Medpace Aktie

Good day, ladies and gentlemen, and welcome to the Medpace First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, this call is being 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 First Quarter 2026 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 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 a 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 our 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.

Good day, everyone. Before reviewing Q1 results, I would like to acknowledge that this will be our last earnings call with Jesse Geiger, our President. I would like to thank Jesse for his 18.5 years of service. Thank you, Jesse.

Quarter 1 of 2026 saw cancellations rise again with backlog cancels reaching their highest point in over a year. Net bookings were below the level of -- seen in Q4, but well above those in Q1 2025 with a net book-to-bill ratio of 0.88. [indiscernible] RFPs were down in the quarter sequentially and year-over-year. Initial award notifications and win rate were strong. We continue to view the quality of opportunity flow as good. While there is nothing we can do to alter our cancellation rate, we are focused on expanding our pipeline of opportunities and have implemented a number of initiatives to improve our win rate. Jesse will now comment on Q1.

Good morning, everyone. Revenue for the first quarter of 2026 was $706.6 million, which represents a year-over-year increase of 26.5%. Net new business awards entering backlog in the first quarter increased 23.7% from the prior year to $618.4 million, resulting in a 0.88 net book-to-bill. Ending backlog as of March 31, 2026, was approximately $2.9 billion, an increase of 2.9% from the prior year. We project that approximately $1.94 billion of backlog will convert to revenue in the next 12 months, and backlog conversion in the first quarter was 23.3% of beginning backlog.

Now before I turn the call over to Kevin, I want to add that it has been a true honor to serve the company all of these years. I wish all of my Medpace colleagues well and I'm so proud of what we've accomplished together. And with that, I'll turn the call over to Kevin. Kevin?

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $706.6 million in the first quarter of 2026. This represented a year-over-year increase of 26.5% on a reported basis and 25.8% on a constant currency basis. EBITDA of $149.4 million increased 25.9% compared to $118.6 million in the first quarter of 2025. On a constant currency basis, first quarter EBITDA increased 28.6% compared to the prior year.

EBITDA margin for the first quarter was 21.1% compared to 21.2% in the prior year period as the impact of higher reimbursable costs were offset primarily by lower employee-related costs. In the first quarter of 2026, net income of $123.9 million increased 8.1% compared to net income of $114.6 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate in the quarter. Net income per diluted share for the quarter was $4.28 compared to $3.67 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 28% and 37%, respectively, of our last 12 months revenue.

In the first quarter, we generated $151.8 million in cash flow from operating activities, and our net days sales outstanding was negative 58.8 days. As of March 31, 2026, we had $652.7 million in cash. Our 2026 guidance ranges for revenue, EBITDA, net income and EPS are unchanged from our prior quarter based on an effective tax rate of 19% to 20% and interest income of $27.5 million. There are no additional share repurchases in our guidance.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions]

Our first question comes from Max Smock with William Blair.

Maybe just following up on the cancellations point. Obviously, I know you mentioned the highest that you've seen about in a year. Just wondering if you could dive into the dynamics behind those cancellations. I know last quarter, you called out not really macro-related, more project-specific. I'm wondering if that was the case here. in the first quarter? And then any detail you can provide around how cancellations have trended so far in the second quarter? And just any other drivers in terms of therapeutic modality indication, any sort of themes behind outsized cancellations that you saw here in the first quarter.

Yes. Sure. Yes. So cancellations were, again, just the kind of random stuff you'd expect product performance, re-prioritizations, etc. It wasn't particularly informed by acute financial shortages or anything like that. So it was just kind of a usual thing, but higher than historically, we've kind of averaged and gave pressure on our book-to-bill. Cancellations in the quarter were, I think, the largest therapeutic areas kind of where oncology and cardiovascular, which is kind of usual anyway. So really nothing to call out there. And second quarter, it's really, I think, too early to get any kind of read on cancellation rate and whether it's going to be high again in Q2. I just have -- I think it's too early to make any kind of assessment of that.

Yes. Understood. Maybe following up on and sticking on the cancellation theme. I think last quarter, you also mentioned cancellations were both in terms of your backlog, but also in that initial awards bucket. I know a couple of quarters ago, you called out I think the initial awards bucket, you had about $4 billion worth of signed work in there. Just wondering if you can provide any update around cancellations out of that bucket in particular and where in that bucket -- the size of that bucket today relative to maybe that $4 billion that we were at a couple of quarters ago. Just trying to get a sense for your visibility and level of confidence into that initial awards bucket converting into backlog moving forward here?

Yes. Look, we're not going to get into kind of our pipeline size, et cetera. We've never quantified that really. Cancellations in that bucket, though, were not particularly elevated in the quarter in Q1. So it was more backlog-related cancellations that were problematic for us. So I don't think that impairs our future -- things rolling into backlog. But I think the last couple of quarters of high cancellations overall and across everything, including that bucket before our pipeline of opportunities in prior quarters does influence it, but that was not a particular factor this quarter.

Obviously, the higher cancellations take away from the total revenue opportunities in the year. But future conversion, hopefully, with a reduction in cancellations, if we hopefully see that can proceed at a kind of more normalized rate.

Our next question comes from David Windley with Jefferies.

I wanted to clarify on the cancellations comment to Max's question, August. You said oncology and cardiovascular. I believe you all would treat cardiovascular independent of metabolic, and I just want to make sure I heard that right and that we're interpreting that correctly. So metabolic cancellations were actually not part of your call-out. Is that correct?

That's correct. And we break out our therapeutic areas and our earnings release in our ...

In the deck, yes.

Our presentation, yes, the deck that comes with it. And cardiovascular, yes, is separate from metabolic. I mean obviously, there are programs that are sometimes very -- one product if it's cardiovascular-focused versus metabolic sometimes there's a little bit of overlap, but we do break it.

Yes. So I think a concern, market concern is metabolic has been a significant revenue growth driver as evidenced by the pie chart that you included in the deck as you referenced, and I think the call-out on the fairly sizable cancellation that shaded down bookings, net bookings last quarter was metabolic. And so maybe you could speak to -- I think I asked you this last quarter, but is there a -- do you have a GLP-1 concentration that is becoming more volatile, perhaps because of changes in price in the market dominance by a couple of players that would cause biotech to think twice about whether pursuing GLP-1s. That's, I think, a thesis that is out there. And I wondered if you could provide some color as to whether you have that exposure or not.

Yes. I mean certainly, we have -- I think we've talked about that 50% of our -- I think we talked about 50% of our obesity work was GLP-1 directly related, et cetera and gave a few metrics on that last quarter. But yes, I mean, there's -- we got a fair amount of work there, but I don't really see that as more volatile. I think in terms of new opportunities, there may be some truth to what you say in terms of the market becoming a bit saturated and competitive and pricing sensitive. But it has not resulted in higher cancellations and even in our -- even in pre-backlog. We've not -- and you have to realize metabolic actually -- if you look at -- historically, quarter-to-quarter, look at cancellations as a percent of opening backlog just like we do for our total backlog percentage cancellation.

Of all the therapeutic areas we break out, metabolic has the lowest historically cancellation rate. Metabolic is actually -- last quarter because metabolic is large, and it happened to be a little bit of an uptick and oncology had a little bit of a downtick in percentage, metabolic happened to be higher. But generally, oncology is a riskier field and has more cancellations. So -- and I just do not see the -- I do see the disruption that you've kind of described and maybe others are seeing. GLP-1, there's a lot of work. There's a lot of stuff. It's actually a pretty safe therapeutic area for us and things are very are going fine.

Okay. That's helpful. Last one for me. On kind of the revenue guidance and cadence, given the immediacy of your bookings recognition to revenue. I mean your project -- when you recognize the booking, the project is kind of already going and you're highlighting higher cancellations of sub-1 book-to-bill, you're maintaining the revenue guidance, perhaps you or Kevin could speak to the kind of the durability or the ability to hold the revenue where it is despite backlog not really growing?

Yes. I got Kevin talk in a minute. But just on service of it, under 606, revenue is a tough one. We've not been really great at predicting just when pass-through investigator costs are going to hit, and they are a larger portion of things lately. And so that's -- look, that's always a risk, but our current modeling is we're going to be within our guidance range on revenue despite [indiscernible]. But certainly, we have to worry about future cancellations.

Dave, August is exactly right. Despite the headwind from cancellations that we saw in the first quarter, we feel very good about the range that we have out there, which is why we reconfirmed guidance. Certainly, future cancellations could potentially impact that because cancellations have a more near-term impact on that. But right now, we feel good about the guidance ranges that we have out there.

Our next question comes from Ann Hynes with Mizuho.

Great. And good luck, Jesse. Was nice working with you. On the gross booking side, can you give us what the gross bookings grew and if it was in line with your internal expectations?

With gross bookings -- we don't break out gross bookings from -- we just report on net bookings.

But directionally, was it in line?

So was it overwhelmingly cancellations that drove us down from what would have been a great book-to-bill? No, new gross awards were also on the low end, and that's why -- so it was a combination of the two, both cancellations and weak gross bookings, obviously, impacted by prior pre-backlog cancellations in the past.

Okay. And then I get the question a lot. There's a lot of biopharma M&A buying biotech, do you have any -- like how should we view your exposure to that going forward? And if a big pharma purchased one of your biotech companies, what happens in that scenario to current trials?

Well, that's frustrating, and it happens all the time. It's not -- and it's happened in the recent past, and it continues to happen. Clients of ours get acquired. Generally speaking, we are cut out on future work. It's a loss for us. Usually, the ongoing work we continue with, although there's even cases where based on times decide they're going to fold that into their current provider or internal resources. So acquisitions are not good for us? No, but it happens all the time, and we have a very broad portfolio of clients. And so it's something we work around.

Our next question comes from Charles Rhyee with TD Cowen.

Maybe if I could first follow up on Ann's question. Would you attribute any sort of the heightened level of cancellations as a result of past M&A?

No, I don't think any of the cancellations we had in the quarter were related to any M&A activity, no. Maybe I'm wrong on some little smaller part, but that was not a driver of anything, no.

Okay. And then maybe just 2 more things around that. You talked about sort of what normally drives cancellations, other re-prioritization or drug failed, could you give us a sense for the mix in the cancellations perhaps between drugs that were canceled sort of in flight or because of futility or kind of canceled ahead of start because of sort of a change in direction by the sponsors?

Yes. No, we don't even track that because even categorize it is difficult because they're overlapping buckets. So no, I just don't have any real [indiscernible] just nothing struck us as specifically funding related, which we are sensitive to and try to get a feel for the overall funding levels in the market. But funding is always one of the factors, if everyone had unlimited resources, a lot of stuff would move forward that they're canceling because of product performance. But they're just so overlapping. We don't even try to break that out.

Got it. And one last quick one for me. In the bookings that you did for the -- in the net bookings, the level of pass-through revenues expected in the future work is that at the same current rate that you're seeing today? Or is it lower? So in other words, maybe there's a mix difference. And therefore, obviously, we have a higher level of pass-through revenues reported this quarter, but maybe as pass-through is expected in the new work a lot less, which could skew the metric.

Kevin?

Yes. Charles, I would say that in terms of the current bookings, I would say there's still somewhat of an influence in the higher pass-throughs. But as I had mentioned last quarter, I do expect pass-throughs as a percentage of revenue to end the year lower than what we started this year at. So we were pretty high this quarter, I don't know, 44% or so. I do expect that to come down as some of these metabolic studies wind down a little bit. But it all depends on kind of future work and future bookings as well.

Our next question comes from Eric Coldwell with Baird.

I'll hit this canceled topic a different way, bear with me. If you're -- so you have -- historically, you have an average cancellation rate, and I know there's lots of volatility around that, but you have an average. And I'm just curious, if cancels were averaged this quarter, understanding the gross awards were lower than you would like. But if the cancels were average, what kind of ZIP code book-to-bill would we have been looking at? Would it have been a [ 1.0 or 1.1 ]? Where would you have been if the cancels were just normal and all else constant.

Yes. And what normal was just kind of picked the middle of the range or something. I really haven't done that math, but Eric, I think directionally, yes, it would have been still a weak book-to-bill somewhere around 1, I would assume. So it wasn't just massive cancellations that knocked us down from a great 1.15 to 0.88. It was a mixture of the two.

And then if I could play off that a bit. Sometimes these rates are impacted by 1 larger, 2 larger, 3 larger cancels. What would be the quantum? If your largest cancel hadn't happened, would you have been normal? Was it 3, just trying to get a sense for it.

No. Yes, you're talking about several 2, 3, I mean to drive you over. But because there was no very large one or something like that, that drove it. But there are always -- some of them are meaningful in size. But no, there was no 1 or 2 that were outsized that drove it.

Okay. And then last one for...

Let me make one more comment. I say it was weak bookings and cancels kind of both were factors here. In fact cancels have been much better range. We would have had a better book-to-bill, but it would have been weak anyway. Even if cancels were relatively low, it would have been or book-to-bill. That low book-to-bill, I'd say, was something of just what's progressed and what's in pre-backlog and what's canceled there and never as matter moving forward, but also some things were just timing of things that move forward. And some of that you hope will eventually make it to backlog in future quarters.

Yes. No, that's understood. One last thing. The backlog that you showed to The Street, you have a next 12-month revenue visibility figure and a total backlog figure. You subtract the next 12-month visibility figure from the total over time. We've seen a deterioration in the backlog coverage that is beyond 1 year. So years 2 and years 3 and you've had 6 consecutive quarters of that number come down. And I'm just walk us through why there isn't -- I think you and I spoke a quarter or 2 ago about this view of this effectively being like a drug patent cliff for a big pharma or something that there's something looming a year plus away that's going to completely upend the revenue growth profile in the past, I sense that you weren't concerned about that, but The Street is.

And I'm just hoping you can talk us through the mindset of wising this plus 1-year backlog decline. Maybe it is now a concern for you, but I'd love it if you could talk through that thesis, that thought process, of why we shouldn't be so focused on this or maybe we should and what it would take to get that number going back in the right direction if you are concerned, but I think this is sort of the elephant in the room that a lot of people are looking at, and that would be helpful if you could really dig into that for us.

