Q4 2024 Medpace Holdings Inc Earnings Call
Good morning, and thank you for joining that keeps us fourth quarter and full year 2024 earnings conference call and 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 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.
Speaker Change: Sir please.
Speaker Change: Please note that we assume no obligation to update forward looking statements, even if estimates change.
Speaker Change: Accordingly, you should not rely on any of today's forward looking statements as representing our views as of any date after today.
Speaker Change: During this call we will also be referring to certain non-GAAP financial measures.
Speaker Change: These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results 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 slides provide.
Speaker Change: In connection with today's call.
Speaker Change: The slides are available in the Investor Relations section of our website at Investor day that this dot com with that I would now like to turn the call over to August Troendle.
Speaker Change: Yeah.
Speaker Change: Thank you art.
Speaker Change: Good day.
Speaker Change: Backlog cancellations in Q4 within our normal range.
Speaker Change: Book to Bill ratio was 0.9, not influenced by prior pipeline cancellations as well as the delay of some projects previously expected to enter backlog.
Speaker Change: Rfps were down slightly in Q4 compared to Q3.
Speaker Change: Overall business environment weakened somewhat.
Speaker Change: But remained up relative to Q4 2023.
Yeah.
Speaker Change: So 2024 calendar year backlog increased 3% however.
Speaker Change: However, total awards.
Speaker Change: Handing underperformed work.
Speaker Change: Considering both backlog and pre backlog awards was down slightly.
Speaker Change: This reflects the high level of cancellations, we experienced in 2024.
Speaker Change: All of this provides a challenging backdrop to gross in 2025.
Speaker Change: Assuming cancellations remained in our historical range.
Speaker Change: This environment does not continue to deteriorate.
Speaker Change: We remain hopeful that we can achieve growth in bookings with a book to bill ratio above 1.15 in the second half of the year.
Speaker Change: Revenue growth for 2025 is expected to be in the low single digits.
Speaker Change: I will now turn things over to Jesse for comments on Q4.
Jesse: Thank you August and good morning, everyone.
Jesse: Our revenue in the fourth quarter of 2024 was $536 6 million, which represents a year over year increase of seven 7% and full year 2024 revenue was 2.11 billion 11, 8% increase from 2023.
Jesse: Net new business awards entering backlog in the fourth quarter decreased 13, 8% from the prior year to $529 7 million <unk>.
Jesse: Resulting in a 0.99 net book to Bill.
Jesse: For the full year 2024, net new business Awards were 2.2 dollars 3 billion a decrease of five 4%.
Jesse: And ending backlog as of December 31, 2024 was approximately $2 9 billion in.
Jesse: An increase of three 2% from the prior year.
Jesse: We projected approximately 1.63 billion of backlog will convert to revenue in the next 12 months and backlog conversion in the fourth quarter was 18, 3% of beginning backlog.
Jesse: Now with that I will turn the call over to Kevin to review, our financial performance in more detail and discuss our 2025 guidance.
Jesse: Kevin.
Kevin: Thank you Jessie and good morning to everyone listening in.
Kevin: As Jesse mentioned revenue was $536 6 million in the fourth quarter of 2024.
Kevin: This represented a year over year increase of seven 7%.
Kevin: Full year 2024 revenue was $2, one 1 billion and increased 11, 8% from 2023.
Kevin: EBITDA of $133 5 million increased 39, 3% compared to $95 8 million in the fourth quarter of 2023.
Kevin: Full year EBITDA was $480 2 million and increased 32, 5% from the comparable prior year period.
Kevin: EBITDA margin in the fourth quarter was 24, 9% compared to 19, 2% in the prior year period.
Kevin: Full year EBITDA margin was 22, 8% compared to 19, 2% in 2023.
Kevin: EBITDA margin for the quarter and for the full year were favorably impacted by Reimbursable costs.
Kevin: Which decreased by 400 basis points, and 180 basis points respectively.
Kevin: The comparable prior year periods.
Kevin: EBITDA margin also benefited from direct service activities and productivity on slower head count growth.
Kevin: The fourth quarter saw additional benefit from foreign exchange behind the strengthening of the U S dollar in the quarter.
Kevin: In the fourth quarter of 2024 net income of $117 million increased 49, 5% compared to net income of $78 3 million in the prior year period.
Kevin: For the full year 2024, net income was $404 4 million compared to $282 8 million in 2023.
Kevin: Which represents a 43% increase.
Kevin: Net income growth ahead of EBIT growth was driven by interest income and a lower effective tax rate.
Kevin: Net income per diluted share for the quarter was $3 67.
Kevin: Compared to $2.46 in the prior year period.
Kevin: For the full year 2024, net income per diluted share was $12 63 compared to net income per diluted share of $8 88.
Kevin: 2023.
Kevin: Regarding customer concentration our top five and top 10 customers represent roughly 22% and 29% respectively of our full year 2020 for revenue.
