Medpace Holdings (MEDP) Q3 2026 earnings call transcript

Good morning, and thank you for joining MedPace's third 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 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 Trundle.

Thanks, David. Good morning, everyone. The business environment remained strong in quarter three, 2026. We saw high-quality RFP activity, strong initial award notifications, and a good win rate.

Net new business awards reached an all-time high in the quarter, and our last 12-month growth in awards was 23.9%.

We will provide guidance for 2027 at the time of our Q4 reporting in February. However, we see no large disconnect between analyst consensus estimates and our current modeling of 2027. Kevin will now review our financial results for Q3 and our updated 2026 guidance.

Thank you and good morning to everyone listening in. Revenue was $716 million in the third quarter of 2026. This represented a year-over-year increase of 8.5%. Revenue for the nine months ended September 30, 2026, was $2.13 billion and increased 16.9%.

EBITDA of $172.1 million increased 16%, compared to $148.4 million in the third quarter of 2025. Year-to-date EBITDA was $474.9 million and increased 19.5% from the comparable prior year period. EBITDA margin for the third quarter was 24% compared to 22.5% in the prior year period. EBITDA margins benefited from lower reimbursable costs. year-to-date EBITDA margin was 22.3% compared to 21.8%. In the third quarter of 2026, net income of $137.5 million increased to 23.7% compared to net income of $111.1 million in the third quarter of 2025. Net income growth above EBITDA growth was primarily driven by higher interest income and a lower effective tax rate compared to the prior year period.

Year-to-date net income was $382.7 million compared to $316 million in the comparable prior year period, which represents a 21.1% increase. Net income per diluted share for the quarter was $4.84 compared to $3.86 in the prior year period. Year-to-date net income per diluted share was $13.37 compared to net income per diluted share of $10.64 in the comparable prior year period. Net new business awards entering backlog in the third quarter increased 10.6% from the prior year to $873.4 million. Net new business awards entering backlog over the last 12 months increased $3.02 billion, representing a year-over-year increase of 23.9%.

Ending backlog as of September 30, 2026 was approximately $3.2 billion, an increase of 5.6% from the prior year. We project that approximately $1.99 billion of backlog will convert to revenue in the next 12 months.

Backlog conversion in the third quarter was 23.8% of beginning backlog. Regarding customer concentration, our top five and top ten customers represent roughly 31% and 39%, respectively, of our last 12 months' revenue.

In the third quarter, we generated $216.6 million in cash flow from operating activities, and our net day sales outstanding was negative 66 days.

Cash ended the quarter at $705.3 million. Effective October 20, 2026, the Board terminated the company's current share repurchase authorization and approved a new share repurchase authorization of up to $1 billion.

Moving now to our updated guidance for 2026. Full-year 2026 total revenue is now expected in the range of $2.835 billion to $2.855 billion, representing growth of 12% to 12.8% over 2025, total revenue of $2.53 billion. Our 2026 EBITDA is now expected in the range of $638 million to $652 million, representing growth of 14.4% to 16.9% compared to EBITDA of $557.7 million in 2025. We forecast 2026 net income in the range of $514 million to $524 million.

This guidance assumes a full-year 2026 effective tax rate of 19% to 19.5%, interest income of $22.9 million, and $28.6 million diluted weighted average shares outstanding for 2026. There are no additional share of purchases assumed in our guidance.

Earnings per diluted share is now expected to be in the range of $17.97 to $18.32. Guidance is based on foreign exchange rates as of September 30, 2026. With that, I will turn the call back over to the operator so we can take your questions.

Yeah, I'm sorry. I have a trouble here. Yeah, I guess you're kind of ultimately addressing win rate, I guess. You know, how we're performing versus the run-witches environment. The business environment is a strong one. I think really across the board, I think that things have changed a little bit in terms of the mix of what we're seeing, and it a little bit more traditional oncology generally our largest area a little bit less metabolic demand at the current time point But I think there a lot of good opportunities And our win rate has been strong. So I think it's a combination of the two. I think we're booking good work. And a lot of it has been in the past, certainly a few years here, A lot of cancellations have driven ultimate performance in terms of awards and revenue growth.

And I hope that is somewhat reduced going forward. Our cancellations, backlog cancellations this quarter were not something to call out, but also not a help. they were toward the higher end, but within kind of the range we'd expect.

So I think that's what I can provide. Thank you.

Yeah, we don't comment on direct pass-through, et cetera. You see our pass-through expenses. I think that's kind of a way to try to back into it, not accurately, but at least directionally. I don't know. Kevin, do you have any comment on that?

