Science 37 Holdings, Inc.

Thank you, and thank you all for participating in today's call. Joining me are David Komen, Chief Executive Officer, and Mike Ceranek, Chief Financial Officer. Earlier today, Science 37 released financial results for the quarter ended December 31st, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon our current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. We encourage you to review our filings made with the Securities and Exchange Commission for discussion of these risk factors, including our annual report on Form 10-K for the year ended December 31st, 2021, which was filed earlier today. You are cautioned not to place undue reliance on these forward-looking statements, which we speak only as of today, and the company disclaims any obligation to update such statements for new information. We believe that certain non-GAAP metrics are useful in evaluating our operational performance. We use these non-GAAP measures to evaluate our ongoing operations and for internal planning and forecasting purposes. Information about non-GAAP financial measures referenced, including a reconciliation of those measures to the most comparable GAAP measures, can be found in our SEC filings and the earnings material available on the investor relations portion of our website at investors.science37.com. I would now like to turn the call over to David Komen.

Thanks, Caroline. Good morning, everyone, and thank you for joining us. At Science 37, we are disrupting a very large $195 billion biopharmaceutical research and development industry by providing clinical trial sponsors the flexibility to engage patients from the comfort of their own home, at local community care centers, and through traditional clinical trial sites. all at the same time to enable universal access to any patient and any provider from anywhere, rather than limiting them to traditional brick-and-mortar sites alone. As a result, we have been able to achieve up to 15 times faster enrollment, up to 28 times greater retention, and three times the diversity in the clinical trials that we support on behalf of our biopharmaceutical customers. We achieve these extraordinary results utilizing our category-defining operating system that consists of a full-stack end-to-end technology platform to manage workflow, generate clinical evidence, and harmonize data for regulatory submission. This technology interacts with our specialized networks that include patients, telemedicine investigators, community providers, mobile nurses, remote coordinators, and connected devices who are all in sync through a common set of operating procedures. The broad range of clinical trials we're supporting today is a testament to the progress we're making each and every day. These trials range from fully decentralized pivotal studies that require tens of thousands of patients to highly targeted precision medicine studies and large global studies to provide long-term patient follow-up. To date, we've conducted more than 125 decentralized clinical trials, and we've engaged more than 525,000 patients in the process, all of whom are part of the Science37 patient community. We currently provide three offerings, each of which are underpinned by the Science37 technology platform. First, a fully decentralized or agile clinical trial. in which we orchestrate the entire study using our operating system, and we are the sole provider to the clinical trial sponsor. Second, a meta-site in which we act as a virtual site using our operating system to supplement a network of traditional clinical trial sites for a sponsor or CRO. Third is what we call technology or tech plus. In this case, we're not orchestrating the trial, but we're configuring the technology to support decentralized or hybrid approaches our platform can fully integrate with other sources such as EDCs, CTMSs, RTSMs, technologies, et cetera. This flexibility enables Science 37 to be applicable for virtually any phase of clinical research and in any indication. 2021 was a tremendous year for Science 37. We made meaningful progress on multiple fronts with continued execution and investments technologically, geographically, and commercially. As a result, we exited the year with $164 million in net bookings, nearly three times the prior year. We achieved revenue growth of 151 percent, or $59.6 million. And in the fourth quarter alone, we achieved revenues totaling $20.4 million representing growth of 83% over the same quarter the prior year. Our growth prospects remain strong in 2022 as we look to build upon our momentum and capitalize on a clear shift in the market toward decentralization and decentralizing more components of the clinical trial outside traditional brick and mortar investigative sites. Notably, we are excited to see the results of our most recent sentiment study among sponsor and CRO executives who report that they plan to run more decentralized, agile, or hybrid clinical trials in 2022 versus fully traditional site-based studies. To capitalize on this pivotal shift, we're maintaining focus on enhancing our commercial efforts, extending our leadership position through investments in our operating system, and positioning the company for long-term profitability. In 2021, we proved that our operating system can deliver at scale, providing consistently superior performance versus traditional brick and mortar sites. To be specific, when Science 37 acts as a virtual site among a network of traditional brick and mortar, our meta site is at minimum the highest enrolling site in the network, 100% of the time. In many cases, our Medisite has represented approximately 50 to 85% of all the patients enrolled. As an example, in a global pivotal trial, our Medisite enrolled 70 patients per month over the final quarter of 2021 versus the average traditional site that enrolled only 6.1 patients per month. Both the Medisite and TAC or TAC Plus offerings continue to be adopted more by CROs, and that remains an area of commercial focus for us. This quarter, we were pleased to have welcomed worldwide clinical trials to our network of CRO certified companies. We are excited about this partnership and expect to see other CROs continue to standardize on the Science37 operating system going forward. In regards to the operating system itself, we were proud to announce that we received ISO 27001 certification for cybersecurity management, as well as the ISO 27701 2019 certification for privacy management. These are some of the most powerful measures of quality and a point of differentiation from competitors that is meaningful to our customers. Our ability to enroll patients at a faster rate was bolstered considerably in 2021 as our network of community providers grew six-fold. Today, we are contracted with more than 800 healthcare organizations with nearly 35,000 providers covering almost 28 million patients worldwide. Community providers can refer patients from their practice without fear of losing them to another site. They can become clinical trial investigators themselves or become a preferred destination for patients to receive procedures that need to be performed in a clinical setting. We continue to make significant investments in our core technology platform. We have fully developed the capability to meet the strict regulatory requirements in China. We've invested in data interoperability, including our collaboration with PhysIQ to use biosensors and machine learning to build more robust data sets. And we're planning for a major release this summer to take our platform to a whole new level and enable the flexibility required of today's more agile clinical trials. While we're making these investments to continue to accelerate growth and define the future of clinical research, we're also balancing our investments with an eye toward long-term profitability and cash management that Mike will touch upon in a moment. Overall, we're very encouraged by our strong exit to the year, and we're well-positioned to deliver high growth and enterprise value in 2022 and beyond. With that, I will now turn over the call to Mike Zoranek, our Chief Financial Officer.

