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spk10: Good day, 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. 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 call, Lauren Morris, MedPace's Director of Investor Relations. You may begin.
spk12: 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 Trendle, 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. 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 reviews 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. 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.
spk15: Thank you, Lauren. Good morning, everyone. 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, resulting in a 1.23 net book to bill. For the full year 2023, net new business awards were 2.36 billion, an increase of 28.8%. An ending backlog as of December 31, 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. Kevin?
spk05: 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. EBITDA margin for the quarter was 19.2%, compared to 20.4% in the prior year period. Full-year EBITDA margin was 19.2%, compared to 21.1% in 2022. EBITDA 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. 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 five 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 our net day sales outstanding was negative 48.3 days. We did not repurchase any shares during the fourth quarter. 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 repurchase 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 growths 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 $18.4 million, and $32 million diluted weighted average shares outstanding for 2024. There are no additional share purchases in our guidance. Earnings per diluted share is now expected to be in the range of $10.18 to $10.87. 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.
spk10: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from David Windley with Jefferies. Your line's now open.
spk08: Hi, good morning. Thanks for taking my questions and congrats 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 would invite those comments. What we've heard from some peers is some slowing of activity in the second half of 23 particularly maybe the last couple of months of 23 in the biotech space and i guess wondered if um you at med pace had seen that uh also or if you were seeing a different trend thanks yeah i did um yeah i think i said last quarter that things were kind of going in a lot of different directions at once you know kind of very fast but uh
spk04: um unreadable uh a lot of uh difficulty and a lot of very strong business environment um i i think you know we've kind of in q4 and and coming into you know q1 of 2024 i think we've got a clear direction uh on that um i think things are improving from a funding standpoint a number of uh Stalled 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 financing are starting to move. So I think we're, you know, it's still a, 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, you know, generate, you know, meaningful revenue. So, you know, I think we're setting up, you know, largely a lot of this, you know, 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.
spk08: Got it. 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. 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 fourth quarter. And so I just wanted to kind of understand that, you know, that confluence of issues. A lot of times you would, 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.
spk03: Sure.
spk04: I think our burn rate, our conversion rate does bounce around a bit. It was, what, 17.6% last, you know, Q4 of 22, you know, and then kind of, you know, went up quite a bit. I guess all the way to, you know, over 19% in Q3. And, you know, I think it kind of is in that sort of band. But, you know, there is a a difference that kind of moves around a bit. I don't see, as you mentioned, or is relatively stable in terms of long-term. I don't think we see a long-term trend towards it dropping and dropping like many other CROs have, but it does bounce around a little bit. The staffing is you know, need is going to be driven by our, you know, revenue growth, you know, 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 top line and total as well as direct, roughly. So that's going to drive a staffing gap need of about 10% increase. You know, it's not that they aren't directly in line. There's inflation and all the rest of it that, uh, um, uh, you know, adds into that and also productivity. I think, uh, um, you know, lower turnover is, uh, driving, uh, you know, quite a bit of savings and productivity gain. Um, so I, I think our, you know, we got a bit ahead when we were growing very fast, we have to hire quite a bit in advance. Um, 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, backlog grows and we get toward 25. And I think our 15% growth this year is a, is kind of a bottom, you know, I mean, I just, 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, you know, next few quarters in anticipation of a, you know, Q2 or Q3 spike. So, you know, I think that's kind of where we are on the staffing and conversion. Okay.
spk20: That's helpful. Thank you. Thank you. One moment for our next question. And our next question comes from John
spk10: Sauerbeer with UBS, your line's now open.
spk23: Yeah, this is Lucas on for John Sauerbeer. I guess first off, any updates on how RFPs are tracking? I believe those were said to be near record levels at 3Q.
spk04: Yeah, and we gave a lot of kind of interim metrics in the volatile period because 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 given, you know, getting too much into the weeds, what we got before. But, you know, 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 record and, you know, RFEs were very strong, et cetera. I think things have continued, 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.
spk23: Okay, great. And then just one last question. 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?
