Good day, ladies and gentlemen, and welcome to the Medpace First Quarter 2021 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, Kevin Brady, Medpace Executive Director of Finance.
You may begin.
Good morning, and thank you for joining Medpace's Q1 2021 earnings conference call. Also on the call today is our President and CEO, August Trundle and our CFO and COO of Laboratory Operations, 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-nineteen on our business, are discussed in our Form 10 ks 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 provided in connection with today's call. The slides are available in our Investor Relations section of our website at investor. Medpace.com.
With that, I would now like to turn the call over to Jesse Guiger to discuss our financial results and guidance.
Thank you, Kevin, and good morning, everyone. Net new business awards entering backlog in the Q1 increased 44.2% from the prior year to $356,200,000 resulting in a 1.37 net book to bill. Ending backlog as of March 31 was $1,600,000,000 an increase of 26.1 percent from the prior year. Revenue was $260,000,000 in the Q1 of 2021, which represents a year over year increase of 12.6% on a reported basis and 11.6% on a constant currency organic basis. EBITDA of $53,600,000 increased 32.1% compared to $40,600,000 in the Q1 of 2020.
On a constant currency basis, 1st quarter EBITDA increased 34.1% compared to the prior year. EBITDA margin for the Q1 was 20.6% compared to 17.6% in the prior year period. The higher margin was primarily attributable to lower reimbursed out of pocket expenses as a percentage of revenue. In the Q1 of 2021, net income was $43,300,000 compared to net income of $29,000,000 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 $1.14 compared to $0.76 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 16% 24%, respectively, of our Q1 revenue. In the Q1, we generated $57,300,000 in cash flow from operating activities, and our net day sales outstanding decreased compared to the 4th quarter from negative 33.6 days to negative 40.8 days. We ended the Q1 with $332,900,000 of cash, no outstanding debt and $50,000,000 of undrawn capacity on our revolving line of credit. Moving now to our guidance for 2021.
We are now forecasting total revenue in the range of $1,090,000,000 to 1,150,000,000 for the full year 2021, representing growth of 17.7 percent to 24.2% of a slightly slower return of reimbursed out of pocket costs and the associated revenue related to investigator site payments. Our 2021 EBITDA is expected in the range of $205,000,000 to 215,000,000 representing growth of 9.2% to 14.5% compared to EBITDA of $187,800,000 in 2020. This updated EBITDA guidance reflects increased cost expectations related to our strong hiring in the Q1 and anticipated continued robust headcount growth. We anticipate our 2021 and there are no share repurchases in our guidance. We forecast 2021 net income in the range of 160,600,000 $167,600,000 and earnings per diluted share in the range of $4.24 to $4.42 with the increased expectations 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. Operator?
Your first question comes from the line of Sandy Draper with Chiriz Securities. Your line is open.
Good morning. And just wanted to first question, Jesse, I think I heard you right, but it's confirmed. It sounds like The trimming off of the top end of guidance is pretty much solely due to lower pass through revenue. You're not looking at a Lower expectation for service revenue, is that correct?
That's the largest driver, Sandy. Yes, we're just seeing A slightly slower return of the burn rate and it's particularly influenced by the pass through cost in particular despite payment activity.
Okay. So is that somewhat go ahead, August, sorry.
I just wanted you to understand that obviously that reflects a little bit Slow down in our expected overall activity at sites that does slow things overall a bit, But it is disproportionately pass throughs, but it also slows service revenue to an extent.
Got it. But it's not indicative that you're seeing a slowdown of RFPs or proposals or broad demand. It's just more of a near term dynamic related to getting sites back and running and that we're still sort of Obviously, coming up out of the back end, it's still in a pandemic.
Correct. That's right. Yes. We're still seeing a good business environment. We're still seeing good RFP flow, good funding dynamics in biotech.
Those fundamentals are still intact.
Okay, great. And then my follow-up or unrelated follow-up, I know I ask about this a lot, but just in The hiring obviously you said you did a good job hiring, you got aggressive plans. Is it still the same strategy? Have you changed anything to try To accelerate that and but it looks like the success is happening, but just thoughts on your go to market strategy for hiring people, is it Still pretty much the same approach.
