Good day, ladies and gentlemen, and welcome to the Medpace First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference call, Lauren Morris, Medpace Director of Investor Relations. You may begin.

Good morning and thank you for joining Medpace's first quarter 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, including the ongoing impact of COVID-19 on our business, are discussed in our Form 10-K and other filings with the SEC. Please note that we 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 replacements 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 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. I'm going to provide a quick update on the business environment. The softening of RFP flow observed in the first few quarters stabilized, and I'm happy to say that overall Q1 2022 RFPs of total volume came in roughly flat with Q1 of 2021. On the other hand, at the time of our last call, we had seen little to no evidence of funding challenges by our clients. This has evolved, and more recently, we have seen a number of delayed or canceled programs due to funding. Looking at programs either put on hold or terminated early for lack of funds, the dollar value in the first four and a half months of 2022 has already exceeded the total for calendar year 2021. If the funding environment for our clients does not improve in the next few months, this could pose a challenge to our 2022 and 2023 growth plans. However, at this point, we continue to anticipate that 2022 revenue and profit will fall within our prior guidance ranges. Earnings per share will exceed prior guidance due to share repurchases in Q1. Jesse will now provide some commentary on our results.

Thank you and good morning everyone. Our revenue in the first quarter of 2022 was $330.9 million, which represents a year-over-year increase of 27.3%. Net new business awards entering backlog in the first quarter increased 18.8% from the prior year to $423 million, resulting in a 1.28 net book-to-bill ratio, and ending backlog as of March 31 was approximately $2.1 billion, an increase of 28% from the prior year. We project that approximately $1.07 billion of backlog will convert to revenue in the next 12 months, and our backlog conversion in the first quarter was 16.6% of beginning backlog. In the first quarter, we continued to make progress in hiring, adding 4% from the end of 2021 and over 20% from the prior year. In this challenging and competitive labor environment, employee retention and hiring for future business continues to be a top priority. With that, I will turn the call over to Kevin to review our financial performance in more detail and discuss our updated 2022 guidance.

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $330.9 million in the first quarter of 2022. This represented a year-over-year increase of 27.3% on a reported basis and 28.1% on a constant-currency organic basis. EBITDA of $70.4 million increased 31.3% compared to $53.6 million in the first quarter of 2021. On a constant-currency basis, first-quarter EBITDA increased 29.5% compared to the prior year. EBITDA margin for the first quarter was 21.3% compared to 20.6% in the prior-year period. The increased EBITDA margin was driven largely by the impact of an R&D tax credit received in the quarter. In the first quarter of 2022, net income was $61.3 million compared to net income of $43.3 million in the prior-year period. Net income growth over the prior year was primarily driven by higher EBITDA as well as a lower effective tax rate. Net income per diluted share for the quarter was $1.69 compared to $1.14 in the prior-year period. Share repurchases during the quarter benefited EPS by $0.06. Regarding customer concentration, our top five and top 10 customers represent roughly 16% and 24%, respectively, of our first quarter revenue. In the first quarter, we generated $46.3 million in cash flow from operating activities, and our net days sales outstanding was negative 38.7 days. During the quarter, we repurchased approximately 2.7 million shares at an average price of $155.09 for a total of $425.9 million. On March 16, 2022, our board of directors also approved an increase of $200 million to our current share repurchase program. We had $264.6 million remaining under our current share repurchase authorization at the end of the quarter. We ended the first quarter with $82.8 million of cash, no outstanding debt, and $250 million of undrawn capacity on our revolving line of credit. Moving now to our updated guidance for 2022. Full year 2022 total revenue remains unchanged in the range of $1.4 billion to $1.46 billion, representing growth of 22.6% to 27.8% over 2021 total revenue of $1.142 billion. Our 2022 EBITDA is also unchanged and expected in the range of $262 million to $278 million, representing growth of 17.4% to 24.6% compared to EBITDA of $223.1 million in 2021. This guidance assumes a full year 2022 effective tax rate of 13.5% to 14.5% and 35.6 million fully diluted shares for 2022. There are no additional share repurchases in our guidance. We forecast 2022 net income in the range of $204 million to $216 million. Earnings per diluted share is now expected to be in the range of $5.72 to $6.06 to reflect the share repurchases in the first quarter. With that, I will turn the call back over to the operator so we can take your questions.

Thank you. And our first question comes from the line of Dave Windley with Jefferies. Your line is open. Please go ahead.

Hi. Good morning. Thanks for taking my questions. August, your comments about the delayed or canceled programs that you're seeing, I'd be curious for you to elaborate there. But maybe specifically on that, how are you handling them? I'm sure the canceled ones, you've treated as cancellations. The delays, how are you treating the delays?

Sure. A delay wouldn't change its status. Some of these things are awarded, and all the revenue isn't necessarily in backlog. Our policy on backlog is pretty late, and there are stages to it. So it's handled just as any other project delay. Until it's a cancellation, it wouldn't be pulled out of backlog as a general policy. So it would just stay wherever it was in the pipeline. Yes. And further detail on it, I don't know what other detail I can give. It's kind of sporadic and across the therapeutic areas. There's no particular focus or anything like that, and it's not highly concentrated in a single client or two. But there's been evidence of considerable strain in a segment of our clients.