spk05: Yeah, as we said kind of in the last quarter, it's really driven by, you know, a couple of things. One is just inflationary costs that we're seeing at investigator sites. Just the activity in investigator sites is picking up, and really just the 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.
spk02: Okay, great. That was all I had.
spk09: Thank you.
spk20: One moment for our next question.
spk10: Our next question comes from Max Smock with William Blair. Your line's now open.
spk06: 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 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?
spk04: 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. 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've got to, you know, go in with a much higher number. in terms of staff to, you know, beginning of the year. 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'd have to continue to hire at a fast rate, but, you know, turnover's, you know, dropped very nicely, and that is the biggest driver. I think our expectations on Direct revenue is the same as it was. Along with our revenue, we expected it to be about that 15%, both on the top line and, you know, total and direct. And with anything, we see an improvement in the business environment, which would imply greater growth in, you know, in Q4, you know, next year kind of timeframe. You know, 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 late in the year.
spk06: Yeah, makes sense. And maybe just segueing off that. 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 dues 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 outlook for EBITDA in 2024?
spk04: And, of course, we're not giving guidance on 24, but, you know, things look good in terms, you know, we had a very choppy period and, you know, quite a bit of cancellations and, you know, funding difficulties. And that's moving away. Like I said, I think we see a clear direction in the last, you know, three, four months in terms of, you know, projects starting to unsolve. And that makes us very optimistic. You know, again, these things take quite a while to get to startup and to get to revenue. You know, I mean, these are multiple quarters, you know, for things to move forward. But that does make us feel more optimistic on, you know, the go forward next year, et cetera.
spk06: Yeah, and then maybe just sneaking a final one in here for me. Competition and just thinking about share gains here. uh august when you know we 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 than 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 quarters in particular yeah our win rate was uh
spk04: has been very good the last two quarters above the kind of the long-term trend. So, you know, that looks good. You know, I don't, you know, these things do bounce around though. And, you know, I look at, 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 different ways and, you know, conversion is a major factor. And, you know, I don't know what, you know, it means to be, you know, share gain to put up a book to bill. Um, so I, I just look at revenue and revenue trend over time and, and look, you know, we, we're growing, um, at, uh, you know, organically at, at multiples of, uh, you know, the, the, you know, average of the rest of the industry. So I, I just, you know, we're, we're clearly, you know, um, uh, you know, doing a good job in terms of, uh, uh, taking, you know, share where it's coming from. I don't know, but, uh, you know, we're, you know, growing at a rate, you know, 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.
spk07: Got it. Thank you for taking our questions.
spk10: Thank you.
spk20: One moment for our next question.
spk10: All right, next question comes from Jack Wallace with Guggenheim Partners. Your line's now open.
spk11: 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 sounds like those should be in a pretty good shape as well is that yeah fair to say that it's baked into the outlook um kind of a more normalized reduced level of cancellations the last couple years cancellations were to uh you know in a good range well within our uh you know usual range um i i you know i don't know if that's driving any particular you know we had a spike uh 2022 but uh
spk04: Things came down maybe after first quarter to a reasonable rate in Q2 through Q4. As far as I know, we kind of expect them to stay in that usual range of less than 4.5%.
spk05: Yeah, the expectation for 24 is it stays within our normal range.
spk11: Thank you. That's helpful. And then The comments you made earlier, August, about the kind of acceleration of decisions, essentially just around funding and the like, but I did notice that your customers out of your top 10 looked like they were down sequentially in the quarter in terms of revenue, and I wasn't sure if that comment was in more at that cohort or if there's anything else you have to call out with that revenue trend, because it does sound like everything you're saying is that things are going well and seem 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. Thank you.
spk04: No, I really don't have anything. Of course, if the smaller clients are starting to unfreeze, you know, 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 make anything out of it.
spk11: Excellent. Thank you so much. Appreciate it.
spk10: Thank you. And one moment for our next question. Our next question comes from Eric Coldwell with Baird. Your line's now open.
spk14: Thanks. Good morning. 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.
spk15: Yeah, Eric, it's Jesse. No, the lab's 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, you know, needing expansions, which for the lab tend to be on a more a step 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 whether that's standing up a specific test or an assay or bringing in wholesale capabilities. And the things we've invested in recently and things we've added have been off to a good start.
