Prepared remarks
Good day, ladies and gentlemen. And welcome to the Medpace Second Quarter 26 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, please press 1-1 on your phone. If your question has been answered and you would like to remove yourself from the queue, simply press 1-1 again. 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 second quarter 26 earnings conference call. Also on the call today are 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 2000. 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 our 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 26. 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 26. This represented a year-over-year increase of 17.2%. Revenue for the six months ended June 30, 2026, was $1.41 billion and increased 21.7%. EBITDA of $153.4 million increased 17.6% compared to $130.5 million in the second quarter 25. 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 26, net income of $121.4 million increased 34.5% compared to net income of $90.3 million in the second quarter of 25. 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 1.13x net book-to-bill. Ending backlog as of June 30, 2026, is 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 thousand 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 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.
Questions and answers
Thank you. And our first question comes from Charles Rhyee of TD Cowen. Your line is open.
Yes. Thanks for taking the questions. Wanted to ask, obviously a lot of the growth that we have seen over the last year has been really driven by metabolic work. 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 whether the two are related such that maybe a lot of the metabolic work you are doing is coming from a couple of large clients? And can you give us a sense on what visibility you have of that going forward? 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 you could expect this kind of mix to persist, particularly on the metabolic side, or does that kind of roll off at some point and maybe any sense on timing of when that would be?
Sure. It is August. The top 5 growth has been driven quite a bit by that metabolic work, 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. As to timing, more recently this year, in the last couple of quarters, oncology has come back quite a bit in terms of both our award notifications and the earliest part of the pipeline for awards and backlog recognition. In particular this last quarter, our bookings were very strong in oncology. Oncology represented over half of our overall bookings and our award notifications. Cardiometabolic has dropped off quite a bit in terms of new award notifications. So I think we are seeing a shift back toward more historical averages. I do not know if we will get back to where we were two years ago in terms of percent, but I think oncology will retake its position and move up a few percentage points in our mix over the next year or so. I would expect that to head back toward the prior mix. The metabolic programs are among the very large programs that are reducing in new opportunities compared to a year ago.
Great. And maybe just to follow up then: Kevin, from a modeling perspective, should we think back to maybe two years ago about what the backlog conversion rate was? I would assume backlog conversion rate would fall naturally because of the mix, since oncology trials are longer in duration.
Yeah. I mean, Charles, as you know, we do not guide to burn rates. So we have to see how those programs where we have been awarded the work from a notification standpoint progress into awards for the rest of this year, and we will have more color on what 2027 will look like, possibly next quarter, but certainly in the February call.
Yeah. But I would challenge the premise that metabolic programs are the primary driver of the conversion rate increase. I do not think that is necessarily the dynamic. It might have had an influence, but it is not the primary driver. Remember, we do gate backlog greater than three years. In fact, the average duration of backlog across programs is much lower based upon interim analyses or steps; we limit backlog recognition until we get certainty around that, and that is very prevalent among many non-metabolic programs, notably in oncology. So while metabolic programs can have a faster burn rate in some cases, it is not overwhelmingly apparent in our systems. The biggest drivers of conversion are gating around decision points, interim analyses, and how we recognize backlog given uncertainty.
Can you just clarify then, August? My understanding of duration was that the way backlog converts is length of trials and where recognition happens, but you are saying that with interim analysis, even in an oncology trial, that can limit backlog recognition until the favorable decision point?
Yes. We might have only one year of backlog for a program. The program might be planned for five years, but we only have one year of backlog because there is another stage or an interim analysis before expansion or continuation. We will not include any backlog beyond that point until we reach it and there is a favorable decision.
I see. Okay. That is really helpful. Appreciate the comments. Thank you.
Thank you. And our next question comes from Michael Cherny of Leerink Partners. Your line is open.
Good morning and thank you for taking the question. Very nice job on the bookings. As you think about the mix that you saw, anything to call out relative to 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 of competition relative to the overall market health with your core biotech customers?