No, I mean, I think we'll provide more color, Jalander, in terms of what that will look like in February. But I would just kind of reiterate what August said, that consensus looks reasonable relative to what we have in our current modeling, and that would include some assumptions on pastors at the current moment. We'll have to see how bookings progress in the next quarter. The only other thing I would call out while we do agree with the percentage is just a reminder that we do have a new expansion, significant expansion coming online here in Cincinnati, which will add about $20 million of operating costs in 2027.

I would just say, Jalandra, quarter to quarter there's certainly volatility that can occur in our numbers. And I know that everybody uses pass-through as a proxy for what direct service fee revenue is, But that's not exactly how 606 works. Your margins, again, are good, very good, but they can be lumpy from quarter to quarter. But I don't see anything that would significantly disrupt kind of the margin performance in Q4.

Yeah, again, there can be some timing things that happen in a given quarter. There can be some lumpiness caused by 606. But no, it's good performance overall across the business.

Utilization continues to be in a good spot. And while we're growing headcount, the revenue is growing faster than that at the given moment.

Yeah, I mean, again, in terms of service fee growth, obviously the bookings over the last couple of quarters have been good. We'll have to see what happens in the fourth quarter, but that will then influence what 2027 looks like. So in terms of growth rates, nothing to comment on in terms of 2027 at the moment, other than what we have already said, in that we don't see a major disconnect with where consensus is right now.

Yeah. Now, I think that our growth profile has dropped quite a bit over the last, you know, few years related to primarily the pressure from cancellations. has been one of the biggest things, particularly this past year. We've had good opportunities. The business environment's been strong this year. And it continues to be. And one reason we decided to not provide any real guidance on next year yet is it's still shaping up quite a bit.

And Q4 awards are still an important component of next year revenue. But more important is kind of where we shake out in terms of cancellation pattern here in Q4 and going into the next year.

But things are improving month to month in terms of us increasing our revenue expectations for 2027. And hopefully that continues. But, again, a large part of that will be, you know, kind of what the cancellation profile is in Q4. We see no reason for high cancellations, but, you know, these are kind of things that just come out of the blue. They were a little bit higher than we would have liked in the current quarter, but manageable. And, you know, hopefully that continues, you know, for the rest of the year anyway.

And, Anne, just another comment that you remember the mix of past, relative to revenue will also influence that gross rate as well, right?

Yeah, no, these were – our cancellations now are primarily those of product failure, you know, a little bit more clearly product failure. You know, it's always, well, you know, some of it's prioritization too. You could say that's related to total level of funding, possible, but no real signs funding is now a main driver of many of the cancellations. It's products that are not living up to expectation, safety signals, other things that are causing programs to stop. So it's kind of the, yeah, everything surprises me about them. You know, they're all just, you know, random events and unexpected.

So no real trend there.

Yeah, I'm not sure I can sort that. It's just that over the last quarter, our view on 27 has moved, and we expect it to continue to move. and it just seemed that we can't provide a very firm, you know, guide. We feel we can provide a much more firm guide in February than we would be able to now.

And we didn see a real need to come out with you know some commentary on what we expected relative to consensus it looked somewhat in line I'm not saying it's the same, but it didn't look drastically off. So we decided that there's no point in making a poor guide that might not be very accurate in retrospect. So that's really it.

You know, no, look, you know, sort of the awards, the pending RFPs is up, you know, total, you know, dollar value of opportunities that we're looking at is up nicely. I mean, RFP numbers are actually down some, but that's not a, like I said, I kind of ignore RFP. The quality and the total pending decisions by clients is very large. And they're not being held up. And this is just because of volume of opportunities that have come in. It's not that things are not being awarded. Things are actually moving along at a relatively normal pace in terms of, you know, award decisions, projects moving forward, you know, getting funding in place. Things are actually going very well, but the total number of opportunities has increased.

And, you know, is it a good, you know, very good high? I think that if we can win well in Q4 and certainly anywhere near as well as in Q3 and cancellations aren't really out of the range, I think things are going to improve toward our 27 expectations.

Well, most of our awards come from something that was previously notified that we were chosen as the CRO to do this.

So most of it is those gating factors, if you consider the start of the study being a gating factor, which we do. So, you know, we bring things into backlog when the study starts actually operationally in the field.

Now, if you're asking how much is that versus other gating factors, I mean, still the biggest one is, you know, getting, you know, started in the trial. It's a minor number of additional amounts of backlog added because there was some gating factor on an award that was already partially a backlog. I don't know if that answers your question, but most things that are awards in a given quarter were in our suspense, our pre-backlog.