Yes. Sure. No. And I guess there is area for concern. I mean several quarters back, it wasn't a concern because our pre-backlog was growing so fast and I thought cancellations were coming down and going to be in a good place. That really frankly hasn't happened. Cancellations have continued to go on at a much higher rate, both in backlog and pre-backlog and it does now result in us facing a revenue. Just look at the Q1 versus the remainder of the year. We don't have revenue growth. We will, on a year-over-year basis, but not on a quarter sequential quarter basis. And '27 is, I don't know yet. I mean that's too far out at this point to really get a handle on. But yes, no, our growth profile both now and 6 months from now in terms of sequential growth is a real question.

We need either cancellations to abate or gross awards, new notifications and a bigger pipeline going forward. And that's why I talked about us trying to expand our pipeline and really kind of accommodate what could be a much higher cancellation rate than we're sort of used to in historical periods. But no, I mean, I can't dodge it and say, "Oh, yes, no, there's no issue there." Certainly, what we consider a reasonable growth rate is not projected on a sequential basis going forward.

Our next question comes from Jailendra Singh with Truist Securities.

I want to follow up on your comments earlier about RFP trends. I think you said that they were down year-over-year. Can you elaborate on that? Any particular areas you're seeing weakness? I mean, with biotech funding remaining stable over the past 8, 9 months, surprising to see RFP weakness. Just can you put -- give some more color on that?

Yes. It's hard to categorize what we're aware what sector, what therapeutic areas -- or what's weak, et cetera, I really don't have those kind of metrics. I don't even, frankly, pay a lot of attention to it. Now it is a focus of the industry overall and everybody talks about RFPs. And so I feel compelled to do it. But as I said many times in the past, I don't really pay a lot of attention to the numerical. Certainly, a long-term trend of decreasing RFPs is obviously not viable. But the bouncing around of RFPs is overwhelmed by the quality of the RFPs.

And there's always the question of is more RFPs means that they're just inviting more CROs to the same RFPs? Or are there really more RFPs out there? And just measuring it is very difficult and I tend to just ignore the numerical value on a sequential basis or single time points and focus on the quality of the opportunities we have.

And I believe we have very high-quality opportunities, and I haven't seen a deterioration of that. But I don't feel like we have talked about that sometimes in the past of real funding problems and a lot of just scenario planning and fundraising and all the rest of it that they're just looking for bids so that they can go out and then try to get it funded. That has happened in the past, and I do not see that in the present to a large extent. I mean, obviously, that's something that happens all the time, but the trend is actually pretty good. So I don't put a lot of stock in just the numerical value of RFPs that we see in a given quarter.

Just a quick clarification, but you don't see that the biotech CRO market has got more comparative in last, say, 6 months or so. I mean, we've heard about some of the large peers investing in biotech venture firms to help secure some early-stage biotic work. Just curious if that is having any impact? How do you think about the just industry competitive landscape, in particular for the last 6 or so months.

I don't know how to -- I mean I just don't know what the impact of that. I mean, how would I know? I don't even know what funds or where they might be doing -- they talk about being more active. And certainly, we have -- it's a very competitive market. I haven't seen a large change there. Certainly, what our biggest factor over the last 18 months has been cancellations, but we think we do have to work on our win rate. And is that due to increasing competitiveness? I don't know. It's just how do you measure that? I just don't have a way. But certainly, we would like to win more.

Fair point. And one last one. Last quarter, you mentioned that in 2026, you don't expect net productivity benefit from AI as investments would largely offset the gains. I mean given the continued advancements and growing interest in AI over the last few months, has there been any impact or any change in your thinking, how should we think about the potential impact, positive or negative of AI on your business internally?

Yes. I mean I just reiterate what I said before. I think that AI would either have to be so transformative as to just be ending our industry in the short term or just total hype for us to have savings in the next year or two. If AI is really something of value, which I believe it is, it's going to take a lot of investment to achieve that saving. And there is lots of opportunity because it's such a attractive area for improving overall process and efficiency, it's going to take a lot of investment. And if -- and the only reason we wouldn't do that investment is if we thought there was -- there's just some low-hanging fruit, we'll grab that, but it really is just a lot of hype then you'd see some efficiency. But no, I think the next 2 years at least, we're going to be investing more dollars in trying to achieve future benefit then we will gain in terms of efficiency. And I stand by that. I still think it's a few years out before we see any actual net benefit. Not that we won't see efficiencies even currently, we are. But I think the net benefit on it all, I think you're talking about for us, I think it's a few years out.

Our next question comes from Luke Sergott with Barclays.

This is Jake on for Luke. Thanks for the question. So I know large pharma isn't a big focus for you, but if they spend ahead of patent clicks and scoop up more of these biotechs and assuming the demand is less volatile, when would it make sense to take on more of this work? Or will it always make sense to prioritize biotech?

Yes. Look, we've made a strategic decision not to play in large pharma. To be there, you need to have very flexible model of delivery involving staffing and quite a bit of functional outsourcing. And that's pretty uniform across large pharma. They -- it's not to say that they don't do some full service outsourcing, but it's in a very different environment, and they expect their partners if you're going to be one to have all of those services. We've chosen not to do that. We chose not to do that, not because it's -- it's not an attractive area. It's because we think it does detract from some of our focus on full-service internal expertise and driving our own efficient process of clinical development that I think is a value to many virtual and smaller companies as opposed to a very large pharma that have a lot of systems and are more focused on how to incorporate their CROs into their system. So it is a different model in many ways. It's not unachievable, but it's something we've decided is not for us.

Our next question comes from Sean Dodge with BMO Capital Markets.

August, you mentioned in your prepared remarks some initiatives you're putting into place to improve your win rate. Maybe if you could just tell us a little bit more about what you're doing there and how quick kind of the pull-through on those could be in impacting gross wins?

Yes. I'm not going to get into individual things we're doing. I think that's just a little bit too much to push out to our competitors. But I just wanted to really express that we are focused on this, and we do see opportunities. So I wanted to just point out that we do believe there's opportunities to expand our -- both the pipeline and the win rate on our opportunities to really combat to higher cancellations should they continue on to get back to a growth rate that we want.

So it was more to really focus on that. In terms of timing, I'm hoping this -- over the next few quarters, we're going to see a real improvement. I think we already have, even in Q1, we had a good win rate. And so I'm hoping it's sustainable. And the things we've done and put in place and the enhancements we're making, improve our win rate meaningfully over the immediate term.

Okay. And then maybe taking that, just going back to the comments on the revenue outlook. You continue to hire in the quarter despite the cancellations and the softer gross wins. Just any more context you can share there, that seems to be signaling confidence that you will continue to grow revenue. But I guess maybe just some help squaring kind of the declining net wins with the increase in headcount.

I think you have it right there. That's the confidence. We're still hiring. I don't know how you get any more confident than that.

Our next question comes from Michael Cherny with Leerink Partners.

Maybe to flip the AI question a different way, August. As you engage with clients, do you see any commercial usage of AI being done by your clients right now? We see day by day, it seems like Anthropic and OpenAI continue to release modules designed to address clinical trial work, drug discovery. Is any of that factoring into the dynamics on what you think could be in play relative to the bookings performance and the challenges you noted relative to some of the slowdown in the quarter?

No, no. I don't think there's real applications that our clients are using, how they're impacting our interaction with them like everybody using AI in places many times embedded in other systems, et cetera. But I don't think it's anything that's affecting our provision of services or interaction with clients at the current time, no.

Got it. And I know you said, Kevin, no buyback in the guidance now, but given the way the stock has reacted to the earnings, any thoughts on just capacity and capability, not just from the authorization, but cash flow availability given clearly what's a [ decent amount ] of cash on the balance sheet?

Yes. I mean, certainly, we've got authorization in place. I think we've got a little bit over $800 million in authorization, and we'll continue to execute as we always have and look for opportunities to do that. So no, we will continue to execute on our planning strategy that we always have.

[Operator Instructions]

Our next question comes from Ryan Halsted with RBC.

Maybe just going back to SG&A. It looked like there was a pretty nice improvement sequentially. Can you talk a little bit about what drove the improvement? And then just how should we think about SG&A going forward, especially in light of the comments earlier that you're continuing to hire what are sort of the efficiencies? And how should we think about that going forward?

I mean SG&A was up slightly sequentially right?

Okay. So do you expect, though, that, again, with sort of the cancellations going forward and maybe in the past, you've talked about having some pretty strong retention of your professionals. Do you envision more operating efficiencies going forward?

Yes. I mean, certainly, because of the improved retention rates that we've seen that we continue to [indiscernible] efficiencies probably at a slower pace than we have if you look at guidance and the midpoint of guidance, margins to remain in a very good spot. But no, we continue to see some business because of that is reflected in our guidance.

Got it. Okay. And then maybe just trying to take another angle at the cancellations. I'm not sure if if you've commented on this in the past. But do you see within cancellations any trials that are suspended and maybe are outside of your bookings time horizon but have the potential to restart in the future?

Sure. Both with things in backlog and things in -- they haven't reached backlog. That's always one of the biggest risks, like there's always total cancellation risk, but one of the biggest risks is timing of it making it to backlog when it starts proceeding. Sometimes they award something, [ heck ], even before they've raised money to do the trial before well before they're ready to move forward on it or awarded it as part of series of studies that are based on each other. And so it's sequential. And so there's always a question whether things get pushed out or sometimes they can accelerate and come in quicker than we expected. But generally, if something happens, they get pushed out or canceled.

Got it. Okay. So sorry, just to follow up on that. So do you feel there's, I guess, confidence in your outlook in that perhaps some of those cancellations could resume within the year?

Yes. So to cancel, it's probably dead. I mean, look, things don't generally come back in the cancel bucket. But I'm just saying that there are things that didn't make it into backlog in a given quarter that might come in, in future quarters. We might have expected them to come in one quarter and they get delayed and get pushed into other quarters. And some of the stuff that's in backlog that gets put on hold. Yes, it could cancel -- I mean, we don't necessarily -- we don't cancel it because of that. We just hold it in backlog. It remains in backlog. You don't cancel it. It's just on hold for a period of time and then hopefully get started or maybe it does cancel in the future.

Our next question comes from Eric Coldwell with Baird.

I'm definitely expecting the snarky response on this because it's probably a bad question. But I'm curious what level of net book-to-bill you are using internally to help guide the revenue outlook that you do have? I know calling quarters is incredibly unreasonable, particularly at this point in April. You don't know what the cancels will be at this point. I get that. But you do have a forecast internally, and I'm just trying to level set what you're thinking and where you would be directionally steering those of us on the outside, so we don't get ahead of our skates here over the next quarter, next 3 quarters.

Yes. So first off, just book-to-bill. I mean, it's just a horrible measure. I mean, I get it, it's useful to see that the buckets filling at a rate that's commensurate with what's pouring out in the revenue that that you're either growth or nongrowth and future revenue opportunity. But under -- particularly under 606, and it -- you don't model things based on a book-to-bill. It's -- do we miss book-to-bill because revenue ran up so fast that it made our book-to-bill lower even though we exceeded on bookings in our expectation. I mean you miss on things that are good. We -- you missed that book-to-bill target because our revenue was so high. Is that a bad thing? It's a flawed measure of performance. It's a great measure to see if the buck is filling versus emptying. But there are different buckets, unfortunately, under 606. And you don't even know whether the good buckets actually filling while another buckets draining.

So I don't want to talk about book-to-bill. And I'm not going to give guide future book-to-bill for us. But we certainly do hope to have improving bookings over time. And I would assume that the book-to-bill, certainly 0.88, where things are contracting is not anything we would expect going forward. But the cancellations can drive you to lower levels occasionally.

Yes. I completely agree with you on the book-to-bill. I wish you could see my correspondence with investors on this topic. I'm 100% on board, but bookings dollars are important, and I was really hoping more for direction on that. You just did [ $618 million ] in the quarter. Are you internally, are you modeling [ $650 million, $700 million]. I'm just trying to get a sense on what your thinking the dollars will be, forget the ratio, what you need to do to be within this revenue guidance range for the year?

So we do anticipate that it will increase. But I don't want to quantify anything there. It's just not -- we're not going to guide with bookings in given quarters, and it's just too variable. I do anticipate it increase, but there's no guarantees on anything.

Yes. Fair enough. And then on the pre-backlog in the past, you've given some ballparks on that. And I think it wondered...

The only back quantify in terms of cancellations in there? Or do you mean in terms of magnitude?

The size of the free backlog, okay, [indiscernible] it hasn't moved into the 3-year window yet.

All right. So in response to kind of the moving parts and how we could have growth and I said that it was a comparable size to backlog itself and actually somewhat larger at the time. I think as I've said, but we've never tried to quantify that. And again, it's because it's so variable, but it's a size that is generally comparable to backlog.

Our next question comes from Justin Bowers with Deutsche Bank.

August, I'm just trying to understand some of the moving parts here on the gross versus net. And I think folks are a little confused on what we're seeing in like the broader macro environment and biotech funding and that's largely your customer base. And then in terms of like the bookings that we see now, it seems like realistically, if you take a step back, you guys have grown net bookings 25% year-over-year.

You could say you might be a little bit of a victim of your own success because of the outsized growth that you've had over the last year plus versus the rest of the industry. So is this [indiscernible] and you're calling out cancellations as well. But what about the overall gross environment? Was this an RFP sort of dynamic that you saw a win rate dynamic? It seems like your win rates were okay or actually stepping up. So is -- was it just the opportunities weren't there in the quarter or something else? Can you help us understand that?

Yes, sure. maybe there's a little confusion over where things happen. So in the current quarter, as I said, our wins, our awards were good, and our win rate was good, okay? So if we had a backlog policy that shows anything that we get awarded in a quarter as going into backlog as some CROs have done in the past. We would had a good book-to-bill. I don't know what it would have been, but it would have been -- I think people would be happy with it. But we don't -- because those awards are often just based upon future plans, and there's a lot to be done. And like I said, they might not even have money.

