Good day, everyone, and welcome to the Medpace First Quarter Earnings Conference Call. I would like to introduce your host for today’s conference call, Kevin Brady, Medpace Executive Director of Finance. You may proceed.

Good morning, and thank you for joining Medpace’s First Quarter 2020 Earnings Conference Call. Also on the call today is our President and CEO, August Troendle; and our CFO and COO of Laboratory Operations, Jesse Geiger. 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 other important factors that could cause actual results to differ materially from our current expectations, including the impact of the changes to the revenue recognition standards. These factors are discussed in the Risk Factors section of our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements in the future even if estimates change. Accordingly, you should not rely on any of today’s forward-looking statements as representing our view as of any date after today. During this call, we will 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.

Good morning. The COVID-19 pandemic has presented a significant challenge to the global clinical trial industry. Diversion of resources at investigative sites has slowed recruitment, in many cases, reduced the frequency of protocol-driven patient visits. Travel restrictions and access to sites by sponsors and CROs have necessarily reduced the usual on-site monitoring and auditing of trials for compliance with regulatory and protocol requirements. Most companies, including ours, have been forced to move most employees to a remote working environment, which can impact workflow and training of new staff. Fortunately, we have systems, processes and experience running trials with minimal on-site presence and with virtual safe visits and monitoring. The second conversion of an ongoing trial from classical safe monitoring to virtual safe visits is unusual that has been accomplished across our portfolio of studies with minimal disruption or loss of trial data quality. Patient safety, our primary concern, has not been jeopardized by the change. We are appreciative of the regulatory bodies taking a pragmatic approach within their released guidances related to COVID-19. We have made a number of changes to our operations to address the pandemic challenges. These include the following: One, established an incident response team to address emergent issues and set companywide policy and workplace requirements. Two, established a cross-functional operations response team to develop or revise processes for oversight and management of trials. Three, implemented a global communication plan for updating worldwide staff to process changes. Four, organized weekly mandatory training sessions for project leadership teams to review process and implement industry or regulatory-driven updates. Five, we suspended all nonessential travel. Six, moved most staff to remote work while keeping essential functions that require office-based presence operational. Seven, updated customized monitoring plans as needed for all studies to address virtual site monitoring in lieu of on-site visits as well as activating support technology solutions for source data verification. Eight, organized systems and processes for patient home visits and support. Nine, taken actions to align staff with the current and near-term future needs, including the removal of many administrative employees supporting office-based staff. I would like to provide some detail or picture perhaps of the extent of the disruption. The World Health Organization declared a pandemic on Wednesday, March 11, 2020. I will take this as time zero as until then, the disruption to sites was largely an issue in China only. Since March 11, the week showed only modest impact. Lab samples were down 6% and patient screenings, i.e. patients seen as part of recruitment for trials, was relatively normal. The following week, lab sample volumes were down 21% and patient screenings were down 54%. The week after that, the week of March 22, lab samples were down 34% and patient screenings were down 75%. More recently, lab sample volume has been down 40% and patient screenings down 85%. This has been stable the past few weeks, but has shown no signs of recovery. Patient visits for ongoing patients, already enrolled in trials, are down about 55%. Physical monitoring visits are down 95%, but about 60% of the lost physical visits are being replaced by virtual site visits. Site activations are down 80%. We have had multiple cancellations of ongoing studies due to the challenges and uncertainty of the pandemic. Since the operational and financial impact of the pandemic response on a trial is influenced by the stage of the trial, I would like to provide some demographics on our business portfolio of awarded trials. The following analysis is based on April to December 2020 roll off from awarded studies and is summarized in Slide 3 of our earnings presentation. We have placed our awarded studies into three buckets. One, studies where recruitment is completed. This subset comprises 30% of our projected April to December revenue. For 92% of this category by revenue, i.e., of this 30%, we expect no substantial impact on progress or revenue. Studies in recruitment. This subset comprises 58% of our April to December projected revenue. For this subset, we expect 32% by revenue to have no substantial impact on progression, 29% to have a significant impact on progression, but recruitment is continuing and 39% where recruitment has been interrupted. The third bucket studies in start-up but prior to first-patient first-visit. This subset is 12% of projected April to December revenue. For this subset, 45% are progressing toward first-patient first-visit, and the other 55% are currently on hold for first-patient first-visit. A decision to delay first-patient first-visit may still be made for the 45% currently progressing towards it. From a current-period revenue by task perspective, for ongoing studies in the first two buckets, i.e., in recruitment or recruitment complete, the impact of COVID-19 will be greatest in areas where there is a high level of unitized services where the units are likely to be delayed, such as laboratory as well as our clinics business, where we directly perform Phase 1 to 4 site activities. Pass-through costs, the bulk of which represent independent investigative state payments and monitoring travel, are also disproportionately impacted. These revenues are mostly delayed rather than lost over the course of the trial. At the other end of the spectrum, our other clinical trial services, such as program management, monitoring, safety, surveillance and reporting and medical monitoring that are primarily based on an FTE or effort-based activity, which will be minimally impacted from a current period revenue recognition perspective. In fact, program management and site support may require increased efforts over the short term to plan and implement regulatory-compliant accommodations to the trials even while recruitment is stopped. In general, recruitment delays will significantly increase the future revenue and total trial cost of FTE-based activities for these trials due to the extended timeline. For the third bucket, pre-recruitment trials, the impact for 2020 is primarily related to the timing of study start with significant delays likely for many and, therefore, lower revenue in 2020. Whether recruitment delays will slow these studies once started is unknown. To complete the picture, I should provide a rough breakout how our service functions. Project management, monitoring, data safety, medical and reporting, the largest portion of clinical trial services is approximately 84% of our total revenue. Labs make up 14% and clinics, 1.5% to 2% of revenue. On a longer-term basis, our business and revenue will be impacted by reluctance of sponsors to initiate new trials or award new business in an uncertain environment where costs may be higher due to extended timelines. This is already apparent in Q1 new business awards. The reduced future revenue from delayed trial starts, cancellations and reduced new business awards will be partially offset by additional revenue from the extension of ongoing trials, as discussed above, where recruitment is slowed. However, the elongated timelines of studies where recruitment is slowed may challenge our smaller clients’ ability to financially support a more expensive and delayed trial. The majority of our clients are small and many do not have cash on their balance sheet to complete their trial without raising additional funds. Due to the challenges we faced from the COVID-19 pandemic, we now expect revenue and profit for the year – for the full year 2020 to be down from 2019. However, the extent of the drop cannot be reasonably estimated at this time. For this reason, we are withdrawing rather than updating our previous guidance. Jesse will now cover our financial performance for the quarter.

