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spk01: Good day, ladies and gentlemen, and welcome to the MedPace First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator's assistance, please press star, then zero on your touchtone telephone. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference call, Lauren Morris, MediPace Director and Investor Relations. You may begin.
spk08: Good morning, and thank you for joining MedPace's first quarter 2022 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, including the ongoing impact of COVID-19 on our business, are discussed in our Form 10-K and other filings with the SEC. 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 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 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 August Trundle.
spk04: Good morning. I'm going to provide a quick update on the business environment. The softening of RFP flow observed in the first few quarters stabilized, and I'm happy to say that overall Q1 2022 RFPs were of total volume came in roughly flat with Q1 of 2021. On the other hand, at the time of our last call, we had seen little to no evidence of funding challenges by our clients. This has evolved, and more recently, we have seen a number of delayed or canceled programs due to funding. Looking at programs either put on hold or terminated early for lack of funds, the dollar value in the first four and a half months of 2022 has already exceeded the total for calendar year 2021. If the funding environment for our clients does not improve in the next few months, this could pose a challenge to our 2022 and 2023 growth plans. However, at this point, we continue to anticipate 2022 revenue and profit to fall within our prior guidance ranges. Earnings per share will exceed prior guidance due to share repurchases in Q1. Jesse will now provide some commentary on our results. Jesse?
spk02: Thank you, and good morning, everyone. Our revenue in the first quarter of 2022 was $330.9 million, which represents a year-over-year increase of 27.3%. Net new business awards entering backlog in the first quarter increased 18.8% from the prior year to $423 million, resulting in a 1.28 net book to bill. and ending backlog as of March 31st was approximately $2.1 billion, an increase of 28% from the prior year. We project that approximately $1.07 billion of backlog will convert to revenue in the next 12 months, and our backlog conversion in the first quarter was 16.6% of beginning backlog. In the first quarter, we continued to make progress in hiring adding 4% from the end of 2021 and over 20% from the prior year. And in this challenging and competitive labor environment, employee retention and hiring for future business continues to be a top priority. With that, I will turn the call over to Kevin to review our financial performance in more detail and discuss our updated 2022 guidance. Kevin?
spk03: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $330.9 million in the first quarter of 2022. This represented a year-over-year increase of 27.3% on a reported basis and 28.1% on a constant currency organic basis. EBITDA of $70.4 million increased 31.3% compared to $53.6 million in the first quarter of 2021. On a constant currency basis, first quarter EBITDA increased 29.5% compared to the prior year. EBITDA margin for the first quarter was 21.3% compared to 20.6% in the prior year period. The increased EBITDA margin was driven largely by the impact of an R&D tax credit received in the quarter. In the first quarter of 2022, net income was $61.3 million compared to net income of $43.3 million in the prior year period. Net income growth over the prior year was primarily driven by higher EBITDA as well as a lower effective tax rate. Net income per diluted share for the quarter was $1.69 compared to $1.14 in the prior year period. Share purchases during the quarter benefited EPS by six cents. Regarding customer concentration, our top five and top 10 customers represent roughly 16% and 24%, respectively, of our first quarter revenue. In the first quarter, we generated $46.3 million in cash flow from operating activities. and our net day sales outstanding was negative 38.7 days. During the quarter, we repurchased approximately 2.7 million shares at an average price of $155.09 for a total of 425.9 million. On March 16, 2022, our Board of Directors also approved an increase of 200 million to our current share repurchase program. We had $264.6 million remaining under our current share repurchase authorization at the end of the quarter. We ended the first quarter with $82.8 million of cash, no outstanding debt, and $250 million of undrawn capacity on our revolving line of credit. Moving now to our updated guidance for 2022. Full year 2022 total revenue remains unchanged in the range of $1.4 billion to $1.46 billion, representing growth of 22.6% to 27.8% over 2021 total revenue of $1.142 billion. Our 2022 EBITDA is also unchanged. and expected in the range of $262 million to $278 million, representing growth of 17.4% to 24.6%, compared to EBITDA of $223.1 million in 2021. This guidance assumes a full-year 2022 effective tax rate of 13.5% to 14.5%, and 35.6 million fully diluted shares for 2022. There are no additional share purchases in our guidance. We forecast 2022 net income in the range of 204 million to 216 million. Earnings per diluted share is now expected to be in the range of $5.72 to $6.06 to reflect the share of purchases in the first quarter. With that, I will turn the call back over to the operator so we can take your questions.
