Medpace Holdings, Inc.

Good day, ladies and gentlemen, and welcome to the MedPace second 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. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Lauren Morris, MediPace Director of Investor Relations.

You may begin. Good morning, and thank you for joining MedPace's second quarter 2022 earnings conference call. Also on the call today is our CEO, August Trendle, our President, Jesse Geiger, and our CSI, Evan 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 have no obligation to update forward-looking statements even if the estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing views as of any date after today. During this call, we will also be referring to certain non-gap financial measures. These non-gap measures are not superior to or replacement 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 measures is available in the earnings press release and earnings consultation 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 Trendle.

Good day, everyone. Liquidity and sufficiency of trial funding for our clients, which are overwhelmingly pre-commercial biotech companies, remains a top focus for us. To date, we have seen a low level of cancellations that are directly related to financial distress. The risk of this accelerating depends upon the severity and duration of ongoing funding slowdown. I would like to characterize in a bit more detail than usual our pipeline of business opportunities. And to do this, RFP, I do this because RFP values in the quarter are not necessarily reflective and present a complete and fair reflection of the landscape. It's somewhat of a mixed picture. Looking at the overall new business process in our industry, opportunities generally progress through three important steps. As background, I want to provide kind of an overview of these steps. Step one, I'm going to call it request for proposal and RFP is issued by a sponsoring company of a clinical trial and multiple CROs respond with formal proposals to perform the work. RFP metrics are generally not disclosed by CROs, and this is because a number does not do justice to the issue. There are important qualitative differences making a summary number of the value of these RFPs largely meaningless, i.e., quality is more important than quantity. Step two, I'm going to call, is the winning CRO is given an award notice. And I'm going to call this an initial award notification. The very fact that I have to make up a name for this suggests that this metric is also not shared by any reporting CROs. The reason again is quality. There is significant uncertainty at this point in the process as to the value of the initial award. Timing, funding, sometimes overall scope is not fully defined. However, one advantage of this metric is it can't be manipulated and timing is entirely dictated by the sponsor. Step three, in step three, company specific criteria are applied and eventually the award may be recognized as a backlog booking. Generally, this is called a new business award and used to calculate book to bill. This is generally reported by CROs. But this number should not be confused with what I have named an initial award notification step two. CROs generally require verification of client funding, execution of a contract, et cetera, prior to recognition of an award in the backlog. They also apply subjective and qualitative criteria that may delay recognition of all or part of an award, such as concern about possible cancellation risk. Now, okay, so how are these steps looking at MedPACE? I want to review that. If I look at step one, RFPs, RFP flow is strong in Q2. In Q2, it is up 31%. from Q1 on a sequential basis. However, I have to point out that rapid growth in RFP volume is often seen in weak environments due to elevated scenario planning and to support fundraising efforts by small biopharmaceutical companies. At least in our segment of the market, this can sometimes be driven by other things than just strong business environment. So part of our assessment of our fee quality relates to anticipated timing of the program start and the presence of a credible, defined path towards startup. This has slowed and is somewhat less clear in the current environment. So I think I can summarize this by saying that quantitatively, things look great, but it's hard to draw firm conclusions on any impact of funding slowdown on business. If I look at step two, initial award notifications, our initial award notifications are down in Q2 meaningfully. They're down 45% year-on-year and 42% sequentially. So they're substantially down. However, on the other hand, July initial award notifications have recovered quite a bit and look to be tracking more in line with the prior 12-month average. And we're hopeful that the marked weakness seen in Q2 is not lasting. If I look at step three, new business awards that are generally reported and recognized into backlog, they remain strong with a book to build 1.28 in Q2. But, again, you should recognize that this largely represents initial award notifications from prior quarters that have now reached contract execution and nearing first patient first visit in the study and, therefore, meet our backlog recognition criteria. So, well, business development in the CRO industry has a long cycle length. COVID opportunities moved very quickly, but the average RFP takes considerable time, and there can be several quarters lagged between initial award notification and new business award backlog recognition. Thus, Q2 weakness in initial award notifications might not meaningfully impact backlog bookings until Q4. So we do have some concern, but things are looking good. by a number of metrics, reasonably good, particularly RSP volume. Another factor is cancellations. Cancellations can occur at any stage after initial award notification, but they are most impactful if the program is in backlog and ongoing. As mentioned at the start of my remarks, cancellations in Q2 remain modest and do not signal a problem. I do remain confident in our future success and above-industry organic revenue growth over the longer term, and this confidence is reflected in our stock purchases in Q1 and Q2. With that, I'll let Jesse and Kevin update in more detail our Q2 results. Jesse?