Good day, ladies and gentlemen, and welcome to the Medpace's third 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 instruction will follow at that time. If anyone should require operator assistance, please press star then zero on your touch tone 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's Director of Investor Relations. You may begin.
Good morning, and thank you for joining Medpace's third quarter 2021 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 financial 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.
Thank you, Lauren. I would like to make just a few comments. At the end of quarter three, our backlog of $1.85 billion was up 29% from the end of quarter three last year and up 51% from the end of quarter three of 2019. This book of future programs is well diversified and contains only a small component of COVID work. All of this change is organic. Over the last several years, we've improved our technology, global footprint, and overall competitive position in the clinical CRO industry with a focus on biotechnology firms. Our organic backlog and revenue growth from biotechnology firms has historically been above that of our peers, and as COVID becomes less of a driver of the clinical trial business over the next few years, our superior organic growth characteristics will become all the more evident.
Jesse will now make some remarks on our performance, and then Kevin will review our quarter's results, in more detail as well as our guidance. Thank you.
Thank you, August. Good morning, everyone. In the third quarter, the business and funding environment remained solid. We continued to see good RFP flow, and our competitive win rate remained strong. This translated into a strong result in the third quarter and improved guidance for 2021. We also expect the robust growth to continue into 2022. In a moment, Kevin will take you through our guidance expectations for the balance of 2021 and our initial guidance for 2022. Revenue for the third quarter of 2021 was $295.6 million, which represented a year-over-year increase of 28.3%. Net new business awards entering backlog in the third quarter increased 29.4% from the prior year to $408 million, resulting in a 1.38 net book-to-bill.
Ending backlog as of September 30 was $1.8 billion, an increase of 29% from the prior year. Overall, our COVID-19 related work year to date represented only 2.5% of revenue and less than 1% of net new business awards. Backlog conversion in the third quarter was 17% of beginning backlog, and we project that approximately $1.015 billion of backlog will convert to revenue in the next 12 months. With that, I will turn the call over to Kevin to review our financial performance in more detail. Kevin.
Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $295.6 million in the third quarter of 2021, which represented year-over-year growth of 28.3% on a reported basis and 28.1% on a constant currency organic basis. EBITDA of $60.1 million increased 15.7% compared to $51.9 million in the third quarter of 2020. On a constant currency basis, third quarter EBITDA increased 16.3% compared to the prior year. EBITDA margin for the third quarter was 20.3% compared to 22.5% in the prior year period. EBITDA margin declined from the prior year, reflecting increased employee-related costs and higher reimbursed out-of-pocket expenses.
In the third quarter of 2021, net income was $48.6 million, compared to net income of $41.5 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 $1.29 compared to $1.09 in the prior year period. Regarding customer concentration, our top five and top ten customers represent roughly 17% and 24%, respectively, of our year-to-date 2021 revenue. In the third quarter, we generated $72.4 million in cash flow from operating activities, and our net days sales outstanding was -36.6 days.
During the quarter, we repurchased approximately 35,000 shares at an average price of $171.50, for a total of $5.9 million. We have $190.5 million remaining under our current share repurchase authorization. We ended the third quarter with $398 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 $1.135 billion to $1.145 billion for the full year 2021, representing growth of 22.6% to 23.7% over 2020 total revenue of $925.9 million.
Our 2021 EBITDA guidance is in the range of $216 million to $222 million, representing growth of 15% to 18.2% compared to EBITDA of $187.8 million in 2020. We anticipate our 2021 effective tax rate to be in the range of 9.5% to 10.5%, and there are no additional share repurchases in our guidance. We forecast 2021 net income in the range of $176 million to $180 million, and earnings per diluted share in the range of $4.66 to $4.77, with the increased expectations for net income and earnings per diluted share driven by the anticipated lower tax rate. As Jesse mentioned, we are providing initial 2022 guidance for revenue and EBITDA.
For the full year 2022, we expect revenue in the range of $1.4 billion to $1.46 billion, and EBITDA to be in the range of $262 million to $278 million. We plan to provide additional detailed full year 2022 guidance on our fourth quarter earnings call in February. With that, I will turn the call back over to the operator so we can take your questions.
