Earnings Transcript for SNCE - Q4 Fiscal Year 2021

- : David Coman - Chief Executive Officer Mike Zaranek - Chief Financial Officer

Operator: Good morning. And welcome to Science 37s Earnings Conference Call for the quarter ended December 31st, 2021. At this time, all participants are in a listen-only mode. We'll be facilitating a question-and-answer session towards the end of today's call. As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Caroline Paul, Investor Relations, for a few introductory comments.

Caroline Paul: Thank you. And thank you all for participating in today's call. Joining me are David Coman, Chief Executive Officer and Mike Zaranek, Chief Financial Officer. Earlier today, Science 37 released financial results for the quarter ended December 31st, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon our current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. We encourage you to review our filings made with the Securities and Exchange Commission for a discussion of these risk factors, including our annual report on Form 10-K for the year ended December 31st, 2021, which was filed earlier today. You are cautioned not to place undue reliance on these forward-looking statements which we speak only as of today. And the company disclaims any obligation to update such statements for new information. We believe that certain non-GAAP metrics are useful in evaluating our operational performance. We use these non-GAAP measures to evaluate our ongoing operations and for internal planning and forecasting purposes. Information about non-GAAP financial measures referenced, including a reconciliation of those measures to the most comparable GAAP measures can be found in our SEC filings and the earnings material available on the Investor Relations portion of our website at investors.science37.com. I would now like to turn the call over to David Coman.

David Coman: Thanks, Caroline. Good morning, everyone. And thank you for joining us. At Science 37 we are disrupting a very large $195 billion biopharmaceutical research and development industry by providing clinical trial sponsors, the flexibility to engage patients from the comfort of their own home, at local community care centers, and through traditional clinical trials sites, all at the same time. To enable universal access to any patient, any provider from anywhere, rather than limiting them to traditional brick and mortar sites alone. As a result, we have been able to achieve up to 15 times faster enrollment, up to 20 time’s greater retention, and three times the diversity in the clinical trials that we support on behalf of our biopharmaceutical customers. We achieve these extraordinary results utilizing our category defining operating system that consists of a full stack, end-to-end technology platform to manage workflow, generate clinical evidence and harmonize data for regulatory submission. And this technology interacts with our specialized networks that include patients, telemedicine investigators, community providers, mobile nurses, remote coordinators, and connected devices who are all in sync through a common set of operating procedures. The broad range of clinical trials we're supporting today is a testament to the progress we're making each and every day. These trials range from fully decentralized, pivotal studies that require tens of thousands of patients to highly targeted precision medicine studies, and large global studies to provide long term patient follow up. To date, we've conducted more than 125 decentralized clinical trial, and we've engaged more than 525,000 patients in the process, all of whom are part of the Science 37 patient community. We currently provide three offerings, each of which are underpinned by the Science 37 technology platform. First, a fully decentralized or agile clinical trial, in which we orchestrate the entire study using our operating system. And we are the sole provider to the clinical trial sponsor. Second, Metasite in which we act as a virtual site using our operating system to supplement a network of traditional clinical trials sites for a sponsor or CRO. Third is what we call Technology or Tech Plus, in this case, we're not orchestrating the trial but we're configuring the technology to support centralized or hybrid approaches. Our platform can fully integrate with other sources such as EDC, CTMS, RTSM technologies, et cetera. This flexibility enable Science 37 to be applicable for virtually any phase of clinical research and in any indication. 2021 was a tremendous year for Science 37. We made meaningful progress on multiple fronts, with continued execution and investments, technologically, geographically and commercially. As a result, we exited the year with $164 million in net bookings, nearly three times the prior year. We achieved revenue growth of 151% or $59.6 million. And in the fourth quarter alone, we achieved revenues totaling $20.4 million, representing growth of 83% over the same quarter, the prior year. Our growth prospects remain strong in 2022, as we look to build upon our momentum and capitalize on a clear shift in the market toward decentralization and decentralizing more components of the clinical trial outside traditional brick and mortar investigative sites. Notably, we are excited to see the results of our most recent sentiment study among sponsor and CRO executives, who report that they plan to run more decentralized, agile or hybrid clinical trials in 2022 versus fully traditional site-based studies. To capitalize on this pivotal shift, we're maintaining focus on enhancing our commercial efforts, extending our leadership position through investments in our operating system, and positioning the company for long term profitability. In 2021, we proved that our operating system can deliver at scale, providing consistently superior performance versus traditional brick and mortar sites. To be specific, when Science 37 acts as a virtual site among a network of traditional brick and mortar, our Metasite is at minimum, the highest enrolling site in the network, 100% of the tie [ph] In many cases, our Metasite has represented approximately 50% to 85% of all patients enrolled. As an example in a global pivotal trial, our Metasite enrolled 70 patients per month over the final quarter of 2021 versus the average traditional site that enrolled only 6.1 patients per month. Both the Metasite and Tech [ph] Tech Plus offerings continued to be adopted more by CROs and that remains an area of commercial focus for us. This quarter, we were pleased to have welcomed worldwide clinical trials to our network of CRO certified companies. We are excited about this partnership and expect to see other CROs continue to standardize on the Science 37 operating system going forward. In regards to the operating system itself, we were proud to announce that we received ISO 27001 certification for cybersecurity management, as well as the ISO 27701