Kevin: In the fourth quarter, we generated $190 7 million in cash flow from operating activities.
Kevin: And our net days sales outstanding was negative 71 days.
Kevin: As of December 31, 2024, we had $669 $4 million in cash.
Kevin: During the fourth quarter and full year 2024, we repurchased approximately 527000 shares were $174 2 million.
Kevin: At the end of the quarter, we had $134 6 million remaining under our share repurchase authorization program.
Kevin: Moving now to our guidance for 2025.
Kevin: Full year 2025 total revenue is expected in the range of $2. One 1 billion to $2, two 1 billion, which represents flat to four 8% growth over 2024 total revenue of $2, one 1 billion.
Kevin: Our 2025 EBITDA is expected in the range of 462 million to $492 million.
Kevin: Representing a decline of three 8% to growth of two 5%.
Kevin: Third to EBITDA of $488 2 million in 2024.
Kevin: We forecast 2025 net income in the range of 378 million to $402 million.
Kevin: This guidance assumes a full year, 2025% effective tax rate of 18% to 19%.
Kevin: Interest income of $30 5 million and.
Kevin: And $31 7 million diluted weighted average shares outstanding for 2025.
Kevin: There are no additional share repurchases reflected in our guidance.
Kevin: Earnings per diluted share is expected to be in the range of $11 93.
Kevin: To $12 69.
Kevin: Guidance is based on foreign exchange rates as of December 31, 2024.
Kevin: With that I will turn the call back over to the operator, so we can take your questions.
Speaker Change: Certainly and our first question for today comes from the line.
Speaker Change: Dan Leonard from UBS Your question. Please.
Speaker Change: Okay. Thank you couple of questions first off on the service gross margins in the quarter.
Speaker Change: I understand the pass through mixed component I was hoping you could elaborate on some of the other factors that drove the outperformance on that line, whether they be head count related or otherwise.
Kevin: Hey, Dan this is Kevin.
Kevin: Really just the productivity of our existing staff and the programs that are in backlog progressing very nicely.
Kevin: And so it's really the kind of the second quarter that we've seen great progress on the direct.
Kevin: Service side.
Kevin: Okay.
Kevin: Okay, and then as a follow up what are the assumptions that would get you to the high end of your revenue guidance in 2025.
Kevin: Say that again sorry.
Kevin: What are the assumptions that would get you to the high end of your revenue guidance in 2025.
Kevin: Yes, I mean really just the business environment, improving a bit in your programs that.
Kevin: Kind of are sitting in that pre backlog bucket progressing.
Kevin: And the backlog is rewards and those programs continuing.
Kevin: Understood. Thank you.
Max: Thank you and our next question comes from the line of Max <unk> from William Blair. Your question. Please.
Max: Hey, good morning, everyone. Thanks for taking my questions.
Max: I guess you mentioned the business environment deteriorated over the last couple of months here I guess my question is are you surprised by that given the better funding environment that we saw in 2024 and what do you think is behind that deterioration do you think it could just be some of these companies maybe taken a little bit of a pause to digest I guess some of the uncertainty caused by the election or is there something else going on that you would.
Max: Call out that is really driving that weakness.
Max: Yes, I don't really have a <unk>.
Max: Explanation for it and it was just.
Max: This is a subjective thing I think.
Max: RFP flow was was fine.
It's the qualitative aspects of the type of.
Max: <unk> size and types of projects, we're getting and likelihood of moving forward and I just thought it wasn't dataset.
Max: Quite as robust as the.
Max: What we've seen in the prior couple of quarters, which was really kind of accelerating and it seemed to decelerate. So I mean, yes, I don't know if it's because of the election and just concerns about where things are going or what.
Max: What the situation is where there is going to turnaround yet but.
Max: I did note that.
Max: It wasn't as robust as it had been the prior couple of quarters.
Max: A core business environment cancellations on the other side have abated.
Max: Theres kind of two sides to that environment and one is kind of new opportunities net is maybe weakening a bit.
Max: But the cancellations were down in Q4 relative to the prior three quarters really so.
Max: This is the first quarter of the year that we had kind of a clue.
Max: Closer to normalized.
Max: Our cancellation rate, although I think the cancellations were still towards the high side.
Max: So cancellations.
Max: Cancellations improving.
Max: Business environment, maybe just a little bit weaker we'll have to see Q1.
Speaker Change: Understood. Thank you for that helpful commentary and then just following up.
Speaker Change: On your comments about some of those delays I think you called out a couple that were a couple of projects that were expected to hit bookings in the quarter.
Speaker Change: Is there any color you can provide around what was behind that those delays and how much visibility you have into those projects hit in bookings in the next couple of quarters here and then how do you think about the risk that those delays eventually turn into cancellations in the first half of this year. Thank you.