Mike? Thank you, David, and hello, everyone. I plan to take us through the fourth quarter results and then the full year roll up for 2021. I will then conclude with the full year 2022 guidance. We are pleased to report revenues for the three months ended December 31st, 2021 were 20.4 million, making it the first 20 million plus quarter in the company's history. This represents an 83% increase from the 11.2 million in the same period of the prior year. As we've previously discussed, at our current scale, bookings, revenues, and profitability can vary from quarter to quarter, and in part due to the timing around a limited number of contracts. This dynamic worked in our favor in the final quarter of 2021, as we were able to bring in 2.3 million of revenue that had previously been expected to occur in the first quarter of this year. Our net bookings for the three-month end of December 31st, 2021, were also very strong. coming in at $43.2 million, which is an increase of 102% from the prior year period. Driven by our strong revenue growth, adjusted gross profit was a robust $4.7 million, up from a loss of $0.5 million in the same period from the prior year. While our adjusted gross margin was up approximately 28 percentage points year over year, from negative 4.5% to 23.2%, We expect a higher long-term run rate as the composition of our fourth quarter revenue was overrepresented by two trials that were contracted before our price increase in the fourth quarter of 2020. We continue to invest in commercialization, technology, delivery, and our underlying infrastructure intentionally in an effort to scale. Selling general and administrative expenses inclusive of $6 million of stock-based compensation, $3.2 million of transaction-related expenses, excluding depreciation and amortization for the quarter worth $35.6 million, an increase from $10.5 million in the same period of the prior year. As David mentioned, we continue to balance the needs to invest to scale the business against the objectives to create a long-term profitable business and manage cash effectively. Adjusted EBITDA, which we calculate by adding back depreciation, amortization, taxes, interest, transaction expenses, and stock-based compensation, with a loss of $21.5 million in the quarter, compared to a loss of $10.9 million in the same period in 2020. Now we'll move on to the full year results. For the full year ending December 31st, 2021, we won approximately $164 million in net bookings. This represents nearly 3x the net bookings of $55.7 million we reported in 2020. We invested heavily in our go-to-market capabilities, underlying technology and delivery infrastructure, and the significant year-over-year increase in bookings is attributable to many of those investments. We were pleased to report that approximately two-thirds of our net bookings in 2021 were derived from customers with whom we had done business with previously, which is a testament to our ability to deliver effectively and achieve high customer satisfaction. We were able to bring in approximately one-third of 2021 net bookings from new customers as we continue to demonstrate the value of our model across a wider customer base. We generated full year revenues of $59.6 million, up 151% versus the previous year total of $23.7 million, and we ended the year with $164 million in backlog. As David mentioned, we continue to see strong demand for our offering. Our pipeline is at an all-time high, and the composition of the pipeline includes significantly more $10 million-plus qualified opportunities than ever before, which we attribute to the continued market interest in our offerings and our proven ability to deliver. Our adjusted gross profit of $18 million was approximately seven times the prior year total of $1 million. Full-year adjusted gross profit margin was 30.3%, up nearly 26 percentage points from 4.4% in 2020. On an adjusted EBITDA basis, full year fiscal 2021 was a loss of $44.1 million versus a loss of $27 million in the fiscal year 2020 as we put our investments to work to fuel our market leadership and growth. You will note our gap net loss of $94.3 million reflects $31.3 million related to a change in fair value of earn-out liability, which was part of the original transaction related to the SPAC. Upon the stock price meeting certain thresholds within a 36-month period