That's correct.
I don't think we've got any real change in hiring. We will be hiring throughout the year,
Great. Those are my two questions. Thanks so much.
Your next question comes from the line of John Kreger with William Blair. Your line is open.
Hi, thanks very much. Just to follow-up on that. If you think about your revenue guidance for the full year, what sort of hiring or staff increase would you expect by year end?
We don't really try to project that out, but I think we're going to continue to hire relatively rapidly through the year. I don't think it will be it matched the first quarter's But we'll continue to hire pretty strongly.
Okay. So sort of catching up to revenue growth, but maybe not quite getting there?
That's possible.
Okay. Thanks. And then, August, maybe just a follow-up on your Comments to Sandy's question. Can you just talk a little bit more about what caused the backlog conversion to revenue in the Q1 to Come down a little bit and do you I know there's just general variability in that metrics, but would you expect it to trend back up as we move through the rest of the year?
Yes, I don't think it's going to go down. But it is hard to And you're right, there's a lot of volatility there. But I think fundamentally, there has been a greater Delay related to COVID, and we have had a couple of studies that were held up in Q1 for other reasons for actually Drug availability reasons, but the biggest thing I think is just A little bit of headwind from COVID activity at sites, etcetera. That was a is a little bit more than we had Anticipated at this point, we kind of hoped that things were going to lift and things were really going to run Quickly, we're still hoping that as you get later in the year, this is going to be the dynamic, but I think things have moved a little bit. There hasn't been Much change at sites over the last several months.
And maybe just one more follow-up on that. Is That comment sort of a global one or are you seeing a disparity in site accessibility in the U. S. Versus Europe versus Asia?
I mean, certainly, they differ by region, but it is generally pretty broad statement that we've seen a little bit more slowing than we
Okay. Thank you.
Your next question comes from the line of Dave Windley with Jefferies. Your line is open.
Hi, good morning. Thanks for taking my questions. Wanted to try to clarify a little bit On the margin first, so understand your comments about predominantly pass through impact on revenue, which I mean, I understand it's not a big change, but would have at least a slight impact, positive impact on mix toward margin driving revenue, but your margin for the balance of the year is down on the hiring. Can you just Help to understand a little bit more of the magnitude of the moving parts there?
We're hiring and a lot of that didn't hit Q1, but they were Hired late in the Q1 and we're continuing to hire. And so I think it kind of layers in as you go through the year. But Jesse, you want to address?
Yes. No, you're right on. It's the driver on margin is really the elevated hiring. We We had a strong hiring in Q1. As August mentioned, it didn't necessarily happen literally or sequentially ratably across the quarter.
But then we are continuing aggressive hiring as we move through these next couple of quarters based on view of strong demand in the market. And it's the personnel related cost driving the margin as we make investments.
Got it. And on that Relative to burn rate and maybe August your answer to John or Sandy's question might have been thinking service revenue, but the revenue guidance does seem to suggest that at least at the midpoint, Your burn rate maybe ticks down ever so slightly for the balance of the year, but let's say it basically doesn't change. Can you help me understand, it sounds like you're aggressively accelerating hiring or at least in the Q1, it was pretty rapid, But you're not really expecting, say, a return to higher conversion out of backlog. And so Again, just trying to understand the hiring need versus the pace at which you expect revenue to come out.
Yes, sure, Dave. We hired towards those longer term needs and the business environment is very strong. Our backlog It's what 26% year over year. That conversion rate will come back and things will unwind. We'll get a substantial surge in revenue growth.
So we do hire ahead of the curve. I think our utilization rates running in the Low to mid-70s, which is a good place for us, but we do think it given the environment and it will continue for a while. In fact, we've got a lot of kind of pent up backlog that will eventually convert at a more normalized rate. We're going to need the staff. So we like to get well out in front of that, but We don't look at it in terms of well, we're not going to have the activity this next quarter.
So let's not hire. I think we have the luxury of being able to look out quite a ways And we're not trying to defend a particular margin.
