Medpace Holdings (MEDP) Q2 2026 earnings call transcript

Good morning, and thank you for joining Medpace's second quarter, 2026 earnings conference call. Also on the call today is our CEO, August Trundle, 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 Security 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 Trundle.

Good day, everyone. The business environment was 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 six 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. 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%, 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 build. Ending backlog as of June 30, 2026 was 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 five and top ten 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. As of 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. 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 growths of 10.8% to 15.1%, 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 28% of the year. I will turn the call back over to the operator so we can take your questions.

Sure. This is August. The top five growth has been driven quite a bit by that metabolically. So the answer to that is yes, there are some large programs among that top five that are a good part of that growth in the group. And as to, you know, timing of that, more recently, you know, this year, the last couple 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, you know, our bookings, particularly in this last quarter, we're very strong in oncology. Oncology represented over half of our overall bookings and our award notifications.

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 the more historical averages. I don't know, we'll get back to where we were two years ago in terms of percent of, but I think oncology will retake its position, move up a few percent in our mix, et cetera. I would expect over the next year or so that to kind of, you know, head back toward that, you know, kind of prior mix. So, yes, the metabolic is kind of, you know, some of the very large programs are kind of, you know, reducing, and sort of the new opportunities are not as great as a year ago.

Great.

Yeah, I mean, Charles, as you know, we don't guide to the burn rate. And so we've got to kind of see how, you know, those programs where we've been awarded the work from a notification standpoint, how those progress into awards the rest of this year. We have more color on what 2027 will look like possibly next quarter but certainly in the February call Yeah but I would challenge the very premise that the metabolic programs are driving the conversion rate up I don think that is necessarily the dynamic It might have had an influence but that is not the primary driver of you know the increased conversion rate Remember, we do block backlog greater than three years, and in fact, the average duration of backlog across programs is much lower based upon interim analyses or steps, you know, that we limit backlog recognition until we get certainty around that, and that is very prevalent among many of the non-metabolic programs in oncology.

So, you know, 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, you know, that that's going to cause a normalization of our conversion.

I see. Okay, that's really helpful. I appreciate the comments. Thank you. Thank you.

Yeah, no, I don't think the market has changed. It's gotten stronger, you know, over the last few quarters. We had a pretty strong, and I would say pretty strong because I didn't want to say just unqualified, strong business environment in the prior quarter. But because there's cancellations, you know, still we continue to see clients that are, you know, we're looking for funding or having problems, etc. And, you know, high level cancellations. This quarter, this very last quarter, you know, Q2, cancellations came down quite a bit.

The business environment continued to be strong. New opportunities look good. And I don't really see competitive dynamics or anything. Like I said, the profiles moved more back towards oncology programs being the largest, in fact, majority of opportunities as opposed to metabolic drivers of a year or so ago. But otherwise, I think things are pretty stable.

I get cancellations are completely beyond my ability to even. It's not like we have any of these past, you know, past year have a situation where we had a very high risk programs and we thought, oh, you know, there could be cancellations. And, you know, sure enough, they were. We just have no idea. I mean, you know, 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. You know, like I said, we are very careful about gating our backlog by having any sort of interim look or, you know, analysis or, you know, thing that might, you know, regulatory decision that might influence the remainder of the program.

We won't put in backlog beyond that point. You know, we'll wait for that to happen. And so, you know, the cancellations that we have are completely unanticipated and, you know, out of the blue sky. So I can't say that. But what I can say is that the business environment is good. And 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 a scaling in our – a ramping up in our net bookings.

But I say that if cancellations are in any kind of reasonable range, but there's always possible cancellations spike to an unusual level.

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

Yeah, I mean, you know, that kind of is set up. Gross bookings are going to be determined by, you know, pre-backlog cancellations, you know, from the past. We did have high cancellations, but we've had an improving business environment. As I said, 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.

There has been still a number of clients that were challenged financially, so I don't know.

Yeah, I guess so. Cancellations were actually in a pretty good range this quarter. In fact, if you look at the net bookings, a bigger driver of the net bookings increase from last quarter was due to reduced cancellations rather than, you know, kind of gross bookings.