spk01: Thank you. If you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of Dave Windley with Jefferies. Your line is open. Please go ahead.
spk06: Hi, good morning. Thanks for taking my questions. August, your comments about the delayed or canceled programs that you're seeing, I'd be curious for you to elaborate there, but maybe specifically on that, how are you handling? I'm sure the canceled ones you've treated as cancellations, the delays, how are you treating the delays?
spk04: Sure. I mean, a delay wouldn't change its status. Some of these things are awarded and all the revenue isn't necessarily in backlog. Our policy on backlog is pretty late and there are stages to it. So it's handled just as any other project, a delay until it's a cancellation wouldn't be pulled out of backlog as a general policy. so it would just stay wherever it was in the pipe. Further detail on it, I don't know what other detail I can give. It's kind of sporadic and across the therapeutic areas. There's no particular focus or anything like that. It's not highly concentrated in a single client or two, but there's been evidence of considerable strain in a in a segment of our clients.
spk06: Okay. So I think one of the arguments that we here pose is that these pre-revenue biotechs that you work with a lot are kind of, you know, exist for the purpose of developing a new drug and moving that through the pipeline. I guess if there's no money, there's no money. But is there anything perspective on, you know, they have two programs and they're canceling this one that you have to focus on the other, or, you know, how are they canceling something that's in clinical with you, I guess is what I'm trying to get at.
spk04: Okay, so some of them are, well, I guess first off, take your question about is it generally clients with multiple products. I would say no, generally we're talking clients that have one main project that is their focus and that is the project that is maybe impaired. Sometimes there's just a restructuring of the project so it's delayed and maybe reorganized in terms of how they're going to execute it to try to minimize spend over a period of time. Other times it is stopped before we get patients in the trial. So, I mean, we're talking about, you know, the things, you know, you get an award and it takes quite a while to get to startup. So, you know, most of these projects are not actively ongoing. You know, there has been, you know, some sort of restructuring of projects that are ongoing, but generally we're talking about things that have not yet you know, enrolled a patient and, you know, looking out at, you know, they didn't close the funding they hoped they were going to or, you know, looks, you know, not possible at this point. So you're right, there aren't many cancellations where, you know, it's a mid-stage and the product, and of course that's pretty unlikely unless the product itself is failing, but, you know, there's a lot of overlap there in terms of the client might think it's still good enough profile, but you can get into a funding environment where, and this hasn't happened yet, but where the data isn't looking as positive as they would like in order to be able to do the raise for the remainder of the program. So those things happen, too. But in general, we're talking about cancellations or restructuring of projects that have not entered the clinic or if they are in the clinic already or just restructuring how they're performing it.
spk06: Okay, and then my last question related to this is, like slower gross new business in a quarter might be reflective or might have impact on revenue a little bit further out on the horizon. Cancellations, on the other hand, might have a little near-term impact. How should we think about the cadence of revenue through the year from here based on the updates you're giving us today?
spk04: I don't really see an impact on our cadence. I don't think we've given, you know, specific guidance. And I guess I'll throw that back to Kevin. He wants to comment on that. But I don't think there should be a large disruption. You know, we just wanted to... signal the risks there. And I think the risks are mainly in that the funding environment continues to be bad. I mean, we think our current guidance is in place and we can execute on those assumptions currently. If for another six months we continue to have this sort of funding environment we're in Currently, I think that, you know, that poses a real challenge for, you know, late in the year and next year. But I don't expect a big impact yet. And, you know, in terms of cadence, I don't, you know, Kevin, I don't know if you wanted to comment on that.
spk03: Yeah, no, you know, just to kind of reinforce what August said, you know, we do expect, you know, in the current environment, you know, revenue to grow throughout the year, to have some sequential growth quarter over quarter. Now, as you know, EBITDA for us can be very lumpy, but we do expect revenue growth throughout the year.
spk06: Jason Gildea- Great. I'll leave it at that. Thank you for the answers.
spk01: Thank you. And our next question comes from the line of Eric Caldwell with Baird. Your line is open. Please go ahead.