Mike Zaranek: Thank you, David. And hello, everyone. I plan to take us through the fourth quarter results, and then the full year roll up for 2021. I will then conclude with the full year 2022 guidance. We are pleased to report revenues for the three months ended December 31st, 2021 were $20.4 million, making it the first $20 million plus quarter in the company's history. This represents an 83% increase from the $11.2 million in the same period of the prior year. As we previously discussed at our current scale, bookings, revenues and profitability can vary from quarter-to-quarter, and in part due to the timing around a limited number of contracts. This dynamic worked in our favor in the final quarter of 2021, as we were able to bring in $2.3 million of revenue that had previously been expected to occur in the first quarter of this year. Our net bookings for the three months ended December 31st, 2021 were also very strong, coming in at $43.2 million, which is an increase of 102% from the prior year period. Driven by our strong revenue growth, adjusted gross profit was robust $4.7 million, up from a loss of $0.5 million in the same period from the prior year. Well, our adjusted gross margin was up approximately 28 percentage points year-over-year from negative 4.5% to 23.2%. We expect a higher long term run rate as the composition of our fourth quarter revenue was over represented by two trials that were contracted before our price increase in the fourth quarter of 2020. We continue to invest in commercialization, technology delivery and our underlying infrastructure intentionally in an effort to scale. Selling, general and administrative expenses, inclusive of $6 million of stock based compensation, $3.2 million of transaction related expenses, excluding depreciation and amortization for the quarter were $35.6 million, an increase from $10.5 million in the same period of the prior year. As David mentioned, we continue to balance the needs to invest to scale the business against the objectives to create a long term profitable business and manage cash effectively. Adjusted EBITDA, which we calculate by adding back depreciation, amortization, taxes, interest, transaction expenses and stock based compensation was a loss of $21.5 million in the quarter, compared to a loss of $10.9 million in the same period in 2020. Now we'll move on to the full year results. For the full year ending December 31st, 2021, we won approximately $164 million in net bookings. This represents nearly 3x the net bookings of $55.7 million we reported in 2020. Invested heavily in our go-to-market capabilities, underlying technology and delivery infrastructure, and the significant year-over-year increase in bookings is attributable to many of those investments. We were pleased to report that approximately two thirds of our net bookings in 2021 were derived from customers with whom we had done business with previously, which is a testament to our ability to deliver effectively and achieve high customer satisfaction. We were able to bring in approximately one third of 2021 net bookings from new customers, as we continue to demonstrate the value of our model across a wider customer base. We generated full year revenues of $59.6 million, up 151% versus the previous year total of $23.7 million and we ended the year with $164 million in backlog. As David mentioned, we continue to see strong demand for our offering. Our pipeline is at an all time high, and the composition of the pipeline includes significantly more $10 million plus qualified opportunities than ever before, which we attribute to the continued market interest in our offerings and our proven ability to deliver. Our adjusted gross profit of $18 million was approximately seven times the prior year total of $1 million. Full year adjusted gross profit margin was 30.3%, up nearly 26 percentage points from 4.4% in 2020. On an adjusted EBITDA basis, full year fiscal 2021 was a loss of $44.1 million versus a loss of $27 million in the fiscal year 2020, as we put our investments to work to fuel our market leadership and growth. You will note our GAAP net loss of $94.3 million reflects $31.3 million related to a change in fair value of our earn-out liability, which was part of the original transaction related to the SPAC. Upon the stock price, meaning certain thresholds within a 36 month period post closing, the equity holders of former Science 37 would receive additional shares and under US GAAP, we are required to re-evaluate the potential value under that arrangement on a quarterly basis. To the extent the share price goes up, all else equal, the value of the earn-out liability increases, and therefore we recognize expense on a US GAAP basis. Likewise, to the extent the share price goes down, the value of the earn-out liability decreases and thus creates income. To be clear, the expense or income associated with this earn-out is non-cash. However, to the extent the earn-out share price targets are achieved, there would be additional shares issued. Going back to a point that David mentioned earlier. As a management team, we have prioritized our cash and cash management. As a result, we were able to achieve DSOs of 48 days as we exited 2021. This is nearly half of the 92 days that we had when we exited 2020. It is important to highlight our current cash position remained strong. We exited 2021 with approximately $214.6 million of cash, cash equivalents and short term investment. And you will recall that we raised approximately $234 million of cash through the transaction that closed in early October 2021. We will continue to remain disciplined and judicious with investments in our business, while conscious of preserving our capital in order to maintain a strong balance sheet. Now let's turn to the outlook for 2022, where we will share our guidance for the full year revenue and some color around cost. Despite the challenges of accurately forecasting in an uncertain environment last year, we delivered exceptional results, far exceeding expectation. Our takeaway is that the process of forecasting in this environment is not straightforward, and our current guidance reflects this. With that said, we expect to maintain a high growth rate and we remain bullish on our business for the full year 2022. We currently project revenues for the full year 2022 to be in the range of $86 million to $96 million, representing between a 44% and 61% growth rate for the year. As the year develops, and the various potential drivers play out we will fine tune our preliminary estimates and be in position to provide greater detail with respect to cost. As we noted a moment ago, at our current scale, bookings, revenues and profitability can vary from quarter-to-quarter, in part due to the timing around a limited number of contracts. Well, this dynamic worked in our favor in the final quarter of 2021, where we were able to bring in $2.3 million of revenue through faster enrollment is effectively accelerated from the first quarter of 2022. We also experienced in Q1 2022 nearly 20 million in cancellations from two COVID studies that will have an impact on the early half of 2022. The larger of the two studies was from a non-pharma company which we do not traditionally target, and the smaller of the two was a result of drug efficacy. Our cancellation rates were less than 10% in 2021 and our 15 month cancellation rate, including first quarter known cancellations is 17% on pace with industry average. At this point, we have very little COVID backlog exposure and only mid single digit percentage of qualified sales funnel relative to COVID work, which is down from previous quarters. From a cost standpoint, we ramped up spend in the fourth quarter of 2021 to meet the revenue growth and demand in the first quarter of 2022 and are managing the impact of the two cancellations. As a result, our first quarter 2022 margins will be down considerably from the previous quarter. We expect to return to a more normalized level of profitability as we progress throughout 2022. And we see no change to our long term margin opportunity. Our basic share count is expected to be approximately 120 million for the full year 2022. As of year end, we had about 115 million shares outstanding. Since we anticipate having an adjusted net loss in the upcoming quarter and year, any converted options would be deemed to be anti-dilutive, and therefore, on a GAAP basis we expect the basic and diluted share count to be the same. In summary, we are very pleased with the growth we delivered in 2021, at most every level. We continue to be very bullish on our growth trajectory in 2022. At this point, I would like to turn the call back to David for closing comments.

