Medpace Holdings, Inc. (MEDP) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Medpace Second 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, David Re, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's Second Quarter 2026 Earnings Conference Call. Also on the call today is our CEO, August Troendle; 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 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. The business environment is strong in Q2 2026. Cancellations were well behaved and supported a record quarter for net bookings. RFPs were up sequentially and year-over-year generating high-quality opportunities. Initial award notifications remained solid although they declined sequentially from a very strong Q1. Overall, the environment remains constructive into July, and we are making good progress in positioning the business for 2027. Kevin will now review our financial results from Q2.

Thank you, and good morning to everyone listening in. Revenue was $707.3 million in the second quarter of 2026. This represented a year-over-year increase of 17.2%. Revenue for the 6 months ended June 30, 2026, was $1.41 billion and increased 21.7%. EBITDA of $153.4 million increased 17.6% compared to $130.5 million in the second quarter of 2025. The year-to-date EBITDA was $302.8 million and increased 21.5% from the comparable prior year period. EBITDA margin for the second quarter was 21.7%, compared to 21.6% in the prior year period. Year-to-date EBITDA margin of 21.4% was flat compared to the prior year period as the impact of higher reimbursable costs was offset primarily by lower employee-related costs. . In the second quarter of 2026, net income of $121.4 million increased 34.5% and compared to net income of $90.3 million in the second quarter of 2025. Net income growth above EBITDA growth was primarily driven by a lower effective tax rate and higher interest income compared to the prior year period. Year-to-date net income was $245.2 million compared to $204.9 million in the comparable prior year period, which represents a 19.7% increase. Net income per diluted share for the quarter was $4.25 compared to $3.10 in the prior year period. Year-to-date net income per diluted share was $8.53 compared to net income per diluted share of $6.79 in the comparable prior year period. Net new business awards entering backlog in the second quarter increased 28.2% from the prior year to $795.7 million, resulting in a 1.13 net book-to-bill. Ending backlog as of June 30, 2026, is approximately $3 billion an increase of 4.9% from the prior year. We project that approximately $1.96 billion of backlog will convert to revenue in the next 12 months. Backlog conversion in the second quarter was 24.1% of beginning backlog. Regarding customer concentration, our top 5 and top 10 customers represent roughly 31% and 40%, respectively, of our last 12 months' revenue. In the second quarter, we generated $162 million in cash flow from operating activities and our net day sales outstanding was negative 59.6 days. During the second quarter, we repurchased approximately 706,000 shares for $294.7 million. At June 30, 2026, we had $527 million remaining under our share repurchase authorization program. Cash ended the quarter at $502.7 million. Moving now to our updated guidance for 2026. I Full year 2026 total revenue is now expected in the range of $2.805 billion to $2.885 billion, representing growth of 10.9% to 14% over 2025 total revenue of $2.53 billion. Our 2026 EBITDA is now expected in the range of $618 million to $642 million, representing growth of 10.8% to 15.1% and compared to EBITDA of $557.7 million in 2025. We forecast 2026 net income in the range of $494 million to $514 million. This guidance assumes a full year 2026 effective tax rate of 19% to 19.5%. Interest income of $21.1 million and additional share repurchases assumed in our guidance. Earnings per diluted share is now expected to be in the range of $17.25 to $17.95. Guidance is based on foreign exchange rates as of June 30, 2026. 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 Charles Rhyee of TD Cowen.

I wanted to ask, obviously, a lot of the growth that we've seen over the last year has been really driven by metabolic mix. And at the same time, it looks like our concentration of top customers, particularly top 5 has increased. Can you give us a sense on -- are the 2 related in such that maybe a lot of the metabolic work you're doing is coming from a couple of large clients? And can you give us a sense on sort of what visibility you have of that going forward? And I guess the question is, does the mix within your bookings and backlog look similar to what your current revenue mix? Just trying to get a sense how long you could expect this kind of mix persistent, particularly on the metabolic side? Or does that kind of roll off at some point? And maybe any sense on timing of would that be?

Sure. This is August. The top 5 growth has been driven quite a bit by the metabolically. So the answer to that is yes. There are some large programs among that top 5 that are a good part of that growth in the group. And as to timing of that more recently, this year, the last couple of quarters, I think that oncology has come back quite a bit in terms of our -- both our award notifications. So the earliest part of kind of the pipeline for awards and the backlog recognition. So our bookings in -- particularly in this last quarter, we're very strong in oncology represented over half of our overall bookings and our award notifications. So that's -- and metabolic, cardiometabolic has kind of dropped off quite a bit in terms of new award notifications. . So I think we are seeing kind of a shift back towards more historical averages. I don't know if we'll get back to where we were 2 years ago in terms of percent of -- but I think oncology will we take its position move up a few percent in our mix, et cetera. I would expect for the next year or so that the kind of head back toward that kind of prior mix. So yes, the metabolic is kind of some of the very large programs are kind of reducing and sort of the new opportunities are not as great as a year ago.

