Medpace Holdings, Inc. Common Stock (MEDP) Q2 2021 Earnings Call Transcript

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Medpace Holdings, Inc. Common Stock (MEDP -0.68%)
Q2 2021 Earnings Call
Jul 27, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Medpace second-quarter 2021 earnings conference call. [Operator instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference call, Lauren Morris, Medpace associate director of investor relations. Lauren, you may begin.

Lauren Morris -- Associate Director, Investor Relations

Good morning and thank you for joining Medpace's second-quarter 2021 earnings conference call. Also on the call today is our President and CEO, August Troendle; our CFO and COO of laboratory operations, Jesse Geiger; and our executive director of finance, 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 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 our 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 -- President and Chief Executive Officer

Thank you, Lauren. Good morning, everyone. In a press release issued yesterday, we announced several changes to our senior management team. Effective August 1, Jesse Geiger will be elevated to the position of president; and Kevin Brady will succeed Jesse as chief financial officer.

I will continue to serve as chairman of the board and executive -- chief executive officer. Jesse has served as our chief financial officer since 2011, and he expanded that role in 2014 to include the title of chief operating officer, laboratory operations. Jesse has played key roles during our rapid growth in the past decade, and we are fortunate to have his leadership to drive our growth going forward. Oversight of the operating activities of the company will increasingly be a shared responsibility of Jesse and myself.

Kevin has served as our executive director of finance and treasurer since joining Medpace in 2018 with oversight of the company's finance function. We are confident that Kevin's current and previous experience in public company finance will serve Medpace well in his new role. And now, I'd like to turn the call over to Jesse.

Jesse Geiger -- Chief Financial Officer

Thank you, August. And good morning, everyone. In the second quarter, the business and funding environment remains strong. We continue to see robust RFP flow, and our competitive win rate also remains strong.

We did see some improvement in site activity in the quarter despite COVID-19 challenges. Our revenue for the second quarter of 2021 was 278.3 million, which represents a year-over-year increase of 35.8%. Net new business awards entering backlog in the second quarter increased 52.5% from the prior year to 387.6 million. This resulted in a 1.39 net book-to-bill.

Ending backlog as of June 30 was 1.7 billion, an increase of 29.8% from the prior year. And overall, our COVID-19 related work represented only 2% of both revenue and net new business awards in the second quarter. We project that approximately 925 million of backlog will convert to revenue in the next 12 months. And backlog conversion in the second quarter was 17.1% of beginning backlog.

And with that, I will turn the call over to Kevin to review our financial performance in more detail.

Kevin Brady -- Executive Director of Finance

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was 278.3 million in the second quarter of 2021, which represented year-over-year growth of 35.8% on a reported basis, and 34.4% on a constant currency organic basis. EBITDA of 47.9 million increased 36.9% compared to 35 million in the second quarter of 2020. On a constant-currency basis, second-quarter EBITDA increased 41.5%, compared to the prior year.

EBITDA margin for the second quarter was 17.2%, compared to 17.1% in the prior-year period. As expected, EBITDA margin declined sequentially, reflecting increased costs related to the robust hiring. In the second quarter of 2021, net income was 39.9 million, compared to net income of 24.1 million in the prior-year period. Net income growth was primarily driven by higher EBITDA, as well as a lower effective tax rate.

Net income per diluted share for the quarter was $1.06, compared to $0.64 in the prior-year period. Regarding customer concentration, our top five and top 10 customers represent roughly 17% and 24%, respectively, of our first half of 2021 revenue. In the second quarter, we generated 62.8 million in cash flow from operating activities and our net days sales outstanding was negative 39.5 days. During the quarter, we repurchased approximately 343,000 shares at an average price of $163.61, for a total of 56.1 million.

We have 196.4 million remaining under our current share repurchase authorization. We ended the second quarter with; 339 million of cash, no outstanding debt, and 50 million of undrawn capacity on our revolving line of credit. Moving now to our updated guidance for 2021. We are now forecasting total revenue in the range of 1.11 billion to 1.15 billion for the full-year 2021, representing growth of 19.9% to 24.2% over 2020 total revenue of 925.9 million.

Our 2021 EBITDA guidance is unchanged in the range of 205 million to 215 million, representing growth of 9.2% to 14.5%, compared to EBITDA of 187.8 million in 2020. We anticipate our 2021 effective tax rate to be in the range of 11 to 12%. We have assumed 37.7 million fully diluted shares for 2021, and there are no additional share repurchases in our guidance. We forecast 2021 net income in the range of 162.5 million to 169.5 million, and earnings per diluted share in the range of $4.31 to $4.50, with the increased expectation for net income and earnings per diluted share driven by the anticipated lower tax rate.

With that, I will turn the call back over to the operator, so we can take your questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of John Kreger from William Blair. Your line is open.

Justin Lin -- William Blair -- Analyst

Hello. Good morning. This is Justin Lin speaking on behalf of John Kreger. So just, I guess, a quick question on margins.

So we see the margins were softer in Q2 than we expected. I guess how is it trending versus internal expectations? And what exactly is causing the pressure, in addition to the increased hiring pressure? Thank you.

Kevin Brady -- Executive Director of Finance

Yeah. Justin, this is Kevin. I would say that overall, it is in line with what we were expecting. As we had stated in the first quarter, we were anticipating some robust hiring carryover from the first quarter and further into the second quarter.

Justin Lin -- William Blair -- Analyst

Got it. Thank you. And I have a second one, if I can squeeze that in. So just a question on your DCT capabilities.

Currently, I guess, what percentage of your clients are asking for this? And how do you feel about your current capabilities to enroll, interact with, and monitor patients remotely?