In our client base, it's not like a large pharma that hands over to one of their partners protocol on a study for a compound that they're ready to run with. Sometimes there's a lot of moving parts in -- with our clients and they award us something and it's going to be quite a while before it starts and there's quite a bit of risk that it never gets there, that never gets to start. So we don't recognize that into a backlog, which are things that are ongoing, okay? So that's stuff that we start up. And that's our backlog.

It's the future opportunity for projects that have started. But we have a lot of projects that are not started and may never start in this kind of pre-backlog. And so the quarter was good in terms of clients telling us that they've now got money, they've got plans or they're going to have money and they want to use us. But what is actually starting in the quarter is based on stuff that was awarded to us in prior quarters. I don't know, it could have been some of them 2 years ago. I mean some of it last quarter or the quarter before or whatever. And so there is a little bit of a disconnect between current environment and our bookings. And so what current environment is a better reflector on our bookings, I don't know, 2, 3 quarters out or so. I mean there's a lag. So does that close the -- does that answer the question?

Yes, that's helpful. And then maybe to just bridge that a little bit. It does sound like sort of awards or wins were good, but that's not starting any time soon. So then is it if we sort of zoom back to what Eric asked, the pre-backlog then, is that growing? Or has that been sort of like...

Yes. so pre-backlog did grow. We're just not going to give metrics on the size of the growth. I just 1 time said because there was this huge cliff people thought was happening, which like I said, I can't -- at this point, it's a greater risk than it was back then because cancellations have been so large. But I've said, I think that pre-backlog had grown by 30% or something. But we're not going to give percentage growth in pre-backlog. But yes, we had -- like I said, we had a good quarter in terms of new authorizations, not in the backlog, but just they're telling us they plan to use it in the future. If you add up all those into the pool group in the quarter.

Okay. That's helpful. And then just last one for me. In terms of those authorizations, is there a way -- or how do you sort of risk assess or risk adjust quality of those rewards. And is there any change in the trend that you're seeing, like between now and over the last few months or a few quarters.

Yes. So you're asking how we assess like for modeling backlog conversion -- conversion into backlog and future revenue? How do we assess that risk is what your risk cost asking about?

That end, like, let's say, how well capitalized or funded these programs are?

Well, that's part of the assessment of the likelihood of moving forward. So we do make an assessment of when we think something will progress based on a number of factors, but I don't have a -- we don't track like how many are in this bucket versus how many in that bucket and which ones are high risk versus low risk. I don't have any of those kind of metrics, but we do, on a project-by-project basis, estimate risk adjust, probability adjust opportunities and things in pre-backlog schedule when we think they're going to make it to backlog and when we realize revenue from them.

So we do have the planning tools for making a model around our bookings and our revenue. So that is true. But I don't have a whether there's been an increase in the number of projects that are in this category of very high risk and don't even think about it kind of stuff. I don't have any of that.

Our next question comes from David Windley with Jefferies.

At the risk of belaboring I was going to come back for one more. August, we've talked in some detail around the cadence -- your bookings policy and the cadence of award, and I just -- I still struggle to, I think, evangelize some of those things. So I want -- I'm going to say some things, and I'm hoping you'll confirm them. So number one, you've talked about on this call an award to a booking could be as short as 1 to 2 quarters or as long as a couple of years. You said to me in the past, the average is -- the inside range is maybe 3 to 5 quarters, so call it about a 4-quarter average from award to booking recognition. Do you agree with that?

Yes. I don't have in front of me the metrics, but that's kind of in the ballpark, yes.

Yes. Okay. And then for clarity, when you recognize a booking, I think we've talked in the past and you kind of alluded to this on public calls in the past that a booking for you is basically happening coincident with first patient in. Is that also consistent with your -- do you agree with that?

Yes, that's true.

Okay. So the audience understands then at that point, you have already not you, you, but the company, Medpace, has already done a fairly significant amount of setup work on the trial that is revrecable, correct at the time you're recognizing the booking.

That's frequently the case, yes.

Yes. Okay. So in the case of -- yes, sorry, is that somebody who wants to chime in? Or is that me? I'm hearing an echo -- sorry. So in the case of a cancellation where the client decides not to move forward. I mean, I guess I would interpret that, that doesn't really happen because they already have. Is that right?

No, it's not infrequent that somebody pulled the plug before we get the first patient in. It's very -- the costs are very small compared to launching the trial. So things do cancel at any stage right up to once patients are in, then it's usually -- it has to be something. I mean, it big. The toxicity, some failure of the compound. But once you invested that, it's generally you don't pull patients off of the drug. Just before patients in, it's much higher risk. But you're right, we generally have, though, a very limited LOI, some start-up task order that is covering the costs that might be going before the study fully launches. And sometimes, we have a contract. But very often, we have something covering us and limits their amount of liability to some X number of dollars and they could pull the plug, yes, sure.

Okay. But in that case, where the client is deciding to pull the plug before first patient in, more times than not, that's a pre-backlog cancellation, not a backlog cancellation like you haven't got...

Yes. No, I'm sorry. If you're talking about just backlog, yes, that's -- we they expanded quite a bit of resources. And when it gets to the point where the quarter in which it goes into backlog, they've expanded a lot of resources, and that's highly unlikely to cancel. But I'm just saying that 3 quarters before first patient in, the amount of work we might have done, so work in terms of some regulatory work and other things, but the investment is relatively small, and they could cancel that.

Right, and I understand I'm belaboring the point. But so the -- in the case like this quarter where cancellations of backlog were relatively high, and you answered to Eric, it's not just one, it's several. Those are trials that have patients in the study that the client has chosen to cancel and those can happen because of futility of the drug or things like that. But more often -- I guess I'm asking in this quarter, in this particular case, what does drive the higher cancellation because those study -- asking in the context of those studies having advanced as far as they have in order for them to have already gotten into backlog.

Yes, generally, product failure. I mean look, oncology happens all the time. They got -- it's not working. And it's got multiple phases possibly of it. And it's in there rolling on into the next, et cetera, or just -- it just get canceled because there's unexpected toxicity. But it's also sometimes go really well. And you finish early. You recruit faster. And there's a cancellation because the budget was for a 2-year study, because -- or 2 years of recruitment. And you recruit it in one year, actually, your client gets money back. The contract amount is reduced. So there's lots of ways in which the total budget might wind up being less than what you bid it at and put in backlog.

Got it. My last question for you on a completely different subject, and congrats to Jesse on the retirement. But August, what is -- I mean, I know this has been a lot of your life for a very long period of time, but what is your commitment to the company? How do you view your own longevity in your current role?

I was -- I don't view my longevity. Look, I don't know, look, I'm committed to the company. Obviously, very passionately interested in Medpace and its success. So I'm going to be here for quite a while. And I will retake duties as President as I had in the past. And I don't think there should be any kind of disruption or problem. We do have a very strong and deep management team and we will eventually have someone move to that spot, but it's not in the near term, but we do have plenty of management strength to continue to move Medpace forward.

Got it. Thank you for enduring my many additional questions.

Yes. No, thanks. Yes, I think our hour is up. I don't know where we are in the queue.

None left in queue.

Good.

I would like to turn the call back over 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 second quarter 2026 earnings call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Medpace Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being 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 Fourth Quarter and Full Year 2025 Earnings Conference Call. Also on the call today is our CEO, August Troendle; our President, Jesse Geiger; and our CFO, Kevin Brady.

During this teleconference, we 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 are discussed in our Form 10-K 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 the comparable GAAP measures, but we believe these measures help investors state 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.

Good day, everyone. Cancellations were elevated again in Q4. Backlog cancellations in absolute and percent terms were the highest they've been in over a year. This resulted in a lower than anticipated net book-to-bill ratio of 1.04.

The good news is that with a backlog conversion rate of 23.6%, our book-to-bill rate does not need to be very high to generate growth. I see no reason to expect the higher level of cancellations to continue, but did not anticipate the spike in Q4. Only time will tell. Good opportunities continue to present themselves and our rate to the overall business environment is adequate and headed in the right direction.

Jesse will now make some comments on Q4 and the year. Jesse?

Thank you, August. Good morning, everyone. Revenue in the fourth quarter of 2025 was $708.5 million, which represents a year-over-year increase of 32% and full year 2025 revenue was $2.53 billion, a 20% increase from 2024. Net new business awards entering backlog in the fourth quarter increased 39.1% from the prior year to $736.6 million, resulting in a 1.04 net book-to-bill. For the full year 2025, net new business awards were $2.65 billion, an increase of 18.7%. Ending backlog as of December 31, 2025, was approximately $3 billion, an increase of 4.3% from the prior year.

We project that approximately $1.9 billion of backlog will convert to revenue in the next 12 months. And our backlog conversion rate in the fourth quarter was 23.6% of beginning backlog.

With that, I will turn the call over to Kevin to review our financial performance in more detail and discuss our 2026 guidance. Kevin?

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $708.5 million in the fourth quarter of 2025. This represented a year-over-year increase of 32%. Full year 2025 revenue was $2.53 billion and increased 20% from 2024. EBITDA of $160.2 million increased 20% compared to $133.5 million in the fourth quarter of 2024. Full year EBITDA was $557.7 million and increased 16.1% from the comparable prior year period.

EBITDA margin for the fourth quarter was 22.6% compared to 24.9% in the prior year period. Full year EBITDA margin was 22% compared to 22.8% in the prior year. EBITDA margins were impacted by higher reimbursable cost activity driven by therapeutic mix. In the fourth quarter of 2025, net income of $135.1 million increased 15.5% compared to net income of $117 million in the prior year period. For full year 2025, net income was $451.1 million compared to $404.4 million in 2024, which represents an 11.6% increase. Net income growth below EBITDA growth was primarily driven by lower interest income compared to the prior year period as well as a slightly higher effective tax rate.

Net income per diluted share for the quarter was $4.67 compared to $3.67 in the prior year period. For the full year 2025, net income per diluted share was $15.28 compared to net income per diluted share of $12.63 in 2024. Regarding customer concentration, our top 5 and top 10 customers represent roughly 25% and 35%, respectively, of our full year 2025 revenue. In the fourth quarter, we generated $192.7 million in cash flow from operating activities, and our net days sales outstanding was negative 58.7 days. As of December 31, 2025, we had $497 million in cash. For the full year 2025, we repurchased 2.96 million shares were $912.9 million. At the end of the year, we had $821.7 million remaining under our share repurchase authorization program.

Moving now to our guidance for 2026. Full year 2026 total revenue is expected in the range of $2.755 billion to $2.855 billion, which represents growth of 8.9% to 12.8% over 2025 total revenue of $2.53 billion. Our 2026 EBITDA is expected in the range of $605 million to $635 million, representing growth of 8.5% to 13.9% compared to EBITDA of $557.7 million in 2025. We forecast 2026 net income in the range of $487 million to $511 million. This guidance assumes a full year 2026 effective tax rate of 18.5% to 19.5%. Interest income of $24.3 million and 29.2 million in diluted weighted average shares outstanding for 2026. There are no additional share repurchases in our guidance.

Earnings per diluted share is expected to be in the range of $16.68 to $17.50. Guidance is based on foreign exchange rates as of December 31, 2025.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions] Our first question will come from the line of Max Smock with William Blair.

It's Christine Rains on for Max. First one is, what is embedded in your guidance for revenue growth, excluding pass-throughs? Last quarter, I believe you alluded to high single-digit to low double-digit direct fee revenue growth in 2026. But wondering if your growth expectations for this component are now higher given your strong EBITDA guide? And also what you expect the cadence of this revenue growth to look like?

Yes. Christine, this is Kevin. We don't provide guidance on direct service revenue. What I can tell you though is that from a reimbursable cost expectation, it's consistent with what we shared back in October and that we expect it to be kind of in the 41% to 42% of revenue in '26, so slightly higher than what we finished here this year. From a [ cumulative ] cadence standpoint, nothing I'd call out in particular. I would say, in terms of revenue, I do expect that reimbursable costs will start the year higher as a percentage of revenue than when we end the year. And so that being said, I do expect maybe some flatter top line growth throughout the quarters than what we've experienced in past years.

Okay. That was a really helpful context. I notice here the acceleration in head count growth in the quarter, what do you expect head count growth to be in 2026? Should we expect this mid-single-digit growth cadence to continue? Or will you need an acceleration in hiring to support your 2026 outlook?

It's Jesse. We do expect accelerated growth. We anticipate hiring in '26 to be above '25 levels, somewhere in the mid- to high single-digit growth area.

Our next question comes from Justin Bowers with DB.

Just was hoping, can you sort of unpack the business environment and the commentary in the prepared remarks, like either quantifying activity or win rates? And then also, there was a pretty good funding quarter funding environment in the quarter as well. So can you just help us understand that?

Business environment was, as I said, reasonably good. RFPs, if they matter, we're a bit, both on quarter-over-quarter and year-over-year. But I don't think there's anything really to call out beyond that. It was a higher cancellation rate that led to us to miss our gross bookings have again, substantially better than last year and I think doing fine overall.

Okay. Is there any way to help us understand if the cancellations were normal, what the -- what sort of like the net bookings would be? And then with those cancellations, was that could you help characterize those a bit more? Was it in any therapeutic area or customer area, vintage?

No. Cancellations were a little bit skewed towards metabolic area, it's been growing quite a bit. So there were a higher level of cancellations there. Overall bookings have continued to be -- oncology are our strongest metabolic still there, but there were some elevated cancellations. So it was kind of otherwise relatively normal. I -- we're not providing what the booking would have been -- we don't give gross bookings, we're just netting them out kind of directional magnitude of cancellations, but they would have been substantially higher if we had cancellations in a nice range.

Our next question comes from the line of Ann Hynes with Mizuho Securities.

I just want to ask some more questions on just the cancellations. Can you remind us what your historical range is and maybe what it was this quarter versus maybe the height that you saw in 2024 early 2025? And again, I think in the past few quarters, cancellations have been very stable. Is this driven by like maybe the competitive environment, M&A? Is it widespread? Or is it just maybe one big client canceling something? So any more details would be great.