Great. And maybe just a follow-up then, maybe, Kevin, just from a mom perspective then, should we think back to maybe 2 years ago, we the backlog conversion rate? And I would assume that conversion rate would just fall naturally because of the mix because the oncology trials are longer in duration?

Yes. I mean, Charles, as you know, we don't guide to the burn rate. And so we've got to kind of see how those programs where we -- we've been awarded the work from a notification standpoint, how those progress into awards the rest of this year, and we'll have more color on what 2027 will look like, possibly next quarter, but certainly in the February call.

But I would challenge a very premise that the metabolic programs are driving the conversion rate up. I don't think that is necessarily the dynamic. If I have had an influence, but that is not the primary driver of the increased conversion rate. Remember, we do block backlog greater than 3 years. And in fact, the average duration of backlog across programs is much lower based upon interim analyses or steps that we limit backlog recognition until we get certainty around that, and that is very prevalent among many of the non-metabolic programs that in oncology. So the fact that you think that metabolic has a faster burn rate that can be true, but it's not overwhelmingly apparent. I don't think that's the biggest driver of the -- that's going to cause a normalization of our conversion.

I'm sorry, can you just clarify the ages, like what is the change that allows other -- but my understanding of duration was the way backlog converts is length of trials and where recognition happens, but you're saying that with interim analysis even in, let's say, an oncology trial that...

We might only have 1 year of backlog for that. The program might be 5 years plan to go, but we only have 1 year of backlog in there because -- there is another stage looking at before they do the expansion before there's some increase in the program, and we won't put any of the backlog beyond that point until we get to it and there's a favorable decision.

I see. Okay. That's really helpful. I appreciate the comments.

And our next question comes from Michael Cherny of Leerink Partners.

Very nice job on the bookings. As you think about the mix that you saw, anything to call out relative to stability of the bookings in terms of pricing, in terms of competition? And what are you seeing in terms of any potential changes, adjustments for your system competition relative to the overall market health with your pro biotech customers?

No, I don't think the market has changed and it's gotten stronger over the last few quarters. You had a we had a pretty strong, and I would say, pretty strong because I didn't want to say just got qualified strong business environment in the prior quarter, because these cancellations. Still, we continue to see clients that are -- we're looking for funding or having problems, et cetera. And a high level of cancellations this quarter this very last quarter, Q2 cancellations came down quite a bit. The business environment continued strong. New opportunities look good. And I don't really see a competitive dynamics or anything like I said, that the profiles moved more back towards oncology programs being the largest -- in fact, the majority of opportunities as opposed to sort of a metabolic drivers of a year or so ago. But otherwise, I think things are pretty stable. .

And just quickly on the cancellation side. I know you don't guide to cancellations, but -- and I know they can be volatile quarter-to-quarter, but do you feel going forward like cancellations should be at least in a better place versus what seemingly could have been an outlier in 1 quarter, in 1Q?

Cancellations are completely beyond my capability to even -- it's not like we have any of these past year have a situation where we had a very high risk programs. And we thought, oh, there could be guide cancellations and so enough they were -- we just have no idea. I mean, there's not been that kind of insight into future cancellations. And I don't anticipate that there will be going forward. I mean, cancellations just come up. I say we are very careful about gating our backlog by having any sort of interim look or analysis or thing that might -- a regulatory decision that might influence the remainder of the program we won't put in backlog beyond that point. We'll wait for that to happen. And so the cancellations that we have are completely unanticipated and out of the blue sky. So I can't say it. But what I can say is that the business environment is good. Our pipeline of stuff, including in the kind of pre-backlog that have been awarded programs is very strong. And I would anticipate that our gross bookings, which we do have reasonable insight into, are going to scale in the next second half are going to ramp up. And I think that independent of where cancellations are, that should be scaling in our ramping up in our net bookings. But I say that if cancellations are in any kind of reasonable range, but there's always possible cancellation spiked to unusual level.

Thank you. And our next question comes from Ann Hynes of Mizuho.

I know your business, you do a little bit of Phase 1, but Phase II and III. And there's been some increased investor concern that may be phased to is hitting a wall, maybe some things moving to China. I don't know if that's the case for you, just given your biotech mix. But maybe if you can just discuss gross bookings trends in Phase I versus Phase -- I mean, I'm sorry, Phase II versus Phase III, that would be great.

Yes. I think if we look at kind of the numbers, maybe Phase I has increased some relative to Phase II, Phase III has been pretty stable. But -- and of course, that Phase I is driven largely by oncology programs. And so I don't know that, that's not just kind of move towards a very heavy oncology. I haven't tried to analyze that too greatly in terms of where that's going, but I don't really see a shift of things to China greatly for at least the programs we're chasing. So I don't know that I see that dynamic. But...

Great. And I know the past couple of quarters, I believe you said gross margins was good, but maybe a little bit below your expectations. Was this quarter was gross working is actually in line or better than what you expected heading into the quarter?

