Q4 2023 Medpace Holdings Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Medpace fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Yeah.
Speaker Change: Good day, ladies and gentlemen, and welcome to the <unk> fourth quarter and full year 2023 earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Operator: Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call may be recorded. Now, I'd like to introduce your host for today's conference call, Laura Morris, Medpace's Director of Investor Relations. You may begin.
Speaker Change: Later, we will conduct a question and answer session.
Instructions will follow at that time.
Speaker Change: As a reminder, this call maybe recorded.
Speaker Change: Now I'd like to introduce your host for today's conference call.
Laura Morris: Laura Morris.
Laura Morris: Patients director of Investor Relations you may begin.
Laura Morris: Good morning, and thank you for joining Medpace's fourth quarter and full year 2023 earnings conference call. Also on the call today is our CEO, August Trundle, our president, Jesse Geiger, and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties, as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC.
Laura Morris: Good morning, and thank you for joining Matt basis fourth quarter and full year 2023 earnings Conference call also on the call today is our CEO August Troendle, our president Jesse Geiger and our CFO, Kevin Brady before we begin I would like to remind you that our remarks and responses to your questions. During this teleconference may include forward looking statement.
Laura Morris: 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. These factors are discussed in our Form 10-K and other filings.
Laura Morris: Please note that we assume no obligation to update forward-looking statements, even if estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.
Laura Morris: With the SEC.
Laura Morris: Please note that we assume no obligation to update forward looking statements. Even if estimates change accordingly, you should not rely on any of today's forward looking statements as representing our views as of any date after today.
During this call we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.
Laura Morris: A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to Jesse Geiger. Thank you, Lauren. Good morning, everyone.
Laura Morris: A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measure is available in the earnings press release and earnings call presentation, but provided in connection with today's call.
Laura Morris: Slides are available in the Investor Relations section of our website at Investor <unk> Dot com with that I would now like to turn the call over to Jesse Geiger.
Jesse J. Geiger: Thank you Lauren and good morning, everyone.
Jesse J. Geiger: Our revenue for the fourth quarter of 2023 was $498.4 million, which represents a year-over-year increase of 26.5%. Full year 2023 revenue was $1.89 billion, a 29.2% increase from 2022. Net new business awards entering backlog in the fourth quarter increased 26.7% from the prior year to $614.7 million, consulting in a 1.23 netbook to bill. For the full year 2023, net new business awards were $2.36 billion, an increase of 28.8%, and ending backlog as of December 31st, 2023 was approximately $2.8 billion, an increase of 20.2% from the prior year. We project that approximately $1.53 billion of backlog will convert to revenue in the next 12 months, and backlog conversion in the fourth quarter was 18.5% of beginning backlog. Now with that, I will turn the call over to Kevin to review our financial performance in more detail and discuss our 2024 guidance.
Jesse J. Geiger: Our revenue for the fourth quarter of 2023 was $498 4 million, which.
Jesse J. Geiger: Which represents a year over year increase of 26, 5%.
Jesse J. Geiger: Full year 2023 revenue was 1.89 billion.
Jesse J. Geiger: A 29, 2% increase from 2022.
Jesse J. Geiger: Net new business awards entering backlog in the fourth quarter increased 26, 7% from the prior year to $614 7 million.
Jesse J. Geiger: Starting in a 1.23 net book to Bill.
Jesse J. Geiger: For the full year 2023, net new business Awards were 2.36 billion.
Jesse J. Geiger: Increase of 28, 8%.
Jesse J. Geiger: And ending backlog as of December 31st 2023 was approximately $2 8 billion.
Jesse J. Geiger: The increase of 22% from the prior year.
Jesse J. Geiger: We project that approximately 1.53 billion of backlog will convert to revenue in the next 12 months and.
Jesse J. Geiger: Backlog conversion in the fourth quarter was 18, 5% of beginning backlog.
Jesse J. Geiger: Now with that I will turn the call over to Kevin to review, our financial performance in more detail and discuss our 2024 guidance.
Jesse J. Geiger: Kevin.
Kevin Brady: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $498.4 million in the fourth quarter of 2023. This represented a year-over-year increase of 26.5% on a reported basis and 26% on a constant currency basis. Full year 2023 revenue was $1.89 billion and increased 29.2% on a reported basis and 28.9% on a constant currency basis from 2022. EBITDA of $95.8 million increased 19.2% compared to $80.4 million in the fourth quarter of 2022. Full-year EBITDA was $362.5 million and increased 17.7% from the comparable prior year period.
Thank you Jessie and good morning to everyone listening in.
Kevin Brady: As Jesse mentioned revenue was $498 4 million in the fourth quarter of 2023.
Kevin Brady: This represented a year over year increase of 26, 5% on a reported basis and 26% on a constant currency basis.
Kevin Brady: Full year 2023 revenue was $1 89 billion and increased 29, 2% on a reported basis and 28, 9% on a constant currency basis from 2022.
Kevin Brady: EBITDA of $95 8 million increased 19, 2%.
Kevin Brady: Further to $84 million in the fourth quarter of 2022.
Kevin Brady: Full year, EBITDA was $362 5 million and increased 17, 7% from the comparable prior year periods.
Kevin Brady: Even a margin for the quarter was 19.2% compared to 20.4% in the prior year period; the four-year EBITDA margin was 19.2% compared to 21.1% in 2022. The margin compared to the prior year was impacted by higher reimbursable costs, personnel costs, and the foreign exchange benefit in 2022 behind the strong U.S. dollar. In the fourth quarter of 2023, net income of $78.3 million increased 14% compared to net income of $68.7 million in the prior year period. For the full year 2023, net income was $282.8 million, compared to $245.4 million in 2022, which represents a 15.3% increase. Net income growth lagging EBITDA growth was primarily driven by a higher effective tax rate of 15.8% compared to 13.3% in the prior year period. Net income per diluted share for the quarter was $2.46 compared to $2.12 in the prior year period.
