MEDP - Earnings call transcript Q4 2017

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Operator

Good morning and welcome to the Medpace Fourth Quarter and Full Year 2017 Earnings conference call.

Before we begin, I will read Medpace’s Safe Harbor regarding forward-looking statements.

During today’s call, management’s 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 the company’s future results to differ materially from management’s current expectations, including those discussed in the Risk Factors section of our Form 10-K for the year ended December 31, 2016 filed with the SEC. Management disclaims any obligations to update forward-looking statements in the future even if estimates change. rely views of after as not as forward-looking today. should management’s representing of you on today’s any statements Accordingly, any date

financial at Relations The to most to call. on slides are directly With section now During to of will GAAP call measures such slides will website presentation management as Medpace Dr. comparable press financial measures. an release available non-GAAP President earnings over attachment non-GAAP Investor today’s with and Officer the turn the its Troendle, this connection Dr. Chief available of earnings remarks. A please investor.medpace.com. Troendle, provided to call I be that, Executive company’s measures in the opening begin. is reconciliation for the call, certain referring and August

August Troendle

Good finish of Medpace $XXX.X ended Thank at business on With of sequentially quarter XXXX fourth call. and Chief Financial bill with a Chief book everyone XXXX a Medpace’s in Officer the Jesse our welcome to were to a entering net me full-year and backlog awards fourth Geiger, Labs. ratio day and year. you, Officer Operator. resulting up in new quarter million, earnings the is call to X.XX. Net challenging strong Operating

in few I revenue bookings. for review revenue another of presentation growth a If and believe our range, of XXXX, We anticipate XXXX to through year X.X% guidance full anticipate of a XXXX advance. growth service XXXX. service compared few will of will in Medpace industry to full CRO XXXX At basis ratio new up years I rate growth with and QX rate. to represent stable net sequential guidance our X.X% of in the X organic basis we XXXX achieved, space. was reasonably on organic each backlog the comments organic was improving we book year of industry midpoint represent an ASC to anticipate a share above on earnings of up the also Our higher gain two XXXX. business like service on revenue X.X% in result years. our XXX for in all Jesse same conversion quarter but a compared XXXX outgrew our make I as of revenue a few for and shows minutes, year would bill awards over the in terms dollar Slide improved the accelerating this I an and growth past the than clinical organic industry basis, believe by next

FX and strong will XX% will leading and factors unfavorable should XXXX XXXX business be margin, unfavorable bonus is costs and are increasing XX% also which a anticipate such be resulting we XXXX adjusted impact in expecting the margin made approximately points. are XXXX. XXXX income points. higher to the for expanding impact calendar which in and the rates compared year Three, reflected taxes; have XXXX. many when our viewed adjusted to our driven substantially enhancing as in or rent Two, XXXX however, will EBITDA compared focus the physical and XXXX, in had accrual reducing investments year. and - of financial costs XXX than will XXX relative One, by largest XXXX our - exchange on rate of performance and XXXX to points The lower XXXX. lowering four related more overstatement be from infrastructure following margin increased XXXX that XXXX to basis bonus put an our budget - foreign margin globally XXXX XXX relative and down a reduction to adjusted to primarily properly effect to more representative This than XXXX. in anticipate I as in net XXXX on on in growth several pressure plan that decrease bonus a planned basis our we results in infrastructure know year to in due flat This be We to by factors our observers relative question an of XXXX in to our basis XXXX locations development XXXX margin in XXXX to EBITDA about of

that than years. to wildcard are relatively is and XXXX likely be in exchange I what and our thus moderate drivers to performance facilities review continue for represent expanding headwind guidance our of beyond in be rates these Without I the at, Future reason margin development are in have tailwind we uptick have XXXX development in and I or activities fees costs a in usual, every a that persistent were for will for to - or responded will a period excess to levels. BD depression but will to will labor our changes no financial believe for pay Four, costs in how the the also U.S., Jesse a service core relative above years. level in a margin, A neutral; business future and have that in therefore, follow-up are our on case adjustments margin specific salary, XXXX. particularly and bonus, have guidance budget with the to question of anticipated more rates the increasing We contracted and infrastructure, the and in XXXX headwind detail have and in be cannot now be years, costs reason sustainable to future the market-driven forward, few expected going rates salary margin. costs tailwind XXXX essentially an some to seen many say bandwidth giving is predicted, margin accelerate will permanent more can business the believe proportion average next growth. to exchange upward rates

Jesse Geiger

Thank to everyone listening you, good August, and morning in.

