Medpace Stock

Good day, ladies and gentlemen, and welcome to the Medpace Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, David Ruhe, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's second quarter 2026 Earnings Conference Call. Also on the call today is our CEO, August Troendle; and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements even if estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today.

During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com.

With that, I would now like to turn the call over to August Troendle.

Good day, everyone. The business environment 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 6 months ended June 30, 2026, was $1.41 billion and increased 21.7%. EBITDA of $153.4 million increased 17.6% compared to $130.5 million in the second quarter of 2025.

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-bill.

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 5 and top 10 customers represent roughly 31% and 40%, respectively, of our last 12 months revenue.

In the second quarter, we generated $162 million in cash flow from operating activities, and our net days 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 growth 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 [Audio Gap] no additional share repurchases assumed in our guidance.

Earnings per diluted share is now expected to be in the range of $17.25 to $17.95. Guidance is based on foreign exchange rates as of June 30, 2026.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions] And our first question comes from Charles Rhyee of TD Cowen.

I wanted to ask, obviously, a lot of the growth that we've seen over the last year or so has been really driven by metabolic mix. And at the same time, it looks like our concentration of top customers, particularly the top 5 has increased. Can you give us a sense on -- are the two related in such that maybe a lot of the metabolic work you're doing is coming from a couple of large clients?

And can you give us a sense on sort of what visibility you have of that going forward? And I guess the question is, does the mix within your bookings and backlog look similar to what your current revenue mix? Just trying to get a sense how long we could expect this kind of mix persist and particularly on the metabolic side? Or does that kind of roll off at some point? And maybe any sense on timing would that be?

Sure. This is August. The top 5 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 5 that are a good part of that growth in the group. And as to timing of that, more recently, this year, the last couple of quarters, I think that oncology has come back quite a bit in terms of our -- both our award notifications. So the earliest part of kind of the pipeline for awards and the backlog recognition. So our bookings, particularly in this last quarter, we were very strong in oncology.

Oncology represented over half of our overall bookings and our award notifications. So that's -- and metabolic -- cardiometabolic has kind of dropped off quite a bit in terms of new award notifications. So I think we are seeing kind of a shift back towards more historical averages. I don't know that we'll get back to where we were 2 years ago in terms of percent of -- but I think oncology will retake its position and move up a few percent in our mix, et cetera. I would expect over the next year or so that to kind of head back toward that kind of prior mix. So yes, the metabolic is kind of -- some of the very large programs are kind of reducing and sort of the new opportunities are not as great as a year ago.

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

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

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

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

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

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

Very nice job on the bookings. As you think about the mix that you saw, anything to call out relative to the 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?

Yes. No, I don't think the market has changed other than it has 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 in the prior quarter. But because there was cancellations. Still, we continue to see clients that are -- we're looking for funding or having problems, et cetera, and a high level of cancellations.

This quarter, this very last quarter, Q2 cancellations came down quite a bit. The business environment continued to be strong. New opportunities look good. And I don't really see competitive dynamics or anything like I said, the profile has moved more back towards oncology programs being the largest, in fact, the majority of opportunities as opposed to sort of metabolic drivers of a year or so ago. But otherwise, I think things are pretty stable.

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

Cancellations are completely beyond my ability to even -- it's not like we have any of these past year have a situation where we had a very high-risk programs and we thought, oh, there could be high cancellations and sure enough, they were. We just have no idea. I mean there's not been that kind of insight into future cancellations. And I don't anticipate that there will be going forward. I mean cancellations just come up. I would say, we are very careful about gating our backlog by having any sort of interim look or analysis or thing that might -- regulatory decision that might influence the remainder of the program, we won't put in backlog beyond that point.

We'll wait for that to happen. And so the cancellations that we have are completely unanticipated and out of the blue sky. So I can't say that. But what I can say is that the business environment is good. Our pipeline of stuff, including in the kind of pre-backlog that have been awarded programs is very strong. And I would anticipate that our gross bookings, which we do have reasonable insight into, are going to scale in the next second half are going to ramp up. And I think that independent of where cancellations are, that should be a scaling in our -- ramping up in our net bookings. But I say that if cancellations are in any kind of reasonable range, but there's always possible cancellations spike to an unusual level.

And our next question comes from Ann Hynes of Mizuho.

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

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

Great. And I know the past couple of quarters, I believe you said gross bookings 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?

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

And our next question comes from Jailendra Singh of Truist Securities.

Congrats on a good quarter. 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, did cancellations improve in both backlog and pre-backlog?

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

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

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

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

It's Christine Rains on for Jared. So while I realize that the majority of the work that you booked today will not burn until at least 2027. Given the volatility of recent, hoping you can give some color on what you're expecting for bookings growth cadence in the back half of the year. And really if you expect 2Q net bookings to be a higher watermark or if we could see sequential acceleration as we move throughout the year?

I'm sorry, a little bit faint there. It sounds like you're asking about how the bookings are going to go in the second half towards '27?

Yes. Yes. No, I apologize. I was 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 card. But that was my commentary on second half.

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

Yes. So booking -- 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 of broader. We're seeing more opportunities with recent funding and moving forward with the program.

So I think the business environment is in good shape, and I think the 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 sequentially by a reasonable amount. But again, quality is more important, and I think the quality has been there and is good. And what was your other question? You had another question on that?

It was just on initial awards in terms of -- they seem 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...

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

And our next question comes from David Windley of Jefferies.

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 ramped over a couple of years, kind of making new highs. It 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 various factors that contribute to that burn rate being as high as it is?

Well, I think given the environment with high cancellations that we were in, we did -- I think we double looking at programs for decision points and what -- I think they may have not been as broadly implemented. What -- there's a lot of gray area there in terms of what is a decision point. What is this look for power? Is that something that could influence their continuation of the program? Is this -- 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 hitting us.

And so I think that was it. I think that just overall, the awards that were slower did cause a change in the average profile of the program. And then what 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 than, 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 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, yes, metabolic is 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 logically a backlog recheck as a result of what the environment was signaling to you.

I don't want to say that we removed any backlog because we didn't 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, it's -- that's just an adjustment and they're not really -- it isn't really an interim look for a 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, like a decision point happens in -- and that drops into revenue?

Yes. Yes, sure. I mean that's the -- 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 the next quarter right away.

Yes. 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 matriculate toward bookings? And within that, has the composition of your labor changed geographically, you had in past years, talked about beginning to do some offshoring or between full-time equivalents and contractors as you maybe try to manage costs?

Yes. 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 a positioning for cost. But the biggest growth has been U.S. And as I think I've 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.

And our next question comes from Ryan Halsted of RBC Capital Markets.

Just going back to the net new awards growth. My question is, are you able to quantify, I guess, or just size 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 this improvement in the business environment, so kind of organic new awards this year?

Yes. 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?

Yes, and in cancellations. So -- 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 substantial -- were very high in our pre-backlog, reducing our potential for future conversions. But that has -- in Q2 was in a very good place.

Got it. Okay. And then last one for me. Just you had previously guided to direct service costs at, I don't know, 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.

Yes. And that commentary is related to the reimbursable component of direct costs, 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% of revenue Q3, Q4 is kind of what we're modeling right now.

And our next question comes from Luke Sergott of Barclays.

This is Jake on for Luke. 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?

Yes. 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. And so you'll see a little bit of what you're saying in that margin expansion in the back half of this year.

And our next question comes from Eric Coldwell of Baird.

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 tighten the screws, I guess, if you will, tighten the screws on your policies around what you put into backlog, so 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 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 gate or don't gate awards when they do or do not become bookings?

Yes. So 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. So we didn't change the SOP. It's just a matter of we are more maybe attuned to looking for those type of issues.

And I don't think 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.

And to a large extent, they may to some extent, but I really think there's 3 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 targeting dynamics in terms of the average age of programs, okay?

So I think there was a number of drivers of this. And I don't think that if metabolic goes to 0 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 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, you -- 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?

Yes, that's fair, Eric. I did anticipate it coming down a little bit more in the first and second quarter. But -- and as I mentioned in the second quarter, I thought it would be for the year on the higher end, closer to 42% and 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 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.

Yes. 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 pass-throughs. 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 backlog.

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

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

[Operator Instructions] and our next question comes from Justin Bowers of Deutsche Bank.

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 greater bookings 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 or...

I think the average age of projects and the booking characteristics, what was more recently put in 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 kind of the dynamics of what's coming in and off of backlog and that, that would -- I would expect a more -- I would at least revert towards our historical norms. That is 24% is kind of 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 we've projected a decrease through any kind of 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 the increase in funding that we're seeing now and the wider dispersion out there. When -- how should we be thinking about the time line of when that actually shows up either as awards and/or 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?

Yes. 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. So it's immediate kind of -- but I just -- 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 time lines or competitive landscape?

Yes, 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 yes, the trajectory has been better and the opportunities moving along nicely. There's been -- it isn't like a lot of things are hung up now or things -- so I think trajectory has improved with the funding environment.

I'm showing no further questions at this time. I'd like to turn it back to David Ruhe 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 third quarter 2026 earnings call.

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

Good day, ladies and gentlemen, and welcome to the Medpace First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Lauren Morris, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's First Quarter 2026 Earnings Conference Call. Also on the call today is our CEO, August Troendle; our President, Jesse Geiger; 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 our earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Troendle.

Good day, everyone. Before reviewing Q1 results, I would like to acknowledge that this will be our last earnings call with Jesse Geiger, our President. I would like to thank Jesse for his 18.5 years of service. Thank you, Jesse.

Quarter 1 of 2026 saw cancellations rise again with backlog cancels reaching their highest point in over a year. Net bookings were below the level of -- seen in Q4, but well above those in Q1 2025 with a net book-to-bill ratio of 0.88. [indiscernible] RFPs were down in the quarter sequentially and year-over-year. Initial award notifications and win rate were strong. We continue to view the quality of opportunity flow as good. While there is nothing we can do to alter our cancellation rate, we are focused on expanding our pipeline of opportunities and have implemented a number of initiatives to improve our win rate. Jesse will now comment on Q1.

Good morning, everyone. Revenue for the first quarter of 2026 was $706.6 million, which represents a year-over-year increase of 26.5%. Net new business awards entering backlog in the first quarter increased 23.7% from the prior year to $618.4 million, resulting in a 0.88 net book-to-bill. Ending backlog as of March 31, 2026, was approximately $2.9 billion, an increase of 2.9% from the prior year. We project that approximately $1.94 billion of backlog will convert to revenue in the next 12 months, and backlog conversion in the first quarter was 23.3% of beginning backlog.

Now before I turn the call over to Kevin, I want to add that it has been a true honor to serve the company all of these years. I wish all of my Medpace colleagues well and I'm so proud of what we've accomplished together. And with that, I'll turn the call over to Kevin. Kevin?

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $706.6 million in the first quarter of 2026. This represented a year-over-year increase of 26.5% on a reported basis and 25.8% on a constant currency basis. EBITDA of $149.4 million increased 25.9% compared to $118.6 million in the first quarter of 2025. On a constant currency basis, first quarter EBITDA increased 28.6% compared to the prior year.