Kevin Brady: EBITDA margin for the quarter was 19, 2% compared to 24% in the prior year period.
Kevin Brady: Full year EBITDA margin was 19, 2% compared to 21, 1% in 2022.
Kevin Brady: EBITDA margin compared to the prior year was impacted by higher Reimbursable cost first.
Kevin Brady: Personnel costs and a foreign exchange benefit in 2022 behind the strong U S dollar.
Kevin Brady: In the fourth quarter of 2023 net income of $78 3 million increased 14% compared to net income of $68 79 in the prior year period.
Kevin Brady: For the full year 2023, net income was $282 8 million.
Kevin Brady: Impaired to $245 4 million in 2022.
Kevin Brady: Which represents a 15, 3% increase.
Kevin Brady: Net income growth is lagging EBITDA growth was primarily driven by a higher effective tax rate of 15, 8%.
Kevin Brady: <unk> to 13, 3% in the prior year period.
Kevin Brady: Net income per diluted share for the quarter was $2 46 compared to $2.12 in the prior year period.
Kevin Brady: For the full year 2023, net income per diluted share was $8.88 compared to net income per diluted share of $7.28 in 2022. Regarding our customer concentration, our top 5 and top 10 customers represent roughly 23% and 30%, respectively, of our full year 2023 revenue. In the fourth quarter, we generated $156.4 million in cash flow from operating activities, and their net day sales outstanding was negative 48.3 days. We did not repurchase any shares during the fourth quarter.
Kevin Brady: For the full year 2023, net income per diluted share was $8 88.
Kevin Brady: Compared to net income per diluted share of $7 28 and 2022.
Kevin Brady: Regarding our customer concentration our top five and top 10 customers represent roughly 23% and 30% respectively of our full year 2023 revenue.
Kevin Brady: In the fourth quarter, we generated $156 4 million in cash flow from operating activities.
Kevin Brady: And our net days sales outstanding was negative 48 three days.
Kevin Brady: We did not repurchase any shares during the fourth quarter.
Kevin Brady: For the full year 2023, we repurchased approximately 781,000 shares for $144 million. As of December 31st, 2023, we had $245.4 million in cash and $308.8 million remaining under our share purchase authorization program. Moving now to our updated guidance for 2024, full-year 2024 total revenue is expected in the range of $2.15 billion to $2.2 billion, representing a growth of 14% to 16.7% over 2023 total revenue of $1.89 billion. Our 2024 EBITDA is now expected in the range of $400 million to $430 million, representing growth of 10.3% to 18.6% compared to EBITDA of $362.5 million in 2023. We forecast 2024 net income in the range of $326 million to $348 million. This guidance assumes a full year 2024 effective tax rate of 16% to 17%. Interest income of $18.49 and 32 million diluted weighted average shares outstanding for 2024. There are no additional share purchases in our guidance.
Kevin Brady: For the full year 2023, we repurchased approximately 781000 shares for $144 million.
Kevin Brady: As of December 31, 2023, we had $245 4 million in cash and $308 8 million remaining under our share repurchase authorization program.
Speaker Change: Moving now to our updated guidance for 2024.
Speaker Change: Full year 2020 for total revenue is expected in the range of $2, one 5 billion to $2 2 billion.
Speaker Change: Representing growth of 14% to 16, 7%.
Speaker Change: For 2023 total revenue of $1 89 billion.
Speaker Change: Our 2020 for EBITDA is now expected in the range of 400 to 430 million reps.
Speaker Change: Representing growth of 10, 3% to 18, 6% compared to EBITDA of $362 5 million in 2023.
Speaker Change: We forecast 2024 net income in the range of $326 million.
Speaker Change: $348 million.
Speaker Change: This guidance assumes a full year 2024 effective tax rate of 16% to 17%.
Speaker Change: Interest income of $18 4 million.
Speaker Change: And 32 million diluted weighted average shares outstanding for 2024.
Speaker Change: There are no additional share repurchases in our guidance.
Operator: Earnings per diluted share is now expected to be in the range of $10.18 to $10.87. This guidance is based on foreign exchange rates as of December 31, 2023. With that, I will turn the call back over to the operator so we can take your questions. Thank you. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: Earnings per diluted share is now expected to be in the range of $10 18.
So $10 87.
Speaker Change: Guidance is based on foreign exchange rates as of December 31, 2023.
Speaker Change: With that I will turn the call back over to the operator, so we can take your questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Operator: Please stand by while we compile the Q&A raw. Our first question comes from David Windley. Would Jefferies, your line's now open. Good morning.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from David Windley with Jefferies. Your line is now open.
David Howard Windley: Hi, good morning, Thanks for taking taking my questions and congrats on another good year.
David Howard Windley: Thanks for taking my questions and congratulations on another good year. I gather from the absence of August comments at the top of the call that things must be fairly stable and unchanged, but I would invite those comments. What we've heard from some peers is some slowing of activity in the second half of 23, particularly the last couple of months of 23, in the biotech space. And I guess I wanted to know if you at Medpace had seen that, also, or if you were seeing a different trend. Yeah, I did it.
David Howard Windley: Yeah.
Your I gather from.
David Howard Windley: The absence of August comments at the top of the call.
David Howard Windley: Things must be fairly stable and unchanged.
David Howard Windley: But it would be it would invite those comments on what we've heard from some peers.
David Howard Windley: <unk>.
David Howard Windley: Slowing of activity in the second half of 'twenty, three, particularly maybe the last couple of months of 'twenty three in the biotech space.
