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Medpace Holdings, Inc. Reports First Quarter 2019 Results

BusinessWire

CINCINNATI–(BUSINESS WIRE)–Medpace Holdings, Inc. (Nasdaq: MEDP) (“Medpace”) today announced
financial results for the first quarter ended March 31, 2019.

First Quarter 2019 Financial Results

Revenue for the three months ended March 31, 2019 increased 23.1% to
$200.7 million, compared to $163.1 million for the comparable prior-year
period. On a constant currency organic basis, revenue for the first
quarter of 2019 increased 23.7% compared to the first quarter of 2018.

Backlog as of March 31, 2019 grew 21.8% to $1.1 billion from $909.5
million as of March 31, 2018. Net new business awards were $248.7
million, representing a net book-to-bill ratio of 1.24x for the first
quarter of 2019, as compared to $200.7 million for the comparable
prior-year period. The Company calculates the net book-to-bill ratio by
dividing net new business awards by revenue.

For the first quarter of 2019, total direct costs were $145.7 million,
compared to total direct costs of $117.3 million in the first quarter of
2018. Selling, general and administrative (SG&A) expenses were $21.3
million, compared to SG&A expenses of $16.0 million in the first quarter
of 2018.

GAAP net income for the first quarter of 2019 was $19.2 million, or
$0.51 per diluted share, versus GAAP net income of $14.6 million, or
$0.40 per diluted share, for the first quarter of 2018. This resulted in
a net income margin of 9.6% and 8.9% for the first quarter of 2019 and
2018, respectively.

EBITDA for the first quarter of 2019 increased 12.7% to $33.4 million,
or 16.7% of revenue, compared to $29.7 million, or 18.2% of revenue, for
the comparable prior-year period. On a constant currency basis, EBITDA
for the first quarter of 2019 increased 9.2% from the first quarter of
2018.

Adjusted Net Income for the first quarter of 2019 increased 18.9% to
$23.8 million compared to $20.0 million for the comparable prior-year
period. Adjusted Net Income per diluted share for the first quarter of
2019 was $0.64, representing an increase of 16.4%, compared to Adjusted
Net Income per diluted share of $0.55 for the comparable prior-year
period.

A reconciliation of the Company’s non-GAAP financial measures, including
EBITDA, EBITDA margin, Adjusted Net Income, and Adjusted Net Income per
diluted share to the corresponding GAAP measures is provided below.

Balance Sheet and Liquidity

The Company’s Cash and cash equivalents were $30.1 million at March 31,
2019, and the Company generated $34.0 million in cash flow from
operating activities during the first quarter of 2019.

In February 2016, the Financial Accounting Standards Board issued ASU
2016-02, “Leases (Topic 842)” (“ASC 842”). The guidance in ASC 842
supersedes the lease recognition requirements in ASC Top 840, Leases
(FAS 13). The objective of ASC 842 is to increase transparency and
comparability among organizations by requiring the recognition of Right
of use assets and Lease liabilities on the balance sheet. ASC 842 became
effective for the Company in the first quarter of 2019. The impact of
the adoption of ASC 842 as of January 1, 2019 is as follows:

ASSETS As of
January 1, 2019 Adjustments December 31, 2018
Current assets:
Prepaid expenses and other current assets 21,013 (370 ) 21,383
Total current assets 177,744 (370 ) 178,114
Property and equipment, net 37,613 (14,642 ) 52,255
Operating lease right-of-use assets 51,854 51,854 –
Total assets $ 1,004,775 $ 36,842 $ 967,933
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Other current liabilities 10,951 6,090 4,861
Total current liabilities 263,116 6,090 257,026
Operating lease liabilities 45,294 45,294 –
Deemed landlord liability, less current portion – (24,484 ) 24,484
Deferred income tax liability 3,158 2,719 439
Other long-term liabilities 14,630 (1,930 ) 16,560
Total liabilities 405,919 27,689 378,230
Shareholders’ equity:
Accumulated deficit (32,334 ) 9,153 (41,487 )
Total shareholders’ equity 598,856 9,153 589,703
Total liabilities and shareholders’ equity $ 1,004,775 $ 36,842 $ 967,933

Financial Guidance

The Company forecasts 2019 revenue in the range of $813.0 million to
$837.0 million, representing growth of 15.4% to 18.8% over 2018 revenue
of $704.6 million. GAAP net income for full year 2019 is forecasted in
the range of $85.2 million to $89.2 million. Additionally, full year
2019 EBITDA is expected in the range of $137.0 million to $145.0 million.