Speaker Change: Yes, I do expect those studies as I mentioned being delayed.
Speaker Change: It is progressing just being a little bit slightly delayed not greatly delayed we do have some project start longer.
Speaker Change: Kind of hold pattern.
Speaker Change: And there's always a risk that anything cancels.
Speaker Change: I can't I can't edge that cancellations are still are.
Speaker Change: Top.
Speaker Change: Top of my mind in terms of risks of us.
Speaker Change: Performing this year, but.
Speaker Change: Yes, I think that the.
Speaker Change: Most of what was kind of pushed out of Q <unk>.
Speaker Change: Q4.
Speaker Change: I think we will.
Speaker Change: Here in the first half of 2025.
Speaker Change: Understood. Thanks, again for taking the questions I'll hop back in the queue.
Speaker Change: Thank you.
Eric Coldwell: Next question comes from the line of Eric Coldwell from Baird. Your question. Please.
Eric Coldwell: Thanks, very much good morning.
Eric Coldwell: I'm curious about the revenue phasing expectations through the year with the zero to 5% growth range are you anticipating a big drop off here in the beginning of the year and then a ramp towards the back half is it is it more linear through the year and then what is the indirect revenue mix component of our growth.
Eric Coldwell: <unk>.
Is it down like you saw here in the fourth quarter and the deceleration we've seen over the last year are you expecting that to stabilize.
Eric Coldwell: At this percent of revenue go back up what's the what's the mix between direct and indirect face. Please.
Eric Coldwell: Yes, Eric as it relates to the indirect.
Speaker Change: Our modeling would suggest that.
Speaker Change: 2025, as a percentage of revenue will be somewhere around where we landed in the fourth quarter here. So.
Speaker Change: Youre down from where we were in total year 'twenty four.
Speaker Change: At levels similar to what we saw in the fourth quarter here.
Speaker Change: What was the first part of your question.
Speaker Change: Facing on revenue the zero to 5% range or are we starting at the low end and moving to a higher level in the back half is it more linear growth through the year or just the thought process on timing.
Speaker Change: The revenue reduction.
Speaker Change: It will somewhat depend on how.
Speaker Change: Those programs are progressing into awards throughout the year.
Speaker Change: Certainly we've got a.
Speaker Change: Our pipeline of those backlog opportunities. So I would expect there to be some linear progression throughout the year I wouldn't expect.
Speaker Change: <unk> step up in the first quarter here, but.
Speaker Change: Hopefully sequentially growing revenues throughout the year from there.
Speaker Change: But it will depend on how the bookings progress as well.
Speaker Change: And then if I could just squeeze in one more.
Speaker Change: Advanced billings.
Speaker Change: It kind of intriguing topic doesn't get a lot of airtime, but you did show quarter to quarter increases in advanced billings to Q3, Q <unk> you finished the year with advanced billings up 27% year over year.
Speaker Change: I'm not quite sure what drove that and how that happens.
Speaker Change: A year, where bookings were down 5% plus and down 14% in the fourth quarter revenue slowdown.
Speaker Change: What's keeping these advanced billings at such a high level.
Speaker Change: And actually improving a little bit sequentially through the last three quarters.
Speaker Change: Yes. Good question, Eric I mean, a lot of that is going to be timing based on.
Speaker Change: The active programs that are in backlog and how those programs are progressing and you saw the.
Speaker Change: Sure.
Speaker Change: Nice growth rates that we've seen on the direct side of the business and we try to create payment schedules and milestone payments.
Speaker Change: Kind of stat, a bit ahead of the work that we're doing.
Speaker Change: And so a lot of it is just timing related on how the mix of programs is going in.
Our ability to.
Speaker Change: You have to bill according to that milestone this milestone payments and collect against us as you know.
Speaker Change: We stay on top of.
Speaker Change: Got it sponsors in credit.
Speaker Change: Making sure that we're getting paid as well as we're going to work.
Speaker Change: Fewer clients that are not paying us and we continue to work.
Speaker Change: Maybe that's it.
Speaker Change: Thank you very much.
Speaker Change: Yes.
Speaker Change: Thank you and our next question comes from the line of David Windley from Jefferies. Your question. Please hi.
David Windley: Good morning. Thank you for taking my questions I wanted to focus on the cost side a little bit.
David Windley: I wondered when we were together in November you talked about.
David Windley: Retention being at.
David Windley: At a very high level is much higher than historical norms.
David Windley: And that was leading to greater levels of productivity I think the expectation was that it was probably at a peak and couldnt get much better.
David Windley: The fourth quarter was better.
David Windley: And it seems like at least some of your margin expectation next year assumes that that continues so I wondered if you could maybe provide a little bit more.
David Windley: Precision around the productivity levels of the staff and when you would anticipate or if you are anticipating.