post-closing, the equity holders of former Science 37 would receive additional shares, and under U.S. GAAP, we are required to reevaluate the potential value under that arrangement on a quarterly basis. To the extent the share price goes up, all else equal, the value of the earn-out liability increases, and therefore we recognize expense on a U.S. GAAP basis. Likewise, to the extent the share price goes down, the value of the earn out liability decreases and thus creates income. To be clear, the expense or income associated with this earn out is non-cash. However, to the extent the earn out share price targets are achieved, there would be additional shares issued. Going back to a point that David mentioned earlier, as a management team, we have prioritized our cash and cash management. As a result, we were able to achieve DSOs of 48 days as we exited 2021. This is nearly half of the 92 days that we had when we exited 2020. It is important to highlight our current cash position remains strong. We exited 2021 with approximately $214.6 million of cash, cash equivalent, and short-term investment. And you will recall that we raised approximately $234 million of cash through the transaction that closed in early October 2021. We will continue to remain disciplined and judicious with investments in our business while conscious of preserving our capital in order to maintain a strong balance sheet. Now let's turn to the outlook for 2022, where we will share our guidance for the full year revenue and some color around costs. Despite the challenges of accurately forecasting in an uncertain environment last year, we delivered exceptional results, far exceeding expectations. Our takeaway is that the process of forecasting in this environment is not straightforward, and our current guidance reflects this. With that said, we expect to maintain a high growth rate, and we remain bullish on our business for the full year 2022. We currently project revenues for the full year 2022 to be in the range of 86 million to 96 million, representing between a 44 and 61 percent growth rate for the year. As the year develops and the various potential drivers play out, we will fine tune our preliminary estimates and be in position to provide greater detail with respect to cost. As we noted a moment ago, at our current scale, bookings, revenues, and profitability can vary from quarter to quarter, in part due to the timing around a limited number of contracts. While this dynamic worked in our favor in the final quarter of 2021, where we were able to bring in $2.3 million of revenue through faster enrollment, was effectively accelerated from the first quarter of 2022. We also experienced in Q1 2022 nearly $20 million in cancellations from two COVID studies that will have an impact on the early half of 2022. The larger of the two studies was from a non-pharma company, which we do not traditionally target, and the smaller of the two was a result of drug efficacy. Our cancellation rates were less than 10% in 2021, and our 15-month cancellation rate, including first quarter known cancellations, is 17% on pace with industry average. At this point, we have very little COVID backlog exposure and only mid-single-digit percentage of qualified sales funnel relative to COVID work, which is down from previous quarters. From a cost standpoint, we ramped up spend in the fourth quarter of 2021 to meet the revenue growth and demand in the first quarter of 2022 and are managing the impact of the two cancellations. As a result, our first quarter 2022 margins will be down considerably from the previous quarter. We expect to return to a more normalized level of profitability as we progress throughout 2022, and we see no change to our long-term margin opportunity. Our basic share count is expected to be approximately 120 million for the full year 2022. As of year end, we had about 115 million shares outstanding. Since we anticipate having an adjusted net loss in the upcoming quarter and year, any converted options would be deemed to be anti-dilutive, and therefore, on a GAAP basis, we expect the basic and diluted share counts to be the same. In summary, we are very pleased with the growth we delivered in 2021 at most every level. We continue to be very bullish on our growth trajectory in 2022. At this point, I would like to turn the call back to David for closing comments.