No, I do not think the competitive market has changed other than it has gotten stronger over the last few quarters. We had a pretty strong business environment in the prior quarter, although cancellations were elevated then. This quarter, cancellations came down quite a bit. The business environment continued to be strong, and new opportunities look good. I do not see a major change in competitive dynamics. The profile has moved more back toward oncology programs being the majority of opportunities, as opposed to the cardiometabolic drivers from a year ago. Otherwise, things are pretty stable.
And just quickly on the cancellation side: I know you do not guide to cancellations, but they can be volatile from quarter to quarter. Do you feel going forward cancellations should be at least in a better place versus what could have been an outlier in 1Q?
Cancellations are completely beyond our ability to predict. They can come up out of the blue. We do not typically have advance insight into which clients will cancel; those events tend to be unanticipated. What we can do is be careful about gating our backlog—only recognizing revenue beyond decision points or interim analyses when there is clear certainty. The cancellations we have experienced have been unanticipated, and I cannot project future cancellations. That said, the business environment is good, our pipeline is strong, and I would anticipate gross bookings to scale and the second half to ramp up. That should translate into a ramp in net bookings if cancellations remain in a reasonable range, but a cancellation spike is always possible.
And our next question comes from Ann Hynes of Mizuho. Your line is open.
Great. Thank you. Given your business mix—Phase 1, Phase 2, and Phase 3—I know investors have been concerned that Phase 2 might be hitting a wall or moving to China. Given your biotech mix, can you discuss gross bookings trends in Phase 1 versus Phase 2 versus Phase 3? Any color would be helpful.
If we look at the numbers, Phase 1 has increased some relative to Phase 2, while Phase 3 has been pretty stable. Phase 1 increases are largely driven by oncology programs. I am not seeing a meaningful shift of work to China for the programs we are pursuing, so that dynamic does not appear to be a major factor.
And I know the past couple of quarters you said gross bookings was good but maybe a little below your expectations. Was this quarter gross bookings in line with or better than what you expected heading into the quarter?
Gross bookings are influenced by pre-booked backlog and cancellations. We did have elevated cancellations earlier, but the environment has improved. This quarter was helped by the substantial drop from the elevated cancellation rate. I do not have the specific expected number on hand, but overall the business environment has been improving and gross bookings were healthy.
And our next question comes from Jailendra Singh of Truist Securities. Your line is open.
Thank you, and congrats on a good quarter. Just going back to the cancellation comment, August: can you put Q2 trends in some perspective? Is it fair to say cancellations have improved back to levels seen in Q3 of last year, or even better or worse? Also, did cancellations improve in both backlog and pre-backlog?
Yes. Cancellations were in a pretty good range this quarter. In fact, a bigger driver of the net bookings increase from last quarter was due to reduced cancellations rather than a big change in gross bookings. I think the second half will see more gross bookings ramping up. This quarter was helped by a substantial drop from the prior elevated cancellation rate. It has come down nicely—not to an unusually low level, but to a very good level. Cancellations in AIS were also well behaved, which helps toward the ramping in gross bookings in the second half. So yes, cancellations were down across the board and were a major driver of net bookings growth from Q1 to Q2.
And then my follow-up: I know last quarter you called out initiatives to improve win rates. Can you provide an update? Have you started to see the impact, and can you describe what those initiatives are related to—commercial execution, positioning, quality? Any color on whether that is impacting your wins would be helpful.
We recognized our win rate declined in 2025 and implemented changes late last year and into the first quarter. Those changes are implemented and in place, and they were a possible influence on our stronger win rate in Q1. I do not want to go into the detailed competitive or commercial tactics, but we made changes to improve win rates and have seen improvement.
And our next question comes from Jared Haas of William Blair. Your line is open.
Great. Thank you. While I realize the majority of the work you booked today will not burn until at least 2027, given the recent volatility, can you give some color on what you are expecting for bookings growth cadence in the back half of the year? Do you expect Q2 net bookings to be a high watermark, or could we see sequential acceleration as we move throughout the year?