Sure. It's widespread. There was no single or a couple of very large projects that canceled. It's just a higher level of cancellations overall. Comparable to the past year, it was the highest level of cancellations out of backlog. If you combine backlog and kind of our entire portfolio, I think Q1 was a little bit worse because we had such a high cancellation among projects that had been awarded but were not yet recognized. But it was a high level overall. And again, pretty widespread. I don't know the -- I have no -- there's no pattern to it to discern. It was just kind of the usual random stuff that was very heavily concentrated.

And then your revenue growth, maybe what are you assuming just the cancellation trends for the remainder of the year? And I know burn rate is very strong. Maybe what's the driver of that? And what are you assuming in guidance for the rest of the year for burn rate?

We're not going to guide to burn rate. Right, Kevin, do you want to say something?

Yes. No. We -- to August point, we don't guide to burn rate. It's just not something that we do here.

Our next question comes from the line of David Windley with Jefferies.

August, I wanted to kind of philosophically ask around therapeutic area concentration. You mentioned oncology being very strong and metabolic right behind it. And as people have seen and you've highlighted metabolic has been on this very steep growth ramp. I guess to me, the difference between those 2 areas is like oncology is spread across tens, if not hundreds of different kind of microindications, and metabolic seems to be very concentrated in diabetes and obesity. And so I wondered how you think about the concentration risk in metabolic and the crowding and the potential for cancellations like you apparently just saw because people say, we don't have enough differentiation?

Yes. And another big area is [ NASH ]. And there are a few others that for us are meaningful. But yes, it is a late heavily kind of toward the obesity, diabetes area specifically. I don't think we're at a level of over concentration that that's a big worry. It will be -- metabolic will be decreasing as a percent of our revenue next year, I think. So I think it's going to kind of somewhat normalize heading towards more normal range, but I don't really see that as a big risk for us at this time. Does that answer your question, Dave?

I think it does. Yes, I think it does. I guess exploring the pass-throughs, I think I understand that these metabolic trials carry relatively high pass-throughs. And so it seems to track that your rapid growth in metabolic has also then contributed to the rapid growth in pass-throughs as a percentage of revenue. And I think Kevin kind of referenced this and maybe the cancellation in metabolic is also what makes that moderate as you go through the year. Is that right?

Yes, that's absolutely right. I mean in terms of pass-throughs, they have been driven largely by our metabolic programs. And we do expect them to start to normalize in this next year. And it does provide a headwind to overall revenue growth, but that will be more direct revenue, I guess, which is fine. So yes, I think that's correct.

Got it. And if I could just sneak one clarification on this end. To what extent -- like pass-throughs have outstripped your expectations in '25. To what extent is kind of -- is that underlying like site level inflation and things like that, that you're having to rebudget and add and therefore, those adjustments are kind of going directly into backlog and right into revenue and kind of the pass-through outstripping is what's driving this higher burn rate? How much would you attribute to that?

Almost none. I think this is not an issue of sites changing, getting more -- it is we're known to be very high pass-through projects going in. They just -- the design of the project is just very heavy on investigator fees. And our -- I think the characteristics of the stage of the project and what is what is burning overall in our backlog does cause our conversion rate to shift around quite a bit as we get other projects that don't have as much relatively short duration, high burn that are being added have been awarded quarter-to-quarter, but it's not, I think, just the addition of pass-throughs.

It's the study itself has been opened up. And there were some issues with recognizing it in backlog because of uncertainty of the program and stuff. And those relatively short-term programs come on, okay, you got to get awards and they burn rather quickly. I think that will normalize over time, and it is driven partly by the metabolic studies that we have, but not specifically because of a change in the expectation at sites.

Our next question will come from the line of Charles Rhyee with TD Cowen.

Maybe just 2 clarifications, if I could. Kevin, you mentioned earlier that you expect pass-through revenues to be higher at the start of the year than at the end of the year. Does that suggest that you expect lower metabolic mix as you exit '26? And then second question being -- and maybe just a little bit of a follow-up to David's question. The way I understand how you think about that -- what goes into backlog versus when you talk about stuff getting canceled in our pre-backlog. So cancellations were broad-based, but elevated. Were these cancellations less about funding and maybe more from other trials failing or decisions by sponsors to abandon programs?

Maybe I'll take your first question, Charles, just in terms of reimbursables, and I do expect it to start the year higher. So we get to August comments, we do expect some of that metabolic shift to slow down a little bit. I wouldn't say it's materially so, but we do expect it to slow down a little bit. What was your second question, Charles?

Yes. I was just trying to understand, you talked about backlog versus pre-backlog. And my understanding was that pre-backlog cancellations is perhaps more of a funding issue. But if something is canceling out of backlog itself, that's probably more of a -- is that more of an issue that other trial maybe wasn't successful or -- and so is canceled or sponsors actually decide to abandon a program?

Yes. I mean that's the case. Things that start up a restructure, they change, they decide to end a study early. So there were a number of studies ended early because of compound performance. So yes, but I don't think there was no like pattern, and it wasn't just 1 or 2 very large projects.

Our next question comes from the line of Sean Dodge with BMO Capital Markets.

Maybe just on guidance, if you could help us with some of the margin puts and takes. At the midpoint, you have about 10 basis points of margin expansion for the year, and that's despite -- I know you all said accelerating hiring for the year, maybe a bit higher percentage for the year pass-throughs. How much pressure do you expect those to create? And then the offset, is it just predominantly more productivity gains you can drive and then where those productivity gains expected to come from? Is it technology, offshoring, something else?

Yes. Just -- and maybe just in terms of our guidance range, you're kind of at the midpoint, it assumes kind of no cancellation rates. As Jesse mentioned, from a hiring perspective, we expect to be in the mid high single digits, which is lower than the expectation on revenue growth. And so what's driving that is just continued expectation that we continue to see good retention throughout 2026, which enables the productivity that we've seen throughout 2025 and exiting 2024. And so it enables us to hire higher, but at a slower rate.

So it's not that I would say that we've got major cost savings initiatives that are out there. We're certainly not planning on restructuring. We always look for ways to operate in a more efficient way. And so that contributes to some of that margin improvement around the edges. But by and large, it's going to be driven by just slower hiring ability on good retention.

And utilization overall. We also have laboratory operations, which are not huge, but utilization in lab is up test. So it's across the board. We've had good proven activity.

Yes. Okay. And then maybe just one on AI since perceptions around that have had a pretty big impact on the space over the last weaker. So just maybe any thoughts you can share on how big of a technological step change you think this is for the space over the next few years? And then to what extent you think that's a longer-term net positive or negative from Medpace and how we're -- are you all positioning? Are you a little bit more insulated just given the kind of the nature of your client base? How are you positioned for this? Are you investing around that?

Yes. I'll address it a little bit. Look, I think it's too early to know what kind of changes. I do think that they will occur slowly. I would not anticipate really any productivity advantage overall net advantage to AI applications in 2026. And I think that's not because we're not rolling out and doing a lot of things in AI. It's that I think the investment is going to at least equal the benefits seen in this first year of kind of rolling out applications.

Where this goes in terms of how much productivity enhancement there is in the long term and what that means to us. I mean I do think that the productivity advances are going to be the -- part of it's going to be rent to the providers of the models, et cetera, but are going to be benefits to clients. And what that means in terms of encouraging more development, et cetera. But overall, you think on the surface of it, it's negative to a service company that makes money by providing staff to perform work that is now made more efficient. But I think that the timing of this, it's going to take years. Just what that means, what the opportunities for us are difficult to see.

I don't really think we have, say, barriers to prevent. I mean, we're hoping to use AI in a lot of applications. We hope it does improve our productivity. And that means potentially in the long run, fewer staff otherwise have, and that means a little bit less revenue than you would have otherwise had, at least net revenue.

Our next question comes from the line of Jailendra Singh with Truist Securities.

So outside of cancellation of spike you guys called out, did you see any slowdown in decision-making or business moving from pre-backlog to backlog within pre-backlog?

I'm sorry, changes between pre-backlog and backlog?

Yes, in general, in terms of decision-making, like are projects being getting delayed or like the way moving from pre-backlog to backlog. Is that -- is the business still moving at the same pace outside of cancellation?

Look, I think things are moving along pretty well. There isn't at least incremental sudden change the progression of product nothing seizing up or anything like that. So I think things are relatively normal. You always have cases where some things are held or are slowed down for whatever reasons, drug availability, some they're waiting on results or something. There's always reasons why things can progress into backlog slower than anticipated. They can change the design of the trial, you have to -- then rework things before you get it launched.

But I don't see any real trend there in terms of -- in the past, sometimes we've seen because of funding a seize up in a lot of things that prevents them from moving forward. We're not seeing that at this time.

Okay. And then my follow-up, just in general about the competitive landscape, as you guys have called out about the top 3 CROs kind of getting more aggressive in the market. Have you seen them kind of continuing to be aggressive in terms of broadening their focused biotech or in terms of price? Has that had any impact on your win rate? Just give us a little bit more flavor about the landscape in general with these top players getting the space.

Yes. I don't think there's anything to say there. I mean, I know they're more aggressively interested in the space because they say they are. But they've been involved in the space all along. And I don't really see a large change in the dynamic. So it's hard for me to know. I do not perceive a difference. We see the same competitors in the space, and it seems to be the same as it was 5 years ago.

Our next question comes from the line of Dan Leonard with UBS.

My first question, it looked like from your disclosure that you had a pretty good quarter in large pharma revenue growth. Was there anything unusual to call out there? And would that be sustainable?

Yes, Dan, nothing to really call out. I think it might have changed a percentage point, but nothing to call out there. It's not a focus, large pharma is not a focus for us.

And a follow-up on that AI topic. August, you mentioned that 2026 is the first year you're rolling out applications. Can you elaborate on that comment? What are you rolling out this year? And what do you anticipate? What are you trying to accomplish?

Yes. I don't think we're just going here. Jesse, do you want to comment on that?

Yes. I would just say, in general, I mean, they fall into 2 categories. One, just a number of different initiatives that are targeted on improving efficiency, and that -- the blurry line between like what do you call [indiscernible] that's really tech-enabled support were different things across the organization that are focused in that category. And then the other category would be assisting with data analytics for feasibility site selection and helping the team there with some AI-enabled tech. That's where we're starting.

Our next question will come from the line of Luke Sergott with Barclays.

I just wanted to kind of follow up on Dave and the kind of the margin questions. So as we like -- can you help us understand the near-term levers that you have to pull as the project starts to ramp on? And what I really want to get at is, let's assume you get some type of booking a year ago and your assumption is that these are the types of resources that you're going to need to execute this trial. And as that ramps, it starts to either come out that you can actually use less resources or more resources? I just want to understand like your flexibility to ramp here. And this is, I think, important as you think about the overall mix of the bookings and how this has changed from a burn rate and capacity needs as you get -- as metabolic and the like continue to gain share?

Yes. I mean in terms of our -- just remember that in terms of our business model, we like to hire heads because we are a training shop. We'd like to train and develop our people. And when you've got larger attrition rates, right, you're having to replace those individuals that you're leaving plus onboard new people. And so what we've seen over the last year or so is that with improved retention rates, you're having to do less of that training. You're only training the ones that are coming in. And because of that, you're seeing more improved productivity because you're spending less time on training and development, and you've got more experienced individuals and staff that are on site.

So we continue to operate under that business model of hiring ahead, and we'll continue to do that, but it's at levels that are less than what we had to do 2 years ago. So what you're seeing is that productivity and that improved utilization continue to play through for us.

All right. Great. And then I guess from performance obligations over the -- that are over 3 years long, have continued to kind of trend down here off of like your peak of 4Q '24. I assume obviously that most of this probably do with the faster burning business. But anything else going here is like, is there a change in the duration of these trials or the type of work that's going on?

It certainly was an average change in the duration of our trials because we had this substantial ramp in metabolic trials and a number of trials overall that were shorter, but that kind of changes over time. I don't think there's a change in a particular class of trial. I just think it's a change in the mix of trials that we've had in the last few years, last year, particularly. But I don't think there's a long-term train trend in terms of trial duration changing for a given indication and stage of a trial.

Our next question will come from the line of Michael Cherny with Leerink Partners.

This is Dan Clark on for Mike. Just wanted to ask about pricing. How did that look in your new awards in 4Q? And how are you thinking about that for 2026?

I don't think pricing is -- our pricing on net has changed materially over time. So I don't think it should have an impact on margin. I think our margin is going to be maintained. I mean, given all the other factors, it's not going to be a drive margin changes.

Okay. Got it. And then just one more on AI. When you're talking to customers or involved in RFPs, what are they kind of focused on, if anything, from an angle?

I was going to say it's a balanced conversation because we do take a very measured approach to AI. We want to balance the benefits with risk management and ensure that, a, we have quality adoption; and b, that we're not putting any of their information at risk. And so the conversations are kind of twofold. One, what are we doing with AI to help with their studies. And at the same time, how are we being good stewards of data to make sure that we continue with high quality and confidentiality.

Our next question comes from the line of [ Jay Lewis ] with Baird.

I was wondering if you could give us any more color on the new signings in the fourth quarter, that tranche of business that would have largely moved into your pre-backlog. And could you give any quantification on that pre-backlog and maybe how much it's up year-over-year, quarter-over-quarter?

Yes. We don't provide details on that. Q4 was a bit light on -- as was the prior Q4, but we don't give exact magnitude on that.

Okay. And then could you speak to the impacts that you've seen from this accelerating M&A environment with the large pharma buying your clients and any impact that may have had on your revenue, your bookings over your future revenue projections?

I'm sorry, what would have impact?

Yes, accelerating M&A environment with large pharma buying some of your clients?

Yes. It's obviously a potential our clients -- a number of our clients have been purchased in the past year continue to be. But we have a pretty broad base of clients. So I don't anticipate that to be an issue. Generally, we don't lose the work that we're doing with the client. We generally lose the client long term, and they get incorporated into a large pharma. But it's generally not a short-term risk, but it happens not infrequently.

Thank you. And I would now like to hand the conference back over to Lauren Morris for 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 first quarter 2026 earnings call.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Good day, ladies and gentlemen, and welcome to the Medpace Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being 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 2025 Earnings Conference Call. Also on the call today are 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 they 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 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 a 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.