spk14: 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. So on one hand, really tough comps going into 24. I mean, the first half of last year, you grew over 31%. 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 re-accelerate 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 on 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?
spk05: Yeah, Eric, this is Kevin. I think as you think about the quarters, we know that our quarters can be very lumpy, even from a revenue perspective. And so there's nothing that I would call out necessarily specifically in terms of, 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 throughout the quarters? I guess I don't know the answer to that. As August had mentioned, if things do pick up, there's a possibility that you start to see some acceleration in the fourth quarter into 2025. But nothing specific to call out. I do think the first quarter, from a margin perspective, is 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, beginning of the second quarter this year. But nothing else specific to call out on that front, Eric.
spk14: Okay. The market's been extremely focused on this GLP-1 category and 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. I'm just curious, are you seeing some trial demand in GLP-1s? Are you participating in that market? Is it a contributor to any of your trials? you know, your win rates or your RFPs. I'm just trying to get a sense on how impactful that's been, if at all, um, uh, to this point.
spk04: Yeah, not, we're not really, um, as, uh, much of any exposure to GLP one directly, uh, you know, obesity overall a little bit more, but, uh, you know, GLP ones are largely a large pharma, you know, um, in terms of the dollar spend and, and, uh, So have not been a meaningful part of our revenue now.
spk14: That's actually somewhat reassuring and good, I think. Last question. We have seen a number of companies this quarter that we find 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. 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.
spk05: Yeah, Eric, nothing on deferred compensation. We don't have a deferred comp program. Yeah, I do. Yeah. 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.
spk13: All right. Well, good stuff. Great job. Thanks, guys.
spk09: Thanks, Eric. Thank you.
spk10: This concludes today's conference call. I would now like to turn it back to Lauren Morris for closing remarks.
spk12: 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.
spk10: Thank you for participating.
spk20: You may now disconnect. Thank you. you music music Thank you. Thank you.
spk10: Good day, 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. 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 call, Lauren Morris, MedPace's Director of Investor Relations. You may begin.
spk12: 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 Trendle, 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. 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 reviews 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. 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.
spk15: Thank you, Lauren. Good morning, everyone. 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, resulting in a 1.23 net book to bill. For the full year 2023, net new business awards were $2.36 billion, an increase of 28.8%. An ending backlog as of December 31, 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. Kevin?
spk05: 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. EBITDA margin for the quarter was 19.2%, compared to 20.4% in the prior year period. Full-year EBITDA margin was 19.2%, compared to 21.1% in 2022. EBITDA 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. 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 five 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 our net day sales outstanding was negative 48.3 days. We did not repurchase any shares during the fourth quarter. 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 or 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 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 $18.4 million, and $32 million diluted weighted average shares outstanding for 2024. There are no additional share purchases in our guidance. Earnings per diluted share is now expected to be in the range of $10.18 to $10.87. 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.
spk10: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from David Windley with Jefferies. Your line's now open.
spk08: Hi, good morning. Thanks for taking my questions and congrats 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 would invite those comments. What we've heard from some peers is some slowing of activity in the second half of 23, particularly maybe the last couple of months of 23 in the biotech space, and I guess wondered if you at MedPace had seen that. Also, or if you were seeing a different trend.
spk03: Thanks. Yeah, I did.
spk04: Yeah, I think I said last quarter that things were kind of going in a lot of different directions at once, you know, kind of very fast, but unreadable. A lot of difficulty and a lot of very strong business environment. I think we've kind of in Q4 and coming into 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 stalled projects are now moving forward. Things that we thought were kind of just held up with weren't going to get financing are starting to move. I think we're, you know, it's still a, 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, you know, generate, you know, meaningful revenue. So, you know, I think we're setting up, you know, largely a lot of this, you know, 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 extending into Q4. But I think things have shown a correction.
spk08: Got it. 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 25%. for at a 20% backlog growth, 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 fourth quarter. And so I just wanted to kind of understand that confluence of issues. A lot of times you would, if you're thinking about 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.
