Medpace Holdings, Inc. (NASDAQ:MEDP) Q4 2022 Earnings Call Transcript February 14, 2023

Operator: Good day, ladies and gentlemen, and welcome to the Medpace Fourth Quarter and Full Year 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 call, Lauren Morris, Medpace's Director of Investor Relations. You may begin.

Lauren Morris: Good morning. And thank you for joining Medpace's fourth quarter and full year 2022 earnings conference call. Also on the call today is our CEO, August Troendle; our President, Jesse Geiger; and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties, as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC.

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 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 August Troendle.

August Troendle: Good morning. I'd like to give a quick update on the business environment. The business environment continues to be challenging. Almost forward-looking business development metrics have weakened and were depressed in the fourth quarter. New RFPs, pending RFPs and initial award notifications were all down moderately. Cancellations across the pipeline were elevated with backlog cancellations above our usual range in Q4. That is above 5% of opening backlog. Delayed financing or reprioritization of pipeline is frequently the feedback from sponsors. Biotech sentiment has remained poor to date in Q1. I believe we've prepared as best as possible for this downturn. We have diversified our pipeline, improved selectivity of clients based on quality of asset and likelihood of financing, tightened our on-going monitoring of sponsor financial condition and consistently negotiated safe payment terms to avoid write-offs.

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Our DSO and minimal write-offs of bad debt speak to our diligence. We remain confident in our 2023 guidance and believe we will continue to generate robust above-industry growth in 2024 and beyond. Jesse and Kevin will now review our financial results for Q4.

Jesse Geiger: Thank you August and good morning everyone. Revenue in the fourth quarter of 2022 was $394.1 million, which represents a year-over-year increase of 27.7% and full year 2022 revenue was $1.46 billion, a 27.8% increase from 2021. Net new business awards entering backlog in the fourth quarter increased 5.8% from the prior year and $485.1 million resulting in a 1.23% net book-to-bill. For the full year 2022 net new business awards were $1.8 billion an increase of 13.6% and ending backlog as of December 31, was approximately $2.3 billion. This was an increase of 17.2% from the prior year. We project that approximately $1.21 billion of backlog will convert to revenue in the next 12 months. conversion in the fourth quarter was 17.6% of beginning backlog.

We were able to grow headcount 15.8% from the end of the prior year in a challenging and competitive labor environment and employee retention and continued hiring for future business will remain top priorities in 2023. With that I will turn the call over to Kevin to review our financial performance in more detail and discuss our 2023 guidance. Kevin?

Kevin Brady: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $394.1 million in the fourth quarter of 2022. This represented a year-over-year increase of 27.7% on a reported basis, and 28.9% on a constant currency basis. Full year 2022 revenue was $1.46 billion, which represents a 27.8% increase on a reported basis and 29.2% on a constant currency basis in 2021. EBITDA of $80.4 million increased 30.9% compared to $61.4 million in the fourth quarter of 2021. On a constant currency basis, fourth quarter EBITDA increased 23.3% compared to the prior year. Full year EBITDA was $308.1 million and increased 38.1% on a reported basis, and 32.3% on a constant currency basis from 2021. EBITDA margin for the fourth quarter was 20.4% compared to 19.9% in the prior year period.

Full year 2022 EBITDA margin was 21.1% compared to 19.5% in 2021. EBITDA margin increased 160 basis points for the year, driven primarily by slower headcount growth, and net foreign exchange benefits behind the strong U.S. dollar partially offset by higher reimbursed out of pocket expenses. In the fourth quarter of 2022, net income of $68.7 million increased 37.2% compared to net income of $50 million in the prior year period. For the full year 2022, net income was $245.4 million, compared to $181.8 million in 2021. This represents a 34.9% increase. Net income gross lagging EBITA was primarily driven by a higher effective tax rate, and interest expense. Net income per diluted share for the quarter was $2.12 compared to $1.32 in the prior year period.

For the full year 2022, net income per diluted share was $7.28 compared to net income per diluted share of $4.81 in 2021. Regarding customer concentration, our top five and top 10 customers represent roughly 18% and 25% respectively, of our 2022 revenue. In the fourth quarter, we generated $136.7 million in cash flow from operating activities and our net day sales outstanding was negative 48.9 days. During the fourth quarter, we repurchased approximately 228,000 shares for a total of $47.2 million. For the full year 2022, we repurchased approximately 5.7 million shares for $847.7 million. As of December 31 2022 we have $452.8 million remaining under our share repurchase authorization program. During the quarter, we paid $89.7 million against the credit facility.

And our net debt position at the end of the quarter was $21.7 million. This was composed of debt of $50 million in cash of $28.3 million. Our net leverage ratio is approximately 0.1 times last 12 months EBITDA. Moving now to our guidance for 2023. Full year 2023 total revenue is now expected in the range of $1.69 billion to $1.75 billion representing growth of 15.8% to 19.9% over 2022 total revenue of $1.46 billion. Our 2023 EBITDA is expected in the range of $325 million to $350 million representing gross of 5.5% to 13.6% compared to EBITDA of $308.1 million in 2022. Guidance is based on foreign exchange rates as of December 31 .This guidance assumes a full year 2023 effective tax rate of 17.5% to 18.5% and 32.5 million diluted weighted average shares outstanding for 2023.

There are no additional share repurchases in our guidance. We forecast 2023 net income in the range of $245 million to $265 million. Earnings per diluted share is expected to be in the range of $7.53 to $8.14. With that, I will turn the call back over to the operator so we can take your questions.

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