EBITDA margin for the first quarter was 21.1% compared to 21.2% in the prior year period as the impact of higher reimbursable costs were offset primarily by lower employee-related costs. In the first quarter of 2026, net income of $123.9 million increased 8.1% compared to net income of $114.6 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate in the quarter. Net income per diluted share for the quarter was $4.28 compared to $3.67 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 28% and 37%, respectively, of our last 12 months revenue.

In the first quarter, we generated $151.8 million in cash flow from operating activities, and our net days sales outstanding was negative 58.8 days. As of March 31, 2026, we had $652.7 million in cash. Our 2026 guidance ranges for revenue, EBITDA, net income and EPS are unchanged from our prior quarter based on an effective tax rate of 19% to 20% and interest income of $27.5 million. There are no additional share repurchases in our guidance.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions]

Our first question comes from Max Smock with William Blair.

Maybe just following up on the cancellations point. Obviously, I know you mentioned the highest that you've seen about in a year. Just wondering if you could dive into the dynamics behind those cancellations. I know last quarter, you called out not really macro-related, more project-specific. I'm wondering if that was the case here. in the first quarter? And then any detail you can provide around how cancellations have trended so far in the second quarter? And just any other drivers in terms of therapeutic modality indication, any sort of themes behind outsized cancellations that you saw here in the first quarter.

Yes. Sure. Yes. So cancellations were, again, just the kind of random stuff you'd expect product performance, re-prioritizations, etc. It wasn't particularly informed by acute financial shortages or anything like that. So it was just kind of a usual thing, but higher than historically, we've kind of averaged and gave pressure on our book-to-bill. Cancellations in the quarter were, I think, the largest therapeutic areas kind of where oncology and cardiovascular, which is kind of usual anyway. So really nothing to call out there. And second quarter, it's really, I think, too early to get any kind of read on cancellation rate and whether it's going to be high again in Q2. I just have -- I think it's too early to make any kind of assessment of that.

Yes. Understood. Maybe following up on and sticking on the cancellation theme. I think last quarter, you also mentioned cancellations were both in terms of your backlog, but also in that initial awards bucket. I know a couple of quarters ago, you called out I think the initial awards bucket, you had about $4 billion worth of signed work in there. Just wondering if you can provide any update around cancellations out of that bucket in particular and where in that bucket -- the size of that bucket today relative to maybe that $4 billion that we were at a couple of quarters ago. Just trying to get a sense for your visibility and level of confidence into that initial awards bucket converting into backlog moving forward here?

Yes. Look, we're not going to get into kind of our pipeline size, et cetera. We've never quantified that really. Cancellations in that bucket, though, were not particularly elevated in the quarter in Q1. So it was more backlog-related cancellations that were problematic for us. So I don't think that impairs our future -- things rolling into backlog. But I think the last couple of quarters of high cancellations overall and across everything, including that bucket before our pipeline of opportunities in prior quarters does influence it, but that was not a particular factor this quarter.

Obviously, the higher cancellations take away from the total revenue opportunities in the year. But future conversion, hopefully, with a reduction in cancellations, if we hopefully see that can proceed at a kind of more normalized rate.

Our next question comes from David Windley with Jefferies.

I wanted to clarify on the cancellations comment to Max's question, August. You said oncology and cardiovascular. I believe you all would treat cardiovascular independent of metabolic, and I just want to make sure I heard that right and that we're interpreting that correctly. So metabolic cancellations were actually not part of your call-out. Is that correct?

That's correct. And we break out our therapeutic areas and our earnings release in our ...

In the deck, yes.

Our presentation, yes, the deck that comes with it. And cardiovascular, yes, is separate from metabolic. I mean obviously, there are programs that are sometimes very -- one product if it's cardiovascular-focused versus metabolic sometimes there's a little bit of overlap, but we do break it.

Yes. So I think a concern, market concern is metabolic has been a significant revenue growth driver as evidenced by the pie chart that you included in the deck as you referenced, and I think the call-out on the fairly sizable cancellation that shaded down bookings, net bookings last quarter was metabolic. And so maybe you could speak to -- I think I asked you this last quarter, but is there a -- do you have a GLP-1 concentration that is becoming more volatile, perhaps because of changes in price in the market dominance by a couple of players that would cause biotech to think twice about whether pursuing GLP-1s. That's, I think, a thesis that is out there. And I wondered if you could provide some color as to whether you have that exposure or not.

Yes. I mean certainly, we have -- I think we've talked about that 50% of our -- I think we talked about 50% of our obesity work was GLP-1 directly related, et cetera and gave a few metrics on that last quarter. But yes, I mean, there's -- we got a fair amount of work there, but I don't really see that as more volatile. I think in terms of new opportunities, there may be some truth to what you say in terms of the market becoming a bit saturated and competitive and pricing sensitive. But it has not resulted in higher cancellations and even in our -- even in pre-backlog. We've not -- and you have to realize metabolic actually -- if you look at -- historically, quarter-to-quarter, look at cancellations as a percent of opening backlog just like we do for our total backlog percentage cancellation.

Of all the therapeutic areas we break out, metabolic has the lowest historically cancellation rate. Metabolic is actually -- last quarter because metabolic is large, and it happened to be a little bit of an uptick and oncology had a little bit of a downtick in percentage, metabolic happened to be higher. But generally, oncology is a riskier field and has more cancellations. So -- and I just do not see the -- I do see the disruption that you've kind of described and maybe others are seeing. GLP-1, there's a lot of work. There's a lot of stuff. It's actually a pretty safe therapeutic area for us and things are very are going fine.

Okay. That's helpful. Last one for me. On kind of the revenue guidance and cadence, given the immediacy of your bookings recognition to revenue. I mean your project -- when you recognize the booking, the project is kind of already going and you're highlighting higher cancellations of sub-1 book-to-bill, you're maintaining the revenue guidance, perhaps you or Kevin could speak to the kind of the durability or the ability to hold the revenue where it is despite backlog not really growing?

Yes. I got Kevin talk in a minute. But just on service of it, under 606, revenue is a tough one. We've not been really great at predicting just when pass-through investigator costs are going to hit, and they are a larger portion of things lately. And so that's -- look, that's always a risk, but our current modeling is we're going to be within our guidance range on revenue despite [indiscernible]. But certainly, we have to worry about future cancellations.

Dave, August is exactly right. Despite the headwind from cancellations that we saw in the first quarter, we feel very good about the range that we have out there, which is why we reconfirmed guidance. Certainly, future cancellations could potentially impact that because cancellations have a more near-term impact on that. But right now, we feel good about the guidance ranges that we have out there.

Our next question comes from Ann Hynes with Mizuho.

Great. And good luck, Jesse. Was nice working with you. On the gross booking side, can you give us what the gross bookings grew and if it was in line with your internal expectations?

With gross bookings -- we don't break out gross bookings from -- we just report on net bookings.

But directionally, was it in line?

So was it overwhelmingly cancellations that drove us down from what would have been a great book-to-bill? No, new gross awards were also on the low end, and that's why -- so it was a combination of the two, both cancellations and weak gross bookings, obviously, impacted by prior pre-backlog cancellations in the past.

Okay. And then I get the question a lot. There's a lot of biopharma M&A buying biotech, do you have any -- like how should we view your exposure to that going forward? And if a big pharma purchased one of your biotech companies, what happens in that scenario to current trials?

Well, that's frustrating, and it happens all the time. It's not -- and it's happened in the recent past, and it continues to happen. Clients of ours get acquired. Generally speaking, we are cut out on future work. It's a loss for us. Usually, the ongoing work we continue with, although there's even cases where based on times decide they're going to fold that into their current provider or internal resources. So acquisitions are not good for us? No, but it happens all the time, and we have a very broad portfolio of clients. And so it's something we work around.

Our next question comes from Charles Rhyee with TD Cowen.

Maybe if I could first follow up on Ann's question. Would you attribute any sort of the heightened level of cancellations as a result of past M&A?

No, I don't think any of the cancellations we had in the quarter were related to any M&A activity, no. Maybe I'm wrong on some little smaller part, but that was not a driver of anything, no.

Okay. And then maybe just 2 more things around that. You talked about sort of what normally drives cancellations, other re-prioritization or drug failed, could you give us a sense for the mix in the cancellations perhaps between drugs that were canceled sort of in flight or because of futility or kind of canceled ahead of start because of sort of a change in direction by the sponsors?

Yes. No, we don't even track that because even categorize it is difficult because they're overlapping buckets. So no, I just don't have any real [indiscernible] just nothing struck us as specifically funding related, which we are sensitive to and try to get a feel for the overall funding levels in the market. But funding is always one of the factors, if everyone had unlimited resources, a lot of stuff would move forward that they're canceling because of product performance. But they're just so overlapping. We don't even try to break that out.

Got it. And one last quick one for me. In the bookings that you did for the -- in the net bookings, the level of pass-through revenues expected in the future work is that at the same current rate that you're seeing today? Or is it lower? So in other words, maybe there's a mix difference. And therefore, obviously, we have a higher level of pass-through revenues reported this quarter, but maybe as pass-through is expected in the new work a lot less, which could skew the metric.

Kevin?

Yes. Charles, I would say that in terms of the current bookings, I would say there's still somewhat of an influence in the higher pass-throughs. But as I had mentioned last quarter, I do expect pass-throughs as a percentage of revenue to end the year lower than what we started this year at. So we were pretty high this quarter, I don't know, 44% or so. I do expect that to come down as some of these metabolic studies wind down a little bit. But it all depends on kind of future work and future bookings as well.

Our next question comes from Eric Coldwell with Baird.

I'll hit this canceled topic a different way, bear with me. If you're -- so you have -- historically, you have an average cancellation rate, and I know there's lots of volatility around that, but you have an average. And I'm just curious, if cancels were averaged this quarter, understanding the gross awards were lower than you would like. But if the cancels were average, what kind of ZIP code book-to-bill would we have been looking at? Would it have been a [ 1.0 or 1.1 ]? Where would you have been if the cancels were just normal and all else constant.

Yes. And what normal was just kind of picked the middle of the range or something. I really haven't done that math, but Eric, I think directionally, yes, it would have been still a weak book-to-bill somewhere around 1, I would assume. So it wasn't just massive cancellations that knocked us down from a great 1.15 to 0.88. It was a mixture of the two.

And then if I could play off that a bit. Sometimes these rates are impacted by 1 larger, 2 larger, 3 larger cancels. What would be the quantum? If your largest cancel hadn't happened, would you have been normal? Was it 3, just trying to get a sense for it.

No. Yes, you're talking about several 2, 3, I mean to drive you over. But because there was no very large one or something like that, that drove it. But there are always -- some of them are meaningful in size. But no, there was no 1 or 2 that were outsized that drove it.

Okay. And then last one for...

Let me make one more comment. I say it was weak bookings and cancels kind of both were factors here. In fact cancels have been much better range. We would have had a better book-to-bill, but it would have been weak anyway. Even if cancels were relatively low, it would have been or book-to-bill. That low book-to-bill, I'd say, was something of just what's progressed and what's in pre-backlog and what's canceled there and never as matter moving forward, but also some things were just timing of things that move forward. And some of that you hope will eventually make it to backlog in future quarters.