I expect a ramp in bookings in the second half and a ramp in gross bookings. I would expect that to translate into a ramp in net bookings, but cancellations remain a wildcard. Overall, I am optimistic the second half will strengthen relative to Q2.
Can you give more color on RFPs—in terms of the magnitude of sequential and year-over-year growth—and on bookings quality? Also, you mentioned initial awards declined sequentially. Was that bucket up year over year, and any comments on magnitude sequentially?
RFPs were up meaningfully, certainly on a sequential basis and year over year. The quality has improved; we are seeing a lot of clients with recent funding. The funding environment is broader than before—more companies have recent funding and are moving forward with programs. RFP numbers are up substantially year over year and up sequentially by a reasonable amount, and the quality is good. On initial awards: we had a very strong Q1 and Q2 was down from that level, but not unusually low. Single large programs can drive variability quarter to quarter, so we look at awards over a longer period. Overall, new awards were in a good range.
And our next question comes from David Windley of Jefferies. Your line is open.
Hi, good morning. Thanks for taking my question. August, I wanted to understand the contingency or gating considerations you have around backlog and how influential they are. The backlog burn has ramped over a couple years and is at new highs. You do not attribute that to the metabolic mix—what do you attribute it to? What are the various factors that contribute to the burn rate being as high as it is?
Given the high cancellation environment we were in, we were more attentive to decision points and interim analyses when deciding what to include in backlog. The policy itself was the same, but our implementation and attention to gating increased. There is gray around what constitutes a decision point or a power analysis that could influence continuation, and we were more cautious. I do not think metabolic programs are the overwhelming driver. There are three components: metabolic programs might be slightly faster burning on average; we implemented the policy more conservatively given cancellations; and the overall dynamics of awards, sizes, and the average age of programs. Those combined influenced the higher conversion rate. I do not think metabolic alone explains it.
Do you have any meaningful amount of revenue where a decision point or some factor would cause value to be added to backlog and then go right into revenue in the same quarter?
Yes. An interim analysis or decision point can cause recognition and influence revenue in the next quarter. If a decision point happens and the program moves forward, revenue can ramp immediately. Any one program is unlikely to drive an entire quarter alone, but individual programs can have a notable impact quarter to quarter.
Last question for me: on the labor side, your headcount growth ticked up a little. How do you assess where you stand on resources relative to demand that is moving toward bookings? Has the composition of labor changed geographically or between full-time equivalents and contractors as you manage costs?
We are in a good place, helped by continued low turnover through Q2. We expect high single-digit employee growth this year and likely continue next year. Employee growth has been predominantly in the U.S. and Asia-Pacific, with a chunk in India for cost positioning. The biggest growth has been in the U.S., though we have some repositioning elsewhere.
And our next question comes from Ryan Halsted of RBC Capital Markets. Your line is open.
Good morning. Thanks for taking the questions. Regarding net new awards growth, can you quantify or size how much of the new awards growth came from converting your pre-backlog awards from last year into awards this year, versus organic new awards driven by the improving business environment?
In Q2, most of the backlog recognition would have been from award notifications in the prior year. Q1 would not have influenced Q2 greatly in terms of backlog awards.
And in terms of the improving business environment, where are you seeing that—pre-award backlog or cancellations?
The improvement shows up in both reduced cancellations and in pre-award activity. Cancellations were driving drag on bookings and pre-backlog conversion potential; those improved in Q2.
Okay. And then last one: you previously guided to direct service costs around 41% to 42% of revenue, which implies a sequential decrease. Should we still expect declining direct service costs?
That commentary relates to the reimbursable component of direct cost. I do expect some further decline in the back half of the year, and a range of 41% to 42% of revenue for Q3 and Q4 is what we are modeling right now.
Great. Thanks for taking the questions.