Good day, everyone. Cancellations were well behaved in Q3, permitting record net bookings and a net book-to-bill of 1.20. RFP quality remains solid with decisions progressing on a usual tempo. Initial award notifications were strong, and our total dollar value awarded work not yet recognized in the backlog was up approximately 30% in Q3 on a year-over-year basis. We are making good progress towards refilling our pipeline of opportunities. We will provide 2026 guidance when we report full year 2025 results in February. However, I will provide a brief preliminary view in an attempt to avoid significant divergence between our view and analyst models. We anticipate 2026 revenue to grow in a low double-digit range offer updated 2025 full year guidance. We expect EBITDA to grow at a high single-digit pace or greater. We believe pass-through costs will remain high compared to historical levels and represent between 41% and 42% of revenue.

Jesse will now provide comments on the Q. Jesse?

Thank you, August. Good morning, everyone. Revenue in the third quarter of 2025 was $659.9 million, which represents a year-over-year increase of 23.7%. Net new business awards entering backlog in the third quarter increased 47.9% from the prior year to $789.6 million, resulting in a 1.20 net book-to-bill.

Ending backlog as of September 30, 2025, was approximately $3 billion, an increase of 2.5% from the prior year. We project that approximately $1.84 billion of backlog will convert to revenue in the next 12 months, and our backlog conversion in the third quarter was 23% of beginning backlog.

With that, I'll turn the call over to Kevin to review our financial performance in more detail as well as our guidance expectations for the balance of 2025. Kevin?

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $659.9 million in the third quarter of 2025. This represented a year-over-year increase of 23.7%. Revenue for the 9 months ended September 30, 2025, was $1.82 billion, an increase 15.9%.

As expected, revenue for the quarter was favorably impacted by higher reimbursable cost activity, particularly investigator sites, driven by a therapeutic mix shift to faster burning studies in areas which have a higher concentration of reimbursable costs. EBITDA of $148.4 million increased 24.9% compared to $118.8 million in the third quarter of 2024. Year-to-date EBITDA was $397.5 million and increased 14.7% from the comparable prior year period. EBITDA margin for the third quarter was 22.5% compared to 22.3% in the prior year period. Year-to-date EBITDA margin was 21.8% compared to 22% in the prior year period.

EBITDA margins benefited from productivity and lower employee-related costs, offset by higher reimbursable costs. In the third quarter of 2025, net income of $111.1 million, increased 15.3% compared to net income of $96.4 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate and lower interest income compared to the prior year period.

Net income per diluted share for the quarter was $3.86 compared to $3.01 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 23% and 33%, respectively, of our year-to-date revenue.

In the third quarter, we generated $246.2 million in cash flow from operating activities, and our net days sales outstanding was negative 64.3 days. During the quarter, we repurchased approximately 14,649 shares for $4.5 million. Year-to-date, we repurchased 2.96 million shares for $912.9 million. As of September 30, 2025, we had $821.7 million remaining under our share repurchase authorization program.

Moving now to our updated guidance for 2025. Full year 2025 total revenue is now expected in the range of $2.48 billion to $2.53 billion, representing growth of 17.6% to 20% over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is now expected in the range of $545 million to $555 million, representing growth of 13.5% to 15.6% compared to EBITDA of $480.2 million in 2024.

We forecast 2025 net income in the range of $431 million to $439 million. This guidance assumes a full year 2025 effective tax rate of 18.25% to 18.75%, interest income of $12.2 million and 29.5 million diluted weighted average shares outstanding. There are no additional share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $14.60 to $14.86. Guidance is based on foreign exchange rates as of September 30, 2025.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions] Our first question comes from the line of Charles Rhyee with TD Cowen.

Obviously, congrats on the quarter here. When we think about sort of the kind of ranges that you've given for next year, how should we think about the pass-through in relation to maybe the increase in metabolic work? Obviously, we saw another increase here as a percent of total revenue to the 30% in the third quarter from 25% in the first half, but you're still calling out for pass-throughs to remain stable in '26 at that sort of 41% to 42% range. When we think out of your current bookings, are you seeing less metabolic trials compared to your current burn? Or should we expect to see some kind of leveling off in terms of the higher metabolic mix?

Yes. I think over the course of '26, it will level up some and might even come down a little bit. But -- and it isn't just the shift to metabolic studies, that is the largest driver, which we've talked about, of course. But timing of projects and having a lot of late-stage projects in the -- in what we're burning as we're going to start ramping up new studies. New studies are -- even if they had the same mix of pass-through costs, there's greater direct costs incurred earlier in a trial. I mean pass-through costs are late in the trial. A trial starts and -- some trials, you can get halfway through the trial, in terms of direct fees, and we've earned half of the revenue from our activities, and we haven't paid sites anything hardly. It's start-up. If it's a very short trial, and startup is a big part of it. .

So the pass-through parts of a trial are backloaded. So if you have a backloaded portfolio stuff you're burning, you're going to have more pass-throughs as pass-through expenses at that time. So there's a number of things driving it. But yes, we do expect pass-through to maybe peak in Q4 or so and come down over '26.

And our next question comes from the line of Ann Hynes with Mizuho.

Thanks for the 2026 guidance. Typically, your EBITDA grows above your -- initial thoughts, okay. Yes. But typically, your EBITDA growth above revenue and it's growing lower, is that just because of the pass-through dynamic? Or is there something else going on? And within that, if you can just talk about the pricing environment, that would be great.

Yes. I think the driver there is the pass-throughs. I mean, look, there's a number of challenges to EBITDA, and that includes exchange rates and a number of factors. But Ann, the biggest factor, I think, is the pass-through that challenges that a little bit. But pricing, look, we've talked and everyone's talked about pricing environment as things have slowed in the industry over the last couple of years, there has been a bigger focus on pricing.

Pure pricing is more an area for large pharma to get really aggressive at and has the clout to do it. It is an area of -- it's always a competitive environment. It's always top of mind, but -- and there has been a greater focus. And some clients just can't get the cash to make it work. And so you're looking for ways to help them get there. But I do not think pricing is going to drive a meaningful change in margins at all.

Our next question is going to come from the line of Michael Cherny with Leerink Partners.

Maybe if I can go back to your comment, August, on some of the pre-backlog filling, encouraging to see, especially given your customer base. As you think about what you're positioning with relative to your preliminary views on FY '26, how you think about the conversion rate of those, of the pre-backlog, your win rate? And how that should factor in relative to what you've seen over the last couple of years?

Yes. I mean, the conversion of how much of it's going to anticipated pull into revenue versus backlog, I really don't have that breakout. I provided the number to -- there has been some concern that our burn rate has gone up quite a bit, our backlog hasn't grown much this year. So it's low single digit, a couple of percent up over the past year. But I wanted to let people know that the overall pipeline of awarded studies -- I mean, I'm not just talking about pipeline of opportunities, of awarded studies, we got a fixed scope of work. We've negotiated the price on it. They've given us a written award of that, and it just hasn't gotten to the first patient in yet. So we may be working on it, et cetera. And it just hasn't gotten to first patient enrolled. And that's in our -- this bucket pre-backlog. And that is up 30%.

And this pre-backlog bucket of awarded -- firm award work is larger than our backlog itself and is up 30% over the year, so I think that puts us in a good position for refilling our backlog over the next year and not having what a number of people have described as some sort of air gap in our revenue growth and things will stall, we run out of backlog kind of. So we really are improving our opportunities for backlog conversion in '26 and revenue generation.

Our next question will come from the line of David Windley with Jefferies.

So that's good timing. I'll come in right behind that. So, August, in '23-'24, a lot of your peers saw their activity levels, which would be more akin to your kind of initial award timing moderate decline begin to feel the impact of lower funding. And then for you, that materialized for Medpace, I should say, that materialized in the weaker book-to-bill is more in the mid '24 timeframe as you saw some of that pre-backlog cancel out and not move forward, et cetera. So kind of the time -- same timing dynamic sets up for what was a pretty weak funding environment in the first half of '25, so your last answer may have been pointing at me specifically, I'll take that. Why is this time different?

I don't know. The difference -- a big difference is, this has been driven by cancellations, not weak business. There are many challenged clients and that does affect the business environment. And there's been a really -- highly unusual series of cancellations that we went through. But the business environment underlying it has always been pretty okay. Maybe you're saying, well, I'm not real strong compared to what it had been a few years ago, but it's pretty good. And despite all these huge cancellations out of this pre-backlog awarded study bucket, despite all of those, we still grew that bucket by 30% over the last year. It would have grown much faster, and we'd have a much bigger backlog at this point if we hadn't had those cancellations. But the difference is this has been driven by cancellations, not really weak funding environment causing lack of opportunities.

Got it. And so then from kind of a metric cycling standpoint, you and I, after the last quarter talked about your burn rate kind of naturally increasing in at least some large part because you hadn't been adding a lot of early, new to start studies into the, call it, the early part of the backlog. And so now you're getting into a period where it feels like that is probably going to happen, get healthier, more added to the backlog. And so I appreciate also the '26 commentary. If I were to kind of interpret, you would expect backlog to grow faster, burn rate to come down and then your need to -- and this is -- given my next question is your need to hire to support that growth is probably going to accelerate. Is that the right way to think about how the business is going to evolve?

Yes, I think that's a reasonable scenario.

And on the hiring, where -- we haven't talked about your beginnings of your offshoring activity that I think you started in 2024. How is that progressing? And where is your hiring happening? And that would be my last question.

Sure. So hiring in year-to-date and in the last quarter, the largest region of growth was North America and all that really United States. The second largest would be Asia Pac. The kind of 2 outlying areas that we've not really grown staff at all are Europe and China. And throughout Asia Pac, it's throughout Asia Pac, although our largest hiring area in Asia Pac as a single country was India. .

Over the last few years, starting, as you say, a couple of years back, we started hiring in India, and that has added a substantial number of staff over time, not compared to our overall numbers, but that's been a focus area in Asia Pac. So I think that it's pretty balanced, and most of the hiring recently has been U.S. and that's kind of a transition in the market. There's been more U.S.-focused work lately and a lot of the metabolic stuff is more U.S. focused. So that's been a very strong area of growth.

Our next question comes from the line of Max Smock with William Blair.

August, maybe 1 on the just expectations for book-to-bill here moving forward. You talked about initial awards being up 30% year-over-year. But based on kind of the midpoint of the guide, I think you need to do 55% growth in bookings in 4Q to put up a 1.2 book-to-bill in the quarter. Can you help us bridge that gap or maybe just elaborate on your booking expectations for 4Q? And what you've embedded in your guide for bookings in 2026?

Yes. We're not giving a guide to '26, and I don't know where the bookings you are going to come out. So I'm not going to get into -- trying to set them. We did say that second half of '25, we did think that we could get to 1.15. We thought a reasonable chance of getting there, and that's kind of where we're looking at towards Q4, is sort of the target. And I think that looks reasonable. But I'm not going to get into next year yet.

Maybe just following up on that point. I mean, 1.15 still kind of implies 45% plus bookings growth in 4Q, is that disconnect from the 30% growth in initial awards to that 45%, give or take, on net new business awards in 4Q? Is that disconnect? Is that typically there in a quarter? Like what's your visibility into that bookings in 4Q, given the initial awards up 30%?

Well, look, as I said, that bucket is a little bit bigger, and it's 30% growth, not 30% increase in awards. I'm talking about the total bucket is up 30%. Awards -- new awards were up sequentially a bit, but that's -- it's the total bucket, and how much of that has to -- is needed to drive a given booking number, I don't know.

Yes. Okay. That makes sense. Maybe just as a quick follow-up here. You gave some color on decisions progressing at a usual tempo. Just wondering how those decision-making timelines have changed more recently? And what you're hearing from customers around this confidence in the funding environment moving forward?

Yes. No. I think things are moving -- Q1, we had a sort of -- things were held up. We weren't getting our sort of pending RFPs, total dollar pending decisions, has kind of spiked and there was a lot of slowdown in things. And that's then improved quite a bit. And it's been now, I wouldn't say, yes, there's still a challenged -- funding challenges for clients. And so some are delayed, et cetera. But I think overall, things are going on a pretty reasonable pace, certainly, it's somewhat normalized.

I don't -- there isn't a big a large jump in sort of that pending work and people not making decisions and holding things up. So I think we're moving along -- things are moving along pretty well, and that's what we hear in terms of feedback. People are getting are getting funding. I think things are moving along. There's a parallel group that are stalled and having trouble, but we have the flexibility to jump where we need to be.

Our next question will come from the line of Jailendra Singh with Truist Securities.

First, a quick clarification on your preliminary 2026 growth expectations or numbers up. Just to clarify, that underlying assumption there is the environment looks similar to what you are seeing in Q3 in terms of bookings, flow and pipeline, like that's the underlying assumption. I want to make sure that.

Yes. We kind of always push forward the environment, but a lot of '26 is already kind of -- cancellations are the biggest sort of wildcard. But yes, you're right, the business environment, there still are things that -- to be newly awarded now that will affect next year. But kind of most of the pipeline is there, and the big question mark is cancellation rate. And what we're assuming is actually, it could be a little bit higher than where it has been this quarter and last quarter in Q3 and in Q2, but it doesn't jump up again to like levels of Q1 and Q4 and things like that. .

Okay. And then a quick follow-up on the margin trends. So thanks for the color on the growth number for next year. But outside of pass-through, as you think about the margins in the core direct service revenue business, can you talk about the leverage on gross margin and SG&A? You had a nice kind of improvement this quarter. Just trying to understand the trends there. And I mean, do you think that you're pretty much at the peak on this margin on the -- again, also the pass-through impact?

Yes. Jailendra, as August mentioned, you would provide some color on both revenue and EBITDA for 2026. And the margin for the most part is expected to remain in a very good spot. And so we're continuing to see improved productivity from our existing employee base. Some of that is just driven by improved attrition rates. They remain very low. Great utilization levels, and studies are progressing at a very good pace.