X, Moving quarter million million Full-year X.X% was and financial which in $XX.X service XXXX. of key X was XXXX. now in Adjusted from to million XXXX EBITDA $XX.X million of Slides net quarter, revenue XXXX. and the on growth increased represents fourth compared $XX to $XX.X from our to highlights service the net quarter million X.X% revenue fourth $XXX.X the of in trends fourth

corporate Adjusted in margin XXX in margin EBITDA closing was quarter XX.X% to for compared in versus points XX%. This compared payments attributable adjusted the full XX.X% employee $XXX quarter of net with to GAAP XXXX lease $XX.X EBITDA of Adjusted fourth in primarily includes income for period. basis loss decline offering. prior campus the Our the the transaction fourth In of adjustments the related prior Full-year and year quarter declined costs. was our costs calculation million net XXXX, for the associated adjusted secondary EBITDA our XXXX. million year to of related the $XXX.X million $XX,XXX of we to was GAAP year higher had EBITDA of period.

growth net to X.X% net million income net adjusted higher For of XXXX. driven in income the full in net $XX.X XXXX. income in of XXXX, compared by of million income was revenue Adjusted million year offset compared quarter the $XX.X $XX.X costs. Full-year was employee $XX.X GAAP partially increased $XX.X primarily million million fourth $XX.X income X.X% XXXX. increased to of growth to related GAAP million net XXXX quarter by fourth Adjusted the in compared

the year Our a net to GAAP prior loss net $X.XX of for GAAP income period. was the in diluted quarter share per $X.XX compared

For per versus net the full year in per $X.XX. XXXX, income net of share share diluted adjusted XXXX. share income diluted of $X.XX XX.X% per GAAP diluted $X.XX quarter XXXX Fourth XXXX net per was quarter share fourth grew GAAP income $X.XX net adjusted to of compared diluted income

results. in to For per adjusted XXXX diluted the the full Jobs XXXX, the assets Tax tax financial XXXX. year provisional foreign deferred related to other was quarter per of $X.X deferred and un-repatriated our compared Cuts $X.XX full transition Act and miscellaneous net revaluation The liabilities, GAAP benefit on impacted tax of the share million one-time We U.S. year recorded fourth and and attributes, credit, a $X.XX diluted tax share and earnings. income tax

was XXXX effective Our rate XX.X%. year full tax

on our see to portion continued area. therapeutic serving our customer we mix regard that further total bio-pharma and tax of our segment within XXXX impact a have where growth. large of for by for was focused customers the XXXX the remain market midsized and both a core and provided tax XXXX. concentration of was our revenue remains key oncology, Excluding X, XX.X%. customer we a Slide year breakdown by Full rate market business On of small effective growth growth by largest reform, our revenue represent size, driven we categories opportunities of our across three primarily which With

quarter cash quarter and and both with compared an in maintained total to the operating a Regarding X.X top days year cash fourth accounts increase the we a year full schedule third to respectively top free flow customers prior of our X.X quarter, five receivable. conversion and fourth XXXX from increased roughly million year. periods. leverage as mix concentration, compared and to customer well our $XX.X XX% the our and our of XX summary revenue liquidity outstanding day XX% activities sales provides in net for generated days we Slide X from we’ve as positions In the the of as experienced our a diversified well representing flow for trade

was of gross cash of $XXX.X net million at $XX.X million $XXX.X year-end debt million. position and composed of Our debt