David Howard Windley: I guess I wondered if you had net pace had seen that.
David Howard Windley: Also or if you were seeing a different trend. Thanks.
Speaker Change: Yeah, Hi, Dave.
August Trundle: Yeah, I think I said last quarter that things were kind of going in a lot of different directions at once, kind of very fast, but unreadable, a lot of difficulty, and a lot of very strong business environment. I think, you know, we're kind of in Q4 and coming into, you know, Q1 of 2024, I think we've got a clear direction on that. I think things are improving from a funding standpoint. A number of installed projects are now moving forward, you know, things that we thought were kind of just held up with, you know, weren't going to get financed and are starting to move. So I think we're still in, you know, a post-volatile period, and, you know, there may be more volatility, but I think we're more and more seeing a trend towards improvement on the funding side and project progression side. And, of course, these things take quite a while to get the backlog and to generate, you know, meaningful revenue.
Speaker Change: Exactly.
Speaker Change: Yes, I think I said last quarter that things were kind of going in a lot of different directions at once kind of very fast.
Speaker Change: Unreadable.
Speaker Change: A lot of.
Speaker Change: Difficulty in a lot of very strong business environment.
Speaker Change: I think we've kind of in Q4 and permanent.
Speaker Change: Q1 of <unk>.
Speaker Change: 2020, I think we've got that clear.
Speaker Change: Clear direction.
Speaker Change: On that.
Speaker Change: I think things are improving from a funding standpoint number of.
Speaker Change: Stalled.
Speaker Change: Projects are now moving forward things that we thought were kind of just held up with werent going to get financed and are starting to move so.
Speaker Change: I think we're still up.
Speaker Change: Our post volatile period, and there may be more volatility, but I think.
Speaker Change: We're more and more seeing a trend towards improvement on the funding side and project progression side.
Speaker Change: Of course, these things take quite a while to get the backlog and to generate meaningful revenue. So I think we're setting up.
August Trundle: So, you know, I think we're setting up, you know, largely a lot of this is set up for 2025, in fact. But I do think that things have improved quite a bit. I think there was a very volatile time there in Q3, certainly, and, you know, extending into Q4. But I think things have shown a correction.
Speaker Change: Largely a lot of this is set up for 2025 in fact.
Speaker Change: I do think that things have improved quite a bit I think there was a very volatile time Erin.
Speaker Change: In Q3, certainly and extending into Q4, but I think things that China correction.
August Trundle: That's helpful. And then just to follow up, and I'll yield, if I look at what has for you guys been a pretty consistent burn rate, you're entering 24 at a 20% backlog growth, and you know that revenue growth rate that you're projecting is a little lower than that, so it seems like you're allowing for some moderation in the burn rate, but then you also were a little lighter than you have been on hiring in the And so I just wanted to kind of understand that, you know, that confluence of issues. A lot of times, you know, if you're thinking revenue acceleration, you'd be accelerating hiring, and vice versa. So just the interplay between, you know, your expectations around revenue growth and burnout of backlog versus your hiring status at the moment. Sure.
Speaker Change: Got it that's helpful. And then just to follow up on all of the yield.
Speaker Change: If I if I look at what has for you guys have been pretty consistent.
Speaker Change: Burn rate your.
Speaker Change: Youre entering 24 at a 20% backlog growth.
Speaker Change: That that revenue growth rate is that your.
Speaker Change: <unk> is a little lower than that so it seems like you are allowing for some moderation in the burn rate, but then you also were.
Speaker Change: A little lighter than you have been on hiring in the fourth quarter and so I just wanted to kind of understand that.
Speaker Change: Confluence of issues a lot of times, you would if you're thinking.
Speaker Change: Revenue acceleration you'd be accelerating hiring and vice versa. So just the interplay between your expectations around revenue growth and burn out of backlog versus your hiring status at the moment.
Speaker Change: Sure.
Speaker Change: Yes.
August Trundle: I think our burn rate, our conversion rate, does bounce around a bit. It was 17.6% last Q4 of 22. And then it kind of went up quite a bit. I guess it fell all the way to over 19% in Q3. And I think it kind of is in that sort of band.
Speaker Change: Okay.
Speaker Change: I think our our burn rate <unk>.
Speaker Change: Conversion rate does bounce around a bit.
Speaker Change: We're at 17, 6% last Q4 of.
Speaker Change: 'twenty two.
Speaker Change: And then kind of.
Speaker Change: Went up quite a bit I guess, it's all the way to over 19% and <unk>.
Speaker Change: Q3, and I think it kind of is in that sort of band, but there is.
August Trundle: But you know, there's a difference that kind of, you know, moves around a bit. I don't see a, as you mentioned, relatively stable. In terms of the long term, I don't think we see a, you know, a long term trend towards dropping and dropping like many other CROs have. But, you know, it does, it does bounce around a little bit.
Speaker Change: A difference it kind of moves around a bit.
Speaker Change: I don't see us.
Speaker Change: As you mentioned is relatively stable in terms of long term I don't think we see it.
Speaker Change: As long term trend towards that dropping and dropping like many others heroes asks but.
Speaker Change: It does it does bounce around a little bit.
August Trundle: But, you know, the staffing needs, you know, need is going to be driven by our, you know, revenue growth and kind of looking at direct revenue. You know, we're looking, last year we had, you know, we were looking at growth above 20% and this year in 24 we're looking at growth of, you know, let's say roughly 15% on the top line and total as well as directly. So that's going to drive a staffing need of about 10%. It's not that they aren't directly in line, there's inflation and all the rest of it that, you know, adds into that and also productivity. I think, you know, lower turnover is driving quite a bit of savings and productivity gains. So I think ours got a bit ahead when we were growing very fast.