Based on forecasted 2019 revenue of $813.0 million to $837.0 million and
GAAP net income of $85.2 million to $89.2 million, diluted earnings per
share (GAAP) is forecasted in the range of $2.27 to $2.38. Adjusted Net
Income for 2019 is forecasted in the range of $97.0 million to $101.0
million, compared to Adjusted Net Income of $95.5 million for 2018.
Furthermore, Adjusted Net Income per diluted share for 2019 is expected
in the range of $2.58 to $2.69 per share.

Conference Call Details

Medpace will host a conference call at 8:30 a.m. ET, Tuesday, April 30,
2019, to discuss its first quarter 2019 results.

To participate in the conference call, dial 800-219-7113 (domestic) or
574-990-1030 (international) using the passcode 8067378.

To access the conference call via webcast, visit the “Investors” section
of Medpace’s website at medpace.com.
The webcast replay of the call will be available at the same site
approximately one hour after the end of the call.

A supplemental slide presentation will also be available at the
“Investors” section of Medpace’s website prior to the start of the call.

A recording of the call will be available at 12:00 p.m. ET on Tuesday,
April 30, 2019 until 12:00 p.m. ET on Tuesday, May 14, 2019. To hear
this recording, dial 855-859-2056 (domestic) or 404-537-3406
(international) using the passcode 8067378.

About Medpace

Medpace is a scientifically-driven, global, full-service clinical
contract research organization (CRO) providing Phase I-IV clinical
development services to the biotechnology, pharmaceutical and medical
device industries. Medpace’s mission is to accelerate the global
development of safe and effective medical therapeutics through its
high-science and disciplined operating approach that leverages
regulatory and therapeutic expertise across all major areas including
oncology, cardiology, metabolic disease, endocrinology, central nervous
system and anti-viral and anti-infective. Headquartered in Cincinnati,
Ohio, Medpace employs approximately 3,100 people across 36 countries.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements contained in this press release that do not relate to matters
of historical fact should be considered forward-looking statements,
including without limitation statements regarding our anticipated
financial results and effective tax rate used for non-GAAP adjustment
purposes. In this context, forward-looking statements often address
expected future business and financial performance and financial
condition, and often contain words such as “expect,” “anticipate,”
“intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,”
“forecast,” “may,” “could,” “likely,” “anticipate,” “project,” “goal,”
“objective,” similar expressions, and variations or negatives of these
words.