Yes. No, that's understood. One last thing. The backlog that you showed to The Street, you have a next 12-month revenue visibility figure and a total backlog figure. You subtract the next 12-month visibility figure from the total over time. We've seen a deterioration in the backlog coverage that is beyond 1 year. So years 2 and years 3 and you've had 6 consecutive quarters of that number come down. And I'm just walk us through why there isn't -- I think you and I spoke a quarter or 2 ago about this view of this effectively being like a drug patent cliff for a big pharma or something that there's something looming a year plus away that's going to completely upend the revenue growth profile in the past, I sense that you weren't concerned about that, but The Street is.

And I'm just hoping you can talk us through the mindset of wising this plus 1-year backlog decline. Maybe it is now a concern for you, but I'd love it if you could talk through that thesis, that thought process, of why we shouldn't be so focused on this or maybe we should and what it would take to get that number going back in the right direction if you are concerned, but I think this is sort of the elephant in the room that a lot of people are looking at, and that would be helpful if you could really dig into that for us.

Yes. Sure. No. And I guess there is area for concern. I mean several quarters back, it wasn't a concern because our pre-backlog was growing so fast and I thought cancellations were coming down and going to be in a good place. That really frankly hasn't happened. Cancellations have continued to go on at a much higher rate, both in backlog and pre-backlog and it does now result in us facing a revenue. Just look at the Q1 versus the remainder of the year. We don't have revenue growth. We will, on a year-over-year basis, but not on a quarter sequential quarter basis. And '27 is, I don't know yet. I mean that's too far out at this point to really get a handle on. But yes, no, our growth profile both now and 6 months from now in terms of sequential growth is a real question.

We need either cancellations to abate or gross awards, new notifications and a bigger pipeline going forward. And that's why I talked about us trying to expand our pipeline and really kind of accommodate what could be a much higher cancellation rate than we're sort of used to in historical periods. But no, I mean, I can't dodge it and say, "Oh, yes, no, there's no issue there." Certainly, what we consider a reasonable growth rate is not projected on a sequential basis going forward.

Our next question comes from Jailendra Singh with Truist Securities.

I want to follow up on your comments earlier about RFP trends. I think you said that they were down year-over-year. Can you elaborate on that? Any particular areas you're seeing weakness? I mean, with biotech funding remaining stable over the past 8, 9 months, surprising to see RFP weakness. Just can you put -- give some more color on that?

Yes. It's hard to categorize what we're aware what sector, what therapeutic areas -- or what's weak, et cetera, I really don't have those kind of metrics. I don't even, frankly, pay a lot of attention to it. Now it is a focus of the industry overall and everybody talks about RFPs. And so I feel compelled to do it. But as I said many times in the past, I don't really pay a lot of attention to the numerical. Certainly, a long-term trend of decreasing RFPs is obviously not viable. But the bouncing around of RFPs is overwhelmed by the quality of the RFPs.

And there's always the question of is more RFPs means that they're just inviting more CROs to the same RFPs? Or are there really more RFPs out there? And just measuring it is very difficult and I tend to just ignore the numerical value on a sequential basis or single time points and focus on the quality of the opportunities we have.

And I believe we have very high-quality opportunities, and I haven't seen a deterioration of that. But I don't feel like we have talked about that sometimes in the past of real funding problems and a lot of just scenario planning and fundraising and all the rest of it that they're just looking for bids so that they can go out and then try to get it funded. That has happened in the past, and I do not see that in the present to a large extent. I mean, obviously, that's something that happens all the time, but the trend is actually pretty good. So I don't put a lot of stock in just the numerical value of RFPs that we see in a given quarter.

Just a quick clarification, but you don't see that the biotech CRO market has got more comparative in last, say, 6 months or so. I mean, we've heard about some of the large peers investing in biotech venture firms to help secure some early-stage biotic work. Just curious if that is having any impact? How do you think about the just industry competitive landscape, in particular for the last 6 or so months.

I don't know how to -- I mean I just don't know what the impact of that. I mean, how would I know? I don't even know what funds or where they might be doing -- they talk about being more active. And certainly, we have -- it's a very competitive market. I haven't seen a large change there. Certainly, what our biggest factor over the last 18 months has been cancellations, but we think we do have to work on our win rate. And is that due to increasing competitiveness? I don't know. It's just how do you measure that? I just don't have a way. But certainly, we would like to win more.

Fair point. And one last one. Last quarter, you mentioned that in 2026, you don't expect net productivity benefit from AI as investments would largely offset the gains. I mean given the continued advancements and growing interest in AI over the last few months, has there been any impact or any change in your thinking, how should we think about the potential impact, positive or negative of AI on your business internally?

Yes. I mean I just reiterate what I said before. I think that AI would either have to be so transformative as to just be ending our industry in the short term or just total hype for us to have savings in the next year or two. If AI is really something of value, which I believe it is, it's going to take a lot of investment to achieve that saving. And there is lots of opportunity because it's such a attractive area for improving overall process and efficiency, it's going to take a lot of investment. And if -- and the only reason we wouldn't do that investment is if we thought there was -- there's just some low-hanging fruit, we'll grab that, but it really is just a lot of hype then you'd see some efficiency. But no, I think the next 2 years at least, we're going to be investing more dollars in trying to achieve future benefit then we will gain in terms of efficiency. And I stand by that. I still think it's a few years out before we see any actual net benefit. Not that we won't see efficiencies even currently, we are. But I think the net benefit on it all, I think you're talking about for us, I think it's a few years out.

Our next question comes from Luke Sergott with Barclays.

This is Jake on for Luke. Thanks for the question. So I know large pharma isn't a big focus for you, but if they spend ahead of patent clicks and scoop up more of these biotechs and assuming the demand is less volatile, when would it make sense to take on more of this work? Or will it always make sense to prioritize biotech?

Yes. Look, we've made a strategic decision not to play in large pharma. To be there, you need to have very flexible model of delivery involving staffing and quite a bit of functional outsourcing. And that's pretty uniform across large pharma. They -- it's not to say that they don't do some full service outsourcing, but it's in a very different environment, and they expect their partners if you're going to be one to have all of those services. We've chosen not to do that. We chose not to do that, not because it's -- it's not an attractive area. It's because we think it does detract from some of our focus on full-service internal expertise and driving our own efficient process of clinical development that I think is a value to many virtual and smaller companies as opposed to a very large pharma that have a lot of systems and are more focused on how to incorporate their CROs into their system. So it is a different model in many ways. It's not unachievable, but it's something we've decided is not for us.

Our next question comes from Sean Dodge with BMO Capital Markets.

August, you mentioned in your prepared remarks some initiatives you're putting into place to improve your win rate. Maybe if you could just tell us a little bit more about what you're doing there and how quick kind of the pull-through on those could be in impacting gross wins?

Yes. I'm not going to get into individual things we're doing. I think that's just a little bit too much to push out to our competitors. But I just wanted to really express that we are focused on this, and we do see opportunities. So I wanted to just point out that we do believe there's opportunities to expand our -- both the pipeline and the win rate on our opportunities to really combat to higher cancellations should they continue on to get back to a growth rate that we want.

So it was more to really focus on that. In terms of timing, I'm hoping this -- over the next few quarters, we're going to see a real improvement. I think we already have, even in Q1, we had a good win rate. And so I'm hoping it's sustainable. And the things we've done and put in place and the enhancements we're making, improve our win rate meaningfully over the immediate term.

Okay. And then maybe taking that, just going back to the comments on the revenue outlook. You continue to hire in the quarter despite the cancellations and the softer gross wins. Just any more context you can share there, that seems to be signaling confidence that you will continue to grow revenue. But I guess maybe just some help squaring kind of the declining net wins with the increase in headcount.

I think you have it right there. That's the confidence. We're still hiring. I don't know how you get any more confident than that.

Our next question comes from Michael Cherny with Leerink Partners.

Maybe to flip the AI question a different way, August. As you engage with clients, do you see any commercial usage of AI being done by your clients right now? We see day by day, it seems like Anthropic and OpenAI continue to release modules designed to address clinical trial work, drug discovery. Is any of that factoring into the dynamics on what you think could be in play relative to the bookings performance and the challenges you noted relative to some of the slowdown in the quarter?

No, no. I don't think there's real applications that our clients are using, how they're impacting our interaction with them like everybody using AI in places many times embedded in other systems, et cetera. But I don't think it's anything that's affecting our provision of services or interaction with clients at the current time, no.

Got it. And I know you said, Kevin, no buyback in the guidance now, but given the way the stock has reacted to the earnings, any thoughts on just capacity and capability, not just from the authorization, but cash flow availability given clearly what's a [ decent amount ] of cash on the balance sheet?

Yes. I mean, certainly, we've got authorization in place. I think we've got a little bit over $800 million in authorization, and we'll continue to execute as we always have and look for opportunities to do that. So no, we will continue to execute on our planning strategy that we always have.

[Operator Instructions]

Our next question comes from Ryan Halsted with RBC.

Maybe just going back to SG&A. It looked like there was a pretty nice improvement sequentially. Can you talk a little bit about what drove the improvement? And then just how should we think about SG&A going forward, especially in light of the comments earlier that you're continuing to hire what are sort of the efficiencies? And how should we think about that going forward?

I mean SG&A was up slightly sequentially right?

Okay. So do you expect, though, that, again, with sort of the cancellations going forward and maybe in the past, you've talked about having some pretty strong retention of your professionals. Do you envision more operating efficiencies going forward?

Yes. I mean, certainly, because of the improved retention rates that we've seen that we continue to [indiscernible] efficiencies probably at a slower pace than we have if you look at guidance and the midpoint of guidance, margins to remain in a very good spot. But no, we continue to see some business because of that is reflected in our guidance.

Got it. Okay. And then maybe just trying to take another angle at the cancellations. I'm not sure if if you've commented on this in the past. But do you see within cancellations any trials that are suspended and maybe are outside of your bookings time horizon but have the potential to restart in the future?

Sure. Both with things in backlog and things in -- they haven't reached backlog. That's always one of the biggest risks, like there's always total cancellation risk, but one of the biggest risks is timing of it making it to backlog when it starts proceeding. Sometimes they award something, [ heck ], even before they've raised money to do the trial before well before they're ready to move forward on it or awarded it as part of series of studies that are based on each other. And so it's sequential. And so there's always a question whether things get pushed out or sometimes they can accelerate and come in quicker than we expected. But generally, if something happens, they get pushed out or canceled.

Got it. Okay. So sorry, just to follow up on that. So do you feel there's, I guess, confidence in your outlook in that perhaps some of those cancellations could resume within the year?

Yes. So to cancel, it's probably dead. I mean, look, things don't generally come back in the cancel bucket. But I'm just saying that there are things that didn't make it into backlog in a given quarter that might come in, in future quarters. We might have expected them to come in one quarter and they get delayed and get pushed into other quarters. And some of the stuff that's in backlog that gets put on hold. Yes, it could cancel -- I mean, we don't necessarily -- we don't cancel it because of that. We just hold it in backlog. It remains in backlog. You don't cancel it. It's just on hold for a period of time and then hopefully get started or maybe it does cancel in the future.

Our next question comes from Eric Coldwell with Baird.

I'm definitely expecting the snarky response on this because it's probably a bad question. But I'm curious what level of net book-to-bill you are using internally to help guide the revenue outlook that you do have? I know calling quarters is incredibly unreasonable, particularly at this point in April. You don't know what the cancels will be at this point. I get that. But you do have a forecast internally, and I'm just trying to level set what you're thinking and where you would be directionally steering those of us on the outside, so we don't get ahead of our skates here over the next quarter, next 3 quarters.

