On Thursday, Medpace Hldgs (NASDAQ:MEDP) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

The full earnings call is available at https://edge.media-server.com/mmc/p/io4qcbzj/

Summary

Medpace Hldgs reported Q2 2026 revenue of $707.3 million, a 17.2% year-over-year increase, with a six-month revenue of $1.41 billion, up 21.7%.

Net income for Q2 was $121.4 million, a 34.5% increase from the previous year, driven by a lower tax rate and higher interest income.

The company updated its 2026 guidance, expecting total revenue between $2.805 billion and $2.885 billion, with an EBITDA range of $618 million to $642 million.

Net new business awards increased by 28.2% year-over-year to $795.7 million, with a book-to-bill ratio of 1.13, indicating strong demand.

Cancellations decreased significantly, benefiting net bookings, while oncology bookings saw a substantial increase, surpassing metabolic programs.

Management highlighted an improved business environment with strong RFPs and a constructive outlook for 2027, despite uncertainties in cancellation trends.

The company's headcount growth is expected to continue, with significant expansion in the US and Asia Pacific regions, including India for cost efficiency.

Full Transcript

OPERATOR

Good day, ladies and gentlemen, and welcome to the Medpace Hldgs second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question, please press star 11 on your phone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, this call is being recorded.

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

David Rue, Director of Investor Relations

Good morning and thank you for joining Medpace Hldgs' second quarter 2026 earnings conference call. Also on the call today is our CEO August Trundle and our CFO Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations.

These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements even if estimates change accordingly. You should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.

A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Trundle.

August Trundle, CEO

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.

Kevin M. Brady, Chief Financial Officer

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 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 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 $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 book-to-bill of 1.13.

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 day 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 end of 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 in 2026, 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

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

Charles Rhee, Analyst at TD Cowen

Oh yeah, thanks for taking the questions. 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 five, 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 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 you 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.

August Trundle, CEO

It is August. The top five growth has been driven quite a bit by that metabolic mix. So the answer to that is yes, there are some large programs among that top five that are a good part of that growth in the group. And as to, you know, timing of that more recently this year, the last couple quarters, I think that oncology has come back quite a bit in terms of both our award notifications, so the earliest part of kind of the pipeline for awards, and the backlog recognition.

So you know, our bookings, particularly in this last quarter, were very strong in oncology. Oncology represented over half of our overall bookings and our award notifications. So that's kind of—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 the more historical averages. I don't know we'll get back to, you know, where we were, you know, two years ago in terms of percent of, but I think oncology will retake its position, 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, you might be, reducing and sort of the new opportunities are not as great as a year ago.

Charles Rhee, Analyst at TD Cowen

Great. And maybe just to follow up then, maybe Kevin, just from a modeling perspective, then should we think back to maybe two 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.

Kevin M. Brady, Chief Financial Officer

Yeah. 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.

August Trundle, CEO

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 three 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 in oncology. So, you know, 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 that. That's going to cause a normalization of our conversion.

Charles Rhee, Analyst at TD Cowen

I'm sorry, can you just clarify then, August, 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—

August Trundle, CEO

—that triggers a revenue recognition, we might only have one year of backlog for that program. The program might be five years planned to go, but we only have one year of backlog in there because there is another stage looking at before they do the expansion or, you know, before there's some increase in the program, and we won't put any in the backlog beyond that point until we get to it and there's a favorable decision.

Charles Rhee, Analyst at TD Cowen

I see. Okay, that's really helpful. I appreciate the comments. Thank you.

OPERATOR

Thank you. And our next question comes from Michael Cherney of Leerink Partners. Your line is open.

Michael Cherney, Analyst at Leerink Partners

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 in competition relative to the overall market health with your core biotech customers?

August Trundle, CEO

Yeah, no, I don't think the market has changed. It's gotten stronger over the last few quarters. We had a, 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 were cancellations, you know, still we continue to see clients that are, you know, were looking for funding or having, you know, problems, et cetera and, you know, a high level of cancellations this quarter.

This very last quarter, you know, 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 profiles moved more back towards oncology programs being the largest. In fact, the majority of opportunities as opposed to sort of metabolic, you know, drivers of, you know, a year or so ago. But, you know, otherwise I think things are pretty, pretty stable.

UNKNOWN Analyst

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 one quarter, in one Q?

August Trundle, CEO

Cancellations are completely beyond my ability to even... It's not like we have any of these past, you know, past year, have a situation where we had very high-risk programs and we thought, oh, you know, there could be high cancellations and, you know, sure enough they were. We just have no idea. I mean, you know, there's not been that kind of insight into future cancellations and I don't anticipate that there will be going forward. I mean, cancellations just come up.

Like I said, we are very careful about gating our backlog by having any sort of interim look or, you know, analysis or, you know, a thing that might, you know, a regulatory decision that might influence the remainder of the program. We won't put in backlog beyond that point. You know, we'll wait for that to happen. And so, you know, the cancellations that we have are completely unanticipated and, you know, out of the blue sky. So I can't say that.

