Medpace Holdings, Inc. (MEDP) Q3 2026 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the MedPACE third quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, please press star 11 on your phone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, David Ruh, MedPace's Director of Investor Relations. You may begin.

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 3, 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 end of our Q4 reporting, 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 percent compared to $148.4 million in the third quarter of 2025. Year-to-date EBITDA was $474.9 million and increased 19.5 percent 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 for diluted share was $13.37, compared to net income for 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 of purchase authorization and approved a new share of purchase 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. cents. Guidance is based on foreign exchange rates as of September 30th, 2026. With that, I will turn the call back over to the operator so we can take your questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from Michael Cherney of Leering Partners. Your line is open.

August, maybe just to dive into a bit more about your bookings commentary. Clearly, that bookings performance in the quarter is really strong. As you think about where that's coming from, how do you see the evolving competitive environment within the biotech world? And how do you think about where either pricing lies or your ability to continue to push forward in your differentiation within your core biotech customer? Any more color you can give on the competitive components and what led to some of this bookings growth in what is a healthy market would be great. August, you might be on mute.

Yeah, I'm sorry. I have trouble here. Yeah, I guess you're kind of ultimately addressing win rate, I guess. You know, how we're performing versus how much is environment. But 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's 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's a lot of good opportunities, and our win rate has been strong. So I think it's, you know, a combination of the two. I think we're, you know, booking good work. And it's, you know, a lot of it has been in the past, certainly, you know, a few years here when a lot of cancellations have driven ultimate performance in terms of awards and revenue growth. And I, you know, hope that is somewhat, you know, reduced going forward. Our cancellations, backlog cancellations this quarter were not something to call out, but also not a help. They were, you know, toward the higher end, but, you know, within kind of the range we'd expect. So, you know, I think that's, you know, what I can provide.

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

Thank you, and thanks for taking my questions. First, a quick clarification, August, about your comment about current consensus being in the right range. I'm assuming that applies to both revenue and EBITDA. And on the revenue expectation, I think 3D is modeling like 6% growth. Anything you can share in terms of how you think about direct fee revenue versus pass-through, just mix will be, that'll be helpful.

Yeah, I don't, you know, we don't comment on, you know, direct pass-through, et cetera. If you see our pass-through expenses, I think that's a kind of a, you know, 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 that I would call out, while we do agree with the percentages, 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.

Okay, that's helpful. And then a quick follow-up on the direct fee gross margin in the quarter. Really good trends there. Anything to call out in particular? Just trying to figure out if there was anything out of the ordinary in terms of mix or change orders or timing and if these Q3 direct fee gross margins levels are sustainable.

Yeah, I would just say, Jalandra, I mean, you know, 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.

Great.

Thanks a lot.

Thank you. And our next question comes from Kevin Caliando of UBS. Your line is open.

Hello, this is Tucker Emers filling in for Kevin Caliando here. I'm going to probably double click on the last question on the margin. So, headcount grew high single digits sequentially. And yeah, you were able to maintain that margin level. And so, kind of like what drove And servicing margin being so strong, why would it, you know, essentially maintain at this level going forward?

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

And then maybe I can just follow up quickly. This is mostly a question on the mix of servicing and passers essentially in the backlog. And so passers obviously dip down in the quarter. And so does that essentially imply that servicing bookings are higher in backlog? And so the question is essentially, like, would MedPace be able to maintain this 10% plus service-y growth in the foreseeable future, assuming that the pass-throughs are kind of maintaining at this lower-ish 40% level?

Yeah, I mean, again, in terms of service-y growth, you know, 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.

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

Good morning. Thank you. So when I look at the implied growth rates for 2027, definitely lower than what MedPace usually does. Is that just a factor of even though booking has been very strong this quarter, I know last three quarters were just below historically what you got, or is it anything you're seeing in the environment maybe over the past couple of weeks as interest rates have gone up that you think is going to impact demand next year? Thanks.

Yeah, no, 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, you know, one of the biggest things, particularly this past year. We've had, you know, good opportunities. You know, 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, you know, kind of where we shake out in terms of cancellation, you know, pattern here in Q4 and going into next year. Um, but, uh, things are, are, are, you know, improving, you know, month to month, um, in terms of, uh, us, uh, you know, increasing our revenue expectations for 2027 and, uh, 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 for us right as well right yeah and then just maybe any incremental color on the cancellations did anything surprise you about them in the quarter is it just funding like what I guess what's driving that the cancellations or any change from what's been driving them on the past few quarters.

