Q2 2026 Medpace Holdings, Inc. Earnings Conference Call

stability of the bookings in terms of pricing, in terms of competition? And what are you seeing in terms of any potential changes, adjustments, fierceness in competition relative to the overall market health with your core biotech customers?

Yeah, no, I don't think the market has changed and it's gotten stronger 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 uh in the prior quarter but um because there's cancellations you know still we continue to see clients that are you know we're looking for funding or having you know problems etc um and uh you know a high level console cancellations this quarter this this very last quarter um you know q2 cancellations came down quite a bit um the business environment continued to be strong. New opportunities look good. And I don't really see a, you know, competitive dynamics or anything. Like I said, the profiles, you know, moved more back towards oncology programs being the largest, in fact, majority of opportunities as opposed to, you know, sort of, you know, metabolic, you know, drivers of, you know, a year or so ago. But, you know, otherwise, I think things are pretty stable.

And just quickly on the cancellation side, I know you don't guide the cancellations, but I know they can be volatile for 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 one quarter, in one queue?

The 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, I can't say that, but what I can say is that the business environment is, is, is good. We are pipeline of stuff, including in, you know, The kind of pre-backlog that have been awarded programs is very strong, and I would anticipate that our gross bookings, which, you know, we do have reasonable insight into, are going to, you know, scale in the next, you know, 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.

Thank you. And our next question comes from Anne Hines of Mizuho. Your line is open.

Great. Thank you. I know your business, you do a little bit of phase one, but phase two and three. And there's been some increased investor concern that maybe phase two is hitting a wall, maybe something's moving to China. I don't know if that's the case for you, just giving you a biotech mix. But maybe if you can just discuss gross bookings, trends, and phase one versus phase – I mean, I'm sorry, phase two versus phase three, that would be great. Thank you.

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 kind of moved towards, you know, very 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, you know, 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. But I don't know.

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

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, you know, high cancellations, but we've had an improving business environment. And as I said, you know, that's what I've been saying the last few quarters, three quarters or so, you know, the business environment is pretty good. It looks actually, you know, I would say very good, except that we keep having cancellations, and that is part of the business environment, you know, and it's – and, you know, there has been, you know, still a number of clients that were, you know, challenged financially. So, I don't know.

All right. Thank you.

Thank you. And our next question comes from Jill Anderson of Truist Securities. Your line is open.

Thank you, and thanks for taking my questions, and congrats on a good quarter. I just want to go back to cancellation comment, August. I was wondering if you can put Q2 trends in some perspective. Is it fair to say that cancellations have improved back to levels seen in Q3 of last year, or even better or worse, just to confirm that? And also to confirm that cancellations improve in both backlog and pre-backlog? Doug?

Yeah. 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 a, 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 in AIS were very well behaved also so that way 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 a look more than half of the driver of I would say of you know the net bookings growth from the prior quarter from Q1 Yeah, yeah, it helps.

And then my follow-up, you know, last quarter you did call out implementing initiatives to improve win rates. Can you provide any update on that? Have you started to see the impact of those initiatives? And if any color, they can put it around. What are these initiatives related? Is it commercial execution, positioning, quality? Just give us more color, like if that's having an impact on your wins here.

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, you know, we're implementing some changes. But I don't want to go into just how those competitive changes were rolling out.

Got it. Thanks a lot.

Thank you. And our next question comes from Jared Haas of William Blair. Your line is open.

Great. It's Christine Rainson for Jared. So while I realize the majority of the work that you booked today will not burn until at least 2027, given the volatility of recent, and hoping you can get 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. You're a little bit faint there. 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. I'm just hoping to get some color on, really, if 2Q is expected to be the high watermark for bookings here, if we really could see an acceleration as we move throughout the year in terms of net bookings.

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 you know that was my commentary on second half perfect thank you and then hoping you can give a little bit more color on RFPs in terms of magnitude of sequential in year-over-year growth and on bookings quality as well and then a similar question on magnitude of initial words declined sequentially and to add if the stock was up year over year?

Yeah, so booking – so RFPs were up meaningfully, you know, certainly on a sequential basis, you know, RFPs were up substantially. You know, 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 RFP's 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 sequentially by a reasonable amount. But, again, quality is more important, and I think the quality has been there and is good. What was your other question? Another question on that?