Thank you, Mike. 2021 was an exceptional year for Science 37 as we achieved or exceeded all of our business goals and objectives. We grew revenue. at more than 150% and nearly tripled our net bookings. We have proven that the model delivers substantial value to our sponsors, gaining proof points, repeat customers, global scale, technology enhancements, and more partnerships that will help drive our growth into 2022. We made the transition from private to public and raised significant capital to allow us to continue to invest in our growth with a keen eye toward cash management and long-term profitability. I do want to acknowledge the impact of the two cancellations Mike mentioned on revenue and margins in the upcoming first quarter. As we continue to grow and expand our backlog, we expect the impact of cancellations to cause less volatility over time. It's important to note that our 15-month cancellation rate Inclusive of these two large recent cancellations is typical of the industry, and our COVID backlog and sales funnel exposure is limited at this time. Due to the size and recency of these two cancellations, we are giving a minimum of commentary on cost guidance and will offer more complete commentary on our path to profitability at our first quarter earnings call in May. As a business, we continue to make great strides in the speed of trial execution and efficiency in clinical conduct. We also see significant opportunity for continued improvement well into the future. We believe we have the operating system on which the industry will continue to standardize. We remain enthusiastic about the vision ahead, and we believe that the fundamental outlook for the segment and Science 37 remains very strong. Thank you to all our stakeholders, including our investors, who have supported us in our mission and commitment to disrupt the traditional clinical trial model and improve the development process for the ultimate benefit of patients around the world. We look forward to updating all of you in our next phase of growth in the coming months. And with that, we'll now open up to questions and turn it over to the operators.