As we said in the third quarter, we are seeing improved funding, and with the fewer cancellations, things are progressing in a very good way. So we do expect margins to remain in a good spot in 2026, and it's really driven by just continued productivity of the business.

Our next question is going to come from the line of Dan Leonard with UBS.

I'm curious how you would describe the breadth of outperformance in Q3. Would you attribute the upside to a narrow set of 1 to 2 customers? Or was it broader than that?

In terms of what, revenue?

Yes, exactly. Just looking at the revenue in Q3 compared to Q2, it looks like the growth came in top 5, it came in metabolic. I'm just looking for color on breadth versus what otherwise might suggest that there was just a big trial that landed in the quarter?

Kevin, do you want to...

Yes. Dan, I'd say it's pretty broad-based. I mean, certainly, some of that was just influenced by the pass-throughs. I mean, pass-throughs continued to increase. I think, for the quarter, we were right around 42%. So that certainly had an influence. But then, also just the carryover of the improvements that we saw coming out of our conversation in Q2, where we saw improved funding in those studies progressing forward, the fewer cancellations in the second quarter, and that translating further into the third quarter. So it's pretty broad-based. I wouldn't say it's isolated to a handful of studies.

Okay. Appreciate that. And then just a quick follow-up. Do you need to accelerate head count growth further to service your sales forecast for next year? Or is that low single-digit growth rate in head count growth the right number?

We expect head count acceleration as we head into next year.

Our next question will come from the line of Luke Sergott with Barclays.

Great. I'm also 1 of those that thought that there would be an air pocket. I just want to talk about the competitive win rate that you guys are seeing. We're hearing from some of the larger CROs that typically have been played in that part of -- in your part of the market that they're going to start competing or entering or bidding on some of this business. So are you guys starting to see the likes of them show up? Or just any color around that?

Yes. They've always been there. I don't know about the additional effort or attention there. Certainly, there's a lot of talk about it, but we see the same players, and it is the large providers that we're often competing against. Our win rate has been okay. I mentioned last quarter, it was actually down a little bit. Awards were actually good because the total decisions were elevated. Our win rate did come back up this quarter. And some fewer number of decisions, but again, good awards. .

We don't see a trend towards greater competition causing our win rate to deteriorate. There has been some movement over the last year or so to bring more providers to an opportunity. So instead of what you often see was 3, maybe 4 CROs now is often it's 6 or even more. And so that obviously reduces the win rate a little bit for everybody. But I think you correct for those situations. And I think our competitive position is very strong.

Great. And then I guess a follow-up here, not to beat a dead horse, but on the burn rate and kind of how you're thinking about that through next year, where do you think that like -- not even through the end of next year, but where do you think that this kind of settles out, as we think about kind of the out years? Could it be more elevated versus what you had in, let's say, before it started ramping up in like the high teens?

Yes. I mean, I don't think we can answer that question in terms of the long term. It's a lot dependent on our mix of programs, where they are in their life cycle. It depends on your future bookings. If you go back to a couple of years, coming out of COVID, when our bookings were very strong, our burn rate came down quite a bit. So it is influenced by how things are progressing from award notifications into programs in the backlog. So it's hard to say. Our range has been quite wide. .

Our next question comes from the line of Justin Bowers with DB.

All right. So I just want to follow up on Luke's comment and your remarks on the win rate, obvious. You said fewer decisions, but good awards and the win rate was up. So are we to infer that your average award size was larger or more than substantial this quarter. So that's part one. And then part 2 is just can you give us a sense of how your conversion or retention or win rates have been trending, call it, over the last couple of years of programs that progress from Phase II to Phase III?

Yes. I don't think there's been any change in that. We -- that's -- it's kind of all over the map, but usually, we can progress from Phase II to III, but there's a lot of times that products within our clientele are sold or moved to someone else. And sometimes we also just don't win the Phase III. We're considered not strong enough in a particular market or something. I don't know that that's changed at all. .

Okay. And then in terms of the award size in the quarter?

Yes, I'm sorry. I don't actually have that. Anybody on the line have that?

It's pretty normal, I would say, Justin. There's been -- there were no significant decisions. And remember, decisions were notified as an award. Those don't go in the backlog, right? They fit into that kind of pre-backlog market. But I wouldn't say there was anything out of the ordinary in the quarter from a decision standpoint. .

And then in terms of the pre backlog, how does that -- how does the therapeutic mix of that compare to the revenue that you're showing right now? So just sort of frame things a little bit, like oncology is 30% -- was 30% in 3Q and like metabolic was 27%. When you look at the pre-backlog, is it over-indexed or under-indexed relative to those 2 therapeutic areas?

It's over-indexed in metabolic as you might expect.

Massively, but there is a -- it's a higher proportion. And that, again, fits in with what we're currently seeing and burning. .

Our next question will come from the line of Eric Coldwell with Baird.

I have maybe 3. First, on the preliminary views of 2026 talking about the revenue outlook. If we run various inputs on what the fourth quarter service revenue might look like and then also what does low double-digit growth mean and 41% to 42% pass-throughs, you can run various scenarios. They all lead to service revenue implied growth or preliminary view growth of being somewhere in the upper mid-single digits to low double digits growth. Is that your interpretation as well? Or am I missing something?

I believe your math. All right, Kevin, do you want to comment on that?

Eric, could you say that again, up mid double digit...

I don't know if you're going to do $400 million of -- sorry, go ahead. .

Go ahead. Say it again.

Yes. Look, I mean, it's going to be annoying on the call here, but I don't know if you're going to do $400 million of service revenue in Q4, $410 million. I don't know what that number is. So there's various bases from which we have to grow. But if I model low double-digit revenue growth, and I take it all the way up to 12.5%, which is my view of the low end of low double -- or the high end of low double digit, and then, I say pass-through is at the low end of mix, 41%. Even using various inputs like that, I'm coming up with service revenue growth somewhere in the mid- to upper single digits on the low end of the range up to low double digits on the high end of the range. And the only reason I'm focusing on that -- yes.

That sounds reasonable.

Yes, that's fair.

Yes. So I thought -- and maybe I'm still taking too many crazy pills here, but I thought last quarter, we came off thinking it was going to be more like 15% service revenue growth. And I -- maybe I misinterpreted comments last quarter, but admittedly, I was a bit higher on my service revenue outlook for next year.

Yes, I don't think we made any comments about next year's growth at all, let alone service revenue.

Yes. Yes, I might have misinterpreted something. On the pre-backlog, the 3 to 6 -- or I'm sorry, you said pre-backlog, you kind of again confirmed that it's above backlog, so it's above $3 billion. I think there's a range out there of where it might be. Obviously, more than $3 billion, but less than X, so I was hoping you could give us a little more specificity because I still think there's a lot of confusion on the Street about these quarterly net new awards. There are really not things that are happening in the quarter. It's the amalgamation of everything you've built up in the past that's moving into revenue generation phase. So having a sense on that bucket, is it $4 billion, $5 billion, $6 billion heaviness sense on that bucket could help, maybe help people think about what magnitude of that pre-backlog actually needs to convert to revenue generation phase whereby it then goes into your reported backlog.

I mean, look, it's part of an overall pipeline. And they are firm awards at that point, but it is part of an overall pipeline. And we do tend to see -- we have seen some very large cancellations there. So we don't treat it like backlog because until the study is actually running and gets patients in, there is a higher risk. But look, I don't want to get into putting numbers on that and then tracking just the size of it and size of what other buckets, et cetera. I think we provide adequate information on the overall parameters that we look at and measure and pay attention to give trends, but yes, the bucket is somewhere under $4 billion, right?

Okay. That's super helpful, actually. And then last one, thank you for allowing my time here, you made a comment earlier about this total bucket of awarded work that isn't in backlog being up 30% year-over-year. And then in that same vein of commentary, you said something about haven't gotten the first patient in, so then I got thinking, are you basically telling us that you don't put an award here until you actually have the first patient in the study because I used to think that the parameter was that you needed to be within 30 days of revenue generation. But maybe the real parameter is you actually are live in the study generating revenue before you put something in the back -- street-facing backlog.

That's correct. It could be that there's revenue prior to -- and even sometimes a chunk of revenue prior to reaching backlog...

So this is how the revenue started growing before the head count did. I'm just -- I'm trying to get a sense like things started -- the work sped up maybe a bit faster than you were thinking 6 months ago, when you had some cancels and market uncertainty. The work sped up sometime between April and July, the tone and the messaging clearly shifted. It just feels like maybe this work really picked up pace and you were sitting right there not quite in backlog, but suddenly the stuff is in backlog, and now, we get the big revenue spike. I'm just trying to get a sense on what really are these dynamics between reported backlog, the pre-backlog and then the notion that your revenue actually accelerated pretty quickly before your head count growth did in that...

So yes, and there's a couple of complements there. One is, yes, you're right, we put it in very late. Generally, patient doesn't -- patients got to be kind of -- we think a patient is going to go in a very short near term. So it's right about when you get the first patients in, but there's other reasons why there might be some concern on that. There's studies where we have a manufacturing problem. And actually, that was an issue recently. And in terms of it's right up to a lot of work being done, and we haven't got the patient, but there's uncertainty around drug availability.

There may be some other -- they need some decision at some regulatory authority to move forward with this. So those kind of things we don't put in backlog. So there's a number of gates, but yes, things can be very close to large-scale revenue generation when they go into backlog.

And we have a follow-up question from the line of David Windley with Jefferies.

Eric asked 1 of the 2. I was going to follow up on the other one is on your metabolic indexing. So a lot of the inbound questions I get on this particular topic, assume GLP-1, I wondered if, August, you'd be willing to provide some color on the breadth or lack of your participation in metabolic. My sense is that it is broader than just GLP-1 and maybe mostly non-GLP-1, but I wondered if you'd be willing to comment on that just so we have a better perspective of what your -- what the drivers are of that fast-growing part of your revenue and backlog.

Yes. So GLP-1 is probably 2/3 of our obesity, so it is a big chunk -- what you call in the GLP class kind of, is a large portion of the overall obesity, but it's not all of it. There's still a fair amount of other.

And is that spread across multiple clients, I would presume?

Yes.

And I'm showing no further questions. And I would like to hand the conference back over to Lauren Morris for 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 2025 earnings call. .

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good day, ladies and gentlemen, and welcome to the Medpace Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Lauren Morris, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's Second Quarter 2025 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 and 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 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.

Good day. RFP flow in Q2 continued to be strong, and we saw an increase in rate of decisions. Total pending RFP dollars were down in the quarter, and our award notifications were strong. Cancellations were down across the pipeline and awards recognized in the backlog were the highest in the past 5 quarters with a book-to-bill of 1.03 in the second quarter of 2025. We continue to see a strong potential for book-to-bill returning to above 1.15 in Q3. Although funding challenges remain acute for many of our clients, the large majority of those clients with ongoing studies were able to obtain sufficient funding to keep the trials running. The funding environment has been stable to improve.

Due to several factors, including better funding than anticipated, fewer cancellations, accelerated client decisions, rapid project start-up shifting mix away from oncology and towards faster burning therapeutic areas and significantly higher investigator costs. We now anticipate accelerating revenue in the second half of the year. As a result, our revenue guidance has been raised by $280 million at the midpoint. Jesse will now add some additional detail.

Thank you. Good morning, everyone. Revenue for the second quarter of 2025 was $603.3 million, which represents a year-over-year increase of 14.2%. Net new business awards entering backlog in the second quarter increased 12.6% from the prior year to $620.5 million resulting in a 1.03 net book-to-bill. Ending backlog as of June 30, 2025, was approximately $2.9 billion, a decrease of 1.8% from the prior year. We project that approximately $1.75 billion of backlog will convert to revenue in the next 12 months. And backlog conversion in the second quarter was 21.2% of beginning backlog.

Now with that, I'll turn the call over to Kevin to review our financial performance in more detail as well as our guidance expectations for the balance of 2025. Kevin?

Thank you, Jesse. As Jesse mentioned, revenue was $603.3 million in the second quarter of 2025. This represented a year-over-year increase of 14.2% on a reported basis and 13.8% on a constant currency basis. Revenue for the 6 months ended June 30, 2025, was $1.16 billion and increased 11.8%. Revenue for the quarter was favorably impacted by higher reimbursable activity, particularly at investigator sites, driven by studies progressing ahead of projected schedules and the therapeutic mix shift to faster burning studies in areas like metabolic, which have a higher concentration of reimbursable costs. EBITDA of $130.5 million increased to 16.2% compared to $112.3 million in the second quarter of 2024.

On a constant currency basis, second quarter EBITDA increased 18.5%. Year-to-date EBITDA was $249.1 million, and increased 9.3% from the comparable prior year period. EBITDA margin for the second quarter was 21.6% compared to 21.3% in the prior year period. Year-to-date EBITDA margin was 21.4% compared to 21.9% in the prior year period. EBITDA margin in the quarter benefited from direct service activities and productivity offset by higher reimbursable costs and foreign exchange losses behind the weaker U.S. dollar.

In the second quarter of 2025 net income of $90.3 million increased 2.2% compared to net income of $88.4 million in the prior year period. Net income growth behind EBITDA growth was primarily driven by a higher effective tax rate in the quarter and lower interest income. Net income per diluted share for the quarter was $3.10 compared to $2.75 in the prior year period.

Regarding customer concentration, our top 5 and top 10 customers represent roughly 21% and 31%, respectively, of our year-to-date revenue. In the second quarter, we generated $148.5 million and cash flow from operating activities, and our net days sales outstanding was negative 65 days.

During the second quarter, we repurchased approximately 1.75 million shares or $518.5 million. Year-to-date, we repurchased 2.9 million shares or $908.4 million. As of June 30, 2025, we had 826.3 million remaining under our share repurchase authorization program.

Moving now to our updated guidance for 2025. Full year 2025 total revenue is now expected in the range of $2.42 billion to $2.52 billion, representing growth of 14.7% to 19.5% over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is now expected in the range of $515 million to $545 million, representing growth of 7.3% to 13.5% compared to EBITDA of $480.2 million in 2024. The increase in our guidance reflects the impact of lower second quarter backlog cancellations, improved funding on several challenged programs, which we anticipate will continue through the remainder of the year and a shift in business towards faster burning therapeutic areas with a higher concentration of reimbursable costs.