Okay. So I think one of the arguments that we hear is that these companies, pre-revenue biotechs that you work with a lot, exist for the purpose of developing a new drug and moving that through the pipeline. I guess, if there's no money, there's no money. But is there any perspective on their – they have two programs and they're canceling this one that you have to focus on the other? Or how are they canceling something that's in clinical with you, I guess is what I'm trying to get at?

Okay. So some of them are – I guess, first off, take your question about is it generally clients with multiple products. I would say no. Generally, we're talking clients that have one main project that is their focus, and that is the project that is maybe impaired. Sometimes, there's just a restructuring of the project. So it's delayed and maybe reorganized in terms of how they're going to execute it to try to minimize spending over a period of time. Other times, it is stopped before we get patients in the trial. So I mean, we're talking about the things. You get an award and it takes quite a while to get to start-up. So most of these projects are not actively ongoing. There has been some sort of restructuring of projects that are ongoing. But generally, we're talking about things that have not yet enrolled a patient and looking out that they didn't close the funding they hoped they would, or looks not possible at this point. So you're right, there aren't many cancellations where it's at mid-stage, and of course, that's pretty unlikely unless the product itself is failing. But there's a lot of overlap there in terms of the client might think it's still a good enough profile, but you can get into a funding environment where – and this hasn't happened yet, but we're seeing that the data isn't looking as positive as they would like in order to raise the remainder of the program. So those things happen, too. But in general, we're talking about cancellations or restructuring of projects that have not entered the clinic, or if they are in the clinic already, are just restructuring how they're performing it.

Okay. And then my last question related to this is that slower growth in new business in a quarter might be reflective or might have an impact on revenue a little bit further out on the horizon. Cancellations, on the other hand, might have a little near-term impact. How should we think about the cadence of revenue through the year from here based on the updates you're giving us today?

I don't really see an impact on our cadence. I don't think we've given specific guidance. And I guess, I'll turn that back to Kevin. He wants to comment on that. But I don't think there should be a large disruption. We just wanted to signal the risks there. And I think the risks are mainly in that the funding environment continues to be bad. I mean, we think our current guidance is intact and we can execute on those assumptions currently. If for another six months, we continue to have the sort of funding environment we're in currently, I think that poses a real challenge for late in the year and next year. But I don't expect a big impact yet. And in terms of cadence, I don't – Kevin, I don't know if you wanted to comment on that.

Yes. No, just to kind of reinforce what August said, we do expect in the current environment revenue to grow throughout the year, to have some sequential growth quarter-over-quarter. Now, as you know, EBITDA for us can be very lumpy, but we do expect revenue growth throughout the year.

Great. I'll leave it at that. Thank you for the answers.

Thank you. And our next question comes from the line of Eric Coldwell with Baird. Your line is open. Please go ahead.

Thanks very much. A couple of questions here, maybe in a similar vein. First off, August, you mentioned that if the delays and cancellations continue for an extended period, you could see growth challenges to your growth plan in 2022 and 2023. But I'm sorry, 2023 and beyond. I'm not sure if the market is fully aware of what your growth plan is for next year. You've talked in the past about as long as the environment is strong, you could see 20% plus growth, but we know that's not currently the case. What is your outlook for growth in 2023 and maybe longer term? And I'm just seeing this in the context that the market is already modeling about a 10-point reduction in growth for next year compared to the growth forecasted this year. I'm not sure if you're signaling that's realistic or if you think it could be below where the market currently is.

Yes and we don't comment on future out-year growth until late in the year. We will then try to make sure that projections by analysts are informed by as much information as we can. But we don't really provide that for out years. We do have some internal plans, and we communicate that generally late in the year for the following year.

Okay. If I could go back to the cancellation, the dollar comments on four and a half months being greater than 2021. Could you give us some context of where the aggregate, either dollar volume or number of cancellations were last year, where they are now? Maybe put this in historical context with any numbers, so we could get a better sense of the magnitude.

Yes. No, I don't really have a number. Our formal cancellation rates are generally 4% to 5% for opening backlog in each quarter. I don't have – we looked back for comparative numbers because we are seeing an uptick and really signals from clients about wanting to restructure, delay or cancel projects specifically because of funding. They didn't close the funding, or are going to be unable to close funding, and that's not something we see too often. Because of that, we looked back specifically at those numbers and on the trend. And they picked up in the more recent six months and really took off in the first quarter and entering the second quarter of this year. So I just – I don't have specific numbers on those. We did look at that. We don't want to talk about the actual dollars of that component of total cancellations, but that's what I'm referring to. And I have not signaled an overall increase in backlog cancellations beyond our 4% to 5%. When that gets really out of range, we do comment on that also. So it's still within the usual sort of range that's in that 4% to 5% bound. If it's substantially more than that, we would call that out, also.