X.X leverage net times is EBITDA. approximately ratio XXXX Our adjusted

today Cinven per share we XXXX The on terminated contributed authorized program $XX in X repurchase up million the XXX, guidance we in repurchases. based has to per directors recently repurchased in quarter, our share the The and quarter. shares approximately $X.XX for fourth our from are earnings share with These fourth XXXX is to share new we reporting. in During board initiated presenting $XX.X million the quarter, consistent that million. share repurchases XXXX ASC of

new will Before we revenue guidance, the ASC I standard, XXX. XXXX discuss address

completion standard, January required direct costs be and provide expenses agent single expenses recognized. revenue, behalf an inclusive to fees item acts will the line costs out-of-pocket revenue percentage paid of is performance when associated revenue recognize related direct costs to will a these are do paid single to timing service new to and separate could XXXX, we other a with a between as X, obligation, be customer. on associated as revenue there within revenue breakout As the will the a presented of We out-of-pocket be and of company on from when this costs. to reimbursed and revenue, a of although difference all revenue Under of where fees within arrangements incurred reported reimbursed be investigators, plan the and basis investigators

the begin using our XXX ASC modified retrospective adopted quarter with reporting will the have under beginning this approach revenue new first results. We standard and reporting of XXXX

We as be but so be will also will we be XXXX that a XXX, we were ASC restating throughout XXXX on still basis. if under not reporting XXX made can statements financial under comparisons providing XXXX consistent disclosures ASC

XXXX, we $XXX established on year revenue EBITDA our X.X% organic range continued XXXX pressure. of are newly full XXXX, anticipated service adjusted on ASC $XXX the revenue net in to to Despite XX.X% the forecasting Slide net now for million guidance million. basis $XXX.X over Moving growth, revenue service are of for as XXX growth we this to of representing X, expecting shown an million

this Compared in EBITDA to million range X.X%. million. is $XXX adjusted flat range the XXXX to is XXXX, Our of expected full down year $XXX to

impact EBITDA As this range. number a August mentioned, an items on of having there are suggested

our the of in we a XXXX in resulting the on are EBITDA guidance growth XXXX and compared tailwind perspective, balanced This expect adjusted XXXX a more currency slightly our well translates to average year, of full-year an From the EBITDA investments into in growth to cost end revenue and EBITDA headwind continued our second assumption exchange back-end range guidance quarterly assumes the to fairly that X.X% of and these basis the rates. XX.X%, is weighted throughout people is a Considering revenue to towards range of adjusted revenue currency assumptions, growth January. X.X%. of half facilities phasing company We the weighted constant than is for position be at that adjusted and in exchange cadence X.X% making revenue. growth rates and to XXXX down

$XX.X an diluted XXXX recent effective the a positive and to million We have range U.S. of share, turn in of be of reform XXXX we to income questions. XX% GAAP our representing million, we $X.XX company $XX.X the we expect $XX to per will to forecast income to forecast With $X.XX so of XX.X% range the growth on share in rate to earnings that, GAAP XX%. We XXXX to XX.X%. the range to adjusted to the net over representing in anticipate impact I the $XX back Operator and of tax can of X.X% is $X.XX million million growth diluted and tax $X.XX. the range to net in call On expected adjusted per your basis, the take XX.X%

Operator

is [Operator instructions] The Jefferies. from first Windley question Dave of

line Your is open.

Dave Windley

good morning. my Thanks for questions. Hi, taking

EBITDA The come first that you you it one, accrual, identified, as insomuch pressures back at XXXX, and I for the seeing come talked have brought comparison been year-over-year the I that more. a the would about bonus down bonus think margin XXXX down that different basis. accrual in XXXX guess, not slightly that questions perhaps talk on outperformed wanted If you you’re I way. there to a could have the and to and about margin headwinds and August, that ’XX, if that about wasn’t, to

August Troendle

In ’XX by a ’XX, it amount? to relative why large such down was

Dave Windley

Right, exactly.

looking but you XX, have then as I’m at, accrued had change full ’XX been if you bonus. XX.X% would and it XX and So in like, said,

August Troendle

Sure.