Thank you, August, and good morning, everyone. Net new business awards entering backlog in the first quarter decreased 0.7% from the prior year to $246.9 million, resulting in a 1.07 net book-to-bill. Ending backlog as of March 31 was $1.3 billion, an increase of 16.8% from the prior year. Revenue was $230.9 million in the first quarter of 2020, which represents year-over-year growth of 15% on a reported basis and 15.2% on a constant currency organic basis. EBITDA of $40.6 million increased 21.3% compared to $33.4 million in the first quarter of 2019. On a constant currency basis, first quarter EBITDA increased 19.1% compared to the prior year. EBITDA margin for the first quarter was 17.6% compared to 16.7% in the prior year period. The increase was primarily attributable to lower reimbursed out-of-pocket expenses on higher revenue, partially offset by higher employee-related costs. In the first quarter of 2020, GAAP net income was $29 million compared to GAAP net income of $19.2 million in the prior year period. Net income growth was primarily driven by revenue growth and reduced amortization expense, partially offset by higher employee-related costs and reimbursed out-of-pocket expenses. GAAP net income per diluted share for the quarter was $0.76 compared to $0.51 in the prior year period. Regarding customer concentration, our top five and top 10 customers represented roughly 17% and 26%, respectively, of our total revenue for the quarter. In the first quarter, we generated $49.1 million in cash flow from operating activities and our net days sales outstanding decreased compared to the fourth quarter from negative 14.7 days to negative 21 days. During the quarter, we repurchased approximately 0.7 million shares for a total of $43.2 million, and we have $56.8 million remaining under our current share repurchase authorization. Our strong balance sheet is important in this current environment. We ended the first quarter with $134 million of cash, no outstanding debt and $50 million of undrawn capacity on our revolving line of credit. As August mentioned, due to the economic uncertainty, we are withdrawing previously provided 2020 guidance. We will provide updated guidance when we can reasonably estimate the impacts of the COVID-19 pandemic on our business results. With that, I will turn the call back over to the operator so we can take your questions.

Thank you. Our first question is from Dave Windley from Jefferies. Your line is now open.

Great. Good morning. Thanks for the detail August. Appreciate your candor here as always. I was curious if you could talk a little bit more about – add some color to how the clients are acting? You mentioned you’ve seen cancellations. That’s something that we haven’t necessarily heard from some of the other CRO players so far. And then it sounds like it’s also affecting gross new business as well. So if you could kind of comment on the relative impacts on gross new business and then also cancellations? Thanks.