Yes. So first off, just book-to-bill. I mean, it's just a horrible measure. I mean, I get it, it's useful to see that the buckets filling at a rate that's commensurate with what's pouring out in the revenue that that you're either growth or nongrowth and future revenue opportunity. But under -- particularly under 606, and it -- you don't model things based on a book-to-bill. It's -- do we miss book-to-bill because revenue ran up so fast that it made our book-to-bill lower even though we exceeded on bookings in our expectation. I mean you miss on things that are good. We -- you missed that book-to-bill target because our revenue was so high. Is that a bad thing? It's a flawed measure of performance. It's a great measure to see if the buck is filling versus emptying. But there are different buckets, unfortunately, under 606. And you don't even know whether the good buckets actually filling while another buckets draining.

So I don't want to talk about book-to-bill. And I'm not going to give guide future book-to-bill for us. But we certainly do hope to have improving bookings over time. And I would assume that the book-to-bill, certainly 0.88, where things are contracting is not anything we would expect going forward. But the cancellations can drive you to lower levels occasionally.

Yes. I completely agree with you on the book-to-bill. I wish you could see my correspondence with investors on this topic. I'm 100% on board, but bookings dollars are important, and I was really hoping more for direction on that. You just did [ $618 million ] in the quarter. Are you internally, are you modeling [ $650 million, $700 million]. I'm just trying to get a sense on what your thinking the dollars will be, forget the ratio, what you need to do to be within this revenue guidance range for the year?

So we do anticipate that it will increase. But I don't want to quantify anything there. It's just not -- we're not going to guide with bookings in given quarters, and it's just too variable. I do anticipate it increase, but there's no guarantees on anything.

Yes. Fair enough. And then on the pre-backlog in the past, you've given some ballparks on that. And I think it wondered...

The only back quantify in terms of cancellations in there? Or do you mean in terms of magnitude?

The size of the free backlog, okay, [indiscernible] it hasn't moved into the 3-year window yet.

All right. So in response to kind of the moving parts and how we could have growth and I said that it was a comparable size to backlog itself and actually somewhat larger at the time. I think as I've said, but we've never tried to quantify that. And again, it's because it's so variable, but it's a size that is generally comparable to backlog.

Our next question comes from Justin Bowers with Deutsche Bank.

August, I'm just trying to understand some of the moving parts here on the gross versus net. And I think folks are a little confused on what we're seeing in like the broader macro environment and biotech funding and that's largely your customer base. And then in terms of like the bookings that we see now, it seems like realistically, if you take a step back, you guys have grown net bookings 25% year-over-year.

You could say you might be a little bit of a victim of your own success because of the outsized growth that you've had over the last year plus versus the rest of the industry. So is this [indiscernible] and you're calling out cancellations as well. But what about the overall gross environment? Was this an RFP sort of dynamic that you saw a win rate dynamic? It seems like your win rates were okay or actually stepping up. So is -- was it just the opportunities weren't there in the quarter or something else? Can you help us understand that?

Yes, sure. maybe there's a little confusion over where things happen. So in the current quarter, as I said, our wins, our awards were good, and our win rate was good, okay? So if we had a backlog policy that shows anything that we get awarded in a quarter as going into backlog as some CROs have done in the past. We would had a good book-to-bill. I don't know what it would have been, but it would have been -- I think people would be happy with it. But we don't -- because those awards are often just based upon future plans, and there's a lot to be done. And like I said, they might not even have money.

In our client base, it's not like a large pharma that hands over to one of their partners protocol on a study for a compound that they're ready to run with. Sometimes there's a lot of moving parts in -- with our clients and they award us something and it's going to be quite a while before it starts and there's quite a bit of risk that it never gets there, that never gets to start. So we don't recognize that into a backlog, which are things that are ongoing, okay? So that's stuff that we start up. And that's our backlog.

It's the future opportunity for projects that have started. But we have a lot of projects that are not started and may never start in this kind of pre-backlog. And so the quarter was good in terms of clients telling us that they've now got money, they've got plans or they're going to have money and they want to use us. But what is actually starting in the quarter is based on stuff that was awarded to us in prior quarters. I don't know, it could have been some of them 2 years ago. I mean some of it last quarter or the quarter before or whatever. And so there is a little bit of a disconnect between current environment and our bookings. And so what current environment is a better reflector on our bookings, I don't know, 2, 3 quarters out or so. I mean there's a lag. So does that close the -- does that answer the question?

Yes, that's helpful. And then maybe to just bridge that a little bit. It does sound like sort of awards or wins were good, but that's not starting any time soon. So then is it if we sort of zoom back to what Eric asked, the pre-backlog then, is that growing? Or has that been sort of like...

Yes. so pre-backlog did grow. We're just not going to give metrics on the size of the growth. I just 1 time said because there was this huge cliff people thought was happening, which like I said, I can't -- at this point, it's a greater risk than it was back then because cancellations have been so large. But I've said, I think that pre-backlog had grown by 30% or something. But we're not going to give percentage growth in pre-backlog. But yes, we had -- like I said, we had a good quarter in terms of new authorizations, not in the backlog, but just they're telling us they plan to use it in the future. If you add up all those into the pool group in the quarter.

Okay. That's helpful. And then just last one for me. In terms of those authorizations, is there a way -- or how do you sort of risk assess or risk adjust quality of those rewards. And is there any change in the trend that you're seeing, like between now and over the last few months or a few quarters.

Yes. So you're asking how we assess like for modeling backlog conversion -- conversion into backlog and future revenue? How do we assess that risk is what your risk cost asking about?

That end, like, let's say, how well capitalized or funded these programs are?

Well, that's part of the assessment of the likelihood of moving forward. So we do make an assessment of when we think something will progress based on a number of factors, but I don't have a -- we don't track like how many are in this bucket versus how many in that bucket and which ones are high risk versus low risk. I don't have any of those kind of metrics, but we do, on a project-by-project basis, estimate risk adjust, probability adjust opportunities and things in pre-backlog schedule when we think they're going to make it to backlog and when we realize revenue from them.

So we do have the planning tools for making a model around our bookings and our revenue. So that is true. But I don't have a whether there's been an increase in the number of projects that are in this category of very high risk and don't even think about it kind of stuff. I don't have any of that.

Our next question comes from David Windley with Jefferies.

At the risk of belaboring I was going to come back for one more. August, we've talked in some detail around the cadence -- your bookings policy and the cadence of award, and I just -- I still struggle to, I think, evangelize some of those things. So I want -- I'm going to say some things, and I'm hoping you'll confirm them. So number one, you've talked about on this call an award to a booking could be as short as 1 to 2 quarters or as long as a couple of years. You said to me in the past, the average is -- the inside range is maybe 3 to 5 quarters, so call it about a 4-quarter average from award to booking recognition. Do you agree with that?

Yes. I don't have in front of me the metrics, but that's kind of in the ballpark, yes.

Yes. Okay. And then for clarity, when you recognize a booking, I think we've talked in the past and you kind of alluded to this on public calls in the past that a booking for you is basically happening coincident with first patient in. Is that also consistent with your -- do you agree with that?

Yes, that's true.

Okay. So the audience understands then at that point, you have already not you, you, but the company, Medpace, has already done a fairly significant amount of setup work on the trial that is revrecable, correct at the time you're recognizing the booking.

That's frequently the case, yes.

Yes. Okay. So in the case of -- yes, sorry, is that somebody who wants to chime in? Or is that me? I'm hearing an echo -- sorry. So in the case of a cancellation where the client decides not to move forward. I mean, I guess I would interpret that, that doesn't really happen because they already have. Is that right?

No, it's not infrequent that somebody pulled the plug before we get the first patient in. It's very -- the costs are very small compared to launching the trial. So things do cancel at any stage right up to once patients are in, then it's usually -- it has to be something. I mean, it big. The toxicity, some failure of the compound. But once you invested that, it's generally you don't pull patients off of the drug. Just before patients in, it's much higher risk. But you're right, we generally have, though, a very limited LOI, some start-up task order that is covering the costs that might be going before the study fully launches. And sometimes, we have a contract. But very often, we have something covering us and limits their amount of liability to some X number of dollars and they could pull the plug, yes, sure.

Okay. But in that case, where the client is deciding to pull the plug before first patient in, more times than not, that's a pre-backlog cancellation, not a backlog cancellation like you haven't got...

Yes. No, I'm sorry. If you're talking about just backlog, yes, that's -- we they expanded quite a bit of resources. And when it gets to the point where the quarter in which it goes into backlog, they've expanded a lot of resources, and that's highly unlikely to cancel. But I'm just saying that 3 quarters before first patient in, the amount of work we might have done, so work in terms of some regulatory work and other things, but the investment is relatively small, and they could cancel that.

Right, and I understand I'm belaboring the point. But so the -- in the case like this quarter where cancellations of backlog were relatively high, and you answered to Eric, it's not just one, it's several. Those are trials that have patients in the study that the client has chosen to cancel and those can happen because of futility of the drug or things like that. But more often -- I guess I'm asking in this quarter, in this particular case, what does drive the higher cancellation because those study -- asking in the context of those studies having advanced as far as they have in order for them to have already gotten into backlog.

Yes, generally, product failure. I mean look, oncology happens all the time. They got -- it's not working. And it's got multiple phases possibly of it. And it's in there rolling on into the next, et cetera, or just -- it just get canceled because there's unexpected toxicity. But it's also sometimes go really well. And you finish early. You recruit faster. And there's a cancellation because the budget was for a 2-year study, because -- or 2 years of recruitment. And you recruit it in one year, actually, your client gets money back. The contract amount is reduced. So there's lots of ways in which the total budget might wind up being less than what you bid it at and put in backlog.

Got it. My last question for you on a completely different subject, and congrats to Jesse on the retirement. But August, what is -- I mean, I know this has been a lot of your life for a very long period of time, but what is your commitment to the company? How do you view your own longevity in your current role?

I was -- I don't view my longevity. Look, I don't know, look, I'm committed to the company. Obviously, very passionately interested in Medpace and its success. So I'm going to be here for quite a while. And I will retake duties as President as I had in the past. And I don't think there should be any kind of disruption or problem. We do have a very strong and deep management team and we will eventually have someone move to that spot, but it's not in the near term, but we do have plenty of management strength to continue to move Medpace forward.

Got it. Thank you for enduring my many additional questions.

Yes. No, thanks. Yes, I think our hour is up. I don't know where we are in the queue.

None left in queue.

Good.

I would like to turn the call back over to Lauren Morris for any 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 second quarter 2026 earnings call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Medpace Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call, Lauren Morris, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's Fourth Quarter and Full Year 2025 Earnings Conference Call. Also on the call today is our CEO, August Troendle; our President, Jesse Geiger; and our CFO, Kevin Brady.

During this teleconference, we 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 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 state a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com.

With that, I would now like to turn the call over to August Troendle.

Good day, everyone. Cancellations were elevated again in Q4. Backlog cancellations in absolute and percent terms were the highest they've been in over a year. This resulted in a lower than anticipated net book-to-bill ratio of 1.04.