Yeah, now these were, our cancellations now are primarily those of product failure. Yeah, 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, it's, they're all just, you know, random events and unexpected. So no real trend there.

Okay, great. Thank you.

And our next question comes from Justin Bowers of Deutsche Bank. queue line is open hi good morning everyone just a continuation of the last question um in terms of the decision to to wait until february to to guide is is it what is more of a factor here is it more about the awards or is it more about um cancellations just trying to get a better sense here of um water change from last year yeah i'm not sure i i you know i i can sort that it's it's just that our over the last quarter our view on on uh 27 has has moved and we expect it to continue to move um and it just seemed uh that uh we can't provide a very firm uh 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't see a real need to come out with 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, you know, very accurate in retrospect. So that's really it.

Understood. And then just a couple of quick follow-ups there.

How does the funnel look in terms of potential awards and RFPs, you know, through the funnel or the pipeline in terms of RFPs and for the rest of the year? No, look, sort of the awards, the pending RFPs is up. You know, total dollar value of opportunities that we're looking at is up nicely. I mean, RFP numbers are actually down some, But, you know, that's not a, like I said, I kind of ignore, you know, the quality and the total pending, you know, decisions, you know, 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, you know, 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, you know, if we can win well in Q4 and certainly anywhere near as well as in Q3 and cancellations aren't, you know, really out of the range, you know, I think things are going to improve toward our 27 expectations. Okay, great. I will jump back in queue. Thank you.

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

Morning. Thanks for taking my questions. Maybe going back to the new awards and, you know, good to see that they're growing healthy. I guess, do you have any way of, I guess, clarifying, you know, how much of that new awards momentum is a result of, you know, the pre-backlog that you called out, you know, in the prior year period, kind of clearing those gating factors and moving into backlog?

Well, most of our awards come from something that was previously, you know, notified that, you know, we were, you know, being, you know, we were chosen as the CRO to do this. So most of it is those gating factors, if you consider the, you know, the start of the study being a gating factor, which, you know, 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, you know, pre-backlog.

Got it. Okay. Okay. And then just, you know, you mentioned a few quarters ago, you know, some initiatives you're putting in place to address your win rates and, you know, clearly they're bearing fruit. I mean, any more color you can share on just how those initiatives have been, you know, have been working and generating success?

No, I'm not going to get into 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.

Great. Thank you.

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

Hi. Thanks for taking my question. Good morning. I wanted to ask a question around a kind of composition of work, and what I'm driving at is, August, your intent, I think, consistent intent to do full service work for your clients. I think you have a minimum kind of composition of the trial that you want to control in order to really want to engage with a client. What we're hearing is some additional, I guess, carve-out of biometrics work within trials, otherwise FSO-type trials, and then biotechs that are somewhat counterintuitive to me, but biotechs that are interested in engaging in FSP discussions, which I don't think you're interested in. So I wanted to probe if there are – if you are seeing changes in the way, you know, your target client base wants to engage around projects.

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 depends on – it is dependent on size of the client, you know, to a good extent. If it's truly functional, you know, 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.

Got it. And then maybe, too, you commented about therapeutic mix shifting back toward more traditional oncology, a little less cardiometabolic. Like Ryan asked the question about the topic that you kind of raised last time about having some trials that have these, you know, interim looks or contingencies that, you know, may be removed midstream. I guess I'm wondering if there's a, you know, there's an interrelationship between those two, which therapeutic areas tend to have that interim look? How prevalent, you know, are those things? uh maybe the simplest way to ask the question is we did see the backlog beyond next 12 months kind of regrow or you know kind of inflate a little bit where it hasn't for a while and i'm just again probing around some of those moving parts in the in the backlog long term versus next 12 months thanks yeah um i okay i guess fair question i i i just don't have the uh analytics in front of me and i mean i i you know generally don't look at that but uh it's possible that's related uh i you know i i i don't know that there's any you know real shift in the amount

that's rolling in versus new awards etc you know our awards have uh pivoted more towards you know both in terms of uh notifications and um uh you know things being recognized into backlog awards and to some extent RFPs have pivoted more back towards oncology, although we also are seeing, in terms of RFPs, quite a bit of metabolic work again. 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, where, you know, what's driving the increase in duration? You know, 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's therapeutic related. It may be true that oncology has 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.