spk07: Eric Caldwell, Baird & Thanks very much. A couple of questions here, maybe in a similar vein. First off, August, you mentioned that if the delays and cancels continue for an extended period, you could see growth challenges to your growth plan in 22 and 23, but I'm sorry, 23 and beyond. I'm not sure the street is fully aware of what your growth plan is for next year. You've talked in the past about as long as the environment is a strong funding environment, you could see 20% plus growth, but We know that's not currently the case. What is your outlook for growth in 23 and maybe longer term? And I'm just saying this in the context of the street is already modeling about a 10-point reduction in growth for next year compared to the growth forecasted this year. I'm not sure if you're signaling that's realistic or if you think it could be below where the street currently is.
spk04: Yeah, and we don't comment on future out-year growth until late in the year. We'll then try to make sure that projections by analysts are at least informed by as much information as we can. We don't really provide that for out-years. We do have some internal plans. Um, and, uh, you know, we communicate that generally, you know, late year for the following year. Okay.
spk07: If I could go back to the cancellation, the dollar comments on four and a half months being, uh, greater than 21, could you give us some context of where, uh, the aggregate either dollar volume or number of cancels were last year, where they are now, maybe put this in historical context with, uh, Any numbers so we could get a better sense on the magnitude?
spk04: Yeah, no, I don't really have a number. You know, our formal cancellation rates generally 4% to 5%, you know, for opening backlog in each quarter. I don't have – you know, we looked back for comparative numbers because we were seeing an uptick in really signals from clients about – wanting to restructure, delay, or cancel projects specifically because of funding. They didn't close the funding or were going to be unable to close funding. And that's not something we see too often. And so because of that, you know, look back at specifically those numbers and, you know, and the trend. And, you know, they ticked up in, you know, through, you know, the more recent, you know, six months. and have kind of really took off in the first quarter and entering second quarter of this year. So I don't have specific numbers on those. We did look at that. We don't want to talk about the actual dollars of that component of total cancellations, but that's what I'm referring to. And I have not signaled an overall increase in cancellations you know, backlog cancellations beyond our 4% to 5%. And when that gets really out of range, we do comment on that also. So it's still within the usual sort of range, you know, that's in that, you know, 4% to 5% bound. If it's substantially more than that, we would call that out also.
spk07: Okay. And then I think the last one for now. In the past, you've talked about the backlog lagging RFP activity, and you've suggested, obviously, that it could take up to several quarters for RFPs to translate to backlog. Is there any availability to provide a mean or a median timeline, what an average or a range might be on translation of RFP activity to backlog, and perhaps how that's if it has, how that has changed over the last year or two?
spk04: Yeah, and I don't think we'd see a... I haven't looked at that metric, but I don't think we'd see probably a change in the overall range meaningfully. But the range is quite broad. But I do think sometimes there's a misperception that these are relatively quick events. Generally, we get RFPs... And you're not going to see any of that come into backlog in the quarter in which we see an RFP. And, in fact, very little of it would get into the next quarter as, you know, into backlog. You know, we see RFPs, and some of them, you know, we don't hear again for months and months, sometimes a year. You know, sometimes we get, and that's why I say I generally don't like looking at RFP dollars as a very strong predictor of future events, and I've said that before because sometimes you get into a weak environment and you see a lot of RFP requests that are kind of fundraising, planning, you know, scenario planning, and so you can actually get a kick up in RFPs when the environment is weak. So, you know, it is a difficult measure, but we sometimes get an RFP, and then the client goes, you know, for our client group, this isn't like large pharma. I mean, large pharma, I think, they send their RFP, they have an intent to do a program. There's generally a timeframe that's relatively short over, you know, months in which they're planning on, you know, going forward with this project, and they're going to give an award, and it's going to go towards startup. And, you know, the things can happen in the interim and they can reprioritize and, you know, there could be manufacturing problems or whatever. But it's generally pretty reliable. In our clients, a good segment of our clients, this is not very reliable. We get an RFP and that may be so that they can then go back and start looking for funding, which can take years. I mean, we get an RFP and, you know, they go silent for a year on us and then come back and, yeah, we finally closed on funding, right? So it is quite a while. Sometimes they don't make a decision for a year, as I say, or more. Sometimes it, you know, they give the award, but it's planned for quite a ways out. And of course, that doesn't make it into our backlog because our clients generally don't have or very frequently don't have the financing to do it. And that's part of the equation that they're gonna solve before they actually, we get into startup. So we wanna see a patient ready to go into the trial before we really wanna put that in backlog. And it's because we have sort of a different client group is why. But that can be many quarters. So the range is between a couple of quarters on the sort of low end to many, many quarters, you know, a few years on the longer end.