We now expect reimbursable costs as a percentage of revenue to increase by 200 to 300 basis points over the balance of the year. We forecast 2025 net income in the range of $405 million to $428 million. This increased guidance assumes [indiscernible] effective tax rate of 18.5% to 19%, interest income of $11.6 million and $29.4 million diluted weighted average shares outstanding for 2025.

There are no additional share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $13.76 to $14.53. Guidance is based on foreign exchange rates as of June 30, 2025. With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions]

Our first question is going to come from the line of Ann Hynes with Mizuho.

Great. Could you just let us know what your booking expectations are for the second half? And the reason being is that your burn rate stepped up in 2Q and obviously, your guidance some price step up in 3Q and 4Q. And I'm just trying to figure out what that means for 2026 revenue growth. I know you want to -- probably want to give guidance for 2 but do you expect an acceleration in bookings for the second half to support growth in 2026?

Yes. As I said in my prepared comments, we do believe that there's a reasonable chance of getting book-to-bills back over 1.15, which implies a considerable increase in bookings as our revenue is also growing. So yes, we do expect bookings to increase now. Again, that's always dependent upon cancellations, which were very well behaved in this quarter.

But last quarter, they were terribly high. So if things continue in the trend we saw in this quarter, then yes, we expect bookings to remain strong through the remainder of the year.

And can you provide any more information on cancellations?

Like what was the rate this quarter versus what had been trending the past couple of quarters?

Yes. We don't disclose the actual rate, but it was down across the entire portfolio. So both sort of the non-backlog awards before they get the backlog was very low. And our backlog cancellations that have been at or above the upper range of what we consider normal. They're actually toward the lower end expectations or usual history in this past quarter in Q2. So they were actually very well behaved and that, of course, made us exceed what we felt we were going to do in terms of both bookings and overall performance in terms of the revenue.

Our next question is going to come from the line of David Windley with Jefferies.

I've got a few. I'll try to go through quickly. On the burn rate, I'm not quick enough on the calculator. I heard, Kevin, you say that you do expect pass-throughs to be 200 to 300 basis points higher over the balance of the year and that, I think, contributes in part to the higher burn rate I was hoping you could maybe walk me to water a little bit on how much of the increased guide is passed through versus direct revenue?

Yes, Dave. I mean, obviously, a large portion of the increase is going to be on the accelerated reimbursable cost activity, right? But we did increase also the EBITDA guide as well. And so we're also seeing some pull-through on just greater productivity on the existing staff and quite frankly, some programs that are progressing ahead of what we had projected in our schedules. So it's a combination of both, but the revenue in particular, is certainly heavily influenced by that 200 to 300 basis point increase in expectations on the pass-throughs.

Okay. So last night, we -- on this topic, we looked it kind of a pattern in 2023, where you also had an increase in revenue and a good chunk of that coming from pass-through. It sounds like maybe not quite that extreme but similar. And to get the EBITDA increase that you just mentioned on effectively the direct revenue portion, which sounds like the minority, you're having to get pretty high incremental margin as you just alluded management has been talking for the last, I don't know, a year at least, that staff productivity has been increasing that you were at levels that were above historical records and probably not much upside room there.

So I'd ask you to elaborate a little bit on how you're able to squeeze additional productivity out. And then to support the revenue growth and your bookings expectations, I would guess that you're expecting to kind of take the shackles off hiring a little bit and accelerate the hiring? And how should we expect that to impact margin over the next couple of quarters?

Yes, Dave, you're right. I mean I didn't expect per productivity to continue from what we saw in 2024. Certainly, we've reduced our hiring expectations a little bit coming into the year, but we're also seeing improved attrition rates, again, furthering in the past couple of quarters. And so all of that is contributing to -- I still expect some headwinds on a net basis. In 2025 relative to where we are in 2024. But you're right, certainly improved versus where we were coming into the year.

And then last question for me quickly is the August, your comments around funding are interesting to me. Certainly, our tracker is not the gas pool certainly, but we have seen some predictiveness out of it and funding year-to-date is pretty bad, really. June was much better, but were down over 40% year-to-date. So how do you get comfortable -- I mean I know you have a lot of visibility into the awards that you have in hand that aren't even in backlog yet. But how do you get comfort that the weak funding through the first 6 months of this year is not essentially foreshadowing another downturn in demand activity for you as it did in '23 ahead of '24?

Well, I guess I don't get myself comfortable with that. I mean I thought we probably hit a bottom in Q4, but then cancellation Look, a big part of all of our difficulty in the last year has been cancellations, not new projects and baseline level of business. But certainly, the last 9 months, it's -- so it's really been just really heavy cancellations. And if they get adequate funding. I don't know what subset that is of the total pool of funding you're talking about, but we get comfortable with that and we can make our numbers.

But could things pull back again and really impact 2026. Sure. That's quite possible. I have no idea. I do know that we have good pipeline of things awarded but not yet reaching backlog that should support good bookings through the remainder of this year, again, as long as cancellations don't rear their head excessively. And that should at least get us started into 2026, but is it possible there's a pullback in the future? And we run into another very weak booking quarters, I don't know.

Our next question comes from the line of Jailendra Singh with Truist Securities.

Congrats onto strong quarter. Actually, I want to follow up on the last part of David's question. I mean it seems like macro environment and business pipeline when we caught up in early June was still choppy and pressure. Keeping that in mind, can you provide some color around how intra-quarter trends were in 2Q, the majority of trends suddenly accelerate towards the end of Q2, so essentially like latter part of June and those trends have continued. Just give us some flavor how demand environment evolved in Q2 in particular?

I mean Q2 was -- again, it was really a continuation of Q1 in terms of business environment was -- continued to be pretty strong in terms of RFPs. As I said in Q1, they were strong. It was really cancellations that backed off quite a bit. And that was sort of throughout the quarter. As you said, cancellations were actually low on the low side this quarter as opposed to being very high in the past, and certainly in the prior quarter. So it was across the quarter. I mean I didn't see any real trends of acceleration or deceleration in the quarter?

Okay. And my quick follow-up on these trials, which were delayed or kind of put on hold coming back. new trials, business wins. Are you seeing in any way the scope being different? Are you seeing like reduced scope of work or is it like a similar scope of work as you guys agreed on? And related to that, is there any meaningful variations around EBITDA margin if the project comes at lower scope or reduce scope than previously planned?

Yes, sure. A number of projects were down scope. And we see that -- you see that in any environment. I don't know if that was particularly prevalent, but you do see some down scoping and largely delays. I mean slower start-up, hold off on certain regions, kind of keep the study running, but don't execute as fast as you could otherwise. So those are the kind of the things that clients do to try to keep things alive while they don't have adequate funding. Obviously, the your -- your profit is going to be impacted by that, yes. I mean the most profitable project for us is a project that runs the fastest. And if it's delayed, if it's down scope, if it's -- has some gating, et cetera, that impairs our ability to execute and to make a profit on it.

Our next question is going to come from the line of Max Smock with William Blair.

Just wanted to follow up on some of the questions that have already been asked around book-to-bill in the back half of the year. And in particular, your commentary about getting back to $1.15 billion if you do that in the back half of the year, I think that implies bookings are up more than 40% year-over-year. So just trying to get a sense for when you're talking about getting back to 1.15, do you need to see further improvement in funding or the demand environment to get there? And if you don't think about -- or if you think about there not being an improvement from today, what do bookings look like if the environment essentially remains unchanged from 2Q? Should we expect some more net awards in the back half of the year roughly in line with the $620 million that you posted in the second quarter?

Yes. I'll answer that. Bookings in the could give me maybe the first part of that question again with the bookings?

Yes. Okay. So if I'm just thinking about your guide and your commentary about $1.15 million book-to-bill in the back half of the year. I mean, that implies net is up over 40%. So just trying to get a sense for how much visibility you have into that? And then what's embedded in the outlook to get back to 1.15, do you need to see further macro improvement? And if you don't, what this book-to-bill look like in the back half of the year?

Sure. I think that it's macro improvement. It depends whether you -- whether all of our cancellations have been related to funding. And I think they're a good part of them were yes. So we do have to see cancellations remain lower. I don't need to see new -- strong business environment with new opportunities. But we need to see things progress along and not be held up by funding or other factors. So -- but the current quarter -- Q2 was relatively low on cancellations. If that continues, I think we're going to be there. If it's in the mid upper range of cancellations, we're getting right on the edge. I mean I think prior to last quarter, prior quarter, Q1, in which we had a lot of cancellations, particularly in the pre-backlog bucket, things that we expected to be converting in this next quarter, in the next couple of quarters.

A lot of things dropped out and made it a lot closer on being able to get back to that 1.15. But I think it's still not anywhere near a slam dunk, but I think that if things continue the way they have in this past quarter, I think we'll be there. And how much more weakness and increased cancellations can occur. I don't know but that answers your question.

Yes, it does. I'm sorry for the long-winded question on my end. Maybe just one on competition and win rate and what you saw there in the second and maybe how much of your results are more a reflection of you are taking share more so than a broader rebound in demand environment from small biotech?

Yes. No, I was hoping not to have to talk about the win rate. It was not great in the quarter, actually. It was more an issue of more decisions. As I said, in the prior quarter, things were not being decided. Things were being held up, a lot of funding issues and the go-ahead was not being given on new awards. They weren't making decisions. And so our pending RF dollars increased quite a bit. That came down in this past quarter because there was a lot of decisions our win rate on those decisions was not particularly high. But there was a lot of decisions.

So actually, awards were good. I think we actually had a very good new award quarter. but on a lower end win rate, competitive win rate. But that's something that bounces around quarter-to-quarter, and I never make anything out of a single quarter down. Prior quarter, it was fine. So we'll see.

Our next question is going to come from the line of Michael Cherny with Leerink.

So maybe if I could just dive a little bit more on the trajectory in back half in particular, on the step-up in pass-through business, I think, Kevin, please correct me if I'm off here, but you said 23 basis points of increased pass-through business baked into the numbers in the back half of the year. Is this something, especially given the results this quarter that should be a new normal going forward? Or is this just a matter of luck of the draw, timing on the types of contracts that are currently hitting your backlog?

Yes. I mean, certainly, in the near term, it's going to be the new normal. And again, it's heavily influenced by just the mix that we're currently seeing in areas where there is a higher concentration of reimbursable costs. So yes, in the near term, I would say it's going to be elevated, how long does this last? I'm not going to provide commentary on '26 at this point. But certainly, the balance of the year, we do expect it to be and continue to be elevated.

Understood. I won't poke further at the implied 26 numbers at this point in time. But maybe just a follow-up, August to your last comment regarding the win rate, the win rate dynamics. I certainly understand how it can bounce around on a quarter-by-quarter basis. With the win rate, was there anything from a disease state perspective from a or any of the pieces perspective that characterized why you think the win rate shook out where it did? Or was this also just a random dispersion across your book?

Yes. It wasn't -- I mean, look, it is always concentrated because it -- I mean, the factor is very large programs. we're less likely to win, okay? So I mean we're talking about -- and there were some very large programs in that. And so size of project and our experience in this area and our experience with the client, obviously, if it's a new client, and it's very large, and they've got existing providers.

Our win rate is going to be lower. And it's -- that's what bounces around quarter-to-quarter. We won the projects we expected to win. And unfortunately, in that quarter, in this past quarter, there were some very large -- and we're talking about dollars. I talk about win rate, it's dollar-based. And so a very large program is a good part. I mean, it actually is a single program can be a substantial part of the total wins or losses in the quarter. So it just happened to bounce down in this past quarter. We did lose there was 2 very large projects in that.

But no, I can't -- it was not like we're weak in a particular therapeutic area or some trend or a subset is just happens to be what projects were close to and which one is very large.

And one last real quick one, if I may, as the market's opening. Your stock is up a lot. I know the guidance does not assume any more buyback, but conceptually, given the outstanding authorization you still have. How are you thinking about near-term balance sheet utilization and the potential for incremental buybacks?

No, it's more of the same, Michael. We'll continue to be opportunistic in buying at levels that we seem to be very accretive. And our plans don't execute, then we're okay building cash. we're very happy with what we were able to execute in the fourth quarter, first quarter and second quarter of this year.

Our next question is going to come from the line of Eric Coldwell with Baird.

I have a few, hopefully, not too repetitive. I was hoping we could start with talking about -- following on that last line of questioning, just talking more broadly about the bookings dynamics this period. There was some speculation going around last night based on the big increase in revenue that maybe you had picked up some large studies. It does not sound like that happened this quarter, anything particularly crazy large, but I was hoping you could just maybe more specifically tell us what your largest win individually was in the quarter. If there were any rescue awards or losses that you could talk to, maybe just broadly talk about competitive dynamics?

You did mention your win rate wasn't the best, but talk a bit about competitive dynamics. Just hoping to get a little more flavor on the bookings mix and breadth of those bookings to start?

Sure. Yes. And Eric, I think your question kind of I don't know, in my head confuses some of the moving parts here. So we're talking about competitive wins and we're talking about wins, et cetera, those are awards notifications. And they're not in backlog yet. We're not making any revenue often, and it's often multiple quarters before they come in.

So a new award this quarter is not going to influence our revenue or anything like that. Booking would probably because that's when we're starting to get revenue but it could be late in the quarter and might not be much of a factor. It's mostly in future quarters, that's going to impact. So if I look at just sort of new notifications this quarter, no, nothing particularly stands out. There's nothing particularly large. It was a pretty usual quarter. In fact, the really large stuff we lost. And so our competitive win rate was actually on the lower side, but completely understandable. If you took out a couple of -- those 2 outliers, our win rate was great. I mean it was fine. So that's not an issue and what went into bookings this quarter. Nothing particularly unusual or notable the big -- and there was nothing sort of a rescue or something really short-term project that we won during the quarter, something that added to it. It was just kind of usual stuff that progressed that a lot of it we did not anticipate it might progress, so sort of good upside news on things progressing. And we thought might not.