As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Kreger from William Blair. Your line is open.
Hey, guys. Thanks. A question about the 2022 guidance. I think the implied top line growth is in the 25% range, which is, you know, impressive and certainly higher than what you guys have guided in the past. Can you talk a bit about what is driving that? Does that feel more like just a higher win rate on your part or more robust activity levels in the broader market?
Yeah, John, this is Kevin. It's really a combination of all those things. You know, the current business environment, you know, RFP flow, you know, our existing backlog position, you know, really position us well for really good growth in 2022. You know, on top of that, we'll continue to hire along those expectations.
Okay, thanks. A follow-up. Can you talk about how just the ability to execute on the high growth, how are you doing in terms of hiring, staff utilization, and you know, any other infrastructure investment you might need to deliver that sort of growth?
Yeah, John, it's Jesse. Yeah, we're doing pretty well. We're well positioned for the current work. We're well positioned for upcoming projects. You know, we do see a good pipeline. We've reflected that in our guidance, and we're hiring against that and have had pretty good success in both recruiting and retention of employees. We do intend to continue to hire aggressively here into the fourth quarter, although historically, we have seen slightly softer candidate flow in the fourth quarter as we approach year end. I think we're well positioned now and continue to hire to support the growth that we anticipate.
Great. Thanks. One last one. You've been living with, as we all have, with COVID for the last 18 months. What are your latest thoughts on any kind of structural changes in drug development that are likely to emerge from this?
I mean, I think technology is the obvious one. You know, a lot of adaptations were made and accelerations in technology throughout the pandemic. I think a lot of that is here to stay. You know, so as we think about decentralized clinical trials now and into the future, I believe technology is going to continue to play an important role there. I think we're well-positioned to operate in this environment. We continue to make ongoing investments in technology to support the changing environment. I think a lot of it's gonna be technology-driven as far as some of the changes that were made during the pandemic and how those stick around, you know, on into the future.
Great. Thank you.
Thanks, John.
Your next question comes from the line of Donald Hooker from KeyBanc. Your line is open.
Great. Good morning, and congrats on the great results. This might overlap a bit with the last question, but I guess I'm just trying to get into your head in terms of you're providing 2022 guidance, which is bold. I know you did it last year because of COVID. Maybe can you elaborate on your thinking as to providing 2022 guidance at this point? Things are more stable now versus, you know, what sort of caused you to do that?
Yeah, Don, it's, I think, you know, the rationale behind providing guidance now as opposed to in, you know, in February is, you know, one reason is, you know, beyond what Kevin had cited earlier, is that, you know, we wanna make sure that everyone's models are well aligned going into the end of the year. As we report on our final Q4 results in February and fine-tune and enhance the guidance that we're fill out the rest of the guidance in February, we want to make sure that we at least had a baseline for everyone going into the end of the year.
You know, we feel like based on the business environment and based on our backlog, we have pretty good visibility to be able to do that at this time.
Yes. Then years ago, there was a bit of a disconnect between analyst models and our thinking, and I think we just didn't kind of anticipate it because we weren't looking at next year's models. You know, the last few years, we've with COVID also but have decided to give that clarity if we think there's you know growing a bit of disconnect. Of course, we are now you know we believe a very rapid growth environment. We thought we could put out a reasonably conservative projections and you know guidance and help with that you know prevent a disconnect.
Super. I guess the other thing is we think about sort of in terms of pass-through revenues and expenses this year and next year. That's always hard to model on the outside as we look at your revenues. Can you maybe give us some directional guidance there in terms of what you're thinking in the 2022 guidance with respect to pass-through versus 2021 and 2020?
Yeah, Don, this is Kevin. I think as you kind of look at the progression from kind of a low base in 2020, you know, is kind of heavily influenced by COVID. You can see the progression from 2020 to 2021, you know, I want to say it increased year to date about 100 basis points towards more our historical average. We would expect as we head into 2022, that will probably continue to get closer to that historical average.