spk07: Okay. Thank you very much for all the details.
spk01: Thank you. And again, if you have a question at this time, please press star, then 1. And our next question comes from the line of Christine Raines with William Blair. Your line is open. Please go ahead.
spk09: Hi. Good morning. My first question is just an update on staffing overall as it relates to staff turnover and hiring. Specifically, staff growth was 24% last quarter versus 20% this quarter. Are you moderating your hiring plans at all, or do you expect an uptick as the year progresses?
spk02: I'll take that. This is Jesse. Thanks. The hiring in the first quarter was good. We added around 4% sequentially to the headcount growth. We still do plan to hire more. try to hire at rates consistent with 2021, understanding that the first quarter was a little softer than we would have liked to keep up at that pace. But as we continue to progress through the year, we're focused on both retention and on new hires to meet continued business demand in this current environment.
spk09: Great. Thanks for that. And then my second question is, How much of your enrolled patients are in China, and then the same for the Ukraine and Russia, and is this disrupting your trial execution?
spk02: Very small percent in both places. We're pretty well distributed across a lot of countries with the trials that we're running. We don't have any real concentration in the aggregate or in individual trials in either location.
spk09: Okay, thanks. And then lastly, on the technology front, what are your clients asking for now versus a few years ago, and any specific tech areas of investment you want to highlight?
spk02: Yeah, I mean, really what's important to our client base is, from a technology standpoint, is that we have the appropriate tools and technology to conduct the trials that we're involved in. And many of these tools are ones that we've had for quite some time, things like ePro, eCOA, remote data capture, remote data review capabilities. Those are all important parts of how we conduct clinical trials. we are always investing in technology, and I wouldn't say there's any new area to highlight other than just we're continuing to invest across the entire technology platform that we're utilizing.
spk09: Great. Thanks for the caller.
spk01: Thank you. And our next question comes from the line of Paul Knight with KeyBank. Your line is open. Please go ahead.
spk05: Yeah, thanks for the caller around KeyBank. you know, the stage of where your customers are delaying, I guess is the word for it. Based on your experience of customers that are in clinical, what kind of growth do they typically step up to in terms of going from pre to later stage? Is there a metric you think about in terms of growth?
spk04: I guess I'm not understanding, what do you mean by gross? Is gross of their outsourcing dollars?
spk05: I guess I'm in a way digging around what 2023 could be. I know you're not guiding to it, but in terms of these customers that are in clinical trials, what would you expect – their growth to be based on what you've seen customers do in the past?
spk04: Okay. So we don't generally look at a sort of growth and specific customer dollar flow. Um, it, it, it, cause our, our, our customer base is rather dynamic. Um, uh, in, you know, in, in, in this industry, you know, a lot of things drop out. So, um, A client today as a product, it may not succeed at all and the revenue goes to zero when this one study ends. And then a different client will be in the works for next year. So we kind of don't follow that metric. I guess you could look at, we could look at certainly some of our largest clients and how they, you know, go over time, but we don't really use that as a metric. So, you know, I do think, you know, growth we'd said before in a very strong environment that we had last year, earlier last year, you know, was pushing growth above 20%. I think that's possible if the environment comes back. In the current environment, that's going to be challenging. It's, you know, there is real signs that in the substantial portion of our client base that they're challenged at closing the financing to go forward with their clinical trials. I think that's pretty much all we can say.
spk05: Yeah. And then are you able to discern whether it's the funding is off? Public equity or in VC, is there a difference in the tone in those two markets in your view?
spk04: I haven't tried to sort that out, whether the – it's kind of a mix of privately held and public companies that have had, you know, some financing problems, you know, of late. So I think it's a mix. I haven't looked at what, you know, percentage is which, but it's both companies that are VC or privately funded, at least, generally not partnered. So, you know, privately, so I guess mostly VC, you know, funded or public market funding. Okay, thank you.
spk01: Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to Ms. Lauren Morris for any further remarks.
spk08: Thank you for joining on today's call and for your interest in MedPace. We look forward to speaking with you again on our second quarter 2022 earnings call. Thanks.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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