The good news is that with a backlog conversion rate of 23.6%, our book-to-bill rate does not need to be very high to generate growth. I see no reason to expect the higher level of cancellations to continue, but did not anticipate the spike in Q4. Only time will tell. Good opportunities continue to present themselves and our rate to the overall business environment is adequate and headed in the right direction.

Jesse will now make some comments on Q4 and the year. Jesse?

Thank you, August. Good morning, everyone. Revenue in the fourth quarter of 2025 was $708.5 million, which represents a year-over-year increase of 32% and full year 2025 revenue was $2.53 billion, a 20% increase from 2024. Net new business awards entering backlog in the fourth quarter increased 39.1% from the prior year to $736.6 million, resulting in a 1.04 net book-to-bill. For the full year 2025, net new business awards were $2.65 billion, an increase of 18.7%. Ending backlog as of December 31, 2025, was approximately $3 billion, an increase of 4.3% from the prior year.

We project that approximately $1.9 billion of backlog will convert to revenue in the next 12 months. And our backlog conversion rate in the fourth quarter was 23.6% of beginning backlog.

With that, I will turn the call over to Kevin to review our financial performance in more detail and discuss our 2026 guidance. Kevin?

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $708.5 million in the fourth quarter of 2025. This represented a year-over-year increase of 32%. Full year 2025 revenue was $2.53 billion and increased 20% from 2024. EBITDA of $160.2 million increased 20% compared to $133.5 million in the fourth quarter of 2024. Full year EBITDA was $557.7 million and increased 16.1% from the comparable prior year period.

EBITDA margin for the fourth quarter was 22.6% compared to 24.9% in the prior year period. Full year EBITDA margin was 22% compared to 22.8% in the prior year. EBITDA margins were impacted by higher reimbursable cost activity driven by therapeutic mix. In the fourth quarter of 2025, net income of $135.1 million increased 15.5% compared to net income of $117 million in the prior year period. For full year 2025, net income was $451.1 million compared to $404.4 million in 2024, which represents an 11.6% increase. Net income growth below EBITDA growth was primarily driven by lower interest income compared to the prior year period as well as a slightly higher effective tax rate.

Net income per diluted share for the quarter was $4.67 compared to $3.67 in the prior year period. For the full year 2025, net income per diluted share was $15.28 compared to net income per diluted share of $12.63 in 2024. Regarding customer concentration, our top 5 and top 10 customers represent roughly 25% and 35%, respectively, of our full year 2025 revenue. In the fourth quarter, we generated $192.7 million in cash flow from operating activities, and our net days sales outstanding was negative 58.7 days. As of December 31, 2025, we had $497 million in cash. For the full year 2025, we repurchased 2.96 million shares were $912.9 million. At the end of the year, we had $821.7 million remaining under our share repurchase authorization program.

Moving now to our guidance for 2026. Full year 2026 total revenue is expected in the range of $2.755 billion to $2.855 billion, which represents growth of 8.9% to 12.8% over 2025 total revenue of $2.53 billion. Our 2026 EBITDA is expected in the range of $605 million to $635 million, representing growth of 8.5% to 13.9% compared to EBITDA of $557.7 million in 2025. We forecast 2026 net income in the range of $487 million to $511 million. This guidance assumes a full year 2026 effective tax rate of 18.5% to 19.5%. Interest income of $24.3 million and 29.2 million in diluted weighted average shares outstanding for 2026. There are no additional share repurchases in our guidance.

Earnings per diluted share is expected to be in the range of $16.68 to $17.50. Guidance is based on foreign exchange rates as of December 31, 2025.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions] Our first question will come from the line of Max Smock with William Blair.

It's Christine Rains on for Max. First one is, what is embedded in your guidance for revenue growth, excluding pass-throughs? Last quarter, I believe you alluded to high single-digit to low double-digit direct fee revenue growth in 2026. But wondering if your growth expectations for this component are now higher given your strong EBITDA guide? And also what you expect the cadence of this revenue growth to look like?

Yes. Christine, this is Kevin. We don't provide guidance on direct service revenue. What I can tell you though is that from a reimbursable cost expectation, it's consistent with what we shared back in October and that we expect it to be kind of in the 41% to 42% of revenue in '26, so slightly higher than what we finished here this year. From a [ cumulative ] cadence standpoint, nothing I'd call out in particular. I would say, in terms of revenue, I do expect that reimbursable costs will start the year higher as a percentage of revenue than when we end the year. And so that being said, I do expect maybe some flatter top line growth throughout the quarters than what we've experienced in past years.

Okay. That was a really helpful context. I notice here the acceleration in head count growth in the quarter, what do you expect head count growth to be in 2026? Should we expect this mid-single-digit growth cadence to continue? Or will you need an acceleration in hiring to support your 2026 outlook?

It's Jesse. We do expect accelerated growth. We anticipate hiring in '26 to be above '25 levels, somewhere in the mid- to high single-digit growth area.

Our next question comes from Justin Bowers with DB.

Just was hoping, can you sort of unpack the business environment and the commentary in the prepared remarks, like either quantifying activity or win rates? And then also, there was a pretty good funding quarter funding environment in the quarter as well. So can you just help us understand that?

Business environment was, as I said, reasonably good. RFPs, if they matter, we're a bit, both on quarter-over-quarter and year-over-year. But I don't think there's anything really to call out beyond that. It was a higher cancellation rate that led to us to miss our gross bookings have again, substantially better than last year and I think doing fine overall.

Okay. Is there any way to help us understand if the cancellations were normal, what the -- what sort of like the net bookings would be? And then with those cancellations, was that could you help characterize those a bit more? Was it in any therapeutic area or customer area, vintage?

No. Cancellations were a little bit skewed towards metabolic area, it's been growing quite a bit. So there were a higher level of cancellations there. Overall bookings have continued to be -- oncology are our strongest metabolic still there, but there were some elevated cancellations. So it was kind of otherwise relatively normal. I -- we're not providing what the booking would have been -- we don't give gross bookings, we're just netting them out kind of directional magnitude of cancellations, but they would have been substantially higher if we had cancellations in a nice range.

Our next question comes from the line of Ann Hynes with Mizuho Securities.

I just want to ask some more questions on just the cancellations. Can you remind us what your historical range is and maybe what it was this quarter versus maybe the height that you saw in 2024 early 2025? And again, I think in the past few quarters, cancellations have been very stable. Is this driven by like maybe the competitive environment, M&A? Is it widespread? Or is it just maybe one big client canceling something? So any more details would be great.

Sure. It's widespread. There was no single or a couple of very large projects that canceled. It's just a higher level of cancellations overall. Comparable to the past year, it was the highest level of cancellations out of backlog. If you combine backlog and kind of our entire portfolio, I think Q1 was a little bit worse because we had such a high cancellation among projects that had been awarded but were not yet recognized. But it was a high level overall. And again, pretty widespread. I don't know the -- I have no -- there's no pattern to it to discern. It was just kind of the usual random stuff that was very heavily concentrated.

And then your revenue growth, maybe what are you assuming just the cancellation trends for the remainder of the year? And I know burn rate is very strong. Maybe what's the driver of that? And what are you assuming in guidance for the rest of the year for burn rate?

We're not going to guide to burn rate. Right, Kevin, do you want to say something?

Yes. No. We -- to August point, we don't guide to burn rate. It's just not something that we do here.

Our next question comes from the line of David Windley with Jefferies.

August, I wanted to kind of philosophically ask around therapeutic area concentration. You mentioned oncology being very strong and metabolic right behind it. And as people have seen and you've highlighted metabolic has been on this very steep growth ramp. I guess to me, the difference between those 2 areas is like oncology is spread across tens, if not hundreds of different kind of microindications, and metabolic seems to be very concentrated in diabetes and obesity. And so I wondered how you think about the concentration risk in metabolic and the crowding and the potential for cancellations like you apparently just saw because people say, we don't have enough differentiation?

Yes. And another big area is [ NASH ]. And there are a few others that for us are meaningful. But yes, it is a late heavily kind of toward the obesity, diabetes area specifically. I don't think we're at a level of over concentration that that's a big worry. It will be -- metabolic will be decreasing as a percent of our revenue next year, I think. So I think it's going to kind of somewhat normalize heading towards more normal range, but I don't really see that as a big risk for us at this time. Does that answer your question, Dave?

I think it does. Yes, I think it does. I guess exploring the pass-throughs, I think I understand that these metabolic trials carry relatively high pass-throughs. And so it seems to track that your rapid growth in metabolic has also then contributed to the rapid growth in pass-throughs as a percentage of revenue. And I think Kevin kind of referenced this and maybe the cancellation in metabolic is also what makes that moderate as you go through the year. Is that right?

Yes, that's absolutely right. I mean in terms of pass-throughs, they have been driven largely by our metabolic programs. And we do expect them to start to normalize in this next year. And it does provide a headwind to overall revenue growth, but that will be more direct revenue, I guess, which is fine. So yes, I think that's correct.

Got it. And if I could just sneak one clarification on this end. To what extent -- like pass-throughs have outstripped your expectations in '25. To what extent is kind of -- is that underlying like site level inflation and things like that, that you're having to rebudget and add and therefore, those adjustments are kind of going directly into backlog and right into revenue and kind of the pass-through outstripping is what's driving this higher burn rate? How much would you attribute to that?

Almost none. I think this is not an issue of sites changing, getting more -- it is we're known to be very high pass-through projects going in. They just -- the design of the project is just very heavy on investigator fees. And our -- I think the characteristics of the stage of the project and what is what is burning overall in our backlog does cause our conversion rate to shift around quite a bit as we get other projects that don't have as much relatively short duration, high burn that are being added have been awarded quarter-to-quarter, but it's not, I think, just the addition of pass-throughs.

It's the study itself has been opened up. And there were some issues with recognizing it in backlog because of uncertainty of the program and stuff. And those relatively short-term programs come on, okay, you got to get awards and they burn rather quickly. I think that will normalize over time, and it is driven partly by the metabolic studies that we have, but not specifically because of a change in the expectation at sites.

Our next question will come from the line of Charles Rhyee with TD Cowen.

Maybe just 2 clarifications, if I could. Kevin, you mentioned earlier that you expect pass-through revenues to be higher at the start of the year than at the end of the year. Does that suggest that you expect lower metabolic mix as you exit '26? And then second question being -- and maybe just a little bit of a follow-up to David's question. The way I understand how you think about that -- what goes into backlog versus when you talk about stuff getting canceled in our pre-backlog. So cancellations were broad-based, but elevated. Were these cancellations less about funding and maybe more from other trials failing or decisions by sponsors to abandon programs?

Maybe I'll take your first question, Charles, just in terms of reimbursables, and I do expect it to start the year higher. So we get to August comments, we do expect some of that metabolic shift to slow down a little bit. I wouldn't say it's materially so, but we do expect it to slow down a little bit. What was your second question, Charles?

Yes. I was just trying to understand, you talked about backlog versus pre-backlog. And my understanding was that pre-backlog cancellations is perhaps more of a funding issue. But if something is canceling out of backlog itself, that's probably more of a -- is that more of an issue that other trial maybe wasn't successful or -- and so is canceled or sponsors actually decide to abandon a program?

Yes. I mean that's the case. Things that start up a restructure, they change, they decide to end a study early. So there were a number of studies ended early because of compound performance. So yes, but I don't think there was no like pattern, and it wasn't just 1 or 2 very large projects.