David Windley: Kind of restarting hiring at any point during the 25 calendar year or if the guidance basically assumes that staff continues to be relatively flat.
David Windley: Yes, Hey, Dave it's Jesse.
David Windley: Yes in terms of productivity.
Dave: Does it remain.
Dave: At a very high level, but good good productivity continues good retention continues.
Dave: A lot of experienced staff just continuing to work.
Dave: Diligently on projects the.
Dave: The head count growth was fairly flat in 2024, we do anticipate.
Dave: Accelerating hiring here in 2025, so we are targeting at the moment.
Dave: Head count growth in the mid mid to maybe upper mid.
Dave: Single digit level for the year, how that progresses throughout the year will be somewhat determined by.
Dave: What the business environment.
Dave: It looks like and how that progresses, but we do anticipate hiring.
Dave: And kind of.
Dave: Restarting the.
Dave: The hiring engine, a little bit a little bit more aggressively as we work through.
Dave: Through the year.
And that will have likely a little bit of an impact on margins.
Speaker Change: Got it and Barry and Dave just to build on that we do expect headwinds on margins. If you look at if you look at the guidance that's out there.
Dave: And the other thing to call out on that.
Dave: The question I asked answered previously as it relates to the indirect on Reimbursable costs.
Dave: We do expect 2025 to be at a level similar to what we saw in the fourth quarter.
Dave: Which would mean that that is a percentage of revenue and 25 comes down a little bit.
Dave: Right.
Dave: On.
Speaker Change: Other cost actions one of the things that I think you had talked about I can't remember if it was last quarter or two quarters ago.
Dave: Is the beginnings of investment and off shoring.
Dave: Some back office functions, maybe data management things like that where do those stand and are some of the benefits of that activity beginning to show through in your financial expectations.
Dave: Yes, I don't think if you go ahead.
Dave: Okay. Thank.
Dave: Thanks, Chris I still think it's early times.
Dave: Yeah, and I'd just say, we're just getting started there I mean thats more of a long term play there we haven't really seen any of the of the positive impact of that just yet.
Dave: We are continuing to hire in.
Speaker Change: In India.
Dave: And a couple of back office functions and administrative.
Dave: Functions, but.
Dave: But I think any sort of tailwind that that creates or margin help.
Dave: There will be some but it won't be a major margin driver. If you think about just the overall.
Dave: Fixture of margin profile.
Dave: But it is a longer term longer term play than more so than anything that we're expecting to materialize here in 2025.
Dave: Got it and then last question for me is.
Dave: Just I guess around.
Dave: Competition.
Dave: Kind of comes back to a bookings question, but.
Dave: I'm thinking about it more again from.
Dave: Our margin sustainability standpoint, and what we.
Dave: Here in the market is.
Dave: I know you wouldn't normally say you typically see the bigger competitors, but it sounds like in the absence of a stronger demand environment broadly that they are moving down into what would be your more traditional space more aggressively.
Dave: So I wonder if you're if you're seeing that.
Dave: And I would assume your reaction would be to.
Dave: Sacrifice price maybe August.
Dave: Could speak to that.
Sure.
Dave: I think the environment has.
Dave: Titan everybody's built some.
Dave: I think our.
Dave: Clients are funding challenged frequently and art and or at least in our.
Dave: Our clients.
Dave: I think there is.
Dave: Competition and.
Dave: Pricing is a part of that and I think you have to be as efficient as possible.
Dave: Certainly we have to be.
Dave: Competitive and bring value to.
Dave: To the table and yet prices as part of that we've had.
Dave: We've had two.
Dave: <unk>.
Dave: Defend our.
Dave: Our our our volume as well as our margin.
Speaker Change: Got it that's helpful. Thank you very much.
Dave: <unk>.
Speaker Change: Thank you and our next question comes from the line of Jay Linde dressing from two Securities. Your question. Please.
Speaker Change: Thank you and good morning, everyone. So going back to the comment around biotech slow decision, making delays et cetera, I understand it is tough to know what might be driving that but based on your conversations with these companies are there any key catalyst there watching pod before they're comfortable going forward with the project and related to that have you seen any.
Speaker Change: Science that sponsors are putting pressure on these companies to put dollars into play because it seems like funding is not an issue and if that's the case it could create some pent up demand in near term any thoughts on that.
Speaker Change: Yes, I think for our clients' funding issue.
Speaker Change: I can't speak to clients that have cash and just don't want to spend it.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: No I mean look there's also.
Speaker Change: Things do take time and clients that do have <unk>.
Speaker Change: Cash.
Speaker Change: It may not be ready with their IP to move forward for other reasons.
Speaker Change: So I don't think I don't perceive.
Speaker Change: Okay.
Speaker Change: Difficult number of our clients holding onto cash.
Speaker Change: Despite they have a program that is ready to move forward in <unk>.
Speaker Change: Don't want to don't want to spend it.