And our next question comes from Luke Sergott of Barclays. Your line is open.
Hey, this is Jake on for Luke. Thanks for the question. For the last couple of years, you saw a sequential step down in SG&A from Q1 to Q2 and then this quarter it ticked up slightly. You called out benefiting from lower employee-related costs through the last couple of quarters, but what are the puts and takes there going forward around margin step-up through the year?
A lot of the Q1 to Q2 or Q2 to Q1 variability is related to annual merit cycles and what happens with company equity programs. Both of those events have already occurred this year. You will see more of an influence from headcount increases as we continue through the back half of the year, but at a slower pace than revenue. So you will see some margin expansion in the back half of this year.
And our next question comes from Eric Coldwell of Baird. Your line is open.
Thank you. Good morning. I wanted to circle back to David's questions on the backlog burn rate. To be clear: your long-term average backlog burn rate up until the beginning of 25 was about 18%, now you are at 24%. You're saying metabolic was not the main driver, and that a main driver was tighter implementation of policy about what you put into backlog. Can you confirm that was the main driver of the increase, and if so, will you revert to the prior approach as the environment improves?
Let me clarify. I do not think metabolic is an overwhelming driver of the difference. We did increase our attention to gating and decision points given the cancellation environment. The SOP itself did not change, but implementation and judgment around what constitutes a decision point became more conservative. There were multiple drivers: a possible small influence from metabolic, a more conservative implementation of our policy given cancellations, and dynamics around the average age and size of awards. I would expect conversion to trend down over time as we have new awards and a lower cancellation environment, but I am not making a firm projection on the timing or magnitude of that change.
On pass-throughs, Kevin, you said 41% to 42% of mix in the second half. Q1 and Q2 ran at a slightly faster clip this year than you anticipated—is that fair?
Yes, that is fair. I anticipated it coming down more in Q1 and Q2, but for the year, if you push it to 42%, it might be just north of that watermark. The reimbursable component ran a little higher than I initially modeled.
On the current generation of bookings—about $800 million in Q2—any sense of the pass-through profile for that bucket? With mix shifting back to oncology, could the pass-through mix of that newer bucket be lower, implying a reduction in pass-through mix in 2027?
It certainly can be. The mix of programs going into backlog might be a little lower on pass-through percentage, but what matters more for 2027 is the programs that actually earn revenue and where they are in their life cycle. Later-stage studies tend to have a bit more reimbursable pass-throughs. So it's a combination of portfolio composition and how programs progress—not just what you put into backlog today.
Last one: any update on pre-backlog? Last quarter you said it was around the size of the backlog; where does that stand exiting Q2?
I do not want to get into exact proportions, but pre-backlog is larger than backlog and it has grown faster than backlog over the last year. I am not going to provide a specific percentage.
And our next question comes from Justin Bowers of Deutsche Bank. Your line is open.
Hi. Good morning. A couple of questions. First, on the burn rate: is the expectation that the burn rate comes down more due to fewer cancellations and greater bookings showing up in the quarter versus a change in how you run the business or study mix? Is that the takeaway?
The average age of projects and booking characteristics influence conversion. I expect some reversion toward historical norms as we get new awards and a lower cancellation environment, but I am not making a formal projection of the conversion rate. It is a combination of factors rather than a single change in how we run the business.
And on the environment: with the increase in funding that we are seeing and wider dispersion, when should we expect that to show up in awards or backlog? Any thoughts on the timeline and whether decision timelines have changed versus 12 months ago?
I do not have deep visibility into the timing of client funding cycles. Many clients are raising money while seeking bids, so the process can be immediate. What I can say is we are seeing more clients with recent funding and a better ability to move forward with programs. The trajectory has improved with the funding environment and opportunities are progressing.
Thank you. I will jump back in queue.
I am showing no further questions at this time. I would like to turn it back 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 third quarter 26 earnings call.
This concludes today's conference call. Thank you for participating, and you may now disconnect.