Our next question comes from the line of Sean Dodge with BMO Capital Markets.

Maybe just on guidance, if you could help us with some of the margin puts and takes. At the midpoint, you have about 10 basis points of margin expansion for the year, and that's despite -- I know you all said accelerating hiring for the year, maybe a bit higher percentage for the year pass-throughs. How much pressure do you expect those to create? And then the offset, is it just predominantly more productivity gains you can drive and then where those productivity gains expected to come from? Is it technology, offshoring, something else?

Yes. Just -- and maybe just in terms of our guidance range, you're kind of at the midpoint, it assumes kind of no cancellation rates. As Jesse mentioned, from a hiring perspective, we expect to be in the mid high single digits, which is lower than the expectation on revenue growth. And so what's driving that is just continued expectation that we continue to see good retention throughout 2026, which enables the productivity that we've seen throughout 2025 and exiting 2024. And so it enables us to hire higher, but at a slower rate.

So it's not that I would say that we've got major cost savings initiatives that are out there. We're certainly not planning on restructuring. We always look for ways to operate in a more efficient way. And so that contributes to some of that margin improvement around the edges. But by and large, it's going to be driven by just slower hiring ability on good retention.

And utilization overall. We also have laboratory operations, which are not huge, but utilization in lab is up test. So it's across the board. We've had good proven activity.

Yes. Okay. And then maybe just one on AI since perceptions around that have had a pretty big impact on the space over the last weaker. So just maybe any thoughts you can share on how big of a technological step change you think this is for the space over the next few years? And then to what extent you think that's a longer-term net positive or negative from Medpace and how we're -- are you all positioning? Are you a little bit more insulated just given the kind of the nature of your client base? How are you positioned for this? Are you investing around that?

Yes. I'll address it a little bit. Look, I think it's too early to know what kind of changes. I do think that they will occur slowly. I would not anticipate really any productivity advantage overall net advantage to AI applications in 2026. And I think that's not because we're not rolling out and doing a lot of things in AI. It's that I think the investment is going to at least equal the benefits seen in this first year of kind of rolling out applications.

Where this goes in terms of how much productivity enhancement there is in the long term and what that means to us. I mean I do think that the productivity advances are going to be the -- part of it's going to be rent to the providers of the models, et cetera, but are going to be benefits to clients. And what that means in terms of encouraging more development, et cetera. But overall, you think on the surface of it, it's negative to a service company that makes money by providing staff to perform work that is now made more efficient. But I think that the timing of this, it's going to take years. Just what that means, what the opportunities for us are difficult to see.

I don't really think we have, say, barriers to prevent. I mean, we're hoping to use AI in a lot of applications. We hope it does improve our productivity. And that means potentially in the long run, fewer staff otherwise have, and that means a little bit less revenue than you would have otherwise had, at least net revenue.

Our next question comes from the line of Jailendra Singh with Truist Securities.

So outside of cancellation of spike you guys called out, did you see any slowdown in decision-making or business moving from pre-backlog to backlog within pre-backlog?

I'm sorry, changes between pre-backlog and backlog?

Yes, in general, in terms of decision-making, like are projects being getting delayed or like the way moving from pre-backlog to backlog. Is that -- is the business still moving at the same pace outside of cancellation?

Look, I think things are moving along pretty well. There isn't at least incremental sudden change the progression of product nothing seizing up or anything like that. So I think things are relatively normal. You always have cases where some things are held or are slowed down for whatever reasons, drug availability, some they're waiting on results or something. There's always reasons why things can progress into backlog slower than anticipated. They can change the design of the trial, you have to -- then rework things before you get it launched.

But I don't see any real trend there in terms of -- in the past, sometimes we've seen because of funding a seize up in a lot of things that prevents them from moving forward. We're not seeing that at this time.

Okay. And then my follow-up, just in general about the competitive landscape, as you guys have called out about the top 3 CROs kind of getting more aggressive in the market. Have you seen them kind of continuing to be aggressive in terms of broadening their focused biotech or in terms of price? Has that had any impact on your win rate? Just give us a little bit more flavor about the landscape in general with these top players getting the space.

Yes. I don't think there's anything to say there. I mean, I know they're more aggressively interested in the space because they say they are. But they've been involved in the space all along. And I don't really see a large change in the dynamic. So it's hard for me to know. I do not perceive a difference. We see the same competitors in the space, and it seems to be the same as it was 5 years ago.

Our next question comes from the line of Dan Leonard with UBS.

My first question, it looked like from your disclosure that you had a pretty good quarter in large pharma revenue growth. Was there anything unusual to call out there? And would that be sustainable?

Yes, Dan, nothing to really call out. I think it might have changed a percentage point, but nothing to call out there. It's not a focus, large pharma is not a focus for us.

And a follow-up on that AI topic. August, you mentioned that 2026 is the first year you're rolling out applications. Can you elaborate on that comment? What are you rolling out this year? And what do you anticipate? What are you trying to accomplish?

Yes. I don't think we're just going here. Jesse, do you want to comment on that?

Yes. I would just say, in general, I mean, they fall into 2 categories. One, just a number of different initiatives that are targeted on improving efficiency, and that -- the blurry line between like what do you call [indiscernible] that's really tech-enabled support were different things across the organization that are focused in that category. And then the other category would be assisting with data analytics for feasibility site selection and helping the team there with some AI-enabled tech. That's where we're starting.

Our next question will come from the line of Luke Sergott with Barclays.

I just wanted to kind of follow up on Dave and the kind of the margin questions. So as we like -- can you help us understand the near-term levers that you have to pull as the project starts to ramp on? And what I really want to get at is, let's assume you get some type of booking a year ago and your assumption is that these are the types of resources that you're going to need to execute this trial. And as that ramps, it starts to either come out that you can actually use less resources or more resources? I just want to understand like your flexibility to ramp here. And this is, I think, important as you think about the overall mix of the bookings and how this has changed from a burn rate and capacity needs as you get -- as metabolic and the like continue to gain share?

Yes. I mean in terms of our -- just remember that in terms of our business model, we like to hire heads because we are a training shop. We'd like to train and develop our people. And when you've got larger attrition rates, right, you're having to replace those individuals that you're leaving plus onboard new people. And so what we've seen over the last year or so is that with improved retention rates, you're having to do less of that training. You're only training the ones that are coming in. And because of that, you're seeing more improved productivity because you're spending less time on training and development, and you've got more experienced individuals and staff that are on site.

So we continue to operate under that business model of hiring ahead, and we'll continue to do that, but it's at levels that are less than what we had to do 2 years ago. So what you're seeing is that productivity and that improved utilization continue to play through for us.

All right. Great. And then I guess from performance obligations over the -- that are over 3 years long, have continued to kind of trend down here off of like your peak of 4Q '24. I assume obviously that most of this probably do with the faster burning business. But anything else going here is like, is there a change in the duration of these trials or the type of work that's going on?

It certainly was an average change in the duration of our trials because we had this substantial ramp in metabolic trials and a number of trials overall that were shorter, but that kind of changes over time. I don't think there's a change in a particular class of trial. I just think it's a change in the mix of trials that we've had in the last few years, last year, particularly. But I don't think there's a long-term train trend in terms of trial duration changing for a given indication and stage of a trial.

Our next question will come from the line of Michael Cherny with Leerink Partners.

This is Dan Clark on for Mike. Just wanted to ask about pricing. How did that look in your new awards in 4Q? And how are you thinking about that for 2026?

I don't think pricing is -- our pricing on net has changed materially over time. So I don't think it should have an impact on margin. I think our margin is going to be maintained. I mean, given all the other factors, it's not going to be a drive margin changes.

Okay. Got it. And then just one more on AI. When you're talking to customers or involved in RFPs, what are they kind of focused on, if anything, from an angle?

I was going to say it's a balanced conversation because we do take a very measured approach to AI. We want to balance the benefits with risk management and ensure that, a, we have quality adoption; and b, that we're not putting any of their information at risk. And so the conversations are kind of twofold. One, what are we doing with AI to help with their studies. And at the same time, how are we being good stewards of data to make sure that we continue with high quality and confidentiality.

Our next question comes from the line of [ Jay Lewis ] with Baird.

I was wondering if you could give us any more color on the new signings in the fourth quarter, that tranche of business that would have largely moved into your pre-backlog. And could you give any quantification on that pre-backlog and maybe how much it's up year-over-year, quarter-over-quarter?

Yes. We don't provide details on that. Q4 was a bit light on -- as was the prior Q4, but we don't give exact magnitude on that.

Okay. And then could you speak to the impacts that you've seen from this accelerating M&A environment with the large pharma buying your clients and any impact that may have had on your revenue, your bookings over your future revenue projections?

I'm sorry, what would have impact?

Yes, accelerating M&A environment with large pharma buying some of your clients?

Yes. It's obviously a potential our clients -- a number of our clients have been purchased in the past year continue to be. But we have a pretty broad base of clients. So I don't anticipate that to be an issue. Generally, we don't lose the work that we're doing with the client. We generally lose the client long term, and they get incorporated into a large pharma. But it's generally not a short-term risk, but it happens not infrequently.

Thank you. And I would now like to hand the conference back over to Lauren Morris 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 first quarter 2026 earnings call.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Good day, ladies and gentlemen, and welcome to the Medpace Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call, Lauren Morris, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's Third Quarter 2025 Earnings Conference Call. Also on the call today are our CEO, August Troendle; our President, Jesse Geiger; 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 they include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements even if estimates change.

Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today.

During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com.

With that, I would now like to turn the call over to August Troendle.

Good day, everyone. Cancellations were well behaved in Q3, permitting record net bookings and a net book-to-bill of 1.20. RFP quality remains solid with decisions progressing on a usual tempo. Initial award notifications were strong, and our total dollar value awarded work not yet recognized in the backlog was up approximately 30% in Q3 on a year-over-year basis. We are making good progress towards refilling our pipeline of opportunities. We will provide 2026 guidance when we report full year 2025 results in February. However, I will provide a brief preliminary view in an attempt to avoid significant divergence between our view and analyst models. We anticipate 2026 revenue to grow in a low double-digit range offer updated 2025 full year guidance. We expect EBITDA to grow at a high single-digit pace or greater. We believe pass-through costs will remain high compared to historical levels and represent between 41% and 42% of revenue.

Jesse will now provide comments on the Q. Jesse?

Thank you, August. Good morning, everyone. Revenue in the third quarter of 2025 was $659.9 million, which represents a year-over-year increase of 23.7%. Net new business awards entering backlog in the third quarter increased 47.9% from the prior year to $789.6 million, resulting in a 1.20 net book-to-bill.

Ending backlog as of September 30, 2025, was approximately $3 billion, an increase of 2.5% from the prior year. We project that approximately $1.84 billion of backlog will convert to revenue in the next 12 months, and our backlog conversion in the third quarter was 23% of beginning backlog.

With that, I'll turn the call over to Kevin to review our financial performance in more detail as well as our guidance expectations for the balance of 2025. Kevin?

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $659.9 million in the third quarter of 2025. This represented a year-over-year increase of 23.7%. Revenue for the 9 months ended September 30, 2025, was $1.82 billion, an increase 15.9%.