Speaker Change: I, just don't see that but.
Speaker Change: Don't know.
Speaker Change: Okay that makes sense and then my follow up on the RFP trends in the quarter being down slightly sequentially versus Q3 can you guys speak a little bit more to the quality of Rfps are you seeing customers kind of prioritizing certain drugs with more promising data on our drugs. In later stage trials are mixed up Rfps unfocused Tilbury.
Speaker Change: And to that point can you remind us where you are.
Speaker Change: It's across phase one before.
Speaker Change: Yes, okay. So so I think rfps were okay in Q <unk> four it just tends to be a little bit lighter in general so I think that the.
Speaker Change: The volume the dollar volume of Rfps.
Speaker Change: Was was fine.
Speaker Change: From my perspective, so it was the qualitative side that I didn't think there was quite as many opportunities that look.
Speaker Change: Promising in terms of size and likelihood of moving forward et cetera.
Speaker Change: So.
Speaker Change: Little bit more maybe churn in the RFP.
Mike: Bucket them, then I would like so that was kind of just Mike.
Speaker Change: Relative assessment, which is difficult to point to.
Mike: Quantifying it.
Mike: In terms of our breakout phase one through four.
Mike: Phase one itself is a very small part of our business, we're talking about a couple of percent.
Mike: 1%.
Mike: It's.
Mike: If you talked about.
Mike: Our CPU type of operations now.
Mike: Generally other phase ones.
Mike: And oncology et cetera, you throw in with phase two and three.
Mike: Good.
Mike: A majority of the business and.
Mike: Gallagher.
Mike: Dollar numbers phase two and then the phase III.
Mike: Comparable type of size of the business and we don't have.
Mike: A lot of.
Mike: Very late phase.
Mike: Type trials.
Mike: Okay. Thanks, a lot.
Mike: Thank you.
Speaker Change: Next question comes from the line of Justin Bowers from Deutsche Bank. Your question. Please.
Justin Bowers: Hi, good morning, everyone.
Speaker Change: Can you talk about the.
Speaker Change: The trends that Youre seeing in your pre backlog awards and how cancellations are trending there is there.
Speaker Change: Pattern that you're seeing in the.
Speaker Change: The bookings or sort of in line above below what youre seeing in the backlog.
I'm, sorry, the cancellation that pre backlog.
Speaker Change: Okay.
Speaker Change: Pre backlog awards yeah.
Speaker Change: Okay.
Speaker Change: So okay. So our new award noticed gate Thats Youre, just ask what the kind of volte.
Speaker Change: Volume was there.
Speaker Change: Volume was and then are you seeing is there any divergence.
Speaker Change: <unk>.
Speaker Change: The cancellations there versus what Youre seeing in your and your net business right from your backlog.
Speaker Change: Yes, and that kind of that.
Speaker Change: Awards that had been awarded or do we have that are not yet in backlog.
Speaker Change: Yes, so I think the flow is still.
Speaker Change: Okay again, I think that the business environment did soften a little bit in Q4, but our win rate was fine and so I think that things moving into our kind of awarded but not in backlog yet is still looking okay and good enough to tick.
We don't want to get.
Speaker Change: Second half of this year, if everything else.
Speaker Change: It remains the same.
Speaker Change: Cancellations came down both.
Speaker Change: Ross the portfolio so both in.
Speaker Change: More into our normal range for backlog cancellations as well as a reduction in our cancellations in that pre backlog kind of phase. So those came down quite a bit also and they were actually the bigger part of cancellations.
Speaker Change: In 2024 and drove.
Speaker Change: Most of our bookings.
Speaker Change: Difficult where from that pre backlog.
Speaker Change: Group, rather than the backlog group itself.
Speaker Change: So they came down nicely also along with the backlog cancellations.
Speaker Change: Understood and then just in terms of the demand environment on piecing together.
Speaker Change: Certainly the other questions.
Speaker Change: It seems like quality.
Speaker Change: Started to improve.
Speaker Change: Late last year, and and pricing was at least stabilizing maybe improving.
Speaker Change: A smidge is is that still the trajectory.
Speaker Change: Or.
Speaker Change: Has that started.
Speaker Change: James direction as well.
Speaker Change: And then.
Speaker Change: Maybe just comments on decision, making like Theres been a lot of delays throughout.
Speaker Change: 2020 for us.
Speaker Change: Is that sort of a persistent trend or is the velocity change there at all.
So I think the business environment was.
Speaker Change: Much improved for the first three quarters of.
Speaker Change: 2004, So I think 24 was came out.
Speaker Change: With accelerating.
Speaker Change: It kind of opportunities.
Speaker Change: And aside from the cancellations. So if I looked at just new opportunities in that.
Speaker Change: What's happening in our business environment with with things being pulled.