Speaker Change: The staffing is.
Speaker Change: Need is going to be driven by our revenue.
Speaker Change: Growth kind of looking at direct revenue were looking at.
Speaker Change: Last year, we had.
Speaker Change: We're looking at growth above 20% and this year and 24, we're looking at.
Speaker Change: Gross so let's say roughly 15%.
Speaker Change: On topline and total as well as direct roughly.
Speaker Change: So that's going to drive our staffing needs.
Speaker Change: Need of about 10% increase.
Speaker Change: They arent directly in line there is inflation and all the rest of it.
Speaker Change: Yes.
Speaker Change: Indirect and also productivity I think.
Speaker Change: Lower turnover is driving quite a bit of savings and productivity gains.
Speaker Change: So I think our we got a bit ahead, when we're growing very fast we have to hire quite a bit in advance.
August Trundle: We have to hire quite a bit in advance, and so, you know, I think we got a bit ahead in terms of staffing. I think we're looking at about 10% growth this year. I think it will accelerate as, you know, the backlog grows and we get toward 25, and I think our 15% growth this year is kind of a bottom. You know, I think it will move up from there, and so, you know, hiring will then, but I think we have the time to do that, and we don't need to do it in the next few quarters in anticipation of a, you know, Q2 or Q3 spike. So, Okay, that's helpful.
Speaker Change: And so I think we got a bit ahead in terms of staffing I think we're looking at about 10% growth. This year I think it will accelerate as.
Speaker Change: Backlog grows and we get towards 25, and I think our 15% growth. This year is kind of a bottom.
Speaker Change: I think it will move up from there and so.
Speaker Change: Hiring will then but I think we have the time to do that.
Speaker Change: And we don't need to do it.
Speaker Change: Next few quarters in anticipation of that.
Speaker Change: Yes.
Speaker Change: Q2 Q3.
Speaker Change: Spike so I think thats kind of where we are on the staffing them and convert.
August Trundle: Thank you. Thank you. One moment for our next question. And our next question comes from John Sourbeer with UBS. Your line's now open. Yeah, this is Lucas Sun on behalf of John Sourbeer.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from Jon <unk> with UBS. Your line is now open.
Speaker Change: Yes. This is Lucas on for John <unk>.
John Newton Sourbeer: I guess first off, any updates on how RFPs are tracking? I believe those were said to be near record levels in 3Q. Yeah, and, you know, we gave a lot of kind of interim metrics in the volatile period because, you know, I think everyone wants more insight into what's going on and everything we know. And even though, you know, a lot of these metrics are difficult to decipher, so, you know, I'm trying to avoid, you know, kind of a given, you know, getting too much into the weeds where we got before.
Lucas: I guess first off any updates on how rfps are tracking I believe those were said to be near record levels.
Lucas: At <unk> Q.
Lucas: Okay.
Lucas: Yes.
Lucas: We gave a lot of kind of interim metrics.
Lucas: In the volatile period, because I think everyone wants more insight into what's going on in everything we know.
Lucas: Even though these metrics.
Lucas: Our difficult too.
Lucas: The safer.
Lucas: So.
Lucas: We're trying to avoid kind of given.
Lucas: Getting too much into the weeds, we got before but yes.
August Trundle: But, yeah, just to, you know, give you an idea, they remain strong, you know, they were very strong last quarter, you know, we said, you know, kind of the initial awards were, you know, kind of records, and, you know, our fees were very strong, etc. I think things have continued on a certainly on a year-over-year basis, still very strong, you know, coming off of what was a strong business environment in Q3. I think it's kind of continued to be a reasonably strong business environment in Q4. Okay, great. And then there is just one last question.
Lucas: Yes, just to give you.
Lucas: You have an idea.
They remain strong.
Lucas: They were very strong last quarter.
Lucas: You said you have kind of this initial awards were up.
Lucas: Record and.
Lucas: Art fees were very strong et cetera, I think things have continued on a certainly on a year over year basis still very strong.
Lucas: Off of what was a strong business environment in Q3, I think it's kind of continued to be a reasonably strong business environment in Q4.
Speaker Change: Okay, Great and then just one last question.
Kevin Brady: You know, pass-throughs as a percentage of revenue looked like they were, you know, about the same as last quarter. I guess, any additional color on what's driving the elevated level of pass-throughs and when you could expect that to normalize? Yeah, as we said kind of in the last quarter, it's really driven by a couple of things. One is just the inflationary costs that we're seeing at investigator sites. The activity in investigator sites is picking up.
Speaker Change: Pass through is as a percentage of revenue it looked like they were about the same as last quarter I guess any additional color on what's driving the elevated level of pass throughs and when you could expect that to normalize.
Okay, Kevin Yes.
Speaker Change: Yes.
Kevin Brady: We've said kind of in the last quarter, it's really driven by a couple of things. One is just the inflationary costs that we're seeing at investigator sites.
Kevin Brady: The activity in the investigators' sites is picking up.
Kevin Brady: You're really just a mix of projects that we have in place, and some large phase three studies are really driving that acceleration. And we do expect those elevated costs to continue into 2024. Now, when or if we'll see a retraction back to more normal levels, it remains to be seen, but we do expect it to remain elevated here through 2024. Okay, great. That was all I had.
Kevin Brady: You are really just the mix of projects that we have in place and some large phase III studies are really driving that acceleration and we do expect those elevated costs to continue.
Kevin Brady: The 2024 now.
Kevin Brady: Or if we will see a retraction back to more normal levels. It remains to be seen but we do expect it to remain elevated non here through 2024.
Speaker Change: Okay, Great that was all I had.