Sure. Dave, yes, we are seeing an impact. And of course, our recognition of working to backlog requires the study to be progressing. A lot of things are kind of put on hold. A lot of others do it more based upon just an award was made, and they think it will eventually start going or there’s – contract was signed. Ours have to be kind of moving forward. So at the end of the quarter, there was quite a bit of clients pausing and holding things and not moving forward with the project at this time. So that did affect our bookings. And we have had several – more than five cancellations related to COVID. You can always take a cancellation and identify multiple reasons and not much was canceled exclusively. Something was going great and then, oh, COVID’s going to make us decide to cancel the study. But these are kind of projects that might have been as their strongest opportunity or whatever. And – but the reason has been that COVID would have progressed, if not for. So we have seen cancellations. I’m surprised others haven’t.

Thanks for that. I think I fixed my echo, sorry about that. The follow-up question, your model has historically had your people more centralized, less field-based CRAs, et cetera. Has that presented – has that made it easier or harder for you to transition to work from home? And in terms of supporting your clients’ trials, are there ways that – I mean, I would guess that like, for example, having a bolus of your employees in Cincinnati and having trials distributed and their need to travel out to those trials, not having regional field-based CRAs might make it more difficult for you to get to site as they begin to open up. Can you talk about how your labor force can kind of adjust to a new COVID-effected world? Thanks.

Sure. We do have more of a – certainly in the U.S., anyway, more of office-based staff. Some are more regionally based, although that tends to be largely one of where the CRAs are based out of. So yes, you asked the question, once things are open, will CRAs be able to travel as effectively as where some other company might have a person on-site in that city? The reality of it is that most CRAs wind up having to get on a flight, no matter where they’re based. But – and I do not anticipate that air flights are going to be the factor restricting access to sites. That’s been mainly we’ll have physical access at the site itself and not ability to perform air travel. So I don’t anticipate that being a factor. Certainly, our office-based core operations in Cincinnati were substantially changed in terms of sending everyone home, but we did have a great deal of IT infrastructure there and support and moved a lot of people who had never worked from home before into a work-from-home environment very effectively. So I can – I don’t know whether that was a help or a hindrance. So I don’t really think there’s any differentiation there.

Okay. That’s great. Thank you for the answers all.

Thank you. And our next question comes from John Kreger from William and Blair. Your line is now open.

Hi, thanks very much. August or Jesse, I realize that there’s too much uncertainty to provide any sort of commentary on the year. But with being one month into the second quarter, would you be able to just talk about how much you think revenues might be down from Q1 to Q2? Is that possible?

I don’t think we can estimate that, not with any kind of certainty. And so that’s why we’ve removed guidance. We’re not providing one for the second quarter even.

Okay. Understood. Have you had any collection issues from your smaller clients?

Jesse, do you want to take that?

Yes. Thanks, John. We have not seen, to date, any uptick in collection issues. We recorded no bad debt expense in the first quarter. Obviously, given the customer segment focus on small biotech, we’re monitoring credit risk exposure very closely and staying in contact with clients, but we’ve not seen any impact currently.

Okay. Thanks. And then finally, can you give us a sense about how your activity levels spread across U.S., Europe and Asia? And are you starting to see any patterns of sites reopening that might give some insight about when some movement back towards normalcy could start to happen?

Yes. Look, it is very country-specific. China has begun to open up again. There are some areas in Asia, particularly, where site visits are now possible again and we’re getting more openness to the sites. They’re beginning to have more activity. But you look at the overall global numbers, and again, we’ve seen very little evidence of recovery to date. We’re hoping, very shortly things will start improving. But sites are still pretty inaccessible and disrupted. And in a lot of these cases, it’s the coordinators – the site coordinator at the site is working from home. It’s got nothing to do with our staff or availability to get there. It’s the operations at the site are disrupted.

Okay. Thank you.

Thank you. And our next question comes from Sandy Draper from SunTrust. Your line is now open.

Thanks very much and we’ll also echo, really appreciate all the level of detail. I think it’s going to take my brain a little while to process all that. But maybe one follow-up initially on this. When you think about the reimbursables versus the service revenue, obviously, the first quarter, we didn’t see that much of an impact. But Jesse or August, how should we think about the relative impact? Should it be more on the reimbursable revenue because that’s mostly travel? Or I’m just trying to understand when I’m thinking through the buckets you talked about, where that sort of flows through into reimbursables versus the service revenue?