Okay. And then I think last one for now. In the past, you've talked about the backlog lagging RFP activity. And you've suggested, obviously, that it could take up to several quarters for RFPs to translate to backlog. Is there any availability to provide a mean or a median timeline, what an average or a range might be on translation of RFP activity to backlog and perhaps how that's – if it has, how that has changed over the last year or two?

Yes. And I don't think we'd see a meaningful change in the overall range. The range is quite broad. But I do think sometimes, there's a misperception that these are relatively quick events. Generally, we get RFPs, and you're not going to see any of that come into backlog in the quarter in which we see an RFP. In fact, very little of it would get into the next quarter as into backlog. We see RFPs, and some of them, we don't hear again for months and months, sometimes a year. Sometimes we get, and that's why I say I generally don’t like looking at RFP dollars as a very strong predictor of future events. I’ve said that before because sometimes, you get into a weak environment and you see a lot of RFP requests that are kind of fundraising planning or scenario planning. You can actually get a tick-up in RFPs when the environment is weak. It is a difficult measure. But we sometimes get an RFP, and the client goes silent for a year on us and then comes back. Yes, we finally closed on funding. It can be quite a while. Sometimes they don’t make a decision for a year or more. Sometimes they get the award but it's planned for quite a ways out. Of course, that doesn’t make it into our backlog, because we generally don’t have or very frequently don’t have the financing to begin it. That's part of the equation that they’re going to solve before they actually get to start-up. We want to see a patient ready to go into the trial before we really want to put that in backlog, and we have sort of a different client group. That can be many quarters. So the range is between a couple of quarters on the lower end to several quarters, even a few years on the longer end.

Okay. Thank you very much for all the details.

Thank you. And our next question comes from the line of Christine Rains with William Blair. Your line is open. Please go ahead.

Hi. Good morning. My first question is just an update on staffing overall as it relates to staff turnover and hiring. Specifically, staff growth was 24% last quarter versus 20% this quarter. Are you moderating your hiring plans at all or do you expect an uptick as the year progresses?

Yes. I’ll take that. This is Jesse. Thanks. The hiring in the first quarter was good. We added around 4% sequentially to the headcount growth. We still do plan to hire – try to hire at rates consistent with 2021, understanding that the first quarter was a little softer than we would have liked to keep up at that pace. But as we continue to progress through the year, we’re focused on both retention and on new hires to meet continued business demand in this current environment.

Great. Thanks for that. And then my second question is how much of your enrolled patients are in China and then the same for Ukraine and Russia? And is this disrupting your trial execution?

Very small percent in both places. We’re pretty well distributed across a lot of countries with the trials that we’re running. We don’t have any real concentration in the aggregate or in individual trials in either location.

Okay. Thanks. And then lastly, on the technology front, what are your clients asking for now versus a few years ago? And any specific tech areas of investment you want to highlight?

Yes. I mean, really, what’s important to our client base from a technology standpoint is that we have the appropriate tools and technology to conduct the trials that we’re involved in. Many of these tools are ones that we’ve had for quite some time, things like ePRO, eCOA, remote data capture, remote data review capabilities. Those are all important parts of how we conduct clinical trials. We are always investing in technology. And I wouldn’t say there’s any new area to highlight other than just we’re continuing to invest across the entire technology platform that we’re utilizing.

Okay. Thanks for the color.

Thank you. And our next question comes from the line of Paul Knight with KeyBanc. Your line is open. Please go ahead.

Yes. Thanks for the color around the stage of where your customers are delaying, I guess, is the word for it. Based on your experience of customers that are in clinical, what kind of growth do they typically step up to in terms of going from free to later stage? Is there a metric you think about in terms of growth?

I guess, I’m not understanding. What do you mean by growth? The growth of their outsourcing dollars? Growth of...

I guess, you know what in a way digging around what 2023 could be. I know you’re not guiding to it. But in terms of these customers that are in clinical trials, what would you expect their growth to be based on what you’ve seen customers do in the past?

Okay. So we don’t generally look at growth in specific customer dollar flow because our customer base is rather dynamic. In this industry, a lot of things drop out. So a client today has a product. It may not succeed at all, and the revenue goes to zero when this one study ends. A different client will be in the works for next year. So we kind of don’t follow that metric. So I do think growth, we’ve said before, in a very strong environment that we had last year, earlier last year was pushing growth above 20%. I think that’s possible if the environment comes back. In the current environment, that’s going to be challenging. There are real signs that a substantial portion of our client base is challenged at closing the financing to go forward with their clinical trials. I think that’s pretty much all we can say.

Yes. And then are you able to discern whether it’s the funding that’s public equity or in VC? Is there a difference in the tone in those two markets in your view?

I haven’t tried to sort that out, whether the – it’s kind of a mix of privately held and public companies that have had some financing problems of late. So I think it’s a mix. I haven’t looked at what percentage is which. But it’s both companies that are VC, funded or public market funding.

Okay. Thank you.

Thank you. And I’m showing no further questions at this time. I would like to turn the conference back over to Ms. Lauren Morris for any further remarks.

Thank you for joining on today’s call and for your interest in Medpace. We look forward to speaking with you again on our second quarter 2022 earnings call. Thanks.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.