No, I'm not going to give details on what they were. I wanted to point out we recognized our win rate wasn't as high as we'd liked in 2025. And toward the end of 2025, we made some meaningful adjustments in our processes and how we address things. And I think they have been successful. You know, it's very difficult over even just a couple quarters to, you know, assess that. But I think our assessment to date is that they've been very successful, and we hope to continue to improve going forward.

Dave, I wouldn't say that I see certainly a meaningful change in that. I mean, there's always been clients that want to carve out biometrics, sometimes internally, sometimes with another, you know, chosen provider. We do prefer totally full-service opportunities, but as long as we're able to add real value in terms of managing the recruitment, quality of the trial, execution overall. So if we have all of the, you know, front end operations and they want to keep even data in-house as well as, you know, biometics, as well as statistics and medical writing, that may be an opportunity that's of interest to us, yes. but I haven't really seen a step increase in the number of clients that are doing that, really.

It is dependent on size of the client to a good extent. If it's truly functional, you're right, we're not interested at all. But certainly if it's front-end only, we do do projects that are front-end only.

Yeah. Okay. I guess fair question. I just don't have the analytics in front of me. You know, I mean, I, you know, generally don't look at that, but it's possible that's related. You know, I don't know that there's any, you know, real shift in the amount that's rolling in versus new awards, et cetera. You know, our awards have pivoted more towards, you know, both in terms of notifications and, you know, things being recognized in the backlog awards. have, and to some extent, RFPs, you know, have, you know, pivoted more back towards oncology. Although we also are seeing, in terms of RFPs, quite a bit of metabolic work again.

Sort of there was a little bit of a drop, and so the notifications and awards are down in the metabolic area, but there is a lot of pending opportunities for metabolic forest currently.

But, yeah, what's driving the increase in duration? Is it new projects that are entered and very short remaining projects that are coming out that's driving it? I think that's probably the bigger factor. but was there any, you know, gates that were reached that opened up that caused a meaningful, you know, increase in the duration of projects? I don't know. I doubt it therapeutic It may be true that oncology is a bit more likely to have gates They tend to be longer trials and have more gating So that's probably true overall, but I don't know if that's influencing our outside of 12-month backlog change.

Yeah, good question. I expect it to be somewhere around where we finished the third quarter, so kind of 40 to 40.5% based on our model.

Yeah, I think things are moving along faster than last year. I think we're kind of in a pretty good place in terms of projects moving along well. You know, the RFPs not being bid a thousand times and, you know, things, you know, moving along towards award and then project startup. So I think things are pretty normalized environment in terms of, you know, we're getting opportunities that clients want to move forward on in the current timeframe, not sometime in the future.

No, Eric, nothing to specifically call out. Just other than what I mentioned earlier, that certainly there is volatility in our margin percentages quarter to quarter, right? There can be some timing aspects to when certain contracts are signed. Again, the business is performing very well on the direct service side, to your point. Attrition rates are in a very good spot, and the business continues to deliver.

But some of it certainly can be influenced by just the volatility that we see and some of the 606 impacts. But, again, I don't expect there to be a major degradation in the fourth quarter. Again, there is some level of headwind in 2027 as we absorb the Cincinnati campus expansion, but we'll provide more color on that in February.

Turnover looks very low. I mean, I think we've continued with low turnover. I don't know what else you can say on that.

No, no, it's pretty – you know, it's an ongoing thing, but no, I don't think there's any real change over the past year.

That's always – look, it's going to be cancellations. But no, I don't feel any different. And I think that Q4, if things go right, is going to be, you know, another record awards. You know, I hate to look at book to bill. I just think it's a bad measure. You know, I'd rather focus on, you know, award growth and, you know, trailing 12 awards. And I would expect another, you know, another step up.

You know, things look very good. We have a lot of stuff in the pipeline, you know, both in terms of opportunities, RFPs that are, you know, pending award. A lot of, you know, we had very strong quarter in terms of awards of notifications, you know, themselves. And I would expect, you know, business awards, things moving in the backlog to continue to move upward going forward next year, you know, next quarter. and sequentially.

So no, no real difference on that. It just comes down to whether we get some unusual cancellations or not.

Thanks.

Yeah, most of our large pharma opportunities come from a limited number of providers. And often it's related to biotech clients we had that got acquired. So it's not really a direct outreach from us to try to win large pharma work at new clients. So it's supporting existing clients that largely are there because we had an acquisition of a former client of ours.

So I think that's it.

You know, we've not really gone to, you know, I mean, I think there were some that, you know, really focused on pricing. You know, we focus on quality of our deliverables.

And, you know, I do think that some of the crazy approaches taken by some, you know, in the past few years have died out. So I think we're kind of back to a normalized 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 fourth quarter 2026 earnings call.

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