Sure, sure. Look, I’ll take that, Jesse. It really – the biggest impact here has been to sites. So things that are directly driven by sites are going to be down. So patient visits at sites, laboratory samples are going to be down. And sites make their – generally are very unitized in terms of visits, in terms of payments. So they get paid for doing evaluations on patients. And if they don’t have the visit, they don’t do the evaluation or they do a partial evaluation or whatever, they may not be able to bill it. So then meeting their criteria for being paid is delayed until they do the site visit with the patient. And that is the largest impact. So our pass-through investigator payments are hit more than our services, which are more FTE. A lot of work regardless of whether the patient comes in or not, they were doing a lot of work with sites and in fact, sometimes trying to facilitate a remote visit or a home visit. So there’s a lot of regulatory and other activities that continue on. And so anyway, site – pass-throughs to sites as well as travel. But again, yes, there’s virtually no travel going on. So that’s substantially impacted, although that’s smaller than investigator site payments. But site payments are down, investigator payments, laboratory samples, so laboratories down. Other CRO oversight, regulatory and monitoring, et cetera, are less impacted. So yes, you’ll see the pass-through costs are hit more than the service revenue cost.

Okay. That’s really, really helpful. And maybe just one quick follow-up to that question is, you commented that you expect revenue and profits to be down year-over-year. Within revenue, do you expect – I mean, clearly, from what you said, reimbursables are going to be down year-over-year. But do you think – it sounds like also service revenue will also likely be down year-over-year. Is that a fair assessment?

I don’t think we’re giving guidance on either. We do think that overall revenue will be down.

Okay. Got it. That’s fair. And then maybe my final question, I’ll jump back in the queue. When you think about the – obviously, you’re in a fortunate capital situation with a lot of cash, no debt. Do you – you bought a little bit of stock back. Do you have a view of – right now, you’re in preserved cash mode, we’re not going to spend? Or do you feel like comfortable enough that you could be in the market for repurchases because a lot of companies have basically said, we’re not paying dividends. We’re not buying back stock during this time. Do you have – does the Board have a similar philosophy? Or do you feel like you’ve got enough of a cushion where you will potentially deploy capital in this environment? Thank you.

Jesse?

Yes. Thanks, Sandy. We – from a share buyback perspective, we did buy in the first quarter. We’ll take a balanced view as we go through the rest of the year. We’re not actively suspending our program at this moment, but we’ll be cautious in balancing the cash needs of the business and opportunistic share repurchases.

Thank you. And our next question comes from Eric Coldwell from Baird. Your line is now open.

Thanks very much and good morning. So first off, with your client base, I know that to the best of your ability, you do financial reviews of your clients. And obviously, given the mix, collecting as much upfront and being certain of funding is very important to you. I was hoping you could give us a little more detail on what you’re seeing right now? A lot of conversations out there about how biotechs maybe are funded for an average of one, two or three years, depending on what source you use, but obviously, that means some are funded only months or quarters. I’m just – I don’t know if you have an aging schedule or something like that you could share with us, but any details on that would be helpful.

Jesse, you want to take part of it.

Yes, Eric. So it’s – I don’t have an exact aging schedule to share, but it is a mix. Our clients – these small biotechs have – some have cash on balance sheet, some have committed investors who are funding as the trial progresses. So across the portfolio, they have various amounts of cash or access to cash. But as August mentioned in his opening remarks, some of those will need to go to new capital or additional capital as the trial progresses and if things elongate, may need to raise more than they would have otherwise. I guess a little perspective maybe I can give on the portfolio composition is that about 75% of the backlog is with small biotech. So consistent – the backlog mix is consistent with the revenue, and 40% of that small biotech backlog is with companies who have partnered products with large pharma. So 40% of the 75% category of small biotech has funding sources in markets, but also is partially funded through their partnerships with large pharma. Another way to look at this is public versus private companies. A 100% of our large and midsized company backlog is with public companies. And then our small biotech backlog is approximately 70% with public companies and 30% with privately funded companies. I know that this don’t give any insight into the cash on balance sheet, but provides maybe a little bit of insight into what the composition is of their funding sources at current state.

That’s nice, helpful. Thank you. On the pass-through topic, you did mention investigator and site payments being the biggest, travel smaller, maybe lab and other external payments smaller. I was hoping you could give us maybe percentages, if you don’t mind, or at least some color on the mix of those various buckets and pass-throughs?

So, I’m sorry. Percentages in what?

Not at my fingertips. Let me follow-up, Eric.

Okay. That’s fair. And then maybe just two quick ones. Decremental margin, I know you’re not giving guidance, but could you give any color, perhaps breaking out clinic, lab and then separately core clinical trial activities? Do you have any views on decremental margin on the revenue slowdown?

Jesse, do you have any input on that?

