we're starting to see now is that a signal that we've kind of anniversaried. This lengthening sales cycle or are still cycling sales cycle starting to shorten again.
Maybe you can talk through sort of what the market dynamics that you're seeing.
Yeah, I don't think we've really seen much change to be honest in the in the length of the sales cycle frankly, it's still on.
And.
I've talked about that being the new normal in our past past calls and I still think that's true.
Good news is that our RFP volume is increasing I talked about in the prepared remarks over 50% that's up from <unk>.
First quarter I talked about 25% increase in our RFP dollar volume. So we're seeing an acceleration in RFP.
Dollar volume, but that sales cycle still has to kick in so.
I think that hopefully that provides you a little bit of perspective.
It is the new normal I think for us.
Okay. That's helpful. And then in terms of this higher RFP volume you know can you can you talk through what are what are what our sponsors seek.
Seeking from you guys to specifically help with it is it really just is it.
So the meta side is there any kind of.
Full.
Full D C T trials being given to you.
Maybe give us a sense for what the mix looks like.
Yes, I mean, we have you back.
Back to the date that we brought in Michael shipped into run the commercial shop for us.
Made the decision to these super intentional about meta side as our key value proposition for Maryann.
Okay really single minded in that now we also made the attaching too also.
Dig into the CRO channel and the <unk> channels in particular.
And so we're seeing an uptick in both of those different areas as well.
As we continue our partner strategy continued thinking about the value proposition of the meta site in the real world evidence.
You know realm.
And when you're talking about <unk> I mean, it's my understanding correct me if I'm wrong right.
You can still pick certain elements of your platform to supplement what they're doing.
Or take lots of parts at once can you give a sense are there any particular areas of the platform that they're particularly.
Focused on asking you guys to help with versus the other parts that are is there any kind of a preference one way or the other.
It's really bringing as soon as the virtual site. So.
Supplementing what they may have with a traditional site network or acting as a single site in order to be able to enroll the entire trial ultimately the value proposition comes down to.
Faster enrollment.
Greater diversity and a more patient friendly experience.
Okay great.
Just wanted to ask you just to clarify you said that in the backlog.
Uh huh.
$8 million left of Covid related work.
And then you mentioned another $25 million of ongoing President. That's can you clarify what the 25 million refers to you and I guess the question is there any reason not to just you.
Kind of take a charge against that because chances are that might probably not happen.
Yeah sure. So thanks, Charles I mean I think.
As it relates to the 25 million just to be Super clear.
All companies in this space, we do monitor the entire portfolio going through project by project on a monthly basis as part of that.
Identify those opportunities where there might be.
A faster burn and you also identify those opportunities.
Where the burn might be slower or the project might be at risk, but we were attempting to do in terms of the prepared remarks is to identify that there's about $25 million in the aggregate that spans over multiple years.
We have on our watch list that we're monitoring.
That doesn't necessarily mean, they will be canceled.
Not necessarily mean.
That that sort of thing, but rather as.
As we look at the business and the portfolio those in the aggregates are roughly what we're seeing on the monitor list.
That being said.
Our updated guidance.
It takes the risk adjusted view that all of that.
Opportunities are.
And so from our perspective, we think we've de risked.
Revenues in the near term related to those specific projects.
Thank you. Our next question comes from Frank <unk> with Lake Street capital markets.
Great. Thanks for taking my questions and congrats on the progress in the quarter.
David I think I heard you comment that you expect second half bookings to be stronger than.
First half bookings was one hoping you could clarify whether that was in relation to gross or net.
And then if you could if it if it were not talked to the the likelihood of peering over that Onex book.
Book to Bill as we exit the year I know you mentioned that there was some seasonality in their Q4 is going to be likely strongest from a bookings perspective, but I don't think keeps spoke to.
The revenue recognition expectations Q3 versus Q4 to get to that.
Guided range.
Well thanks for the question Frank.
Yeah, we do expect to see sequential growth in bookings for the second half then relative to the first I'm talking about in terms of gross bookings.
We will get it will get to the net in the second.
Yes, I believe there'll be seasonality associated with that third quarter is traditionally.
Given holidays and whatnot.
A lower volume quarter than the fourth so I expect it to be back end weighted the combination of the two quarters I expect that to be larger than the first and second quarter.
In terms of net adjustments.
It's still to be determined I think what we tried to provide in our prepared remarks were some things that we're looking at that might provide some.
You know some risk to that.
I don't suspect that all of that will come through but it's possible that it does.
Trying to telegraph a little bit for you in case it does.
So you know we're looking at as you are preparing your models as well and if I could add one thing to that I mean just to be clear.
Consistent with our documented backlog policy.
Would not typically remove the projects until we received the formal cancellation notice.
In terms of the second part of that question was about revenue recognition for the second half of the year.
We do expect a full year to come in aligned around 60 million, which represents a slight upticks in the first half of the year.
You know certainly backend weighted as well I think what Mike had said is that we're in.
More likely to be flat and the revenue for the third quarter. It may actually even come down a little bit in the third quarter, but and.
In total we expect second half revenues to be higher and the reason for that.
We just had a really strong second quarter in terms of accelerating revenue.
And if all goes well, we'll continue to accelerate revenue as the third and fourth quarter continue.
Okay. That's helpful. And then maybe just one follow up to Charles' question on the $25 million in aggregate over multiple years could you parse out what portion of that is COVID-19 related.
Yeah.
Yeah, So I mean I think.