Operator: Thank you. One moment for our next question. Our next question comes from Max Smock with William Blair. Your line is now open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Max Smock with William Blair. Your line is now open.
Operator: Hey, good morning, guys. Thanks for taking my questions. So just following up on Dave's question on headcount earlier, August, you mentioned about 10% growth in 24. But in the past, I think you've talked about headcount growth being more in line with the mid teens revenue growth that you're expecting this year. So I know you talked about it some already, but just wondering if there's anything else that's enabled you to pull back some on those hiring plans a little bit? Is it due to a lower outlook for direct fee revenue next year or this year? Or is it more just due to maybe some of the efficiencies you've been able to drive more recently as you've scaled the business? Yeah, I think a lot of it, you know, compared to our first look, is turnover. You know, turnover has really come down to a very, very nice level.
Max Smock: Hey, good morning, guys. Thanks for taking my questions.
Max Smock: Just following up on Dave's question on head Count earlier August you mentioned about 10% growth in 'twenty four but in the past I think you've talked about head count growth being more in line with the mid teens revenue growth that you're expecting this year. So I know you talked about it some already but.
Max Smock: I'm just wondering if there's anything else, that's enabling you to pull back some on on those hiring plans a little bit is it due to a lower outlook for Directv revenue next year or this year or is that more just due to maybe some of the efficiencies you've been able to drive more recently as we've scaled the business.
Max Smock: Yes, I think a lot of it compared to our first look is is turnover turnover has really come down to a very very tasteful and <unk>.
August Trundle: And you know, the amount you have to hire in advance, you know, kind of ahead of the curve, you know, depends upon, you know, keeping staff. You know, I mean, there's a lot of, if there's a lot of churn, there's a lot of, you know, hiring, and you got to, you know, go in with a much higher number in terms of staff at the beginning of So I think the big, you know, driver is that, you know, productivity increase. I think that we were thinking that turnover, you know, might still be hot, so we have to continue to hire at a fast rate. But you know, turnovers dropped very nicely. And that is the biggest driver.
Max Smock: You have to hire in advance.
Max Smock: But ahead of the curve.
Max Smock: It depends upon.
Max Smock: Keeping stacks.
Max Smock: There's a lot of if there is a lot of churn there is a lot of.
Max Smock: Hiring and you got to go in with a much higher number.
Max Smock: In terms of staff.
Max Smock: The beginning of the year.
Max Smock: So I think the big driver is that productivity increase.
Max Smock: I think that.
Max Smock: We were thinking of that.
Max Smock: Turnover might still be obviously, we'd have to continue to hire at a fast rate, but turnover dropped very nicely.
Max Smock: That is the biggest driver I think our expectations on direct revenue is the same as it was big but.
August Trundle: I think our expectations for direct revenue are the same as they were. Along with our revenue, we expected it to be about that 15%, both on the top line and, you know, the total and direct. And with anything, we see an improvement in the business environment, which would imply greater growth in, you know, in the Q4, in the next year kind of time frame. These things do take quite a bit of time, but things are looking very good for that. And that's why I say I think we're looking at a low in terms of a growth year, 15%. So I think that will take off, but I think we have time to do that, you know, hiring, you know, as things ramp up late in the year. Yeah, makes sense. And maybe just segueing off of that.
Max Smock: Along with our revenue we expected it to be about 15% both on the topline and.
Max Smock: And.
Max Smock: Total and direct and if anything we see.
Max Smock: Improvement in the business environment, which would imply greater growth.
Max Smock: In the <unk>.
Max Smock: Q4 next year kind of timeframe.
Max Smock: These things do take quite a bit of time, but things are looking very good for that that's why I say I think we're looking at are low in terms of the growth year, 15%. So I think that will take off but I think we have time to do that hiring.
Max Smock: As things ramp late in the year.
Speaker Change: Okay makes sense, and maybe just segue and off that so.
Wanted to drill in a little bit on some of the drivers behind the increased outlook for EBITDA next year, given you didn't change your outlook for revenue and it sounds like your expectations for direct fee versus past dues. There are consistent from that initial guide and so beyond maybe a pullback in hiring relative to your initial expectations is there anything to call out in terms of what's driving that increased outlet.
August Trundle: So I wanted to drill in a little bit on some of the drivers behind the increased outlook for EBITDA next year, given you didn't change your outlook for revenue. And it sounds like your expectations for direct fee versus past user are consistent with that initial guide. And so beyond maybe a pullback in hiring relative to your initial expectations, is there anything to call out in terms of what's driving that increased outlook for EBITDA in 2024? Yeah, and of course, you know, we're not giving guidance on 24, but, you know, things look good in terms of, you know, we had a very choppy period and, you know, quite a bit of cancellations and, you know, funding difficulties Like I said, I think we see a clear direction in the last, you know, 3, 4 months in terms of, you know, projects starting to uninstall, and that makes us very optimistic.
Speaker Change: Our EBITDA in 2024.
Speaker Change: Yes.
Speaker Change: We're not giving guidance on 'twenty four but.
Speaker Change: Things look good in terms of you know we had a very choppy period.
Speaker Change: Quite a bit of.
Speaker Change: Cancellations in funding difficulties and Thats moving away like I say I think we see a clear direction in Alaska.
Speaker Change: Three four months.
Speaker Change: In terms of.
Speaker Change: Projects, starting to uninstall and that makes us very optimistic. These again these things take quite a while to get to.
Speaker Change: Startup and to get to revenue burn I mean, these are multiple quarters for things.
Speaker Change: To move forward, but that does make us feel more optimistic on.
Speaker Change: Go forward next year et cetera.
Speaker Change: Okay, and then maybe just sneak in a final one for me.