spk02: Sure.
spk04: You know, I think our burn rate, our, you know, conversion rate does bounce around a bit. And it was, what, 17.6% last, you know, Q4 of 22%. You know, and then kind of, you know, went up quite a bit. I guess all the way to, you know, over 19% in Q3. And, you know, I think it kind of is in that sort of band. But, you know, there is a difference that kind of, you know, moves around a bit. I don't see a, as you mentioned, or is relatively stable in terms of long-term. I don't think we see a, you know, a long-term trend towards it dropping and dropping like many other CROs have. But, you know, it does bounce around a little bit. You know, the staffing is, you know, need is going to be driven by our, you know, revenue growth. You know, 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 top line and total as well as direct, roughly. So that's going to drive a staffing need of about 10% increase. It's not that they aren't directly in line. There's inflation and all the rest of it that adds into that and also productivity. I think lower turnover is driving quite a bit of savings and productivity gains. I think we got a bit ahead when we were growing very fast. We have to hire quite a bit in advance. 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 backlog grows and we get toward 25. I think our 15% growth this year is kind of a bottom. I think it will move up from there. 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, you know, next few quarters in anticipation of a, you know, Q2 or Q3 spike. So, you know, I think that's kind of where we are on the staffing and conversion.
spk10: Okay. That's helpful.
spk20: Thank you. Thank you. One moment for our next question.
spk10: And our next question comes from John Sauerbeer with UBS. Your line's now open.
spk23: Yeah, this is Lucas on for John Sauerbeer. I guess first off, any updates on how RFPs are tracking? I believe those were said to be near record levels at 3Q.
spk04: 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 given, you know, getting too much into the weeds, what we got before. But again, 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 record, and, you know, RFEs were very strong, et cetera. I think things have continued, 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.
spk23: okay great and then just one last question um 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 okay yeah yeah as we as we said kind of in the last quarter it's really driven by
spk05: a couple of things. One is just inflationary costs that we're seeing at investigator sites. The activity at investigator sites is picking up and really just the 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.
spk02: Okay, great. That was all I had.
spk09: Thank you.
spk20: One moment for our next question. Our next question comes from Max Smock with William Blair.
spk10: Your line's now open.
spk06: 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. 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 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?
spk04: 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. 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 to, you know, beginning of the year. So I think the big, you know, driver is that, you know, productivity increase. I think that we were thinking that, turnover might still be hot, so we'd have to continue to hire at a fast rate, but turnover has dropped very nicely, and that is the biggest driver. I think our expectations on direct revenue is the same as it was. Along with our revenue, we expected it to be about that 15%, both on the top line and total and direct, and with anything, we see a improvement in the business environment, which would imply greater growth in, you know, in Q4, you know, next year kind of timeframe. You know, 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 late in the year.
spk06: It makes sense. And maybe just segueing off that. 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 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 outlook for EBITDA in 2024?
spk19: Yeah.
spk04: And of course, you know, we're not giving guidance on, on 24, but, uh, um, you know, things look good in terms, you know, we had a very choppy period and, you know, quite a bit of, uh, uh, cancellations and, you know, funding, uh, difficulties and that's, that's moving away. Like I said, I think we see a clear direction in the last, uh, you know, three, four months, um, in terms of, uh, you know, projects starting to uninstall. And that makes us very optimistic. You know, again, these things take quite a while to get to startup and to get to revenue. You know, I mean, these are multiple quarters, you know, for things to move forward. But that does make us feel more optimistic on, you know, the go forward next year, et cetera.
spk06: Yeah, and then maybe just sneaking a final one in here for me. Competition and just thinking about share gains here. august when you know we 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 from one of your competitors recently and just any thoughts on how your win rate has trended over the last couple quarters in particular yeah our win rate was uh
spk04: has been very good the last two quarters above the kind of the long-term trend. So, you know, that looks good. You know, I don't, you know, these things do bounce around though. And, you know, I look at, 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 different ways and, you know, conversion is a major factor. And, you know, I don't know what, you know, it means to be, you know, share gain to put up a book to bill. Um, so I, I just look at revenue and revenue trend over time and, and look, we're, you know, we, we're growing, um, at, uh, you know, organically at, at multiples of, uh, you know, the, the, you know, average of the rest of the industry. So I, I just, you know, we're, we're clearly, you know, um, uh, you know, doing a good job in terms of, uh, uh, taking, you know, share where it's coming from. I don't know, but, uh, you know, we're, you know, growing at a rate, you know, 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.