Got it. And then maybe last question, Certainly, it was above where we were looking for kind of the coverage ratio as a result of that ticks up a few percentage points. Should we interpret that as maybe impacted by 4th quarter, The first quarter kind of the outer quarters of that timeframe or maybe another way to ask the question is, is the cadence of revenue through the year Fairly gradual or are you seeing because of the impact of what you're describing pass through payments, is that more of an immediate impact in 2Q And then a steeper inflection after that. Just trying to get a sense of cadence. Thanks.
Okay. Jesse, you want to
Yes. Dave, from Cadence standpoint, we still do expect revenue to be slightly back end weighted kind of second half versus first half, as we think about The movement of it through the
year. Got it. Thank you. Appreciate the answers.
Your next Question comes from the line of Erin Wright with Credit Suisse. Your line is open.
Great, thanks. There's obviously a lot of Commotion in the CRO space right now, several pending strategic reviews and transactions. I assume you don't see a need for a competitive in terms of win rates or customer dynamics and or hearing anything from your customers or the number of resumes that you're seeing. I'm curious if you're seeing anything on that front.
Yes, sure, Aaron. I don't think we've seen anything. I think Yes. We have not heard of any kind of disruptions or work being brought our way because of concerns or anything like that. The environment is strong for us anyway.
And in terms of Activity on the recruitment, we have kind of geared up our recruitment and whether there's we did hire pretty strongly in 1st quarter and we got some individuals from that came from competing companies, but I can't say that it was Any relation to any of the pending deals.
Okay. All right. And then can you speak a little bit To the nature of the new business wins in the Q1 looking at the therapeutic mix or customer mix, was there anything that was Disproportionately like outsized larger contracts that were influencing the new business wins, I'm curious if there's anything to call out on that front.
No, I don't think there's anything unusual in terms of size or Therapeutic area, oncology kind of led in terms of our awards. So I don't really see any kind of unusual nature to it.
Okay, perfect. Thank you.
Your next question comes from the line of Donald Hercke with KeyBanc, your line is open.
Great. Good morning. Maybe some more granular questions. I'm Not sure if I missed this, but the tax rate for this year looks pretty favorable. Can you walk through some of the moving parts there?
It looks like you're benefiting from a particularly low tax rate. What would you recommend we expect beyond the current year kind of on a more normalized basis?
J. C? C. Durrant:] Yes. Thanks, Don.
Yes, the Q1 rate is highly influenced by our deduction for employee stock option Exercises. These are discrete items that we take the deduction in the quarter of the exercise. And these are options largely issued at the time of the IPO that vested in the latter part of last year. And so we do anticipate some of that Continue, that's why we've lowered our tax rate guidance from 15% to 16% down to the 12% to 13% range. Longer term, Yes.
I would say our current longer term tax rate assumption right now is around 20 That's based on current laws, and that does not impact any early analysis of any of the proposed changes in tax law that are being considered.
Okay, super. And maybe last, another one for me. In terms of obviously another very topical area is the use of virtual clinical trials, decentralized clinical trials, tele Also in those concepts, would love your kind of maybe broader perspective. This is a question we could probably be asking you every quarter In terms of any changes you're seeing there in terms of acceptance and use of some of these virtual technologies With respect to your business and the industry.
Jesse, you want to add? Yes, Don, nothing that we've really changed or that we're seeing changing kind of from last quarter. I think we're operating well In a hybrid decentralized environment, we have the tools we need. We're always investing in technology enhancements for different things like remote data capture, remote data review, Platforms for wearable technologies, those are the themes of kind of where we're making some investments, but That's all kind of factored into our ongoing cost. Nothing that we see there that's any sort of major investment.
But We're active and I think the environment is going to continue to be one that is operating in some sort of hybrid style versus what it had been pre pandemic.
Super. Thanks so much.
Yes. Thanks,
I am showing no further questions at this time. I would now like to turn the conference back to Kevin Brady.
Thank you for joining us on today's call and for your continued interest in Medpace. We look forward to speaking with you again on our Q2 2021 earnings Thanks and have a good day.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.