Speaker Change: Competition, and just thinking about share gains here.
Speaker Change: August one we talked at the end of last year as you mentioned seen higher quality opportunities maybe than you have in the past and winning a greater share of those and maybe you would have expected. Historically just wondering if that has continued here given maybe some potential disruptions from from one of your competitors recently and just any thoughts on how your win rate has trended over the last couple of quarters in particular.
August Trundle: You know, again, these things take quite a while to get going and to get to revenue. I mean, these are multiple quarters for things to move forward, but that does make us feel more optimistic about, you know, going forward next year. Yeah, and then maybe just sneaking a final one in there for me, competition and just thinking about share gains here, August. When you and I talked at the end of last year, you mentioned seeing higher quality opportunities maybe than you have in the past and winning a greater share of those, and maybe you would have expected historically, just wondering if that has continued here, given maybe some potential disruptions from one of your competitors recently, and just any thoughts on how your win Yeah, our win rate has been very good in the last two quarters, above some kind of the long-term trend. So, you know, that looks good.
Speaker Change: Our win rate was.
Speaker Change: That's been very good the last two quarters above.
Speaker Change: The long term trend so.
That looks good.
Speaker Change: These things do bounce around though.
Speaker Change: I look at you want to look at share.
Speaker Change: I look at revenue.
Speaker Change: Thats the only way I look at people have backlog different ways.
Speaker Change: Conversion is a major factor.
Speaker Change: I don't know what.
Speaker Change: It means to be share gain to put up a book to bill.
Speaker Change: So I just look at revenue and revenue trend over time.
Speaker Change: Look.
Speaker Change: We're growing.
Speaker Change: At <unk>.
Speaker Change: Organically at multiples of.
Speaker Change: Sure.
The average of the rest of the industry. So I just.
Speaker Change: Clearly.
Speaker Change: Doing a good job in terms of.
August Trundle: You know, I don't, you know, these things do bounce around, though, and, you know, I look at, if you want to look at share, I look at revenue, you know, and that's the only way I know how to look at it. You know, people have backlogged in different ways, and, you know, conversion is a major factor, and, you know, I don't know what it means to be, you know, share gain to put up a book to bill. So, I just look at revenue and revenue trends over time, and look, you know, we're growing at, you know, organically at multiples of, you know, the, you know, average of the rest of the industry. So, I just, you know, we're clearly, you know, you know, doing a good job in terms of taking, you know, and sharing. Where it's coming from, I don't know, but, you know, we're, you know, growing at a rate considerably above the peers, and we will continue to, you know, and, you know, this may be a low year of, you know, 15%, but, you know, long term, you know, we've grown, you know, well above the industry. I got it.
Speaker Change: Taking share where it's coming from I don't know, but.
Speaker Change: We're growing at a rate considerably above.
Speaker Change: The peers and we will continue to.
Speaker Change: This may be a low year, 15%, but.
Speaker Change: Long term.
Speaker Change: We've grown.
Speaker Change: Well above the industry.
Speaker Change: Got it thank you for taking my questions.
Okay. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Alright next question comes from Jack Wallace with Guggenheim Partners. Your line is now open.
Jack Wallace: Hey, Thanks for taking my questions and congrats on another great quarter.
Jack Wallace: And it sounds like things are getting better on the demand front.
Jack Wallace: I was wondering if could also just touch on cancellations.
Jack Wallace: For the quarter.
Jack Wallace: Depending on.
Jack Wallace: The funding environment sounds like those should be in a pretty good shape as well is that.
Jack Wallace: Fair to say that it's baked into the outlook kind of a more normalized reduced level of cancellations in the last couple of years.
Jack Wallace: Cancellations were to.
Jack Wallace: Good range well within our.
Jack Wallace: That usual range.
I don't know, if that's driving any particularly and we had a spike.
Jack Wallace: 2022, but.
Jack Wallace: Things came down after maybe after first quarter too.
Jack Wallace: I mean, a reasonable rate in that.
Jack Wallace: Q2 through Q4 and.
Jack Wallace: As far as.
Jack Wallace: We kind of expect them to stay on that usual range less than four 5%.
Jack Wallace: Yes.
Speaker Change: Yes, the expectation for 'twenty four as it stays within our normal range.
Speaker Change: Thank you that's helpful and then.
Speaker Change: The comments you made earlier August about the.
Operator: Thank you for taking our question. Thank you. One moment for our next question. Our next question comes from Jack Wallace with Guggenheim Partners. Your line is now open.
Speaker Change: And kind of acceleration of decisions essentially just around funding and the like but I did notice that your customers out of your top 10 look like they were down sequentially in the quarter in terms of revenue and I wasn't sure if that combos anymore at that cohort or if theres anything else yet.
Jack Wallace: Hey, thanks for taking my questions, and congrats on another great quarter. You know, it sounds like things are getting better on the demand front. I was wondering if you could also just touch on cancellations, how those track in the quarter, and, you know, I guess, you know, depending on the funding environment, those should be in pretty good shape as well. Is it fair to say that it's baked into the outlook, kind of a more normalized, reduced level of cancellations in the last couple of years? Cancellations were to, you know, in a good range, well within our, you know, usual range. I, you know, I don't know that that's driving any particular, you know, we had a spike in 2022.
Speaker Change: Call out.
Speaker Change: That revenue trend because it does sound like of everything you're saying is that things are going well and continue to get better and expect it to get even better than that so I just wasn't sure. If there is anything to call out from a customer cohorts standpoint. Thank you.
Speaker Change: No I really don't have anything of course that if you.
Speaker Change: If the smaller clients are starting to unfreeze eventually that leads to us.
Speaker Change: Proportional reduction in top 10 revenue because you get better.