Okay, great. Thank you.

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

Hi, good morning. It's Christine Rains on for Jared. Thanks for taking our questions. The pass-through revenue mix came in nicely below your prior 41% to 42% expectation for the second half. Is that range still the right expectation for 2H, and should we expect pass-through mix to step up in 4Q?

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 revenue model.

Great, perfect. That's very helpful. And then would you characterize customer decision timelines in the quarter as healthy? And overall, did you see any notable decline in timelines sequentially and relative to last year?

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.

Perfect. Appreciate the color. Thank you. And as a reminder, if you have a question, please press star 11. And our next question comes from Eric Caldwell of Baird. Your line is open.

Thanks very much, and good morning. Obviously, a very strong margin in the quarter, and clearly the lower reimbursable revenue is a contributor to that optically. But I am curious if there were other drivers in the quarter that you would highlight, whether that be project or therapeutic mix, you know, hiring perhaps being, you know, lower than you were anticipating or turnover being lower than you were anticipating, other efficiencies, any accounting oddities or one-timers. I'm just continually impressed by your EBITDA margin, and I think this was the second highest quarter since ASC 606. So I would love to get a sense on if there's anything unique to the quarter that, you know, barring the optics of pass-throughs up or down, you know, that we would be using this as some kind of a jumping-off point or have a reason to have sustainably higher expectations here.

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. 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.

Okay. And then on – I think you touched on it, but I did want to specifically ask about turnover rates, hiring, salaries, wages, benefits, inflation, what your thoughts are going into 27. I've recently conversed with a few of your peers, some of the mid-tier biotech-focused privates, et cetera. And what I am picking up is that everybody had, almost everybody had exceptionally low turnover in recent years. And, you know, in many cases, actually record low turnover, voluntary turnover at least. But we are picking up some signs that turnover levels are starting to come back, that a number of firms are starting to hire again. You know, people are more willing to jump ship if there's more options and companies need to start paying up for talent. So I'm just curious what your overall view on the staff marketplace looks like as we go into 27.

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.

And no pressures on incremental or abnormal pressures on salaries, wages, benefits at this point?

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

That's great.

In terms of the rate, obviously, it's always increasing some, but it's within our expectations.

No, that's where I was going. So thank you for that. And then last one for me. Last quarter, August, you seemed a lot more upbeat about, I don't know, maybe it's just the focus of what we're talking about today, but there was a lot more commentary on, I think, bookings and the big second half ramp that you expected. You were, you know, obviously accurate with Book to Bill getting, you know, back above that 1.2 zip code and strong awards that came in this quarter. It felt like there was a little less commentary on that in the fourth quarter, some modest mentions of higher cancels out of backlog. I'm just, you know, help us get to the right spot for the fourth quarter.

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, you know, another record awards. I, you know, I hate to look at book the 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 a very strong quarter in terms of awards of notifications, you know, themselves. And I would expect, you know, business awards, things moving into backlog to continue to move upward going forward next year, you know, next quarter. And, you know, sequentially.

So, no, no real difference on that.

It just comes down to where the, whether we get some unusual cancellations or not.

Thank you so much. That's very helpful. Have a great day. Thanks.

Thank you.

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

Hey, thanks. Thanks again for the question. um the uh you guys had a pretty big step up in the large pharma side um and i just wanted to know kind of what you're seeing there from a share dynamic especially over the last couple years i know that the revenue is really contingent on what you want over you know the last two years ago so um just give a sense of like where are there any specific indications are you adding new logos or is this just kind of more about assets and where that those existing relations progressing through the development pipeline.

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, you know, I think that's it.

Okay. So just more of the same that's been going on there. And then I guess, can you talk about pricing and competitiveness on the RFP? I mean, you guys are investing there to add capacity. It feels like markets in full recovery mode right now. So, are things starting to tighten up and you're able to maybe get some price in some types of services on the full service side?

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 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.

Good to hear. Thanks.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to David Roof for closing remarks.

Thank you for joining us on today's call and for your interest in MedPace. We look forward to speaking with you again on our fourth quarter 2026 earnings call.

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