Okay, so you look at it that way. I think second half, we're going to see more just gross bookings, you know, ramping up quite a bit. So, you know, this quarter was helped along quite a bit by a substantial drop from what had been, you know, kind of elevated cancellation rate. So it's come down nicely, you know, not to unusually low level, but, you know, a very good level, let's say. And even in this quarter, cancellations and AIS were very well behaved also. So that also helps toward ramping in gross bookings going forward in the second half. So, you know, across the board, yes, 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.

Yeah, I brought that up to say that we had recognized that our win rate last year, you know, largely was less than it had been in prior years. We were making some changes. We did make changes, in fact, around, you know, late last year. And, you know, maybe a little bit in the first quarter, but, you know, they were really done, you know, last year. And so they've been implemented and are in place. And I think we're a possible, you know, influence our very strong win rate in Q1.

And so I think that has come back. I don't want to go into the details. I just wanted to acknowledge, recognize that we hadn't won the 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 were rolling out.

It sounds like you're asking about how the bookings are going to go in the second half towards 27 years. Yeah, no, I apologize.

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 card. But, you know, that was my commentary on second half.

Yeah, so RFPs 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 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 RFPs numbers have increased. I don't like paying a lot of attention to the numbers. They are up substantially year over year. They were up also, you know, sequentially by a reasonable amount.

But again, quality is more important, and I think the quality has been there and is good.

Yeah, yeah, sorry. I don't have any other comments on it, really. We had a very strong Q1. We had a Q2 that they were down. They were on the lower side of kind of the, but not, you know, unusually low.

So, you know, I don't know what to say about that. You know, these are things that do bounce around. We look at it over a longer period of time because single large programs often drive the actual number there, whether you win or miss that, you know, one or two very large programs. So it's not like a metric that can be looked on on an individual quarter. But, you know, overall, you know, the overall new awards were in a good range because the business environment was very strong, and even though maybe there were some very large ones that we lost and made the actual percent fantastic, overall awards were good.

Well, I think given the environment with the high cancellations that we were in, we did, I think we double looking at programs for decision points and what, you know, I think they may have not been as, you know, broadly implemented.

D. : There's a lot of gray area there in terms of what is a decision point. Is this look for power? Is that something that could influence their continuation of the program? There's a lot of different factors that could. And we were in a very high cancellation environment. We wanted to be, we didn't want large reductions in backlog, you know, hitting us. And so I think that was it. I think that just overall, you know, the awards that were slower, you know, did, you know, cause a change in the average profile for the program. And metabolic, I'm not denying that it has had some effect. I just don't think it is the overwhelming driver. If metabolic becomes less, because metabolic conversion isn't naturally a lot faster in our systems.

I think that it can be if there's a decision point. It's a very large program. I mean, you know, I'm not saying there couldn't be situations where metabolic might be a driver, but almost any other program also could be. So I just don't think that that is, oh, yeah, metabolic's much faster burning, and therefore that is the driver of our conversion rate. I don't think it has been.

Yeah, and I don't want to say that we removed anything from backlog, because we didn't. We didn't, you know, take anything out of backlog. We just started looking at, should we put this into backlog when we have this decision point in a year from now that in the past you might have said, well, that's just an adjustment, and it isn't really an interim look for decision about continuing the trial.

Yes, sure. That is kind of the profile of an interim analysis to decide whether to stop the trial. And if it continues, it might be that next quarter's revenue could be significant, could be influenced. Obviously, any one program is not going to be a big driver of a quarter, but it could be in that next quarter right away.

Yeah, I think we're in a good place. That's been substantially helped by the low turnover that we've had, which has continued through Q2, very low turnover on historical terms. And we do expect high single-digit growth in employees this year, and I suspect we'll continue that next year. So, I think we're in a good space. Employee growth has been predominantly U. S. and then also Asia-Pac, and a chunk of that in India, which does kind of represent, you know, positioning for, you know, cost. But the biggest growth has been U. S. , and as I think I mentioned previously, a lot of things have kind of moved back towards U. S. in terms of growth.

But there has been some repositioning, too.

Yeah, so in Q2, most of the backlog recognition would have been from award notifications the prior year. So Q1 would not have influenced greatly the Q2 backlog awards.

Yes, and then cancellations. And even Q4 was, I think things have improved quite a bit. It's cancellations that were driving sort of the backlog bookings decrease, and also we're very high in our pre-backlog, reducing our potential for future conversions. But that has, in Q2, was in a very good place.