Oh, it was just on initial awards in terms of – they seemed strong, but declined sequentially in your 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.

Yeah, yeah. 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.

Perfect. Very helpful. Thank you.

Thank you. And our next question comes from David Windley of Jefferies. Your line is open.

Hi, good morning. Thanks for taking my question. August, I wanted to try to understand hearing you on the contingency backlog considerations that you had mentioned to me recently and mentioned again this morning and how influential they are. So, I guess I'll spin the question to the backlog burn has, you know, ramped over a couple years, kind of making new highs. Sounds like you don't, you would not attribute that to the metabolic mix. To what do you attribute, I guess is my basic question. What are the, what are the various factors that contribute to that burn rate being as high as it is?

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, and I think they may have not been as, you know, broadly implemented. You know, what, you know, there's a lot of gray area there in terms of what is a decision point, you know, what is, is this look, you know, for power? Is that something that could influence their continuation of the program is this you know there's a there's a lot of different um factors that could in and and we were in a very high um cancellation environment we wanted to be um uh we didn't want um uh large uh reductions in in in in backlog you know hitting us and so i 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, you know, overwhelming driver, you know, that if metabolic becomes less that, because metabolic, you know, conversion isn't naturally a lot faster in our systems. I think that it can be if there's a decision point that'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 did the it sounds like you kind of went through a you know it's logically a backlog recheck as a result of what the environment was was signaling to you yeah and I don't want to 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 to say, well, that's just an adjustment, and it isn't really an interim look for decision about continuing the trial.

Do you have, on this point, do you have any meaningful amount of revenue where, say, a decision point or some factor would cause value to kind of be added to backlog and go right into revenue in the same quarter? you know, like a decision point, you know, happens and that drops into revenue?

Yes. Yeah, sure. I mean, 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, you know, could be influenced. Obviously, any one program is not going to be a big driver of a quarter, but, you know, but could be in the next quarter, you know, right away.

Yeah. Last question for me. On the labor side, your headcount growth did tick up a little bit. I wondered how you would assess where you stand on resources relative to the demand that you're seeing, you know, matriculate toward bookings. And within that, has the composition of your labor changed, you know, geographically? You had, you know, in past years talked about beginning to do some offshoring or between full-time equivalents and contractors as you maybe try to manage costs. Thanks.

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, you know, very low turnover on historical terms. And we do expect high single digit, you know, growth in employees, you know, this year. And I suspect we'll, you know, continue that next year. So, I think we're in a good space that employee growth has been predominantly U.S. and then also Asia-Pac. And I've had a chunk of that in India, which does kind of represent positioning for cost. But the biggest growth has been U.S. And as I think I'd 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.

Okay.

Thank you. And our next question comes from Ryan Halstead of RBC Capital Markets. Your line is open.

Thanks for taking the questions. Just going back to the net new awards growth, my question is, are you able to quantify, I guess, or just size, you know, How much of the new awards growth came from converting your pre-backlog awards from last year into awards this year, and how much of it was from, you know, this improvement in the business environment, so kind of organic new awards this year?

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.

Got it. Okay. And then in terms of the improving business environment, where are you seeing that? Is that sort of in the pre-award backlog?

Uh, yes. And then cancellations. Um, you know, so I, and even Q4 was, you know, I, I, I think things have improved quite a bit. It's cancellations that were driving sort of, uh, um, the backlog, uh, bookings, uh, decrease. And also we're substantial, we're very high in our, um, uh, pre backlog, uh, reducing our potential for, you know, future conversions. But that has – in Q2, it was in a very good place.

And then last one for me. You had previously guided to direct service costs at 41%, 42% of revenue, which I think implies a sequential decrease. Just curious if that continues to be the case, if you are expecting some declining direct service costs.

Yeah, and that commentary is related to the reimbursable component of direct cost, right? And so I do expect 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. Great.

Thanks for taking the questions.

Thank you. And our next question comes from Luke Sergat of Barclays. Your line is open.

Hey, this is Jake on for Luke. Thanks for the question. For the last couple of years, you saw a sequential step down in SG&A from 1Q to 2Q, and then this quarter it ticked up slightly. So I know you called out benefiting from lower employer-related costs through the last couple of quarters, but what are the puts and takes there going forward around the margin step up through the year?

