Medpace(US:MEDP)2020-07-28 17:08Financial Data and Key Metrics Changes - Q2 revenue decreased by 4.3% year-over-year to $205 million, with a projected revenue reduction of 15% to 20% below plan due to pandemic disruptions [6][9] - EBITDA for Q2 was $35 million, down 12.9% from $40.2 million in Q2 2019, resulting in an EBITDA margin of 17.1% compared to 18.8% in the prior year [9] - GAAP net income was $24.1 million, down from $27.5 million in the prior year, with GAAP net income per diluted share at $0.64 compared to $0.73 [9][10] - Ending backlog as of June 30 was $1.3 billion, an increase of 14.6% from the prior year [9] Business Line Data and Key Metrics Changes - Net new business awards entering backlog decreased by 9% year-over-year to $254.1 million, resulting in a net book-to-bill ratio of 1.24 [9] - COVID-19 studies accounted for 11% of new business awards in Q2 and 22% of total award notifications, primarily representing treatment studies [8] Market Data and Key Metrics Changes - Lab sample volumes remain approximately 20% below pre-March 11 run rates, while physical monitoring visits are about 30% below levels prior to March [6] - The demand environment is stronger than indicated by reported new business awards, with many trials on hold awaiting a more stable healthcare environment [7][8] Company Strategy and Development Direction - The company plans to ramp up hiring in Q4 2020 and into 2021, expecting to return to a more normalized growth path in 2021 [6][7] - Heavy investment in hiring and training has depressed margins, but these growth costs are expected to significantly reduce in the second half of 2020 [6][7] - The company maintains a conservative backlog policy, not recognizing awards until studies start recruiting patients, which may lead to discrepancies in reported demand [8][39] Management's Comments on Operating Environment and Future Outlook - Management anticipates a lesser impact from COVID-19 in future quarters and expects to return to a more normalized growth path in 2021 [6] - The company is cautiously optimistic about the return of trials and recruitment, with many studies expected to move forward later in the year [26][27] - Management noted that operational issues are not a major factor currently, with recruitment being the primary concern [26] Other Important Information - The company ended Q2 with $160.9 million in cash, no outstanding debt, and $50 million of undrawn capacity on its revolving line of credit [11] - Updated guidance for 2020 forecasts total revenue in the range of $880 million to $920 million, representing growth of 2.2% to 6.9% over 2019 [12] Q&A Session Summary Question: Can you provide insights on the second half implied margin and hiring strategy? - Management indicated that pass-through costs would accelerate in the second half, impacting margins, but hiring would begin to ramp up as business moves forward [15][18][19] Question: What are the demand trends and proposal volumes? - Management noted that demand trends are better than new business trends imply, with many sponsors committed to moving projects forward despite delays [24][25] Question: How are operational constraints affecting study initiation? - Management stated that operational issues are not a major factor, with recruitment being the primary concern, and many studies are expected to move forward later in the year [26][27] Question: Can you clarify the severance charge and new headquarters expenses? - The severance charge for Q2 was $2.3 million, and additional rent costs for the new headquarters will be about $2 million quarterly starting in Q3 [29][32] Question: How is the competitive environment changing? - Management believes that the current environment has not led to significant changes in customer dynamics, maintaining a strong market position [34] Question: What is the stability of the backlog and internal churn? - Management confirmed that cancellations were up slightly due to COVID-19, but recent months have seen stability in backlog without significant additional cancellations [42]