Speaker Change: Newer clients coming in but.
Speaker Change: I think it's too early to expect that but I don't I don't make anything out of it.
Speaker Change: Excellent. Thank you so much I appreciate it.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Eric Coldwell with Baird. Your line is now open.
Eric Coldwell: Thanks. Good morning first question, just hoping for an update on the labs business and maybe early clinical just.
August Trundle: But things came down after maybe after the first quarter, you know, to a, you know, reasonable rate in Q2 through Q4. And, you know, as far as I'm concerned, we kind of expect them to stay in that usual range of less than four and a half percent. Yeah, the expert.
Eric Coldwell: You recently made some internal expansions brought some work in house microbiology certain parts of path I'll. Let you I believe I was just curious about the traction there and ability to cross sell those new solutions.
August Trundle: Yeah, the expectation for 24 is that it stays within our normal range. Thank you, that's helpful. And then, you know, the comments you made earlier in August about the... and the Acceleration of Decisions, essentially just around funding and the like. But I did notice that your customers out of your top ten looked like they were down sequentially in the quarter in terms of revenue, and I wasn't sure if that combo was in more in that cohort or if there was anything else you had to call out with that revenue trend. Because it does sound like everything you're saying is that things are going well and continuing to get better, and expected to get even better than that. So I just wasn't sure if there was anything to call out from a customer cohort standpoint. No, I really don't have anything.
Eric Coldwell: Yeah, Eric It's Jesse the lab lab is growing nicely.
Eric Coldwell: Along with the with the business.
Eric Coldwell: The expansions in terms of investments in the lab.
Eric Coldwell: We've been kind of around the globe with different.
Jesse J. Geiger: Different parts of our geography, Indonesian expansions, which for the lab tends to be on a more step basis, it's not as linear every year, but.
Jesse J. Geiger: We grow outgrow areas and we're always looking at the full suite of offerings whether thats.
Jesse J. Geiger: Standing up a specific test or an assay or bringing in wholesale.
Jesse J. Geiger: Capabilities and other.
Jesse J. Geiger: The things we've invested in recently and things we've added.
Speaker Change: I have been off to a good start.
Good to hear.
Speaker Change: Next question revenue phasing, so a bit of a setup here may be wonky, but hopefully you can.
Speaker Change: Muscle through it with me so on one hand really tough comps going into 'twenty four I mean, the first half of last year you grew over 31%.
August Trundle: Of course, if the smaller clients are starting to unfreeze, eventually, that leads to a proportional reduction in top 10 revenue because you get other, you know, newer clients coming in. But I think it's too early to expect that. But I don't know. I don't make anything. Thank you so much. I appreciate it.
Speaker Change: Same time, 15% revenue guidance consistent very good excellent compared to the peer group.
Just curious 26, 27% growth in the fourth quarter do we do we drop immediately here in the first quarter, and then recover or not recover but reaccelerate in the back half as the.
Operator: Thank you, and one moment for our next question. Thank you. Thank you. Our next question comes from Eric Coldwell with Baird. Your line is now open. Thanks. Good morning.
Eric Coldwell: First question, just hoping for an update on the labs business and maybe early clinical. You recently made some internal expansions, brought some work in-house, microbiology, certain parts of pathology, I believe. I was just curious about the traction there and ability to cross-sell those new solutions. Yeah, Eric, it's Jesse.
Speaker Change: Funding and the demand is strong and do you think things are going to pick up there was a mention of a better fourth quarter or do you start stronger and phased down through the year I'm just trying to get a sense on how to model. This revenue phasing given one tough comps but too.
Speaker Change: The most recent quarter you grew nearly 27% so where do we go here in Q1, and then phase through the year.
Jesse J. Geiger: No, the lab labs are growing nicely, you know, along with the business, you know, the expansions in terms of investments in the lab. You know, we've been kind of around the globe with different, you know, different parts of our geography needing expansions, which for the lab tend to be on a more gradual basis, you know; it's not as linear every year. But, you know, we outgrow areas, and we're always looking at the full suite of offerings, whether that's, you know, standing up a specific test or an essay or bringing in wholesale capabilities. And, you know, the things we've invested in recently and things we've added, you know, have been off to a good start. Good to hear. Next question: revenue phasing. So, a bit of a setup here, maybe wonky, but hopefully, you can muscle through it with me.
Speaker Change: Yes, Eric This is Kevin I think as you think about the quarters.
Speaker Change: No.
Kevin Brady: Quarters can be very lumpy.
Kevin Brady: From a revenue perspective, and so theres nothing that I would call out necessarily specifically in terms of.
Eric Coldwell: Do we see an acceleration in Q1, and a drop off or do we kind of see steady state throughout the quarter and you see sequential growth.
Eric Coldwell: Throughout the quarters.
Speaker Change: I guess I don't I don't know the answer to that is August had mentioned.
Speaker Change: If things do pick up.
Speaker Change: There is a possibility that you start to see some some acceleration in the fourth quarter and into 2025.
Speaker Change: But nothing specific to call out I do think the first quarter.
Speaker Change: Yeah from a from a margin perspective is likely to be better.
Eric Coldwell: So, on the one hand, really tough comps going into 24. I mean, in the first half of last year, you grew over 31 percent. Same time, 15% revenue guidance, consistent, very good, excellent compared to the peer group. I'm just curious, you know, 26, 27% growth in the fourth quarter. Do we drop immediately here in the first quarter and then recover or not recover, but reaccelerate in the back half as the funding and the demand is strong and you think things are going to pick up? There was a mention of a better fourth quarter, or do you start stronger and phase down through the year? I'm just trying to get a sense of how to model this revenue phasing given, one, tough comps, but two, the most recent quarter you grew nearly 27%. So where do we go here in Q1 and then phase through the year? Yeah, Eric, this is Kevin.