- the the of partially was Some and same factors ’XX. change FX between ’XX are there

was of you the under-appreciated. rather FX maybe It number amount - think do tailwind Jesse, I have is from the on--? substantial

Jesse Geiger

headwind little million year, for a EBITDA over so full Yes, XXXX a dollars.

August Troendle

any expand with guess how for as had and relatively stated that our the it’s--then we that’s which led for we’d reduced to picking to we’ve and anticipated we of staff on to that question anticipate know, rate before maintain basically we at that employee was date but--. going larger still forward, headwind. we that guess accelerating a budgeted but overhang the I little original the decided unwind with employees relative fixed of is growth, least and probably wanted we’ve the capacity different any a budget changing we’d portion initiatives to the had so revenue In action bid a If approaches I I our make a large, do not employee have if all. up, our substantial discouraged we’ve--I had--you revenue base for that more our at of not XXXX to I rapidly. efforts to Okay, which perhaps guess has largest rein come in some that had generating before, revenue taken not course back, is and of really one stated to very guess to we’ve in and so environment, business. guess we came activities business the larger expanding and year, and biotech substantially we down a revenue different development cost. we’d growing our

Dave Windley

little Okay, employment will the the or August, like, first revenue are Then maintaining Thanks. still half to year if a that ramp, RFPs changing, in rate that, about so to still you’ll - is sounds leverage of you that see One, question, that’s investing comments your true wanting enough bit could. your point that for is two follow-ups of XXXX better see and XXXX, RFPs, it in second me? confirm revenue new you’re to to revenue, the your traction it more business need rate comment capacity Jesse, an win win base I on your that that regard, in you and your is course for over dropping? cadence seeing relation, the versus based that labor about in

August Troendle

year, a been of infrastructure not matter so problem. our incoming that. expand decided the has appropriate stable managing finding catchment to selecting really we’ve has that so opportunities, in the really around a past rate to It’s and win been of opportunities Our pretty up and

Jesse Geiger

with point revenue the spoke percentage do at increasing a costs, salary so question want we as That’s of even maybe from as a cost be that we and had though to I outset, during during relative we into salary Dave, cost through back to bit ’XX pressures enter mix base but this XXXX. a do XXXX, that as your XXXX employee than to back substantially and market out, hiring in as little ’XX plan about XXXX. ’XX, your of a slightly down will we on those to a ’XX, had that function more to we higher was do is to heads; headcount so well standpoint go as experienced August continuing comment build we relative gets some cost we XXXX build

Dave Windley

you. Okay, thank

Operator

John Thank Kreger Blair. from William of you. The is question next

open. is line Your

Jon Kaufman

the morning, Kreger. of mentioned perhaps as RFPs? service towards second is describe finding in shift for Can model, clients FSP John in this opportunities. a a with a Jon maybe are Good Is and result model you Medpace and a to more seeing this and an Kaufman full becoming willing less that ago fewer selecting work guys you on detail? more August, little you just matter just

August Troendle

Sure.

use toward any generally know, really - full a haven’t I client but our We nearly movement and seen service, factor exclusively any that’s finding use might companies it. the That some exclusively companies larger so some they’re material or larger to and customers not ones. to in may on of manage not right margin, FSP that base being increasing the do able don’t is FSP, FSP. It’s be Maybe of an the of number select really a opportunities and extent. matter and smaller

Jon Kaufman

then and Okay, just great, one follow-up.

funding obtaining or to In our level you data environment, your right the issues seeing terms robust. you Are of of appears now? being perspective pretty be guys to clients pay macro funding biotech from with the any able

Jesse Geiger

from There’s From year. last state, to a funding a - time it bad was the this we’re a returned steady the in no the not much has has credit a year. portfolio credit keeping that over more of had to the improved much we certainly debt from an a actually, the quality fourth standpoint, quarter. expense portfolio improved standpoint, little bad the payment we couple had what Yes, debt on, existing environment also but of in always eye