We talked about the 8 million that was COVID-19 related sort of separate and distinct from the 25.
So if you wanted to sort of outline.
Outline.
The COVID-19 risk mitigation.
It was $8 million, which separate and distinct from the 25.
Got it Okay, and then last one for me just in relation to broader macro any pockets of particular strength or weakness across different customer profiles that you guys are noticing.
Don't know if theres anything thats really pops out.
Except for maybe kroes, where were we.
We seem to be getting a lot more traction and I guess it makes sense. If you think about it when we set out with the intention to be.
Really intentional in regards to the metastatic model, we're just another site in the.
And the CRM World, which I think slots in really nicely to what they're trying to do so.
We do see an uptick there.
We continue to see some strength in.
Even a small pharma.
As well.
Thank you.
Our next question comes from Max Smock with William Blair.
Hi, it's Christina <unk> on for next month.
Thanks for taking our questions. The first one is last quarter, you indicated that repeat customers accounted for 80% of your total gross bookings just curious on what the repeat percentage wise this quarter.
And just your overall strategy to increase wins with new customers I'm kind of Relatedly, how much of a cross selling opportunity do you see with your existing customers and given that you're leaning in to areas like real world evidence and.
Just your average number absolute and your customer is apparently is kind of what you're targeting there.
Yeah, I'd say this quarter we had.
With predominantly new customers actually.
And one very large new customer, which is we're excited about so.
We over the last 12 months, it's more like 50 50, new versus existing customers.
And I think that's probably a pretty good mix.
As we.
As we grow we'd like to kind of see.
See it that way.
But super happy to see the traction with new customers and that again goes back to the work that Michael has put in place in terms of.
Inside sales.
Expanding the network of who we're talking with.
And providing our BD organization with.
More leads that we can ultimately turn into sales.
In terms of yes in terms of the composition of work I mean, it really worse staying super focused on the meta site.
And expanding that with our existing customers continues to be a focus and it happens to lend itself well to <unk>.
As you know in the real world space that could become a graduation from our phase III study into a phase four study.
So we we like that opportunity there with our existing base.
Great. Thanks.
Last one for US can you just walk through your current backlog visibility of what's the average duration of contracts you've been awarded so kind of excluding that roughly $32 million backlog the most vulnerable to mad men.
You're seeing any notable shift toward winning bidder bigger or longer duration contracts I'm, just trying to get a sense says.
Our visibility into top line growth to ask for 2024.
I'll talk about the contracts and maybe you just talked about the backlog Mike. So contract size does continue to increase in our in our pipeline.
Which is exactly what we hope for a.
Because we're adding more value, we can contribute to larger patient volumes and what we put it in the past, which is going to ultimately drive that.
Larger larger dollar volume so we're definitely seeing that.
Yeah, and I think as it relates to our duration and so on.
So the wildcard here is how much David mentioned, we're seeing more demand on the real world evidence side those tend to be longer in duration, but in terms of what's currently in the backlog.
Not a material change from where we've been.
Historically.
From a burn perspective.
Yeah.
Thank you ladies.
Ladies and gentlemen.
As a reminder, if you wish to ask a question. Please press star one.
Our next question comes from Matt Hewitt with Craig Hallum Capital Group.
Good morning, and congratulations on the progress.
Maybe one point of clarification, so you're seeing an increase in RFP dollar volume one of the things we've been hearing from other pharma and biotech service providers here over the past quarter or two is that theres been a shift in priorities from their pipelines, where they're shifting more of their resources more attention towards later stage clinical.
Clinical trials is that.
That once you're also seeing is that the what's driving the increased RFP dollar volume is maybe a lack of earlier stage programs in return you're getting these later stage larger programs and that's what's feeding the backlog.
I'm not sure how much of that is a function of what we're fishing for versus whats materializing in Pryor and the priorities on the pharma side, because as I had noted that when Michael started.
About nine months ago. He was pretty declarative about are to be used in a good spot for us and so we've we've really positioned that.
Amongst our sales organization to push in that direction. So we're definitely seeing movement.
Moving from.
I guess sort of the evolution of the company that we used to be very very heavy in phase two but now we're seeing a lot more phase threes and fours.
Got it and then I realize it's very early days, but given the the.
D a potential mandate for diversity and whatnot are you starting to have conversations are customers coming to you, bringing that up and as you know.
Are you starting to see that maybe is a little bit of a driver. Thank you.
I would say the guidance on diversity is just starting to.
It would be part of the conversation.
It was for real and I think that.
Back when they came out it was it was interesting, but I think that there's starting to be a little bit of a reaction that we need to do something we being sponsors.
To be able to to do something different which is a little bit different from the decentralized kind of a trial guidance, which I think was a little bit more of a.
A revelation.
And that gave them permission to execute decentralization versus versus they may have been holding back in the past so.
I think the two of them are starting to become a hand in hand.
Pushing some good tailwind for us.
That's great. Thank you.
Thanks, Matt.
Thank you there are no further questions at this time I would like to turn the floor back over to David Coleman, Chief Executive Officer for closing comments.
Alright, well thanks for the questions today.
Well, let we'll let you we'll cut it off for now I appreciate all the questions and we'll talk to you again in the quarter.
Thank you.
Yes.
The conference has now concluded you may disconnect your lines at this time. Thank you for your participation.
Okay.
[music].
Yes.
[music].
Yes.
[music].
Yeah.
Yeah.
Yes.
[music].