These forward-looking statements are based on management’s current
expectations. These statements are neither promises nor guarantees, but
involve known and unknown risks, uncertainties and other important
factors that may cause our financial condition, actual results,
performance (including share price performance), or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements,
including, but not limited to, the following: the potential loss, delay
or non-renewal of our contracts, or the non-payment by customers for
services we have performed; the failure to convert backlog to revenue at
our present or historical conversion rate; fluctuation in our results
between fiscal quarters and years; decreased operating margins due to
increased pricing pressure or other pressures; failure to perform our
services in accordance with contractual requirements, government
regulations and ethical considerations; the impact of underpricing our
contracts, overrunning our cost estimates or failing to receive approval
for or experiencing delays with documentation of change orders; our
failure to successfully execute our growth strategies; the impact of a
failure to retain key executives or other personnel or recruit
experienced personnel; the risks associated with our information systems
infrastructure, including potential security breaches and other
disruptions which could compromise our information; our failure to
manage our growth effectively; adverse results from customer or
therapeutic area concentration; the risks associated with doing business
internationally, including the effects of tariffs and trade wars; the
risks associated with the Foreign Corrupt Practices Act and other
anti-corruption laws; future net losses; the impact of changes in tax
laws and regulations; the risks associated with our intercompany pricing
policies; our failure to attract suitable investigators and patients to
our clinical trials; the liability risks associated with our research
and development services; the risks related to our Phase I clinical
services; inadequate insurance coverage for our operations and
indemnification obligations; fluctuations in exchange rates; the risks
related to our relationships with existing or potential customers who
are in competition with each other; our failure to successfully
integrate potential future acquisitions; potential impairment of
goodwill or other intangible assets; our limited ability to utilize our
net operating loss carryforwards or other tax attributes; the risks
associated with the use and disposal of hazardous substances and waste;
the failure of third parties to provide us critical support services;
our limited ability to protect our intellectual property rights; the
risks associated with potential future investments in our customers’
business or drugs; general economic conditions in the markets in which
we operate, including financial market conditions; the impact of a
natural disaster or other catastrophic event; negative outsourcing
trends in the biopharmaceutical industry and a reduction in aggregate
expenditures and research and development budgets; our inability to
compete effectively with other CROs; the impact of healthcare reform;
the impact of recent consolidation in the biopharmaceutical industry;
failure to comply with federal, state and foreign healthcare laws; the
effect of current and proposed laws and regulations regarding the
protection of personal data; our potential involvement in costly
intellectual property lawsuits; actions by regulatory authorities or
customers to limit the scope of or withdraw an approved drug, biologic
or medical device from the market; failure to keep pace with rapid
technological changes; the impact of industry-wide reputational harm to
CROs; the end result of any negotiations between the U.K. government and
the EU regarding the terms of the U.K.’s exit from the EU, which could
have implications on our research, commercial and general business
operations in the U.K. and the EU; changes in U.S. generally accepted
accounting principles, including the impact of the changes to the
revenue recognition standards; risks related to internal control over
financial reporting; our ability to fulfill our debt obligations; the
risks associated with incurring additional debt or undertaking
additional debt obligations; the effect of covenant restrictions under
our debt agreements on our ability to operate our business; our
inability to generate sufficient cash to service all of our
indebtedness; fluctuations in interest rates; and our dependence on our
lenders, which may not be able to fund borrowings under the credit
commitments, and our inability to borrow.

These and other important factors discussed under the caption “Risk
Factors” in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission, or SEC, on February 26, 2019, and our other reports
filed with the SEC could cause actual results to differ materially from
those indicated by the forward-looking statements made in this press
release. We cannot guarantee that any forward-looking statement will be
realized. Achievement of anticipated results is subject to substantial
risks, uncertainties and inaccurate assumptions. Should known or unknown
risks or uncertainties materialize or should underlying assumptions
prove inaccurate, actual results could vary materially from past results
and those anticipated, estimated or projected. These factors should not
be construed as exhaustive and should be read in conjunction with the
other cautionary statements that are included in this release and in our
filings with the SEC. Any such forward-looking statements represent
management’s estimates as of the date of this press release. While we
may elect to update such forward-looking statements at some point in the
future, we disclaim any obligation to do so, even if subsequent events
cause our views to change. These forward-looking statements should not
be relied upon as representing our views as of any date subsequent to
the date of this press release.

Non-GAAP Financial Measures

Certain financial measures presented in this press release, such as
EBITDA, EBITDA margin, Adjusted Net Income, and Adjusted Net Income per
diluted share, are not recognized under generally accepted accounting
principles in the United States of America, or U.S. GAAP. Management
uses EBITDA, EBITDA margin, Adjusted Net Income, and Adjusted Net Income
per diluted share or comparable metrics as a measurement used in
evaluating our operating performance on a consistent basis, as a
consideration to assess incentive compensation for our employees, for
planning purposes, including the preparation of our internal annual
operating budget, and to evaluate the performance and effectiveness of
our operational strategies.