Yes. I mean that kind of is set up, gross bookings are going to be determined by pre-backlog cancellations from the past. We did have high cancellations, but we've had an improving business environment. And as I said, 4 weeks had been saying the last few quarters -- 3 quarters or so the business environment is pretty good. It looks actually, I would say, very good except that we keep having cancellations and that is part of the business environment. And it's -- and there has been still a number of clients that were challenged financially. So I don't know.

Thank you. And our next question comes from Jailendra Singh of Truth Securities.

Congrats on a good quarter. Just want to go back to cancellation comment, , I was wondering if you can put Q2 trends in some perspective. Is it fair to say that cancellations have improved back levels seen in Q3 of last year or even better or worse, just to confirm that. And also to confirm that cancellations improving both backlog and fee backlog.

Yes. I guess cancellations were actually in a pretty good range this quarter. In fact, if you look at the book -- net bookings, a bigger driver of the net bookings increase from last quarter was due to reduced cancellations rather than kind of gross book okay? So you could you look at it that way. I think second half, we're going to see more just gross bookings ramping up quite a bit. So this quarter was helped along quite a bit by well, substantial drop from what had been a kind of elevated cancellation rate. So it's come down nicely, not to unusually low level, but a very good level, let's say. And even in this quarter, cancellations and AIS were very well behaved also. So that also helps towards ramping in gross bookings going forward in the second half. So across the board, as cancellations were down, they were in a nice range. And we're -- more than half of the driver of, I would say, of the net bookings growth from the prior quarter from Q1. Is that the answer?

Yes, it helps. And then my follow-up, last quarter, you did call out implementing initiatives to improve win rates. Can you provide any update on that you started to see the impact of those initiatives? And if any color, they can file around what are these initiatives related to? Is it commercial execution, positioning quality? Just give us more color like if that's having an impact on your wins here. Yes. I brought that up to say that we had recognized our win rate last year. largely was less than it had been in prior years. We were making some changes. We did make changes. In fact, around -- and late last year, and maybe a little bit in the first quarter, but they were really done last year. And so they've been implemented and are in place. And I think we're possible influence on our very strong win rate in Q1. And so has come back. I don't want to go into the details. I just wanted to acknowledge -- recognize that we hadn't won same percentage of programs that we had historically in 2025, and we're implementing some changes, but I don't want to go into just how those competitive changes we're rolling out.

And our next question comes from Jared Haase from William Blair.

It's Christine Rains on for Jared. So we realized the majority of the work that you booked today will not burn until at least 2 -- given the volatility of recent hoping you can give some color on what you're expecting for bookings growth cadence in the back half of the year. And really, if you expect 2Q net bookings to be a higher watermark or if we could see sequential acceleration as we move throughout the year.

I'm sorry, a little bit shrink there. it sounds like you're asking about how the bookings are going to go in the second half towards 2016?

Yes. No, I apologize. Just hoping to get some color on really if 2Q is expected to be the high watermark for bookings here if we really to see an acceleration as we move throughout the year in terms of not booking.

No, no. In response to the last few questions, I said that we expect a ramp in bookings I expect a ramp in gross bookings. I would expect that to translate into a ramp in net bookings, but cancellations are always a wild guard, but that was my commentary on second half.

Perfect. And then hoping you can give a little bit more color on RFPs in terms of magnitude of sequential and year-over-year growth? And on bookings quality as well? And then a similar question on magnitude of initial awards declined sequentially and obvious stock it was up year-over-year.

Yes. So booking -- so were up meaningfully. Certainly, on a sequential basis, RFPs were up substantially. -- and the quality has been good and improved. We see a lot of clients that have had recent funding. I think the big thing is funding has been a lot broader rather than just a few companies getting quite a bit more money. It's quite a bit of broader -- we're seeing more opportunities with recent funding and moving forward with the program. So I think the business environment is in good shape. And I think the numbers have increased. I don't like paying a lot of attention to the numbers. They are substantially year-over-year. They were up also sequentially by a reasonable amount. But again, quality is more important and I think the quality has been there and is good. Another question was?

No, it was just on initial awards in terms of -- they seemed strong, but declined sequentially in the commentary. So just curious, one, if this bucket was up on a year-over-year basis? And then just any commentary on the magnitude sequentially?

Yes. Sorry, I don't have any other comments on it. Really, there were -- we had a very strong Q1. We had a Q2 that they were down. They were on a lower side of kind of it but not unusually low. I don't know what to say about that. These are things that do bounce around. We look at it over a longer period of time because single large programs often drive actual number there, whether you win or miss that 1 or 2 very large programs. So it's not like a metric that can be looked on an individual quarter. But overall, the overall new awards were in a good range, because the business environment was very strong. And even though maybe there were some very margins that we lost and made the actual percent fantastic, overall awards were good. .

And our next question comes from David Windley of Jefferies.