As expected, revenue for the quarter was favorably impacted by higher reimbursable cost activity, particularly investigator sites, driven by a therapeutic mix shift to faster burning studies in areas which have a higher concentration of reimbursable costs. EBITDA of $148.4 million increased 24.9% compared to $118.8 million in the third quarter of 2024. Year-to-date EBITDA was $397.5 million and increased 14.7% from the comparable prior year period. EBITDA margin for the third quarter was 22.5% compared to 22.3% in the prior year period. Year-to-date EBITDA margin was 21.8% compared to 22% in the prior year period.

EBITDA margins benefited from productivity and lower employee-related costs, offset by higher reimbursable costs. In the third quarter of 2025, net income of $111.1 million, increased 15.3% compared to net income of $96.4 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate and lower interest income compared to the prior year period.

Net income per diluted share for the quarter was $3.86 compared to $3.01 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 23% and 33%, respectively, of our year-to-date revenue.

In the third quarter, we generated $246.2 million in cash flow from operating activities, and our net days sales outstanding was negative 64.3 days. During the quarter, we repurchased approximately 14,649 shares for $4.5 million. Year-to-date, we repurchased 2.96 million shares for $912.9 million. As of September 30, 2025, we had $821.7 million remaining under our share repurchase authorization program.

Moving now to our updated guidance for 2025. Full year 2025 total revenue is now expected in the range of $2.48 billion to $2.53 billion, representing growth of 17.6% to 20% over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is now expected in the range of $545 million to $555 million, representing growth of 13.5% to 15.6% compared to EBITDA of $480.2 million in 2024.

We forecast 2025 net income in the range of $431 million to $439 million. This guidance assumes a full year 2025 effective tax rate of 18.25% to 18.75%, interest income of $12.2 million and 29.5 million diluted weighted average shares outstanding. There are no additional share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $14.60 to $14.86. Guidance is based on foreign exchange rates as of September 30, 2025.

With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions] Our first question comes from the line of Charles Rhyee with TD Cowen.

Obviously, congrats on the quarter here. When we think about sort of the kind of ranges that you've given for next year, how should we think about the pass-through in relation to maybe the increase in metabolic work? Obviously, we saw another increase here as a percent of total revenue to the 30% in the third quarter from 25% in the first half, but you're still calling out for pass-throughs to remain stable in '26 at that sort of 41% to 42% range. When we think out of your current bookings, are you seeing less metabolic trials compared to your current burn? Or should we expect to see some kind of leveling off in terms of the higher metabolic mix?

Yes. I think over the course of '26, it will level up some and might even come down a little bit. But -- and it isn't just the shift to metabolic studies, that is the largest driver, which we've talked about, of course. But timing of projects and having a lot of late-stage projects in the -- in what we're burning as we're going to start ramping up new studies. New studies are -- even if they had the same mix of pass-through costs, there's greater direct costs incurred earlier in a trial. I mean pass-through costs are late in the trial. A trial starts and -- some trials, you can get halfway through the trial, in terms of direct fees, and we've earned half of the revenue from our activities, and we haven't paid sites anything hardly. It's start-up. If it's a very short trial, and startup is a big part of it. .

So the pass-through parts of a trial are backloaded. So if you have a backloaded portfolio stuff you're burning, you're going to have more pass-throughs as pass-through expenses at that time. So there's a number of things driving it. But yes, we do expect pass-through to maybe peak in Q4 or so and come down over '26.

And our next question comes from the line of Ann Hynes with Mizuho.

Thanks for the 2026 guidance. Typically, your EBITDA grows above your -- initial thoughts, okay. Yes. But typically, your EBITDA growth above revenue and it's growing lower, is that just because of the pass-through dynamic? Or is there something else going on? And within that, if you can just talk about the pricing environment, that would be great.

Yes. I think the driver there is the pass-throughs. I mean, look, there's a number of challenges to EBITDA, and that includes exchange rates and a number of factors. But Ann, the biggest factor, I think, is the pass-through that challenges that a little bit. But pricing, look, we've talked and everyone's talked about pricing environment as things have slowed in the industry over the last couple of years, there has been a bigger focus on pricing.

Pure pricing is more an area for large pharma to get really aggressive at and has the clout to do it. It is an area of -- it's always a competitive environment. It's always top of mind, but -- and there has been a greater focus. And some clients just can't get the cash to make it work. And so you're looking for ways to help them get there. But I do not think pricing is going to drive a meaningful change in margins at all.

Our next question is going to come from the line of Michael Cherny with Leerink Partners.

Maybe if I can go back to your comment, August, on some of the pre-backlog filling, encouraging to see, especially given your customer base. As you think about what you're positioning with relative to your preliminary views on FY '26, how you think about the conversion rate of those, of the pre-backlog, your win rate? And how that should factor in relative to what you've seen over the last couple of years?

Yes. I mean, the conversion of how much of it's going to anticipated pull into revenue versus backlog, I really don't have that breakout. I provided the number to -- there has been some concern that our burn rate has gone up quite a bit, our backlog hasn't grown much this year. So it's low single digit, a couple of percent up over the past year. But I wanted to let people know that the overall pipeline of awarded studies -- I mean, I'm not just talking about pipeline of opportunities, of awarded studies, we got a fixed scope of work. We've negotiated the price on it. They've given us a written award of that, and it just hasn't gotten to the first patient in yet. So we may be working on it, et cetera. And it just hasn't gotten to first patient enrolled. And that's in our -- this bucket pre-backlog. And that is up 30%.

And this pre-backlog bucket of awarded -- firm award work is larger than our backlog itself and is up 30% over the year, so I think that puts us in a good position for refilling our backlog over the next year and not having what a number of people have described as some sort of air gap in our revenue growth and things will stall, we run out of backlog kind of. So we really are improving our opportunities for backlog conversion in '26 and revenue generation.

Our next question will come from the line of David Windley with Jefferies.

So that's good timing. I'll come in right behind that. So, August, in '23-'24, a lot of your peers saw their activity levels, which would be more akin to your kind of initial award timing moderate decline begin to feel the impact of lower funding. And then for you, that materialized for Medpace, I should say, that materialized in the weaker book-to-bill is more in the mid '24 timeframe as you saw some of that pre-backlog cancel out and not move forward, et cetera. So kind of the time -- same timing dynamic sets up for what was a pretty weak funding environment in the first half of '25, so your last answer may have been pointing at me specifically, I'll take that. Why is this time different?

I don't know. The difference -- a big difference is, this has been driven by cancellations, not weak business. There are many challenged clients and that does affect the business environment. And there's been a really -- highly unusual series of cancellations that we went through. But the business environment underlying it has always been pretty okay. Maybe you're saying, well, I'm not real strong compared to what it had been a few years ago, but it's pretty good. And despite all these huge cancellations out of this pre-backlog awarded study bucket, despite all of those, we still grew that bucket by 30% over the last year. It would have grown much faster, and we'd have a much bigger backlog at this point if we hadn't had those cancellations. But the difference is this has been driven by cancellations, not really weak funding environment causing lack of opportunities.

Got it. And so then from kind of a metric cycling standpoint, you and I, after the last quarter talked about your burn rate kind of naturally increasing in at least some large part because you hadn't been adding a lot of early, new to start studies into the, call it, the early part of the backlog. And so now you're getting into a period where it feels like that is probably going to happen, get healthier, more added to the backlog. And so I appreciate also the '26 commentary. If I were to kind of interpret, you would expect backlog to grow faster, burn rate to come down and then your need to -- and this is -- given my next question is your need to hire to support that growth is probably going to accelerate. Is that the right way to think about how the business is going to evolve?

Yes, I think that's a reasonable scenario.

And on the hiring, where -- we haven't talked about your beginnings of your offshoring activity that I think you started in 2024. How is that progressing? And where is your hiring happening? And that would be my last question.

Sure. So hiring in year-to-date and in the last quarter, the largest region of growth was North America and all that really United States. The second largest would be Asia Pac. The kind of 2 outlying areas that we've not really grown staff at all are Europe and China. And throughout Asia Pac, it's throughout Asia Pac, although our largest hiring area in Asia Pac as a single country was India. .

Over the last few years, starting, as you say, a couple of years back, we started hiring in India, and that has added a substantial number of staff over time, not compared to our overall numbers, but that's been a focus area in Asia Pac. So I think that it's pretty balanced, and most of the hiring recently has been U.S. and that's kind of a transition in the market. There's been more U.S.-focused work lately and a lot of the metabolic stuff is more U.S. focused. So that's been a very strong area of growth.

Our next question comes from the line of Max Smock with William Blair.

August, maybe 1 on the just expectations for book-to-bill here moving forward. You talked about initial awards being up 30% year-over-year. But based on kind of the midpoint of the guide, I think you need to do 55% growth in bookings in 4Q to put up a 1.2 book-to-bill in the quarter. Can you help us bridge that gap or maybe just elaborate on your booking expectations for 4Q? And what you've embedded in your guide for bookings in 2026?

Yes. We're not giving a guide to '26, and I don't know where the bookings you are going to come out. So I'm not going to get into -- trying to set them. We did say that second half of '25, we did think that we could get to 1.15. We thought a reasonable chance of getting there, and that's kind of where we're looking at towards Q4, is sort of the target. And I think that looks reasonable. But I'm not going to get into next year yet.

Maybe just following up on that point. I mean, 1.15 still kind of implies 45% plus bookings growth in 4Q, is that disconnect from the 30% growth in initial awards to that 45%, give or take, on net new business awards in 4Q? Is that disconnect? Is that typically there in a quarter? Like what's your visibility into that bookings in 4Q, given the initial awards up 30%?

Well, look, as I said, that bucket is a little bit bigger, and it's 30% growth, not 30% increase in awards. I'm talking about the total bucket is up 30%. Awards -- new awards were up sequentially a bit, but that's -- it's the total bucket, and how much of that has to -- is needed to drive a given booking number, I don't know.

Yes. Okay. That makes sense. Maybe just as a quick follow-up here. You gave some color on decisions progressing at a usual tempo. Just wondering how those decision-making timelines have changed more recently? And what you're hearing from customers around this confidence in the funding environment moving forward?

Yes. No. I think things are moving -- Q1, we had a sort of -- things were held up. We weren't getting our sort of pending RFPs, total dollar pending decisions, has kind of spiked and there was a lot of slowdown in things. And that's then improved quite a bit. And it's been now, I wouldn't say, yes, there's still a challenged -- funding challenges for clients. And so some are delayed, et cetera. But I think overall, things are going on a pretty reasonable pace, certainly, it's somewhat normalized.

I don't -- there isn't a big a large jump in sort of that pending work and people not making decisions and holding things up. So I think we're moving along -- things are moving along pretty well, and that's what we hear in terms of feedback. People are getting are getting funding. I think things are moving along. There's a parallel group that are stalled and having trouble, but we have the flexibility to jump where we need to be.

Our next question will come from the line of Jailendra Singh with Truist Securities.

First, a quick clarification on your preliminary 2026 growth expectations or numbers up. Just to clarify, that underlying assumption there is the environment looks similar to what you are seeing in Q3 in terms of bookings, flow and pipeline, like that's the underlying assumption. I want to make sure that.