David Coman: Thank you, Mike. 2021 was an exceptional year Science 37, as we achieved or exceeded all of our business goals and objectives. We grew revenue at more than 150% and nearly tripled our net bookings. We have proven that the model delivers substantial value to our sponsors, gaining proof points, repeat customers, global scale, technology enhancements, and more partnerships that will help drive our growth into 2022. We made the transition from private to public and raised significant capital to allow us to continue to invest in our growth with a keen eye toward cash management and long term profitability. I do want to acknowledge the impact of the two cancellations Mike mentioned, on revenue and margins in the upcoming first quarter. As we continue to grow and expand our backlog, we expect the impact of cancellations to cause less volatility over time. It's important to note that our 15 month cancellation rate, inclusive of these two larger recent cancellations is typical of the industry. And our COVID backlog and sales funnel exposure is limited at this time. To the size and recency [ph] of these two cancellations, we are giving a minimum of commentary on cost guidance, and will offer more complete commentary on our path to profitability at our first quarter earnings call in May. As a business, we continue to make great strides in the speed of trial execution and efficiency in clinical conduct. We also see significant opportunity for continued improvement well into the future. We believe we have the operating system on which the industry will continue to standardize. We remain enthusiastic about the vision ahead. And we believe that the fundamental outlook for the segment and Science 37 remains very strong. Thank you to all our stakeholders, including our investors, who have supported us in our mission, and commitment to disrupt the traditional clinical trial model, and improve the development process for the ultimate benefit of patients around the world. We look forward to updating all of you in our next phase of growth in the coming months. So with that, we'll now open up to questions and turn it over to the operator.

Operator: [Operator Instructions] Our first question comes from Charles Rhyee with Cowen. Your line is open.

Charles Rhyee: Yeah. Thanks for taking the questions. Mike. Just wanted to ask about the cancellations. I think you said earlier if you could just clarify that prior to this quarter, your overall cancellation rate was less than 10%. And including the first quarter, it averaged 17%. So is it right we can kind of look at the 2021 results and work backwards at a you know, call it a roughly 10% cancellation rate, kind of isolate sort of the first quarter impact?

