Good day, ladies and gentlemen, and welcome to Medpace's 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. If anyone should require operator's assistance, please press star then zero on your touchtone telephone. 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 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 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 gonna provide a quick update on the business environment. 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 4.5 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 2022 revenue and profit to 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. Jesse?
Thank you. 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. Our 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. Kevin?
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 purchases during the quarter benefited EPS by $0.06. Regarding customer concentration, our top 5 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 -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-$1.46 billion, representing growth of 22.6%-27.8% over 2021 total revenue of $1.142 billion. Our 2022 EBITDA is also unchanged and expected in the range of $262 million-$278 million, representing growth of 17.4%-24.6% compared to EBITDA of $223.1 million in 2021. This guidance assumes a full year 2022 effective tax rate of 13.5%-14.5% and 35.6 million fully diluted shares for 2022. There are no additional share purchases in our guidance.
We forecast 2022 net income in the range of $204 million-$216 million. Earnings per diluted share is now expected to be in the range of $5.72-$6.06 to reflect the share purchases in the first quarter. With that, I will turn the call back over to the operator, so we can take your questions.
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? I'm sure the canceled ones you've treated as cancellations. The delays, how are you treating the delays?
Sure. I mean, a delay wouldn't change its status. You know, some of these things are awarded, and you know, all the revenue isn't necessarily in backlog. You know, our policy on backlog is pretty late, and there are, you know, stages to it. It's handled, you know, just as any other project. A delay, until it's a cancellation, wouldn't be pulled out of backlog, you know, as a general policy. It would just stay wherever it was in the pipe. Yeah, further, you know, detail on it, I don't know what other detail I'd give you. You know, it's kinda, you know, sporadic and across the therapeutic areas.
There's no, like, particular focus or anything like that. It's not highly concentrated in a single client or two, you know, but there's just, you know, evidence of considerable strain in a segment of our clients.
Okay. I think one of the arguments that we hear posed is that these pre-revenue biotechs that you work with a lot are kind of, you know, exist for the purpose of developing a new drug and moving that through the pipeline. I guess if there's no money, but is there any perspective on, you know, they have two programs, and they're canceling this one that you have to focus on the other. You know, how are they canceling something that's in clinical with you, I guess, is what I'm trying to get at.
Okay. Some of them are, well, 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 gonna execute it to try to minimize spend over, you know, a period of time. Other times it is stopped before we get patients in the trial. I mean, we're talking about, you know, the things, you know, you get an award, and it takes quite a while to get to start up.
Generally, most of these projects are not actively ongoing. You know, there has been, you know, some sort of restructuring of projects that are ongoing, but generally, we're talking about things that have not yet, you know, enrolled a patient and, you know, looking out at, you know, they didn't close the funding they hoped they were going to or.
Right
You know, looks not possible at this point. You're right. There aren't many cancellations where, you know, it's a mid-stage and the product. Of course, that's pretty unlikely unless the product itself is failing. You know, there's a lot of overlap there in terms of the client might think it's still good enough profile, but you can get into a funding environment where this hasn't happened yet, where the data isn't looking as positive as they would like in order to be able to do the raise for the remainder of the program. Those things happen, too.
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. My last question related to this is, the like, slower gross new business in a quarter might be reflective or might have impact on, you know, 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?
Yeah, I don't really see an impact on our cadence. I don't think we've given, you know, specific guidance, and I guess I'll throw that back to Kevin if he wants to comment on that. I don't think there should be a large disruption. You know, 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 in place, and we, you know, can execute on those assumptions currently.
You know, it's if for another six months we continue to have the sort of funding environment we're in currently. I think that you know that poses a real challenge for you know late in the year and next year. I don't expect a big impact yet. You know, in terms of cadence, I don't know you know Kevin if you wanted to comment on that.
Yeah, no. You know, just to kind of reinforce what August you know said, you know, we do expect you know in the current environment you know 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. 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 cancels continue for an extended period, you could see growth challenges to your growth plan in 2022 and 2023, but, or I'm sorry, 2023 and beyond. I'm not sure The Street 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 a strong funding environment, you could see 20%+ growth, but we know that's not currently the case. What is your outlook for growth in 2023 and maybe longer term?
You know, I'm just saying this in the context of The Street 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 Street currently is.
Yeah. We don't comment on future, you know, out-year, you know, growth until, you know, late in the year. We'll then try to make sure that projections by analysts are at least, you know, they're informed by, you know, as much information as we can. I, you know, we don't really provide that for, you know, out years. We do have some internal plans, and, you know, we communicate that generally, you know, late in the year for the following year.
Okay. If I could go back to the cancellation, the dollar comments on 4.5 months being greater than 21. Could you give us some context of where the aggregate, either dollar volume or number of cancels were last year, where they are now, maybe put this in historical context with any numbers, so we could get a better sense on the magnitude?