Speaker Change: Funding problems of many of our clients there was a lot of opportunities and you're kind of accelerating Q4 was it a little bit little bit weaker maybe.
Speaker Change: But the environment is still not.
Speaker Change: Not that horrible so.
Speaker Change: I don't I don't know, which direction, it's going it could just be maybe a little bit of a slowdown in Q4, and then things are going to reaccelerate or it could be the signs of things are slowing down more.
Speaker Change: Delays and things like that.
Speaker Change: Wasn't.
Speaker Change: Delays.
Speaker Change: It was funded really we've had a few delays pushed.
Speaker Change: Push things out of Q4, but that.
Speaker Change: It Hasnt really been just.
Speaker Change: Quarter to quarter delays.
Speaker Change: Prior in the year it was more.
Speaker Change: Financial difficulty and cancellations.
Speaker Change: Does that answer your question, yes, yes. Thank you all again.
Andrew: Thank you Andrew.
Speaker Change: As a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone.
Speaker Change: Next question comes from the line of Charles <unk> from TD Cowen Your question. Please.
Speaker Change: Yes, thanks for taking the questions.
Speaker Change: Maybe just maybe a little more clarification.
Speaker Change: Think about sort of the cancellation rates youre, saying thats kind of come back to normal I know, we've talked about sort of cancellations from pre backlog.
Speaker Change: How much longer should we expect that kind of do you have kind of dynamics could be impacting book to bill as we move through the course of the year do you feel like we're kind of getting at the end of that.
Speaker Change: And so when we think about the difference between let's say the 99 book to Bill in the fourth quarter and sort of get into this 115 as we get to the back half of.
Speaker Change: For the year.
Speaker Change: How would you kind of characterize that as a mix between sort of.
Speaker Change: Reducing these pre backlog cancellations or just expectations for RFP growth.
Speaker Change: Words.
Speaker Change: Yes, so I think the elevated.
Speaker Change: Pre backlog cancellations.
Speaker Change: Throughout 2024.
Speaker Change: Have an impact throughout 2025.
Speaker Change: And I expect.
Speaker Change: Bookings in the first couple of quarters of 'twenty five.
Speaker Change: And then hopefully in the second half we will get.
Speaker Change: Bookings that are accelerating and.
Speaker Change: Getting above that 115.
Speaker Change: Sort of thresholds that I look at hopefully moving in 26 to $1 two et cetera.
Speaker Change: But that's kind of the trajectory.
Speaker Change: Seeing based upon the cancellations in the car.
Speaker Change: Portfolio of pre backlog work, which can take up to a year to translate into backlog.
Speaker Change: Okay. So just to follow up there. So if we assume that that kind of activity is it sounds like you're saying, it's kind of you feel can be relatively constant.
Speaker Change: When we think about the weaker first half bookings is that a function where do you think.
Speaker Change: You said the RFP activity in the fourth quarter was down slightly we should expect.
Speaker Change: Youre seeing RFP activity here in the first quarter lower and so is it right.
Speaker Change: I'm not I'm not projecting future rfps umpqua objecting the bookings I thought that's what you were asking yes, im sorry, Im sorry, yes, yes are you expecting bookings to be.
Speaker Change: Book to Bill here to be sort of lower in the first half than the fourth quarter, and then kind of ramping back up.
Speaker Change: No I do not I hope nothing is lower than Q4 in terms of booking book to Bill.
Speaker Change: So I'm, hoping that that is improved but still well below that 1.15. So.
Speaker Change: Im looking for.
Speaker Change: Rather weak bookings in the first couple quarters here of 2025.
Speaker Change: I certainly hope that's above a 1.0.
Speaker Change: And I have every reason to believe it will be but just not.
Speaker Change: Anywhere near our kind of more longer term run rate.
Speaker Change: Got it I appreciate that okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ann Hynes from Mizuho. Your question. Please.
Ann Hynes: Great. Thank you. So I know this is an uncertain environment, but.
Ann Hynes: I guess given your guidance do you think your revenue guidance encompasses just uncertainty and when you and when you talk to your customers.
Ann Hynes: How much visibility do they have in the funding environment. So I'm just trying to figure out.
Ann Hynes: With this new guidance, how confident are you and the visibility you have at this point in time and maybe.
Ann Hynes: What do you think.
Ann Hynes: At this point in time.
Ann Hynes: But drive upside versus downside that'd be great. Thank you.
Ann Hynes: Okay.
Speaker Change: So Victor how confident am I on.
Ann Hynes: I have no idea, where the business is going.
Ann Hynes: The business environment.
Ann Hynes: <unk> in 2025.
Ann Hynes: I think we've.
Ann Hynes: Tried to make reasonable assumptions about.
Ann Hynes: The future path and.
Ann Hynes: That's the guidance, we came out with I think.
Ann Hynes: Substantial downside potential with further cancellations, a weakening business environment and substantial upside opportunities.