Jesse Geiger -- Chief Financial Officer

Yeah, Justin. Decentralized trial is really a function of -- component of a lot of different trials. I don't have an exact percentage, but we're operating well in a hybrid environment with our activities being somewhat in-person visiting sites and somewhat remote-based monitoring, as well as utilizing technologies wherever we can to connect directly with patients.

Justin Lin -- William Blair -- Analyst

Sounds good. Thank you.

Operator

Thank you. Next question comes from the line of Dave Windley from Jefferies. Your line is open.

Dave Windley -- Jefferies -- Analyst

Hi. Good morning. Thanks for taking my question. I wanted to ask, in broad terms, if there are factors that are limiting your ability to execute work, and the spirit I'm trying to get at, based on the demand, based on the backlog that you have, could you be growing even faster? It was obviously very fast growth.

If sites were fully open, or if you were able to hire faster, are those rate-limiting steps? Or are you basically keeping up?

August Troendle -- President and Chief Executive Officer

Yeah. Dave, maybe I'll take that question. Yes, look, I think we're keeping up well. But we -- it is a robust environment, and opportunities are plentiful.

And so we have been a fair amount more restrictive or selective in our choice of programs to go after. So yes, I think there are opportunities to grow faster if we were to approach other companies, but we'd have to scale more rapidly. And of course, we want to scale in a controlled way. And so I think the environment is, in that way kind, of overheated.

But we will -- have found that we can grow at this rate, roughly 20-plus percent, and I think that's sustainable for -- while this environment lasts

Dave Windley -- Jefferies -- Analyst

That's very helpful, August. Thank you. In your restriction, are you -- maybe it's all of the above. But are you limiting on more attractive margin, or less likely to cancel? Or what are the factors that are influencing what you take and what you pass on?

August Troendle -- President and Chief Executive Officer

Yeah. I mean, it's -- there are a number of factors, but critical is the likelihood of -- we feel, a likelihood of the program progressing. So yes, lack of cancellation risk. Good, solid science looks like there's further program ahead.

So we may bid on a study that's phase two, but we think there's a phase three program opportunity ahead. But it's relationship with the client is also critical, you know. So prior relationship, obviously, takes higher priority than one that we don't have a relationship with. So it's multiple factors, but generally, what the future potential is for that client.

Dave Windley -- Jefferies -- Analyst

Very good. Thank you. And on the labor side, you had signaled that you would be hiring fairly aggressively. It sounds like that did happen.

Is that a pace that you expect to either continue at or accelerate from for the rest of the year? And then would you describe the cost pressure in the quarter from that labor, is it simply volume of hires, or are you also seeing some wage rate pressure that is influencing that cost line? Thanks.

August Troendle -- President and Chief Executive Officer

Sure. We're continuing to hire, in line with the first two quarters. But late in the year, it does get a little bit more challenging in terms of adding staff just seasonally. But Jesse, go ahead.

Jesse Geiger -- Chief Financial Officer

Yeah, no. You hit it August. Yeah, we continue to -- plan to continue hiring at a pretty good pace as we move through the year as best as we can. From a cost pressure standpoint, it is a competitive market.

As August mentioned earlier, we are seeing some pressures there. So it is a function of both the volume of hiring and some wage rate pressure, which is both factored into our guidance range.

Dave Windley -- Jefferies -- Analyst

Got it. And then last question for me. Appreciate the update on the management progression. Congrats to those with promotions.

August, I wondered if you'd be willing to comment on, if this influences any -- very significantly, your thoughts about your longevity in your current role, or not? Should we read anything into the announcements yesterday? Thank you.

August Troendle -- President and Chief Executive Officer

Yeah. Well, I think what you should read in the announcement is I feel comfortable that if I were to step away, that the company would be well-handled. So I think there isn't a concern of whether I stay. But I have no near-term expectation of leaving my role as CEO.

And even when I do that, I would, you know, continue my involvement with the company, I think. So yeah, so I think it's a longer-term planning and growth of staff that we have.

Dave Windley -- Jefferies -- Analyst

Very good. Thank you. Appreciate it.

Operator

Thank you. [Operator instructions] Your next question comes from the line of Sandy Draper from Truist. Your line is open.

Mitchell Ostrovsky -- Truist Securities -- Analyst

Hi. This is Mitchell on for Sandy. Thanks for taking my question. I think you guys have answered it pretty well because it was mostly around the wage inflation.

But I'm just wondering if you could add anything else to how you're going about the hiring environment, and like what you're doing to recruit and retain people differently, I guess, nowadays?

Jesse Geiger -- Chief Financial Officer

Yeah. Thanks, Mitchell. The approach to hiring is pretty consistent with what we've done in the past. We target new hires, new grads, a lot of folks fresh out of school.

We target people with experience in healthcare background. But really, just more attention companywide in each area to the numbers that we need to add to different departments to keep up with the continued growth. So it's a heavy area of focus, but we really haven't changed on strategy as it relates to hiring. And then on retention, we're deploying a number of different strategies, making sure that compensation is well-aligned with the market.

And then also the hiring also helps with retention of those that are dealing with the volume of work that we have right now.

Mitchell Ostrovsky -- Truist Securities -- Analyst

Got it. Thank you.

Operator

Thank you. And I would like to turn the call over to Lauren Morris for closing remarks.

Lauren Morris -- Associate Director, Investor Relations

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 third-quarter 2021 earnings call.

Operator

[Operator signoff]

Duration: 21 minutes

Call participants:

Lauren Morris -- Associate Director, Investor Relations

August Troendle -- President and Chief Executive Officer

Jesse Geiger -- Chief Financial Officer

Kevin Brady -- Executive Director of Finance

Justin Lin -- William Blair -- Analyst

Dave Windley -- Jefferies -- Analyst

Mitchell Ostrovsky -- Truist Securities -- Analyst

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