Speaker Change: The balance of the year similar to what we saw this year.
Speaker Change: Just because some of the wage inflation pressures will pick up again in <unk>.
Speaker Change: At the end of the first quarter beginning of the second quarter of this year, but nothing else specific to call out on that front Eric.
Speaker Change: Okay.
Speaker Change: The.
Speaker Change: The market's been extremely focused on this <unk> category.
Speaker Change: It's we hear a lot about the big farmers that are active in that space, but there are lots of trials out there and med pace has.
Speaker Change: A notable history and metabolic I'm just I'm just.
Speaker Change: <unk>.
Speaker Change: Or you have seen some trial demand and <unk> are you participating in that market as it is it a contributor to any of your.
Speaker Change: Your win rates or your Rfps I'm, just trying to get a sense on how impactful that's been if at all.
Kevin Brady: You know, I think as you think about the quarters, and we know that our quarters can be very lumpy, even from a revenue perspective. And so there's, there's nothing that I would call out necessarily, specifically in terms of, you know, do we see an acceleration in Q1 and a drop off? Or do we kind of see steady state, you know, throughout the quarter, and you see sequential growth, you know, throughout the quarters? You know, I guess I don't, I don't know the answer to that, as August mentioned. If things do pick up, there's a possibility that you start to see some, some acceleration in the fourth quarter and into 2025. But, nothing specific to call out. I do think the first quarter will be interesting.
Speaker Change: To this point.
Speaker Change: Yes, not we're not really.
Speaker Change: Okay.
Speaker Change: Much of any exposure to <unk> directly.
Speaker Change: We see overall, a little bit more but GOP ones are largely large pharma.
Speaker Change: Yes.
Speaker Change: In terms of the dollar spend and.
Speaker Change: So I have not.
Speaker Change: Cigna meaningful part of our revenue now.
Speaker Change: That's actually somewhat reassuring and good I think lasse.
Speaker Change: Last question.
Speaker Change: We have seen a number of companies this quarter that we plan to help neil's maybe somewhat after the fact that.
Opex looked a little high in the quarter and we got some pick up below the line, we werent quite sure why.
Speaker Change: I wouldn't call it a big.
Kevin Brady: From a margin perspective, it's likely to be better than the balance of the year, similar to what we saw this year, just because some of the wage inflation pressures will pick up again at the end of the first quarter and beginning of the second quarter this year, but nothing else specific to call out on that front. The market's been extremely focused on this GLP-1 category. We hear a lot about the big pharmas that are active in that space, but there are lots of trials out there, and Medpace has a notable history in metabolic.
Speaker Change: Notable item it at mid pace this quarter, but I am curious if you had any.
Speaker Change: Unusual items running through the P&L or abnormally large changes in the P&L due to things like deferred compensation adjustments or anything else that will be my last one thank you.
Speaker Change: Yes, Eric nothing nothing on deferred compensation, we don't we don't have a deferred comp program yes.
Eric Coldwell: I'm just curious, you know, are you seeing some trial demand for GLP-1s? Are you participating in that market? Is it, is it a contributor to any of your win rates or your RFPs? I'm just trying to get a sense of how impactful that's been, if at all, on you.
Speaker Change: But.
Eric Coldwell: Yes, the stuff that for asset sitting in kind of miscellaneous income.
Speaker Change: It's primarily going to be foreign exchange or better and we do have some investments.
Eric Coldwell: That rolls through there as well and the volatility is typically caused by FX, but nothing nothing specific to call out in that particular area just kind of the normal.
August Trundle: Yeah, not really, we don't really have much of any exposure to GLP-1 directly. You know, obesity overall, a little bit more, but you know, GLP-1s are largely a large pharma phenome in terms of the dollar spend and so have not been a significant, meaningful part of our. That's actually somewhat reassuring and good. Last question. We have seen a number of companies this quarter that we found out, maybe somewhat after the fact, that OPEX looked a little high in the quarter, and we got some pickup below the line. We weren't quite sure why.
Eric Coldwell: Fluctuations that we see in those three buckets quarter Nicole.
Nicole: Alright, well enough is enough.
Speaker Change: Great job thanks, guys.
Speaker Change: Thanks, Eric.
Thank you.
Speaker Change: This concludes today's conference call.
Speaker Change: I would now like to turn it back to Laura and Morris for closing remarks.
Laura Morris: Thank you for joining us on today's call and for your interest in <unk>. We look forward to speaking with you again on our first quarter 2024 earnings call.
Eric Coldwell: I wouldn't call it a big, notable item at Medpace this quarter, but I am curious if you had any unusual items running through the P&L or abnormally large changes in the P&L due to things like deferred compensation adjustments or anything else. That'll be my last one. Thank you. Nothing on deferred compensation. We don't have a deferred comp program.
Speaker Change: Thank you for participating you may now disconnect.
Speaker Change: Okay.
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Kevin Brady: Yeah, the stuff that for us that's sitting in kind of miscellaneous income, it's primarily going to be foreign exchange or VAT, and we do have some investments that roll through there as well. And the volatility is typically caused by FX, but nothing specific to call out in that particular area, just kind of the normal fluctuation that we see in those three buckets, quarter to quarter. Alright, well, good stuff. Great job. Thanks, guys. Thanks, Eric. Thank you. This concludes today's conference call. I would now like to turn it back to Laura Morris for closing remarks. Thank you for joining us on today's call and for your interest in Medpace. We look forward to speaking with you again on our first quarter 2024 earnings call. Thank you for participating. You may now disconnect. Please see the complete disclaimer at https://sites.google.com or at www.google.com.
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