Ann Hynes: Cancellations really drop too.
Ann Hynes: Well into our normal range.
Ann Hynes: The business environment.
Ann Hynes: Strengthens as it had been in most of 2024.
Ann Hynes: I think we're kind of exposed here I think we've got a good guidance that.
Ann Hynes: Yeah.
Ann Hynes: Yes.
Ann Hynes: Flex the environment we're in.
Ann Hynes: But.
Ann Hynes: There is certainly quite a bit and kind of look at this as a business that has.
Ann Hynes: A lot of it is established backlog for this.
Ann Hynes: 25.
Ann Hynes: Already in place, it's a matter of cancellations and cancellations can Ken.
Ann Hynes: Completely destroy those hopes but.
Ann Hynes: There's also the opportunity that cancellations are very low and that's going to be the big driver.
Ann Hynes: Yes, I don't know what else I can.
Ann Hynes: I can say to get you comfortable with.
Ann Hynes: The guidance we have.
Ann Hynes: Maybe one on the cancellation part where there any trials cancel that surprised you like meeting.
Ann Hynes: Industry acting different than historical.
Ann Hynes: Drivers of cancellations.
Ann Hynes: And then that would be great and then just on the competitive environment and maybe any notable changes sequentially that you would call out.
Ann Hynes: No.
Ann Hynes: No real changes and cancellations.
Ann Hynes: This past year, it's been very largely funding related.
Ann Hynes: Cancellations comfort number reasons, we've had product sale.
Ann Hynes: Sure.
Speaker Change: Various reasons for a cancellation occur on the competitive environment changed substantially.
Speaker Change: There is a broad number of reasons for cancellations, but overwhelmingly they have been.
Speaker Change: At least linked in good part to funding.
Speaker Change: So that is the that is the primary kind of drivers that we see in terms of cancellations.
Speaker Change: Alright, thank you.
Speaker Change: Thank you and our next question is a follow up from the line of Max <unk> from William Blair. Your question. Please.
Speaker Change: Alright, Thanks for squeezing me in a follow up here I just wanted to ask a clarifying question on gross margin one of the questions. We've been getting is.
Speaker Change: And whether there's any sort of tailwind to gross margin from the elevated cancellations that you saw in 2024.
Speaker Change: So just hoping you can walk through the payments that you received for those cancellations.
Speaker Change: I guess the way I'd think about it just for work completed and then for wind down costs, but I wanted to confirm that there is not any sort of incremental payments and that would have artificially inflated. Your margins. This year and then therefore, it would be a bit of a headwind to margins.
Speaker Change: 125, given that cancellation seem to be normalizing a bit thank you.
Speaker Change: I don't know if you want.
Speaker Change: Yes, let me take a stab at that first.
Speaker Change: I think that.
Speaker Change: Cancellations in historically have been something of a tailwind for margin.
And.
Speaker Change: Often it kind of accelerates.
Speaker Change: Out of work closeout et cetera, and also just I think our.
Speaker Change: Routine.
Speaker Change:
Monitoring of <unk>.
Speaker Change: <unk> completion.
Speaker Change: And.
Speaker Change: I think we're reasonably conservative about.
Speaker Change: Revenue accrual that sometimes catches up some aspects at.
Speaker Change: At closeout.
Speaker Change: So I think that in general there is something of a.
Speaker Change: The tailwind from cancellations, Kevin I don't know if you have any quantification of that.
Speaker Change: Yes.
Speaker Change: Nothing that I can quantify but I would say, while there is some slight tailwind from that.
Speaker Change: Sure.
Speaker Change: Tailwind on our margins this year as again, just the productivity of the existing employee.
Speaker Change: Employee base its been tremendous.
Speaker Change: Again head count is flat year over year.
Speaker Change: The organization and the employee base continues to be.
Speaker Change: Productive and advancing programs and Thats really whats driving margins, yeah, there might be a slight tailwind from some of these cancellations.
Speaker Change: As August mentioned closing out those programs, but by and large it's just the.
Speaker Change: Retentions.
Speaker Change: <unk> basin, good utilization and just great execution.
Speaker Change: Understood. Thanks again for squeezing me in a follow up.
Speaker Change: Thank you and our next question is a follow up from the line of Eric Coldwell from Baird. Your question. Please.
Speaker Change: Thanks.
Speaker Change: I was hoping you could help us with.
Speaker Change: Performance obligations your performance obligations as reported in SEC filings actually grew at a nice an accelerating clip all year third quarter was up 25% year over year. It was up over 9% quarter over quarter, So I'm struggling a bit with trying to triangulate between what.
Speaker Change: B and that has historically been extremely high.
Speaker Change: Positive correlation to future revenue growth.
Speaker Change: Which was the number that spiked dramatically in <unk>.