Mike Zaranek: Yeah. Hi, Charles. Good morning. Thanks for the question. I think that's right. As we looked in 2021, we had a very low cancellation rate of less than 10% and inclusive of the two cancellations we outlined on today's call for the 15 month trailing period, it would be about 17%.

Charles Rhyee: Thanks. And just to follow up, those can't - those contracts, I'm sorry, those two contracts, what percent of revenue or what stage of them in development were they with you guys? What was sort of the revenue contribution, if any in '21 that we should think about having an impact overall in '22? And over what timeframe?

Mike Zaranek: Sure. No, I think as we said, one of the opportunities was a non-pharma opportunity or a project that we typically don't target. That one was a little earlier on in the lifecycle and so minimal impact in 2021, from that one. If you look, the second one, and that one was pulled due to lack of overall funding for the entire project, of which we were apart. The second one was a little bit further advanced in its overall progress. It was ultimately pulled due to lack of efficacy. So not…

Charles Rhyee: Okay…

Mike Zaranek: Yeah…

Charles Rhyee: Okay…

Mike Zaranek: So at this point, we have very little COVID backlog. And if you look at the pipeline in front of us, the COVID opportunities represent mid single digit of our qualified sales funnel, so not a whole lot of exposure there.

Charles Rhyee: All right, great. Thanks a lot. I'll jump back in the queue.

Mike Zaranek: Thank you.

Operator: Our next question comes from Frank Takkinen with Lake Street Capital Markets. Your line is open.

Frank Takkinen: Hey, David. Hey, Mike. Thanks for taking my questions. I wanted to start with one on the guide as well as - as it relates to the backlog. How should we be thinking about backlog forward conversion? Honestly, looking at the backlog $165 million, take off the 20, you have 145. It feels like the guide maybe even a little bit conservative where it's at now. So maybe just a little bit of color on what you guys think about?

Mike Zaranek: Sure. Yeah, I think, sorry, was there a follow up there? Was there – you sort of cut out there at the end Frank.

Frank Takkinen: No, sorry about that. Go ahead.

Mike Zaranek: No, I think one of the things that we've seen with respect to the guide, we've talked about the volatility in the past. And if you think about the volatility, it can work both ways. And we were able to - with a few projects or a single project, impacting bookings, revenues, and potentially profitability in a certain period, we got the benefit of that in Q4, where we produced more than $20 million, our first $20 million quarter. By having a really strong execution on a couple of projects, that effectively we were able to pull some revenue forward out of Q1, based on faster completion of our activities. If you look at the overall backlog of the 164, I think what we've talked about previously, is that in the year ago period, at the end of the first quarter, we had about 81% covered for the full year revenue forecasts that we had at the time. And what I can say that as of the end of February, after accounting for those two large cancellations that we outlined in the prepared remarks, we have more than $70 million of phase backlog and revenue coverage for 2022.

Frank Takkinen: Okay, that's helpful. And then maybe just as my second one, there's been some conversation about RFP volume headwinds and related to the end markets. Maybe just comment on, I think you kind of spoke to your qualified sales funnel being at the strongest spot, it's been company history. So maybe speak to that and how it relates to how you're feeling about current market dynamics, if any headwinds out there or anything of that nature?

David Coman: Okay. It's David. Hey, Frank. Thanks for calling in and how you doing?

Frank Takkinen: Very good. Thanks.

David Coman: Yes. So overall, our pipeline is - today its highest, it's ever been. So we're super excited about that. I think the other context on pipeline, I think is important is the composition a little bit. So we're seeing more - more than, you know, greater than $10 million deals on the table that we're targeting, which I think is exciting. It says a lot about the, you know, the opportunities that we're able to bring in. And really the model and the proof of the model actually works. So that's a really good dynamic. The other one is, if you take a look at what we saw in 2021, and about two thirds of our overall deals that we closed throughout the year were from repeat buyers, and the majority of those were from large to mid-size pharma companies. So I think all those dynamics really look really strong for us.

Frank Takkinen: Cool, perfect. I'll stop there. Thanks for taking my questions and congrats on the progress.

David Coman: Thanks a lot, Frank.

Operator: [Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to David for any closing remarks.

David Coman: Thanks. So you know, appreciate you guys joining us today. We're really excited about what we've been able to accomplish in 2021. It was a very strong year for us in terms of our ability to execute on the plan, in terms of delivering real value for our sponsors, in terms of delivering the results that we're building upon now in terms of our commercial organization, and being able to provide them with more proof points to go to market with. We're excited about the results. As you noted, we have exceeded in virtually every category in 2021, some of them far exceeding. We're excited about our future. And as we look to the back end of 2022, we're really excited about the limits [ph] that we have in our pipeline and the growth that sits here before us as we continue to execute our strategy. So with that, I will end the call and thank you guys so much for joining.

Operator: This does conclude the program. You may now disconnect. Everyone have a great day.