Yeah, no, I don't really have a number. You know, our formal cancellation rate's generally 4%-5%, you know, for opening backlog in each quarter. I don't have. You know, we looked back for comparative numbers because we were seeing an uptick in early signals from clients about wanting to restructure, delay, or cancel projects specifically because of funding. They didn't close the funding or gonna be unable to close funding. That's not something we see too often. Because of that, you know, looked back at specifically those numbers and, you know, and the trend.
You know, they ticked up in, you know, through, you know, the more recent, you know, six months and, you know, has kinda really took off in, you know, the first quarter and, entering second quarter of this year. I just have, you know, I don't have specific numbers on those. We, you know, we did look at that. We don't wanna talk about actual dollars of that component of total cancellations, but that's what I'm referring to. I have not signaled an overall increase in, you know, backlog cancellations beyond our 4%-5%. Now, when that gets really out of range, we do comment on that also.
It's still within the usual sort of range, you know, that's in that you know, 4%-5% bound. If it's substantially more than that, we would call that out also.
Okay. Then for, 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? Perhaps how that's, if it has, how that has changed over the last year or two?
Yeah. I don't think we'd see. I don't know. I haven't looked at that metric, but I don't think we'd see probably a change in the overall range, you know, meaningfully. You know, the range is quite broad. I do think you know sometimes there's a misperception that you know these are relatively quick events. You know, generally we get RFPs, and you're not gonna 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 you know back into backlog.
You know, we see RFPs and some of them, you know, we don't hear again for months and months, sometimes a year. You know, that's why I generally don't like looking at RFP dollars as a very strong predictor of future events, and you know, 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, you know, scenario planning, and so you can actually get a tick up in RFPs when the environment is weak. So, you know, it is a difficult measure.
We sometimes get an RFP and then the client goes, you know, for our client group, it isn't, this isn't like large pharma. I mean, large pharma, I think they send an RFP. They have an intent to do a program. There's generally a timeframe that's relatively short over, you know, months in which they're planning on, you know, going forward with this project. They're gonna give an award, and it's gonna go towards startup. You know, the things can happen in an interim, and they can reprioritize and, you know, there could be manufacturing problems or whatever, but it's generally pretty reliable. In our clients, a good segment of our clients, this is not very reliable.
We get an RFP and that may be so that they can then go back and start looking for funding, which can take years. I mean, we get an RFP and, you know, they go silent for a year on us and then come back, and yeah, we finally closed on funding. It is quite a while. Sometimes they don't make a decision for a year, as I say, or more. Sometimes you know, they give the award, but it's planned for quite a ways out. Of course, that doesn't make it into our backlog because our clients generally don't have or very frequently don't have the financing to do it. That's part of the equation that they're gonna solve before they get, you know, before they actually, we get into startup.
We wanna see a patient you know ready to go into the trial before we really wanna put that in backlog. It's because we have sort of a different client group and is why. That can be many quarters. The range is between you know a couple of quarters on the sort of low end to many quarters you know a few years on the longer end.
Okay. Thank you very much for all the details.
Thank you. Again, if you have a question at this time, please press star then one. 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?
Yeah, I'll take that. This is Jesse. Yeah, 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. 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. My second question is, how much of your enrolled patients are in China? The same for Ukraine and Russia. 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, you know, in the aggregate or in individual trials in either location.
Okay. Thanks. Lastly, on the technology front, what are your clients asking for now versus a few years ago? Any specific tech areas of investment you wanna highlight?
Yeah, I mean, really what's important to our client base is, from a technology standpoint, is that we have, you know, the appropriate tools and technology to, you know, conduct the trials that we're involved in. Many of these tools are ones that we've had for quite some time. You know, things like ePRO, eCOA, you know, remote data capture, remote data review, capabilities. You know, 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.
Great. Thanks for the color.
Thank you. Our next question comes from the line of Paul Knight with KeyBanc. Your line is open. Please go ahead.
Yeah, thanks for the color around, you know, the stage of where your customers are delaying, I guess, 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 pre 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 is-
What I guess you know what I'm 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?
We don't generally look at the sort of growth and specific customer dollar flow 'cause our customer base is rather dynamic. You know, in this industry, I've seen a lot of things drop out. A client today has a product, it may not succeed at all. You know, the revenue goes to zero when you know, when this one study ends. A different client, you know, will be in the works for next year.
We kinda don't follow that metric on, you know, I guess you could look at, we could look at certainly some of our largest clients and how they, you know, go over time, but, we don't really use that as a metric. You know, I do think, you know, growth, we'd said before in a very strong environment that we had last year, earlier last year, you know, was pushing growth above 20%. I think that's possible if the environment comes back. In the current environment, that's gonna be challenging.
It's, you know, there is real signs that in the substantial portion of our client base that they're challenged at closing the financing to go forward with their clinical trials. I think that's pretty much all we can say.
Yeah. Are you able to discern whether the funding is 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 it's kind of a mix of privately held and public companies that have had you know some financing problems you know of late. I think it's a mix. I haven't looked at what you know percentage is which, but it's both companies that are VC or privately funded at least generally not partnered. I guess mostly VC you know funded or private market or public market funding.
Okay, thank you.
Thank you. I'm showing no further questions at this time, and 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.