Speaker Change: <unk> is what you're telling us on the bookings and the revenue outlook for this year, which obviously are are much lower so how did that come to pass that performance obligations were up 25% in the third quarter and why is that not as correlated to revenue growth in 'twenty five as it has been historically.
Speaker Change: Yes.
Speaker Change: It does look very far out.
Speaker Change: We have.
Speaker Change: Five year project.
Speaker Change: And all of it goes into performance obligation.
Speaker Change: Only a portion of that is near term.
Speaker Change: And that is included in our backlog.
Speaker Change: Even if it reaches backlog.
Speaker Change: So you get backlog, Okay. We got an award usually by the time, we got to kind of sign contract and its obligations. It's usually in backlog, but it is only a part of it is in backlog and you would expect if you have a lot of projects canceling a lot of new stuff being added in.
Speaker Change: The average duration goes up and that would increase your debt.
Speaker Change: The gap between performance obligations and backlog, but.
That's.
Speaker Change: I don't know quantitatively break that down into.
Speaker Change: Exactly.
Speaker Change: But it's not something I think that would be unexpected.
Speaker Change: Revenue growth is.
Speaker Change: He is going to be based upon.
Speaker Change: In late stage projects, you don't have your fastest conversion.
Speaker Change: It's all in backlog.
Speaker Change: Early stage stuff, there's still a lot of stuff held out.
Speaker Change: Would there be any.
Speaker Change: On top of the.
Speaker Change: Timing nuance of cancels now awards for later is there any other more structural shift in the day.
Speaker Change: The nature of the programs or the average duration of an incremental program coming in today is longer than what you would've seen in the past is there anything like that occurring and then finally I don't know if you could.
Speaker Change:
Speaker Change: Help us with this but would you be willing to foreshadow what the performance obligations look like in the 10-K that will be coming later.
Speaker Change: Okay.
Speaker Change: Kevin.
Speaker Change: Yes.
Speaker Change: Terms of foreshadowing that we'll publish that later today.
Speaker Change: I don't think that the difference will be dramatically different than what you saw in the third quarter again as long as it mentioned.
Speaker Change: <unk> study is really the largest driver of that Delta.
Speaker Change: Because remember we only put it in the first three years of a program.
Speaker Change: And the backlog.
Speaker Change: Theres other factors like if there is an interim analysis, we only put the study and up to that interim analysis. So there is a lot of differences between the accounting.
Speaker Change: Version versus the backlog version, but it's consistent from from period to period.
Speaker Change: No structural changes I guess in other words there.
Speaker Change: Okay.
Speaker Change: I do think backlog is a better reflection of what.
Speaker Change: We think as well.
Speaker Change: We do have that obligation look we've given them a price we've given them what we are.
Speaker Change: We do and we're obligated to do it even if they go into that next phase of the study, but sometimes those are really just options that the client holds.
Speaker Change: And it's not likely to even get to and I mean, I think our backlog is better reflection of what we think is.
Speaker Change: Qualified stuff that we're likely to perform.
Speaker Change: Yes, I agree.
Speaker Change: 16.
Speaker Change: Thank you and our next question comes from the line of David Windley from Jefferies. Your question. Please.
Speaker Change: Alright.
Speaker Change: The beauty of a short conference call as we get to have multiple follow ups here, maybe I don't know if you'd like that or not but I wanted to ask one as well.
Speaker Change: First of all to clarify an answer you just gave to Eric. So so August you said late stage programs.
Speaker Change: Our I think your point was.
Speaker Change: Burning more in burning more directly into revenue versus early stage programs I want to say that that you mean.
Speaker Change: The later stage of programs right. So not the difference between phase, one and phase III, but the latter part of the phase III rather than the earlier part of the phase III correct.
Speaker Change: Correct. It's all in backlog so it's equal to the performance obligation that's going to burn off in the next year or two.
Speaker Change: Alright, so just kind of permits of transcripts, so we get that clear.
Speaker Change: Sure.
Speaker Change: Okay, not a reference to clinical trial phase early stage versus late stage, but a comment on the <unk>.
Speaker Change: Trials in there in the latter part of their progression as opposed to trials that are starting earlier, that's what we're talking about right I appreciate that and then.
Speaker Change: Kevin I think you mentioned on margin some benefit I believe from FX and I didn't hear a quantification of that wondered if you might quantify that and then what is your FX assumption in the guidance for 25. Thanks, Yes, the guidance assumes FX rates as of December 31.
Speaker Change: And in terms of the impact in the fourth quarter, it was probably about $4 million.
Speaker Change: EBITDA impact for the fourth quarter net.
Speaker Change: Okay, Alright, great Thats all for me. Thank you.
Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Laurent Morris for any further remarks.
Speaker Change: Thank you for joining us on today's call and for your interest in that as we look forward to speaking with you again on our first quarter 2025 earnings call.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
Speaker Change: [music].