Strong biotech funding, 'solid net awards' fuel Q3 success, says Medpace
The contract research organization (CRO) reported a third quarter (Q3) revenue of $179.3m. As of September 30, 2018, its backlog was $1bn and net new business awards were $227.6m.
Under ASC 605, net service revenue of $124m increased 25.6% from net service revenue of $98.7m for the same period last year.
On the company’s earnings call earlier this week, Jesse Geiger, Medpace CFO, said third-quarter revenue was fueled by a “strong biotech funding environment, solid net awards, and continued momentum with existing projects.”
The Numbers
- Revenue was $179.3m
- Net new business awards were $227.6m
- GAAP net income was $19.3m, or $0.52 per diluted share
- Adjusted EBITDA was $36.4m, resulting in an Adjusted EBITDA margin of 20.3%
- Adjusted Net Income was $25m, or $0.67 per diluted share
Regarding customer mix by size, Geiger said it remains focused on serving its small and midsized biopharma customers that represent a large portion of its total business and a market segment in which it sees “further opportunities for continued growth.”
“Most of the revenue growth in the third quarter was in the small biopharma customer group,” he added.
Of its total revenue, Medpace’s top five and top 10 customers represented roughly 22% and 33%, respectively.
Market dynamics
Medpace increased employee headcount to 2,799 employees at the end of the quarter, and continues to hire across the company, it reported.
August Troendle, MD, Medpace president and CEO, said the company is on track for a 20% growth in staff, though it wants to hire faster than planned.
“We have in fact raised our hiring rates and I think we will continue that and continue to ramp going into next year,” Troendle added, noting that this is in response to a stronger than anticipated market.
“What we did not anticipate – and is above our guidance considerably – is revenue,” explained Troendle, who also expressed surprise on the company’s Q2 call. “One thing that surprised us was the revenue growth, which we did not think was going to take off quite as rapidly in the second quarter,” he said in August.
However, the Medpace did experience a “significant” cancellation earlier this month, which will affect Q4, explained Troendle.
The cancellation was for an ongoing program with approximately $20m of remaining unperformed service fees. It was expected to run for a few years, Troendle said on the company’s earnings call this week, adding that as new studies come in, the loss will become “unapparent.”
“Replacing the backlog should not be a problem in the current environment, but the delayed timing of replacement revenues will be a headwind for at least a few quarters,” Troendle explained.
Project bids
The company last year and early this year put in place a number of initiatives to expand its ability to handle a greater number of projects.
“Right now, we're being pretty selective,” Troendle added regarding the bidding process, “We're actually only bidding on things that we think we can make the most sense at this time.”
However, Troendle said its Phase I operation is not profitable. “It's probably the only area that's down this year, year-over-year, so it's actually been a drag on things,” he explained. However, with a niche metabolic focus, he said it complements many of its other later stage programs.
Troendle added, “But I think we evaluate that time to time, what we should do with it, but I think it does add value and that's why we've kept it.”