EBITDA, EBITDA margin, Adjusted Net Income, and Adjusted Net Income per
diluted share have important limitations as analytical tools and you
should not consider them in isolation, or as a substitute for, analysis
of our results as reported under U.S. GAAP. See the condensed
consolidated financial statements included elsewhere in this release for
our U.S. GAAP results. Additionally, for reconciliations of EBITDA,
EBITDA margin, Adjusted Net Income, Adjusted Net Income per diluted
share to our closest reported U.S. GAAP measures, refer to the appendix
of this press release.

EBITDA and EBITDA margin

We believe that EBITDA and EBITDA margin are useful to provide
additional information to investors about certain material non-cash and
non-recurring items. While we believe these financial measures are
commonly used by investors to evaluate our performance and that of our
competitors, because not all companies use identical calculations, this
presentation of EBITDA and EBITDA margin may not be comparable to other
similarly titled measures of other companies and should not be
considered as an alternative to performance measures derived in
accordance with U.S. GAAP. EBITDA is calculated as net income (loss)
attributable to Medpace Holdings, Inc. before income tax expense,
interest expense, net, depreciation and amortization. EBITDA margin is
calculated by dividing EBITDA by Revenue, net for each period. Our
presentation of EBITDA and EBITDA margin should not be construed as an
inference that our future results will be unaffected by unusual or
non-recurring items.

Adjusted Net Income and Adjusted Net Income per diluted share

Adjusted Net Income measures our operating performance by adjusting net
income (loss) attributable to Medpace Holdings, Inc. to include cash
expenditures related to rental payments on leases classified for
accounting purposes as deemed landlord liabilities, and exclude
amortization expense, certain stock based compensation award non-cash
expenses, certain litigation expenses, deferred financing fees and
certain other non-recurring items. Adjusted Net Income per diluted share
measures Adjusted Net Income on a per diluted share basis. Management
uses these measures to evaluate our core operating results as it
excludes certain items whose fluctuations from period-to-period do not
necessarily correspond to changes in the core operations of the
business, but includes certain items such as depreciation, interest
expense and tax expense, which are otherwise excluded from EBITDA. We
believe the presentation of Adjusted Net Income and Adjusted Net Income
per diluted share enhances our investors’ overall understanding of the
financial performance. You should not consider Adjusted Net Income or
Adjusted Net Income per diluted share as an alternative to Net income
(loss) or Net income per diluted share attributable to Medpace Holdings
Inc., determined in accordance with U.S. GAAP, as an indicator of
operating performance.