Thank you. yeah i mean you're really it's you know a lot of the impact that we see from q1 to q2 or q4 to q1 is related to you know the annual uh merit cycles um you know depending on what happens with the company's equity programs that can influence it um you know both of which have already occurred this year uh 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. Great. Thank you.

Thank you. And our next question comes from Eric Caldwell. Baird, your line is open.

Thank you. Good morning. I just wanted to circle back first to David's questions and on the backlog burn rate. I think I get the gist of what you're saying. Just to be very clear, your long-term average backlog burn rate up until the beginning of 25 was about 18%. Now you're at 24%. You're saying metabolic was not the main driver. It sounds like you're saying the main driver was that you tightened the screws, I guess if you will, tightened the screws on your policies around what you put into backlog, So, you know, effectively changed SOPs on what went in there, and you were more restrictive on gating factors. I just want to clarify that that was, in fact, the main driver of this increase, you know, being 30%, 35% above normal on backlog burn. And if that was the case, is your expectation that backlog burn stays at 24% moving forward? Or now that the environment is improving, are you perhaps going to go back to a more traditional process in terms of where you, you know, gate or don't gate awards when they, you know, do or do not become bookings?

Yeah. So, 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 it's 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 meaningful contribution to that because of the same issue was there, of gating rather than faster burn. I'm saying that metabolic programs are not faster burning, driving our high conversion rate to a large extent. 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 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. OK, 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. Okay, so that's the – 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, you know, more programs and all the rest of it, and hopefully get into a lower cancellation environment. Okay.

And then on the pass-throughs, the last question, Kevin said 41%, 42% of mix in the second half. I think that is perhaps higher. Maybe Q1 and Q2 were a little higher than you were thinking. Is that a fair statement that they have run at a slightly faster clip this year than you were anticipating? Is that fair?

Yeah, that's fair, Eric. I did anticipate it coming down a little bit more in the first and second quarter. And 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.

And then the current generation of bookings, the $800 million here in Q2, any sense on what the profile of that looks like with pass-through mix if you just took that bucket individually I'm thinking that perhaps with mix shifting back towards oncology the pass-through mix of that bucket maybe the the newer generation buckets of awards could be lower so we would see a reduction in pass through mix in 27 if that were the case, but maybe that's not the right thought process.

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 burning revenue and where they are in their life cycle. As we've said before that studies that are later in their life cycle have a tendency to even burn a bit more reimbursable pastures. And 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 background.

Gotcha. And then last one for me, I was hoping, sorry if I missed this, but did you provide an update on pre-backlog? You know, was it up, down, flat, quarter over quarter? You know, I think last quarter you said it was around the size of backlog, but maybe you could, you know, provide some more color on where that stands exiting Q2?

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. I know, but I don't want to get into like, you know, percent and, you know, how much larger or what kind of stuff. Okay.

Thank you.

Thank you. As a reminder, if you have a question, please press star one one. And our next question comes from Justin Bowers of Deutsche Bank. Your line is open.

Hi, good morning. I have a few questions, but just wanted to continue with Eric's line of questioning and just clarify a couple of things on the burn rate. So, August, it sounds like your statement on the burn rate, excuse me, coming down in the future would be driven more by fewer cancellations. And I guess that would mean, you know, greater booking showing up in the quarter versus a change in how you're running the business or study mix. Is that the takeaway that you want us to have?

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 – and 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, you know, kind of the dynamics of what's coming in and off of a backlog. and that that would, I would expect a more, I would at least revert towards our historical norms. I, 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.

Okay, understood. And then just on the environment, this is a question that's been asked amongst some of your peers as well. You probably have line of sight into this better than anyone, just given the customers that you serve. But with with the increase in funding that we're seeing now and and the wider dispersion out there, when, you know, how should we thinking about the timeline of when that actually shows up either as awards and or in your in your backlog? Is there a time frame that you can help us think about? And then also, just in general, how is the cadence of decision-making right now versus maybe 12 months ago?

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.

Okay. And any change in the trajectory of decision-making timelines or competitive landscape?

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. 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.

Okay, thank you. I'll jump back in queue.

Thank you. I'm showing no further questions at this time.

I'd like to turn it back to David Rue for closing remarks. thank you for joining us on today's call and for your interest in med base 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