Eric, could you repeat the question? I apologize.

No. Decremental margin. The revenue drop-through, how much of that would fall to EBITDA, and if you have that maybe overall, we’re seeing other CROs come up with basically implied ranges of anywhere from, say, 35% to 40%, 45% decremental margin net of cost actions. So, I’m curious if you’re in a similar ballpark? And then if you could maybe carve it out by lab and clinic as opposed to traditional site business, if possible?

Or just in total, if it’s easier?

I don’t think we have that, Eric. But it would be pretty high. Labs and clinic, you’re talking about, it’s got to be at least 40%. But I do not have it.

That’s fair. And then last one, business development. I’m just curious. I know the world is changing quickly. We’ve all been pushed into the deep end of the pool on work from home and virtual and doing things telephonically. How much business development do you think can truly get done telephonically or virtually video conference as opposed to needing to be at the clients’ headquarters or at their site, shaking hands and having all day conversations? I’m just curious how much you think you could actually foreseeably get done over the next year if travel remains a bit of a challenge?

So, yes, I’ll take that. Eric, I actually think we’re in pretty good shape in that regard. But the demand is there, they have to reach out. Most of our clients don’t have a preferred provider. So, I think we’re in the mix. And I don’t think it’s a matter of us necessarily knocking on the door. Everyone else has the same disadvantage that you’re doing now a remote to virtual bid defense and a virtual presentation. So, I think if our strategy was to break into new markets and address clients that had an existing provider pool, well, that’s not going to happen in this environment. So that’s something that’s dead in the water. But that means it’s for those who have those relationships, it means very good for them, the ones that already have them. They’re sitting on the relationship, and it’s unlikely to be moved in this environment. But you can’t attack other people’s sticky relationships. But I think in terms of just clients that don’t have those types of preferred provider, which largely we’re working with a group that’s coming to us for an opportunity, and they’re reaching out to several companies. And so we’re competing but we’re competing on level ground because everyone’s in the same predicament. And they’re going to outsource the work. So, I really don’t see a significant impact because our strategy is not based upon attacking preferred provider relationships of others and trying to break in for the first time.

Okay, that’s very helpful. Good insights. Thank you very much.

Thank you. And our next question comes from Donald Hooker from KeyBanc. Your line is now open.

Great, good morning. So, I see you guys brought on new employees in the quarter. It looks like it was up 150 or so in the quarter, so that’s great. How are you managing kind of how you’re thinking about hiring over the course of the year? And I know you guys are involved in a fairly sizable sort of internal capacity expansion at your headquarters. Has that been delayed? Or you kind of how should we think about both of those things moving forward given the disruption to demand?

Yes. Okay. So first off, that expansion in Cincinnati, we are a little bit delayed. We’re planning on getting in there end of first quarter. It’s now looking like May, but we are still moving forward with that and actually gives us a nice separation of staff that has been not possible in some of our existing infrastructure because we were kind of overcrowded. So it does permit us to get back into the office maybe sooner with social distancing. But we do expect staff numbers to probably be about flat on the year. So we did have some reductions, as I mentioned, in staff, in the past month. And we expect to end the year about where we entered the year in terms of staff numbers.

Okay. That’s helpful visibility. And then maybe separately, always interested in your broader perspectives on the space. I mean the movement to virtual trials and risk-based remote monitoring. I guess one ongoing debate is how sustainable is that going to be maybe after COVID-19 winds down. What is your just broader view of that? I mean, are people is this potentially in your mind, sort of a catalyst for your clients to maybe for your client vertical to maybe reconsider how studies are done in any way?

I think this gives emphasis to the overall industry for the short term. It may facilitate some technologies longer term. But the regulatory authorities have been very accommodative and have been very helpful in allowing us to work around difficulties. But most of the trials we’re doing are not designed and not appropriately able to long-term meet the regulatory requirements with virtual visits. There will be required on-site visits. You can do more remotely. And over time, we’ve done more and more remotely. But it still does require on-site visits to verify things and some things just are required that on-site review. So, I don’t see that none of these trials have been converted to a virtual visit type environment and meet the expectations for the full trial. There will be makeup. There will be some time spent on-site in the future to try to catch up and to meet all the requirements of the trial. So, I don’t think it’s going to push the industry to switch and for regulatory authorities to accept the type of trial oversight that’s currently ongoing for a longer period of time.

Okay, thank you for that perspective.

Thank you. And now, I’m showing no further questions. I would now like to turn the call back over to Kevin Brady for closing remarks.

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 Second Quarter 2020 Earnings Call. Thanks and have a good day.

And ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.