If you'd like to ask a question, please press star then one. If your question has been answered and you'd like to move yourself in the queue, press the pound key. We ask that you please limit yourself to one question and one follow-up. Our first question comes from Charles Reig with Cohen. Your line is open.

Yeah, thanks for taking the questions. Mike, we just wanted to ask about the cancellations. I think you said earlier, if you could just clarify that Prior to this quarter, your overall cancellation rate was less than 10%, but including the first quarter, it averaged 17%. So is it right we can kind of look at the 2021 results and work backwards at a, you know, call it roughly 10% cancellation rate, kind of isolate sort of the first quarter impact?

Yeah. Hi, Charles. Good morning. Thanks for the question. Yeah, I think that's right. As we looked in 2021, We had a very low cancellation rate of less than 10%. And inclusive of the two cancellations we outlined on today's call, for the 15-month trailing period, it would be about 17%.

Thanks. And just to follow up, those two contracts were What percent of revenue or what stage of them in development were they with you guys? What was sort of the revenue contribution, if any, in 21 that we should think about having an impact overall in 22? And over what time frame?

Sure. No, I think, as we said, one of the opportunities was a non-pharma opportunity or a project that we typically don't target. That one was a little earlier on in the life cycle, and so minimal impact in 2021 from that one. If you look at the second one, and that one was pulled due to lack of overall funding for the entire project of which we were a part. The second one was a little bit further advanced in its overall progress. It was ultimately pulled due to lack of efficacy. So at this point, we have very little COVID backlog. And if you look at the pipeline in front of us, the COVID opportunities represent mid-single digits of our qualified sales funnel. So not a whole lot of exposure there.

All right, great. Thanks a lot. I'll jump back in the queue. Thank you.

Our next question comes from Frank Takanan with Lake Street Capital Markets. Your line is open.

Hey, David. Hey, Mike. Thanks for taking my questions. I wanted to start with one on the guide as well as it relates to the backlog. How should we be thinking about backlog forward conversion? Honestly, looking at the backlog, $165 million, take out the $20, you have $145. It feels like the guide may be even a little bit conservative where it's at now. So maybe just a little bit of color on it. What do you guys think about?

Sure. Yeah, I think – sorry, was there a follow-up there? Or was there – you sort of cut out there at the end, Frank?

No, sorry about that. Go ahead.

No, I think one of the things that we've seen with respect to the guide, you know, we've talked about the volatility in the past. And if you think about the volatility, it can work both ways. And we were able to, with a few projects or a single project, impacting bookings, revenues, and potentially profitability in a certain period. We got the benefit of that in Q4, where we produced more than $20 million our first $20 million quarter. By having a really strong execution, on a couple of projects that effectively we were able to pull some revenue forward out of Q1 based on faster completion of our activities. If you look at the overall backlog of the 164, I think what we've talked about previously is that in the year-ago period at the end of the first quarter, we had about 81% covered for the full-year revenue forecast that we had at the time. And what I can say that as of the end of February, after accounting for those two large cancellations that we outlined in the prepared remarks, we have more than $70 million of phased backlog and revenue coverage for 2022. Okay.

That's helpful. And then maybe just as my second one, there's been some conversation about RFP volume headwinds and related to the end markets. Maybe just comment on, I think you you kind of spoke to your qualified sales funnel being at the strongest spot it's been in company history. So maybe speak to that and how it relates to how you're feeling about current market dynamics, if any headwinds out there or anything of that nature.

I'll take it. It's David. Hey, Frank. Thanks for calling in. How are you doing?

Very good. Thanks.

Yeah. So overall, our pipeline is, Today it's the highest it's ever been, so we're super excited about that. I think the other context on pipeline I think is important is the composition a little bit. So we're seeing greater than $10 million deals on the table that we're targeting, which I think is exciting. It says a lot about the opportunities that we're able to bring in and really the the model and the proof of the model actually works. So that's a really good dynamic. I think the other one is if you take a look at what we saw in 2021 and about two-thirds of our overall deals that we closed throughout the year were from repeat buyers, and the majority of those were from large to mid-sized pharma companies. So I think all those dynamics really look strong for us.

Cool. Perfect. I'll stop there. Thanks for taking my questions, and congrats on all the progress. Thanks a lot, Frank.

Again, if you'd like to ask a question, please press star, then 1. There are no further questions at this time. I'd like to turn the call back over to David for any closing remarks.

Thanks. So, yeah, appreciate it. You guys joining us today, we're really excited about what we've been able to accomplish in 2021. It was a very strong year for us in terms of our ability to execute on the plan in terms of delivering real value for our sponsors, in terms of delivering the results that we're building upon now in terms of our commercial organization and being able to provide them with more proof points to go to market with. We're excited about the results. As you noted, we have exceeded in virtually every category in 2021, some of them far exceeding. We're excited about our future, and as we look to the back end of 2022, we're really excited about the momentum that we have in our pipeline and the growth that sits here before us as we continue to execute our strategy. So with that, I will end the call, and thank you guys so much for joining.

This does conclude the program. You may now disconnect. Everyone, have a great day.