Yes. We kind of always push forward the environment, but a lot of '26 is already kind of -- cancellations are the biggest sort of wildcard. But yes, you're right, the business environment, there still are things that -- to be newly awarded now that will affect next year. But kind of most of the pipeline is there, and the big question mark is cancellation rate. And what we're assuming is actually, it could be a little bit higher than where it has been this quarter and last quarter in Q3 and in Q2, but it doesn't jump up again to like levels of Q1 and Q4 and things like that. .

Okay. And then a quick follow-up on the margin trends. So thanks for the color on the growth number for next year. But outside of pass-through, as you think about the margins in the core direct service revenue business, can you talk about the leverage on gross margin and SG&A? You had a nice kind of improvement this quarter. Just trying to understand the trends there. And I mean, do you think that you're pretty much at the peak on this margin on the -- again, also the pass-through impact?

Yes. Jailendra, as August mentioned, you would provide some color on both revenue and EBITDA for 2026. And the margin for the most part is expected to remain in a very good spot. And so we're continuing to see improved productivity from our existing employee base. Some of that is just driven by improved attrition rates. They remain very low. Great utilization levels, and studies are progressing at a very good pace.

As we said in the third quarter, we are seeing improved funding, and with the fewer cancellations, things are progressing in a very good way. So we do expect margins to remain in a good spot in 2026, and it's really driven by just continued productivity of the business.

Our next question is going to come from the line of Dan Leonard with UBS.

I'm curious how you would describe the breadth of outperformance in Q3. Would you attribute the upside to a narrow set of 1 to 2 customers? Or was it broader than that?

In terms of what, revenue?

Yes, exactly. Just looking at the revenue in Q3 compared to Q2, it looks like the growth came in top 5, it came in metabolic. I'm just looking for color on breadth versus what otherwise might suggest that there was just a big trial that landed in the quarter?

Kevin, do you want to...

Yes. Dan, I'd say it's pretty broad-based. I mean, certainly, some of that was just influenced by the pass-throughs. I mean, pass-throughs continued to increase. I think, for the quarter, we were right around 42%. So that certainly had an influence. But then, also just the carryover of the improvements that we saw coming out of our conversation in Q2, where we saw improved funding in those studies progressing forward, the fewer cancellations in the second quarter, and that translating further into the third quarter. So it's pretty broad-based. I wouldn't say it's isolated to a handful of studies.

Okay. Appreciate that. And then just a quick follow-up. Do you need to accelerate head count growth further to service your sales forecast for next year? Or is that low single-digit growth rate in head count growth the right number?

We expect head count acceleration as we head into next year.

Our next question will come from the line of Luke Sergott with Barclays.

Great. I'm also 1 of those that thought that there would be an air pocket. I just want to talk about the competitive win rate that you guys are seeing. We're hearing from some of the larger CROs that typically have been played in that part of -- in your part of the market that they're going to start competing or entering or bidding on some of this business. So are you guys starting to see the likes of them show up? Or just any color around that?

Yes. They've always been there. I don't know about the additional effort or attention there. Certainly, there's a lot of talk about it, but we see the same players, and it is the large providers that we're often competing against. Our win rate has been okay. I mentioned last quarter, it was actually down a little bit. Awards were actually good because the total decisions were elevated. Our win rate did come back up this quarter. And some fewer number of decisions, but again, good awards. .

We don't see a trend towards greater competition causing our win rate to deteriorate. There has been some movement over the last year or so to bring more providers to an opportunity. So instead of what you often see was 3, maybe 4 CROs now is often it's 6 or even more. And so that obviously reduces the win rate a little bit for everybody. But I think you correct for those situations. And I think our competitive position is very strong.

Great. And then I guess a follow-up here, not to beat a dead horse, but on the burn rate and kind of how you're thinking about that through next year, where do you think that like -- not even through the end of next year, but where do you think that this kind of settles out, as we think about kind of the out years? Could it be more elevated versus what you had in, let's say, before it started ramping up in like the high teens?

Yes. I mean, I don't think we can answer that question in terms of the long term. It's a lot dependent on our mix of programs, where they are in their life cycle. It depends on your future bookings. If you go back to a couple of years, coming out of COVID, when our bookings were very strong, our burn rate came down quite a bit. So it is influenced by how things are progressing from award notifications into programs in the backlog. So it's hard to say. Our range has been quite wide. .

Our next question comes from the line of Justin Bowers with DB.

All right. So I just want to follow up on Luke's comment and your remarks on the win rate, obvious. You said fewer decisions, but good awards and the win rate was up. So are we to infer that your average award size was larger or more than substantial this quarter. So that's part one. And then part 2 is just can you give us a sense of how your conversion or retention or win rates have been trending, call it, over the last couple of years of programs that progress from Phase II to Phase III?

Yes. I don't think there's been any change in that. We -- that's -- it's kind of all over the map, but usually, we can progress from Phase II to III, but there's a lot of times that products within our clientele are sold or moved to someone else. And sometimes we also just don't win the Phase III. We're considered not strong enough in a particular market or something. I don't know that that's changed at all. .

Okay. And then in terms of the award size in the quarter?

Yes, I'm sorry. I don't actually have that. Anybody on the line have that?

It's pretty normal, I would say, Justin. There's been -- there were no significant decisions. And remember, decisions were notified as an award. Those don't go in the backlog, right? They fit into that kind of pre-backlog market. But I wouldn't say there was anything out of the ordinary in the quarter from a decision standpoint. .

And then in terms of the pre backlog, how does that -- how does the therapeutic mix of that compare to the revenue that you're showing right now? So just sort of frame things a little bit, like oncology is 30% -- was 30% in 3Q and like metabolic was 27%. When you look at the pre-backlog, is it over-indexed or under-indexed relative to those 2 therapeutic areas?

It's over-indexed in metabolic as you might expect.

Massively, but there is a -- it's a higher proportion. And that, again, fits in with what we're currently seeing and burning. .

Our next question will come from the line of Eric Coldwell with Baird.

I have maybe 3. First, on the preliminary views of 2026 talking about the revenue outlook. If we run various inputs on what the fourth quarter service revenue might look like and then also what does low double-digit growth mean and 41% to 42% pass-throughs, you can run various scenarios. They all lead to service revenue implied growth or preliminary view growth of being somewhere in the upper mid-single digits to low double digits growth. Is that your interpretation as well? Or am I missing something?

I believe your math. All right, Kevin, do you want to comment on that?

Eric, could you say that again, up mid double digit...

I don't know if you're going to do $400 million of -- sorry, go ahead. .

Go ahead. Say it again.

Yes. Look, I mean, it's going to be annoying on the call here, but I don't know if you're going to do $400 million of service revenue in Q4, $410 million. I don't know what that number is. So there's various bases from which we have to grow. But if I model low double-digit revenue growth, and I take it all the way up to 12.5%, which is my view of the low end of low double -- or the high end of low double digit, and then, I say pass-through is at the low end of mix, 41%. Even using various inputs like that, I'm coming up with service revenue growth somewhere in the mid- to upper single digits on the low end of the range up to low double digits on the high end of the range. And the only reason I'm focusing on that -- yes.

That sounds reasonable.

Yes, that's fair.

Yes. So I thought -- and maybe I'm still taking too many crazy pills here, but I thought last quarter, we came off thinking it was going to be more like 15% service revenue growth. And I -- maybe I misinterpreted comments last quarter, but admittedly, I was a bit higher on my service revenue outlook for next year.

Yes, I don't think we made any comments about next year's growth at all, let alone service revenue.

Yes. Yes, I might have misinterpreted something. On the pre-backlog, the 3 to 6 -- or I'm sorry, you said pre-backlog, you kind of again confirmed that it's above backlog, so it's above $3 billion. I think there's a range out there of where it might be. Obviously, more than $3 billion, but less than X, so I was hoping you could give us a little more specificity because I still think there's a lot of confusion on the Street about these quarterly net new awards. There are really not things that are happening in the quarter. It's the amalgamation of everything you've built up in the past that's moving into revenue generation phase. So having a sense on that bucket, is it $4 billion, $5 billion, $6 billion heaviness sense on that bucket could help, maybe help people think about what magnitude of that pre-backlog actually needs to convert to revenue generation phase whereby it then goes into your reported backlog.

I mean, look, it's part of an overall pipeline. And they are firm awards at that point, but it is part of an overall pipeline. And we do tend to see -- we have seen some very large cancellations there. So we don't treat it like backlog because until the study is actually running and gets patients in, there is a higher risk. But look, I don't want to get into putting numbers on that and then tracking just the size of it and size of what other buckets, et cetera. I think we provide adequate information on the overall parameters that we look at and measure and pay attention to give trends, but yes, the bucket is somewhere under $4 billion, right?

Okay. That's super helpful, actually. And then last one, thank you for allowing my time here, you made a comment earlier about this total bucket of awarded work that isn't in backlog being up 30% year-over-year. And then in that same vein of commentary, you said something about haven't gotten the first patient in, so then I got thinking, are you basically telling us that you don't put an award here until you actually have the first patient in the study because I used to think that the parameter was that you needed to be within 30 days of revenue generation. But maybe the real parameter is you actually are live in the study generating revenue before you put something in the back -- street-facing backlog.

That's correct. It could be that there's revenue prior to -- and even sometimes a chunk of revenue prior to reaching backlog...

So this is how the revenue started growing before the head count did. I'm just -- I'm trying to get a sense like things started -- the work sped up maybe a bit faster than you were thinking 6 months ago, when you had some cancels and market uncertainty. The work sped up sometime between April and July, the tone and the messaging clearly shifted. It just feels like maybe this work really picked up pace and you were sitting right there not quite in backlog, but suddenly the stuff is in backlog, and now, we get the big revenue spike. I'm just trying to get a sense on what really are these dynamics between reported backlog, the pre-backlog and then the notion that your revenue actually accelerated pretty quickly before your head count growth did in that...

So yes, and there's a couple of complements there. One is, yes, you're right, we put it in very late. Generally, patient doesn't -- patients got to be kind of -- we think a patient is going to go in a very short near term. So it's right about when you get the first patients in, but there's other reasons why there might be some concern on that. There's studies where we have a manufacturing problem. And actually, that was an issue recently. And in terms of it's right up to a lot of work being done, and we haven't got the patient, but there's uncertainty around drug availability.

There may be some other -- they need some decision at some regulatory authority to move forward with this. So those kind of things we don't put in backlog. So there's a number of gates, but yes, things can be very close to large-scale revenue generation when they go into backlog.

And we have a follow-up question from the line of David Windley with Jefferies.

Eric asked 1 of the 2. I was going to follow up on the other one is on your metabolic indexing. So a lot of the inbound questions I get on this particular topic, assume GLP-1, I wondered if, August, you'd be willing to provide some color on the breadth or lack of your participation in metabolic. My sense is that it is broader than just GLP-1 and maybe mostly non-GLP-1, but I wondered if you'd be willing to comment on that just so we have a better perspective of what your -- what the drivers are of that fast-growing part of your revenue and backlog.

Yes. So GLP-1 is probably 2/3 of our obesity, so it is a big chunk -- what you call in the GLP class kind of, is a large portion of the overall obesity, but it's not all of it. There's still a fair amount of other.

And is that spread across multiple clients, I would presume?

Yes.

And I'm showing no further questions. And I would like to hand the conference back over to Lauren Morris 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 2025 earnings call. .

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.