Okay. Maybe one last one for me. You guys talked about decentralized clinical trials and virtual clinical trials, whatever you wanna call them. It doesn't look like it's having any negative effect obviously on your 2022 guidance. As we think longer term, does that impact pricing and margins? I might think that it would pressure pricing but might be upside to margins. How do we think about DCTs in the context of your economics?
Yeah. I don't think it has that big of an impact.
Okay. That's a simple answer. Thank you very much.
Thanks, Don.
Thanks, Don.
Again, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Our next question comes from the line of Dave Windley from Jefferies. Your line is open.
Hi. Good morning. Had some technical difficulties this morning, so I apologize if I'm asking things you've already touched on. I wanted to focus on kind of more revenue factors. At a high level, biotech funding for the last, you know, 12-18 months, if not longer than that, has been certainly strong and very strong through the pandemic, enough so that I'm sure your clients have pretty robust balance sheets. It has slowed in the last, you know, 3 to 5 months. I guess I'm wondering how you would characterize RFP flows as you enter the fourth quarter. You commented about, you know, a good funnel.
Perhaps more strategically, what leading indicators, what systems are you putting in place to kind of keep close tabs on, you know, the funding that your clients have backing their projects as your business development folks are pursuing those in the event that funding does stay as low as it has been in the last few months?
Yeah, Dave, our RFP environment has continued to be good. Our win rate has been very strong over the past several quarters. From a biotech funding standpoint, we're continuing to see clients with good access to money. We're not seeing signals of slowdown as far as how long it takes companies to get access to money when they're starting to engage with us. You know, systems and key indicators that we put in place, you know, on the front end or as you mentioned with our BD group, we ask a lot of questions of prospective clients.
We do analysis upfront to assess their funding status and where they are in their funding process, as we're bidding on opportunities and, you know, and then as the studies get awarded, we continue to keep tabs on the, on, you know, the financial status of companies as they're progressing through the development process.
Got it. Okay. Maybe a little bit more granular to some of Don's questions on guidance. Kevin, you mentioned that you do expect pass-throughs to continue to recover toward a more normal level. I would think that would contribute to burn rate. I think Medpace has also, you know, probably not had the benefit of COVID work really in influencing your burn rate, but has been impacted by, you know, say, sites not being fully open. Anyway, punchline here is, your burn rate is still running below what would historically have been normal for you. Is that something that you expect to recover to normal in 2022?
You know, Dave, I think it really depends, right? I mean, you got to kind of think about, you know, book-to-bill and conversion, you know, kind of together. You know, we've not been in a position where we've had five quarters in a row where we're, you know, at 1.37, 1.38 your book-to-bill numbers. That's influencing to a degree our conversion rate. Now, how quickly that conversion rate comes back to more historical levels, I think kind of depends on what future growth and awards look like. I wouldn't say that we necessarily expect it to come bouncing back in 2022.
Okay. I guess conversely, that suggests that maybe you are expecting continued high book-to-bills going forward. I mean, I guess, simple question, is the current level sustainable?
I think we
It depends on the business environment, Dave. Certainly if this funding environment continues, albeit a little softer, as you mentioned, you know, than it had been, you know, in previous quarters, but still we're seeing a good level of biotech new development and biotech access to capital. You know, if this business environment continues, and as I mentioned, we've had a really good win rate, you know, we could see book-to-bills continuing at this level, but it kind of depends on the outside market.
Yeah. Got it. Thanks.
Yeah. You can never look out too far for, you know, future bookings.
Right.
In the environment currently, it looks like the next quarter, the next couple quarters are going to be strong bookings. You know, that's, you know, things can change, but that's about as far out as we can really look.
Right.
It could soften next year, but we don't expect a softening in the near term.
Got it. That's helpful. Thank you.
We have no further questions. I would now like to hand the conference back to Lauren Morris for any closing remarks.
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 fourth quarter 2021 earnings call.
This concludes today's conference call. Thank you for participating. You may now disconnect.