spk07: Got it. Thank you for taking our questions.
spk10: Thank you. One moment for our next question. All right, next question comes from Jack Wallace with Guggenheim Partners. Your line's now open.
spk11: 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. It's funny if you could also just touch on cancellations, how those track in the quarter, and, you know, I guess, you know, depending on... you know, the funding environment sounds like those should be in a pretty good shape as well. Is that fair to say that it's based on the outlook, kind of a more normalized, reduced level of cancellations in the last couple of years?
spk03: Cancellations were, you know, in a good range, well within our, you know, usual range.
spk04: I, you know, I don't know if that's driving any particular, you know, we had a spike in 2022, but... Things came down maybe after first quarter to a reasonable rate in Q2 through Q4. As far as I know, we kind of expect them to stay in that usual range of less than 4.5%.
spk05: Yeah, the expectation for 24 is it stays within our normal range.
spk11: Thank you. That's helpful. And then The comments you made earlier, August, about the kind of acceleration of decisions essentially just around funding and the like, but I did notice that your customers out of your top 10 looked like they were down sequentially in the quarter in terms of revenue. I wasn't sure if that comment was in more at that cohort or if there's anything else you have to call out with that revenue trend because it does sound like everything you're saying is that things are going well and continue 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. Thank you.
spk04: No, I really don't have anything. Of course, if the smaller clients are starting to unfreeze, you know, 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 make anything out of it. Excellent.
spk11: Thank you so much. Appreciate it.
spk10: Thank you. And one moment for our next question. Our next question comes from Eric Coldwell with Baird. Your line's now open.
spk14: Thanks. Good morning. 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.
spk15: Yeah, Eric, it's Jesse. No, the lab's 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, you know, needing expansions, which for the lab tend to be on a more a step 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.
spk14: Good to hear. Next question, revenue phasing. So a bit of a setup here, maybe wonky. Hopefully you can muscle through it with me. So on one hand, really tough comps going into 24. I mean, the first half of last year you grew over 31%. At the 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 on 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?
spk05: Yeah, Eric, this is Kevin. I think as you think about the quarters, we know that our quarters can be very lumpy, even from a revenue perspective. And so there's nothing that I would call out necessarily specifically in terms of 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 throughout the quarters? I guess I don't know the answer to that. As August had mentioned, if things do pick up, there's a possibility that you start to see some acceleration in the fourth quarter and into 2025. But nothing specific to call out. I do think the first quarter, from a margin perspective, is 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, beginning of the second quarter this year. But nothing else specific to call out on that front, Eric.
spk14: Okay. The market's been extremely focused on this GLP-1 category and 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. I'm just curious, are you seeing some trial demand in GLP-1s? Are you participating in that market? Is it a contributor to any of your trials? you know, your win rates or your RFPs. I'm just trying to get a sense on how impactful that's been, if at all, um, uh, to this point.
spk04: Yeah, not, we're not really, um, have, uh, much of any exposure to GLP-1 directly. Uh, you know, obesity overall, a little bit more, but, uh, you know, GLP-1s are largely a large pharma phenom, um, in terms of the dollar spend and, and, uh, So have not been a meaningful part of our revenue now.
spk14: That's actually somewhat reassuring and good, I think. Last question. We have seen a number of companies this quarter that we find 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. 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.
spk05: Yeah, Eric, nothing on deferred compensation. We don't have a deferred comp program. Yeah, I do. Yeah. 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.
spk13: All right. Well, good stuff. Great job. Thanks, guys.
spk09: Thanks, Eric. Thank you.
spk10: This concludes today's conference call. I would now like to turn it back to Lauren Morris for closing remarks.
spk12: 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.
spk10: Thank you for participating. You may now disconnect.
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