Things went faster than expected. And we maybe didn't do as great a job at projecting what some of the pass-through how quickly things were going to move forward on some of the investigator fees, et cetera. So that part of it, I think on a direct fee basis, we were probably pretty good at projecting it, but there are still projects that went forward that more than we expected and faster than we expected. So there was some upside. But there was nothing kind of unusual in terms of short-term quick interim or rescue work or anything like that.

Okay. On the reimbursable indirect revenue commentary, and I hate to be this myopic, especially since it's been talked about so much, but I want to make sure I'm 100% clear. When you talk about 200 to 300 basis point increase in mix for the rest of the year, can you clarify, does that specifically mean you're looking at something 41, 42 plus percent in the second half or does that mean something more like 38%, 39% for the full year compared to 2024 total levels? I'm just -- I'm not 100% clear what that 2 plus 200 to 300 basis points specifically is in reference to or what the absolute percentage you're targeting is?

Yes, Eric. Yes, thanks for asking the question. To clarify, that's relative to what we saw in the second quarter. So yes, we could see this in the low 40% in the back half of this year.

Okay. And then last one for me for now. So you have obviously -- it's kind of shocked the street with this update. You have enormous backlog conversion already. Now it's going up to 41.5%, 42.5% in the second half. Your backlog is down 2% year-over-year, but you're seeing revenue growth as much as 27% in the back half at the high end of the range. I mean there's just a lot of questions about sustainability. And I know it's so hard to project with the mix shift in reimbursables, which are seemingly clearly driving the majority of the revenue increase and those may or may not continue next year.

But what can you give us today that can help us understand the jumping off point from these conversion rates and these growth rates as we look at 2026. I mean everybody -- I know you're not guiding now, but we all have to build models and do assessments for next year. And you've caught us so off guard, I think I'll admit, at least I'm scrambling to understand what kind of a growth rate we might be looking at in the next year. It doesn't feel sustainable to be honest, but then again, I didn't see this quarter coming.

Eric, you broke up a little bit in the middle of that. So -- but I think I heard enough of it to -- so if I don't cover it and jump back I think that -- yes, we have had a significant shift towards faster burning stuff. And a part of it, our conversion rate is high overall because they're lower denominator. And of course, does that mean that we're going to burn off our backlog, and then we're going to have a real gap I don't think that's necessarily true. I think that we do have an adequate business environment to replenish things.

I do think that our indirects are ramping because of a shift towards metabolic work. I don't know how long that's going to last. So if it continues and okay, I think our growth rate next year is probably fine. If that pulls back and I think that it can challenge growth rate, but that's because of a drop in reimbursables. And I think on a direct fee basis, we're going to do fine.

So I think our profitability is going to there's no reason to see it dropping off. And I think that we could have growth rates similar to this year, ex the pass-through stuff. -- right? But I don't know. We don't have the model next year. It's really dependent upon stuff that's coming in now and over the next couple of quarters. So 26% is not really addressable, but I -- we don't have a reason to believe that we're going to have a challenge next year and have our growth go to 0 or something unless pass-throughs dropped drastically and all of our growth is directly, but I don't really see that as a -- on a 605 basis, we'd be fine.

Completely understood. I appreciate the commentary.

Our next question is going to come from the line of Luke Sergott with Barclays.

I just kind of want to figure out -- we've talked a lot about the moving parts, everybody's focused on the burn rates, et cetera. But you have this elevated burn rates, everything stepped up materially. You had a big step up in bookings. You didn't need to hire additional SG&A for the type of revenue growth that we would typically think you had step up materially also in the quarter. So -- and it doesn't sound like you picked up some ongoing work from someone else or share gains. So I'm just trying to figure out like what's going -- like what actually drove this -- the step-up in everything and trying to foot all these different metrics?

I think it could drop in cancellations. I mean, look, we've been running -- we've been running at growth rates of 20% plus for a long time. Things dropped back, we did have a weakening environment, but still our fundamental growth rate, I think, is pretty good a lot of unusual cancellations. Now a lot of that, that's part of the same package. I mean the same environment that causes the cancellations reduced opportunities to some extent.

But I don't know how you close the loop on those things. I think the environment is reasonable if cancellations are reasonably behaved. Our conversion rate is up because we have dropped both -- two major factors. The denominator has not grown as expected. And we have a shift towards faster burning stuff I mean it's -- we're in an era of a lot of metabolic type of programs or particularly in the obesity space, important part of the market. So that's -- made things have a faster burn turnaround.

But otherwise, I think the big step up from our expectation was less cancellations than we anticipated.

Okay. And then I guess just to follow on that. Your backlog that you guys report are like anything over 12 months. That's included there. took a pretty big step down in the quarter. It's been declining the last few quarters, and that makes sense with every you're saying like faster burn rates and some more near-term stuff. So as you think about, as this starts to roll off, like what's the average time line of these faster burning trials as we think about into '26 and '27. I mean that's like to Eric saying, like we're all trying to model here of what we're seeing for 26 and the range just gets pretty really wide.

Yes. I mean I can't give you an average for overall categories or something like that. But look, long studies are can be 6 to 10 years in duration. And oncology studies are classically kind of that they run a very long time, and it's a slow burn. Metabolic studies, some of these can run in 2, 3 years and have a larger proportion of indirects as a part of it. And indirect usually, the model is the direct fees burn a lot faster upfront toward the beginning. That's when a lot of work is being done in organizing and setting up and getting the trial ongoing and recruited. But a lot of the investigator fees are later on when patients are enrolled and having lots of visits.

So there's usually acceleration. The direct fees or the first half of the study heavy and the second half, it's investigator costs. In metabolic study, like I said, it can be very fast, and it all happens at once.

Okay. And then just real quick from the last one. As I think about like from the margin and the hiring needs, to meet these trials? Like we talked about the efficiency on your existing base, and you guys don't do FSP. So and you have a really strong culture where the attrition rates are really low. So how should we think about your hiring needs in the back half if you're going to be able to sustain the type of burn rates and elevated growth?

Yes. Back half of the year, we do expect to accelerate hiring. We expect to hire more in the second half, so we're higher than the first half. We still think we'll be kind of in the mid-single digit to kind of upper mid-single-digit growth rate for the year. But then as we move into the third quarter and fourth quarter, depending on a lot of factors, including the business environment and new opportunities and activity. We have opportunities to accelerate that beyond that.

But right now, we're very comfortable with current headcount levels and projections to handle the current and future projects for this dynamic, and we as we do.

Our next question is going to come from the line of Charles Rhyee with TD Cowen.

I just wanted to follow up on some of the questions from earlier. It sounds like what you're saying is that what we've really been seeing over the last year or so plus with the weak funding environment, that's really tied really that's where cancellations will come in, people that can't get funded, projects cancel but that projects themselves new RP that flow has never changed. Has that always been constant over the last couple of years?

I wouldn't say that's not changed. I'm saying that the I think the big outlier, the biggest component of us for us has been very elevated cancellations. They've held things back quite a bit. I'm not saying that overall environment certainly over the last few years, it hasn't weakened from kind of the COVID and it came back, and it's been weaker. There's weaker funding overall. So you have less attractive opportunities. RFPs don't necessarily reflect what's going on.

And so last year, there was certainly weak overall opportunities. And sometimes people looking for a price that they could get it done at, et cetera, and less opportunity. But the biggest thing of late has been cancellations that just -- like I said, I thought we were past it all in Q4, and I thought this was the bottom and things are improving. And the biggest gap hasn't been the improved fundamental opportunities that we started seeing in Q4, okay?

So the business environment started -- before that, yes, we had real weakness in everything. But the business environment seem to be okay on new opportunities the last several quarters, but cancellations. We're just -- last quarter, we're horrendous. And that's what has been probably the biggest uncertainty in our modeling is cancellations rather than new opportunities and new awards. They're both components of it, but it's really been the cancellations that have thrown us off.

And this past quarter, showed a great improvement in that. But we saw a great improvement in Q4. I don't know. We'll see. Q1 was -- had spiked again.

And then in terms of the this quarter cancellations were obviously much lower relative to Q1. Anything that when you look at reasons for cancellation the cancellations are those all tied to funding? Or is that -- how much of that maybe is changing priorities from sponsors?

You can never sort that out entirely. I think they're very highly related. Reprioritization is sometimes another word for cutting back. And so I don't know. But I do think the funding environment has been a critical part of the vast majority of King solutions.

Okay. And then you talked about earlier, faster burning therapeutic areas like metabolic. But when we look at revenue contribution by category, that's sequentially the same in metabolic -- it was sort of this other category. We saw a big step up in the quarter. Can you give us some examples of therapy area in that other bucket that you saw this big pickup? And just curious like what kind of visibility you have? Or like how much of your upcoming pipeline of RFP activity is in this other bucket? And what kind of visibility do you have into that?

Yes. No, I mean it's -- and it's a bunch of different things. And I don't -- there's nothing that sort of is the vast majority of it or something. But look, the big trend has been metabolic over the last year. If you look at our metabolic revenue and awards, and they've been a higher percent of the overall, and they will continue because of the awards, they're going to continue for the next couple of quarters anyway and to be a growing part of our overall revenue base. And they tend to be -- overall, some of them are long term, but overall tend to be faster burning and higher indirect fees.

That's great. And maybe last one for me. You talked about faster decision-making. Anything that you can elaborate on what that might be? Is that just maybe with drug pricing kind of being kicked out with MSN maybe towards the end of the year? And just people deciding, hey, you know what, we can't wait forever. And so we just got to make decisions now or anything that could maybe point to why this decision making maybe has picked up again?

No, I think that's funding again. I mean I think we saw things somewhat seizing up our pending dollars, that is RFPs we've received. We made a bid on and are just sitting there waiting for a response and no decision and no go forward on things even that we have been awarded and they say they're yes, we're going to use us, they agree to the , but then they want to hold off on things until I think largely that sometimes there's other reasons. There's drug supply. There's other waiting on some other information on the drug, et cetera, another study may be completing whatever.

There's lots of reasons. But funding is a big part of it. And we've -- I think we've seen a more rapid execution on sponsor side to move forward and give us authorization and get a stuff that we need to move forward has been funding related.

[Operator Instructions]

Our next question is going to come from the line of Justin Bowers Deutsche Bank.

So Jesse, just a quick cleanup question. On the employee growth, it's you were breaking up a little bit, but it sounded like accelerated hiring in the second half in mid- to upper single digits. Is that for the second half? Or is that for the full year?

Accelerated higher in the second half. So highly more second half than the past the high single digits for the full year,

Perfect. Okay. So second half Employee growth should be mid to high single digit year-over-year.

Correct.

We're talking about the full year would be high single-digit growth over the prior year.

Okay. So then you're looking at a.

[indiscernible] has increased around double-digit cutting.

Yes. For the 6 months year-to-date, we grew we grew revenue 1.5% or so. We expect that to accelerate. We hired I'm sorry, 2.5% for the first half. The headcount growth is up 2.5% for the 6 months. We expect the growth rate in the second half at or slightly above that for the second half.

So you're expecting a 5% to 6% for the full year.

Okay. All right. And then in terms of what's the growth this year, the top line that -- what is the guidance assumed for growth on a 605 basis for the top line.

Yes. Justin, we don't provide a 605 basis look. I think if you just model it kind of using the guidance that we have out there, and assume kind of a 200 to 300 basis point increase in reimbursable costs over the balance of the year and kind of back into what that could be.

Okay. And then in terms of -- it sounds like the burn rate is fairly sustainable, likely to increase in the back half of the year. What does the pre the pre-backlog or your current authorizations, but not yet in backlog, the mix look like. Is that similar to what the revenue composition has been like this year? Or are there any notable differences to call out in terms of therapeutic mix?

Yes. We're seeing a move towards more metabolic and that will continue. It looks like, based upon anticipated awards, yes.

Okay. And then -- and then on the cancellations, there's really 2 things that jump out. One was just the improved execution. -- and the changes there during the quarter. And then clearly, like the cancellations have cited as well. When did you -- like when did that start to really inflect or turn -- was that something that was that sort of May where things really started to change? Or did that -- was that exiting March or?

Yes. I don't have the monthly breakout. And we kind of reconcile these things quarterly. So there isn't like I mean we obviously do know the date of notification of something, et cetera. But I just not tried to sort out when exactly cancels. And if they were low in March before this quarter began or didn't start until May after the quarter was well into it or what, but pretty much across the quarter. We had lower cancellations. But I can't -- I just don't have good data just when -- you call it again. There's -- and what do you mean by when it's kind of -- they give us a notification, but we don't really know what's happening and then they finally reconcile what exactly we're going to do to close this thing down these are kind of things that have a period to them.

But look, I think Q2 was much lower than Q1.

Okay. And then maybe just one last one for me online. With what was change order activity like during the quarter? And how did that change from 1Q or even what you saw towards the tail end of last year.

I don't have the numbers on just what the magnitude of change orders were, but there's nothing been particularly unusual there.

Yes, Justin, I wouldn't say there's anything unusual in change or they happen all the time. But nothing that would stick out.

Okay. Nothing. Okay. I just one follow-up.

Again, change or sometimes they award something -- it's going to be a global study of this, but they want to award it first as just the first region or something. And then we're going to -- planning in 6 months and you don't have the budget for it until then. And so it's -- what's even a change order. It's difficult. It's when we get authorization and then when it meets our criteria are going into backlog.

Okay. I'll jump -- we'll catch up after the call.

Our next question comes from the line of Kyle Cruise with UBS.

You've historically disclosed around a high single-digit revenue exposure to cell and gene therapy. Can you talk about the impact of Sarepta recently having their clinical trials going to hold and kind of the pausing of the platform technology designation there and the impact to your company. Can you maybe speak more broadly to the Celgene therapy market and what you've seen there and if you're still that exposed to it?

Look, we don't have a great deal of exposure to the overall area, but we certainly do have exposure, but I don't think there's -- not to correct the not -- it's not I don't think it's going to have an impact on our programs.

And I'm showing no further questions at this time. And I would like to hand the conference back over to Loren 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 third quarter 2025 earnings call.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.