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share amounts) Three Months Ended
March 31,
2019 2018
Revenue, net $ 200,741 $ 163,077
Operating expenses:
Direct service costs, excluding depreciation and amortization 75,109 60,341
Reimbursed out-of-pocket expenses 70,594 56,913
Total direct costs 145,703 117,254
Selling, general and administrative 21,308 15,999
Depreciation 1,991 2,314
Amortization 5,844 7,391
Total operating expenses 174,846 142,958
Income from operations 25,895 20,119
Other expense, net:
Miscellaneous expense, net (282 ) (153 )
Interest expense, net (955 ) (2,309 )
Total other expense, net (1,237 ) (2,462 )
Income before income taxes 24,658 17,657
Income tax provision 5,460 3,106
Net income $ 19,198 $ 14,551
Net income per share attributable to common shareholders:
Basic $ 0.54 $ 0.41
Diluted $ 0.51 $ 0.40
Weighted average common shares outstanding:
Basic 35,698 35,486
Diluted 37,285 36,449
MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share amounts) As Of
March 31, December 31,
2019 2018
ASSETS
Current assets:
Cash and cash equivalents $ 30,127 $ 23,275
Restricted cash – 7
Accounts receivable and unbilled, net 129,624 133,449
Prepaid expenses and other current assets 22,624 21,383
Total current assets 182,375 178,114
Property and equipment, net 37,639 52,255
Operating lease right-of-use assets 53,627 –
Goodwill 662,380 660,981
Intangible assets, net 63,335 69,179
Deferred income taxes 330 713
Other assets 6,831 6,691
Total assets $ 1,006,517 $ 967,933
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 13,626 $ 16,737
Accrued expenses 82,247 87,493
Advanced billings 150,243 147,935
Other current liabilities 18,425 4,861
Total current liabilities 264,541 257,026
Long-term debt, net, less current portion 55,781 79,721
Operating lease liabilities 46,238 –
Deemed landlord liability, less current portion – 24,484
Deferred income tax liability 3,435 439
Other long-term liabilities 14,625 16,560
Total liabilities 384,620 378,230
Commitments and contingencies
Shareholders’ equity:
Preferred stock – $0.01 par-value; 5,000,000 shares authorized; no
shares issued and outstanding at March 31, 2019 and December 31,
2018, respectively		 – –
Common stock – $0.01 par-value; 250,000,000 shares authorized at
March 31, 2019 and December 31, 2018, respectively; 35,728,989 and
35,665,910 shares issued and outstanding at March 31, 2019 and
December 31, 2018, respectively		 357 356
Treasury stock – 200,000 shares at March 31, 2019 and December 31,
2018, respectively		 (6,030 ) (6,030 )
Additional paid-in capital 643,497 639,381
Accumulated deficit (13,136 ) (41,487 )
Accumulated other comprehensive loss (2,791 ) (2,517 )
Total shareholders’ equity 621,897 589,703
Total liabilities and shareholders’ equity $ 1,006,517 $ 967,933
MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands) Three Months Ended
March 31,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,198 $ 14,551
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,991 2,314
Amortization 5,844 7,391
Stock-based compensation expense 3,183 1,467
Amortization of debt issuance costs and discount 138 159
Noncash lease expense 2,363 –
Deferred income tax provision (benefit) 656 (248 )
Amortization and adjustment of deferred credit (200 ) (203 )
Other (43 ) (32 )
Changes in assets and liabilities:
Accounts receivable and unbilled, net 4,255 (17,760 )
Prepaid expenses and other current assets (1,642 ) (214 )
Accounts payable (2,684 ) 699
Accrued expenses (5,221 ) 5,268
Advanced billings 2,437 6,817
Lease liabilities (2,041 ) –
Other assets and liabilities, net 5,771 3,089
Net cash provided by operating activities 34,005 23,298
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (2,520 ) (3,951 )
Other (1,322 ) 23
Net cash used in investing activities (3,842 ) (3,928 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises 972 566
Payment of debt (24,000 ) (4,125 )
Payments on revolving loan – (20,000 )
Payment of deemed landlord liability – (451 )
Net cash used in financing activities (23,028 ) (24,010 )
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED
CASH		 (290 ) 400
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 6,845 (4,240 )
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 23,282 26,492
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period $ 30,127 $ 22,252
MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
(Amounts in thousands, except per share amounts) Three Months Ended
March 31,
2019 2018
RECONCILIATION OF GAAP NET INCOME TO EBITDA
Net income (GAAP) $ 19,198 $ 14,551
Interest expense, net 955 2,309
Income tax provision 5,460 3,106
Depreciation 1,991 2,314
Amortization 5,844 7,391
EBITDA (Non-GAAP) $ 33,448 $ 29,671
Net income margin (GAAP) 9.6 % 8.9 %
EBITDA margin (Non-GAAP) 16.7 % 18.2 %
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME
Net income (GAAP) $ 19,198 $ 14,551
Amortization 5,844 7,391
Corporate campus lease payments – principal portion (a) – (451 )
Deferred financing fees (b) 138 159
Income tax effect of adjustments (d) (1,376 ) (1,633 )
Adjusted net income (Non-GAAP) $ 23,804 $ 20,017
Net income per diluted share (GAAP) $ 0.51 $ 0.40
Adjusted net income per diluted share (Non-GAAP) $ 0.64 $ 0.55
Diluted average common shares outstanding 37,285 36,449

Contacts

Media Contact:
Julie Hopkins
Medpace Holdings, Inc.
513.579.9911
x12627
j.hopkins@medpace.com

Investor Contact:
investor@medpace.com

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