Jon Kaufman

Okay, you. great. Thank

Operator

from next Baird. Coldwell of Thank The question you. is Eric

open. Your is line

Eric Coldwell

mismatch you your thanks. and maybe and on and exposures those expense biggest two and euro us? is side, in the currency Jesse, pound the for quantify Hey, could revenue

Jesse Geiger

XX% our the of driver, standpoint, of in the is cost is cost about is XX% it of other About and pound, cost and XX% currencies, and ex-U.S., and On a side euro. more Yes, is of is in about is on than is roughly X%. total X% XX% biggest cost which the our revenue ex-U.S. none that most Eric. currencies, represent of euro

Eric Coldwell

thanks. Okay,

the just this other impact I’m revenue impact or investments perhaps is, the much. EBITDA you were you hoping one workforce in of the people of leverage, of that FX the of are through in the explain gears, very think greater off help it. so headwind, labor remaining and BPs. actually XXX offset Shifting areas I improvements labor imply the actual for in are gut productivity investments and some that would little Thanks a headwinds point some bonus, is the basis being on like might that terms but on XXX those combination year. years you of we us total what see BP in to the XX could quantify margin those, think of My

August Troendle

that. that don’t right of provide, know, negative. don’t magnitude utilization that There - there staff, I little a some of a eats little better up of you’re is bit going but with of have on. think bit of--you here the that to a I unwinding and But us is on additional we have

Jesse Geiger

and are it. But more total, you’re there are Eric that three - than some the positives right, offset those

Eric Coldwell

Okay, thank you.

Operator

Thank you.

do next one As if question, have then from Hooker a a question please your is The you Donald touchtone Keybanc. on press reminder, star telephone. of

Your open. line is

Donald Hooker

morning. Great, good

recognize given that the earlier I was how the know guys really think mix. as wondering when portion three I Has in mentioned I had projects you you and You extends in cap recognized how me that of there, you’ve business on, you’re are much of call that then oncology. length oncology so trial average big and years, impacted that you conservative in think about but won a clinical increasing and working pick-up backlog, your you at anything backlog, the business remind beyond I’m what the

Jesse Geiger

cap back percentage held that it big time at amount is You’re total three-year as right, three Don backlog. - portion a that The of a we’ve years. we beyond not the active do of

- within growth bit has does the right in is have on an little of in You’re general oncology but timelines the average which increased duration. trials, elongating three-year still a in effect

Donald Hooker

helpful. Okay. That’s

technology in outlook look Just I proactively XXXX, I kind think manage things parts your checking labor given think guys for are when that us margin as who for around some changes. I that changing of margin, that like and EBITDA about focus to you you gross how about that, on that on do use of ways for gross there the Then can investments mix and those if about your into XXXX, next think of of staffing different year? and

Jesse Geiger

to areas individually Sure, about I we’re direct efficiency, bridging for be to continuing from XX% point a margin. of really that our that that number in throughout platforms to driver out margin expect business the and so year, we and of evolve would think we as large and are but percentage to would There a in do be cost margin would range the our nothing XX% XXXX. gross system in SG&A balance efficiency the year be this

Donald Hooker

guidance? question flow think then do last EPS you’ve about and XXXX Do buying repurchases I in stock. share back cash been your you and your Okay, from assume good when have EPS guidance, you me,

Jesse Geiger

not. do We

and share of depends market fully include million any we and does number guidance not buybacks. assuming a upon the on including assumed when if factors, Really, We’re act conditions. authorization diluted our XX.X shares, would

Donald Hooker

very you much. Thank

Jesse Geiger

Thanks Don.

Operator

back further over the no There for are I’d you. turn closing Thank in call questions queue. to remarks. like

August Troendle

interest forward us well on Thanks. call. and everyone in again look first speaking your All on to We to earnings our call Medpace. quarter thank our joining you right, for you

Operator

today’s gentlemen, and this Thank Ladies you. concludes conference.

may disconnect. You Good now everyone. day,

Medpace (MEDP) 27 Feb 182017 Q4 Earnings call transcript