Yeah, and that commentary is related to the reimbursable component of direct cost, right? And that's what I do expect. There's some further decline in the back half of the year, and I would say a range of 41 to 42 percent of revenue, Q3, Q4 is kind of what we're modeling right now.

Yeah, I mean, really, it's a lot of the impact that we see from Q1 to Q2 or Q4 to Q1 is related to the annual merit cycles, depending on what happens with the company's equity programs that can influence it, both of which have already occurred this year. And so you'll kind of start to see more of an influence on headcount increases as we continue in the back half of the year, but at a slower pace than revenue. So you'll see a little bit of what you're saying and that margin expansion in the back half of this year.

Yeah, thanks, Eric. Let me clarify. I don't think that metabolic is an overwhelming driver of the difference, and I'm not saying that metabolic programs might have been contributed, but I think a bigger part was the policy implementation really enhanced. It was the same policy that was written. We didn't change the SOP. It's just a matter of we were more maybe attuned to looking for those type of issues. And I don't think it's, it isn't a natural part of metabolic programs. I'm not saying there weren't, there wasn't maybe a metabolic program that also had a, you know, meaningful contribution to that because of the same issue was there, you know, of gating rather than faster burn.

I'm saying that metabolic programs are not faster burning driving our high conversion rate. And even to a large extent, they may, you know, they may to some extent, but I really think There's three components. Maybe metabolic is a little bit faster burning on average. We had the implementation of our policy, you know, up given the cancellations that were going on. And I think the overall dynamics of awards and size of backlog and AIS and all the rest of it, you know, cognitive dynamics in terms of the average age of programs. So I think there was a number of drivers of this, and I don't think that if metabolic goes to zero or doubles in our backlog, that that's going to have a big influence on our conversion rate.

So whether metabolic comes down or not, I don't think that is the driver of reducing conversion rate overwhelmingly. I don't think that's going to be a big change between 18 and 24. All that said, I would expect that our conversion rate does tend to drop down some over time as we have new awards and more programs and all the rest of it, hopefully get into a lower cancellation environment.

Yeah, that's fair. I did anticipate it coming down a little bit more in the first and second quarter. As I had mentioned in the second quarter, I thought it would be for the year. On the higher end, it pushed it to 42%. It might be just north of even that watermark.

Yeah, I mean, it certainly can be. I mean, I would say that the mix of programs going into backlog, is it significantly different on a percentage basis? Maybe it's a little bit lower, but I think what's more indicative of what happens in 2027 is just the programs that end up earning revenue and where they are in their life cycle. We've said before that studies that are later in their life cycle have a tendency to even burn a bit more reimbursable pastures. So it's just a combination of all the portfolio and how things are going to progress across that portfolio. It's not just what you're putting in the backlog.

Yeah, I don't want to get into, you know, doing that. It is larger than backlog, yes. It is growing. It has grown faster than backlog over the last year. But I don't want to get into, like, you know, percent and, you know, how much larger or what kind of stuff.

I think the average age of projects and the booking characteristics, what was more recently put in the backlog, does have an influence on the conversion rate, and I think that will change over time. I think that would put pressure downward on the conversion rate. Again, I don't want to try to project the conversion rate. I don't know that it's going to come down. I don't know how fast it would come down if it did, but I just think that a lot of the increase over time has been related to the average age of projects and kind of the dynamics of what's coming in and off of backlog, and that I would expect the more, I would at least revert towards our historical norms.

You know, that is, you know, 24% is kind of, you know, high relative to historical values, and so I would think that that is going to come down, but I'm not making a statement on, you know, we've projected a decrease, you know, through any kind of, you know, formal analysis.

Yeah, the timing of when biotechs spend their money, look, I'm not the person to talk to about that. I don't know. I don't have a good feeling. A lot of our clients are raising money while they're getting bids from us, you know, so it's immediate kind of, but I just, you know, I don't know overall. So I don't really have a good insight into that.

Yeah, sorry. No, I mean, we're seeing more clients that come with recent funding and able to move forward in programs. We have seen better funding for things. So, yeah, the trajectory has been better and the opportunities, you know, moving along nicely. I, I, there's been, it isn't like a lot of things are hung up now or, you know, things, so I think trajectory has improved with the funding environment.

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 2026 earnings call. This concludes today's conference call. Thank you for participating and you may now disconnect.