But what I can say is that the business environment is good. Our pipeline of stuff, including in, you know, the kind of pre-backlog that have been awarded programs, is very strong. And I would anticipate that our gross bookings, which, you know, we do have reasonable insight into, are going to, you know, scale in the next, you know, second half, are going to ramp up. And I think that independent of where cancellations are, that should be a, you know, a scaling and a ramping up in our net bookings.

But I say that if cancellations are in any kind of reasonable range, but there's always the possibility cancellations spike to an unusual level.

OPERATOR

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

Ann Hines, Analyst at Mizuho

Great, thank you. Can we... I know your business, you do a little bit of Phase 1, but Phase 2 and 3, and there's been some increased investor concern that maybe Phase 2 is hitting a wall, maybe something's 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 1 versus Phase 3 — I mean, I'm sorry, Phase 2 versus Phase 3 — that would be great. Thank you.

August Trundle, CEO

Yeah, I think if we look at kind of the numbers, maybe Phase 1 has increased, you know, some relative to Phase 2. You know, Phase 3 has been pretty stable. But, you know, and of course that Phase 1 is driven largely by oncology programs and, you know, so, you know, I don't know that that's not just kind of a move towards, you know, very, you know, heavy oncology. I haven't tried to analyze that too greatly in terms of, you know, you know, where that's going.

But I don't really see a, you know, a shift of things to China greatly for, you know, at least programs we're chasing. So I don't know that I see that dynamic, but I don't want to say great.

Ann Hines, Analyst at Mizuho

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?

August Trundle, CEO

Yeah, I mean that kind of is set up. Gross bookings are going to be determined by, you know, pre-book backlog, cancellations, you know, from the past. We did have, you know, high cancellations, but we've had an improving business environment. As I said, you know, that's what we've been saying the last few quarters, the last three quarters or so, you know, that the business environment is pretty good. It looks actually, you know, I would say very good except that we keep having cancellations, and that is part of the business environment, you know, and it's...

And, you know, there has been still a number of clients that were, you know, challenged financially. So I don't know.

Ann Hines, Analyst at Mizuho

All right, thank you.

OPERATOR

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

Jalandra Singh, Analyst at Truist Securities

Thank you and thanks for taking my questions, and congrats on a good quarter. I want to go back to the 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?

August Trundle, CEO

Yeah, I guess. Cancellations were actually in a pretty good range this quarter. In fact, if you look at the net bookings, a bigger driver of the net bookings increase from last quarter was due to reduced cancellations rather than, you know, kind of gross bookings. Okay. So you could look at it that way. I think second half we're going to see more just gross bookings, you know, ramping up quite a bit. So, you know, this quarter was helped along quite a bit by a substantial drop from what had been a, you know, kind of elevated cancellation rate.

So it's come down nicely, you know, not to unusually low level, but, you know, a very good level, let's say. And even in this quarter, cancellations in AIs were very well behaved also. So that also helps toward ramping in gross bookings going forward in the second half. So, you know, across the board, yes, cancellations were down. They were in a nice range and were more than half of the driver, I would say, of, you know, the net bookings growth from the prior quarter, from Q1.

Okay, does that help?

Jalandra Singh, Analyst at Truist Securities

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

August Trundle, CEO

Yeah, I brought that up to say that we had recognized that 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, you know, late last year and, you know, maybe a little bit into first quarter, but, you know, they were really done, you know, last year. And so they've been implemented and are in place, and I think were possible, you know, influencing 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 were, you know, implementing some changes. But I don't want to go into just how those competitive changes were rolling out.

Jalandra Singh, Analyst at Truist Securities

Got it. Thanks a lot.

OPERATOR

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

Christine Rainson, Analyst at William Blair

Great, thank you. It's Christine Rainson for Jared. So while I realize that the majority of the work that you book 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 high watermark or if we could see sequential acceleration as we move throughout the year.

August Trundle, CEO

I'm sorry, you're a little bit faint there. It sounds like you're asking about how the bookings are going to go in the second half towards 2027.

Christine Rainson, Analyst at William Blair

Yeah, yeah, 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, or if we really could see an acceleration as we move throughout the year in terms of net bookings.

August Trundle, CEO

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.

Christine Rainson, Analyst at William Blair

Perfect, thank you. 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.

August Trundle, CEO

Yeah. 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 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, you know, sequentially by a reasonable amount. But again, quality is more important and I think the quality has been there and is good. What was your— helpful.

Christine Rainson, Analyst at William Blair

Thank you. Another question on that. Oh, it was just on initial awards in terms of... They seemed strong but declined sequentially in your commentary. So just curious, one, if this bucket was up on a year-over-year basis, and then just any commentary on the magnitude sequentially?

August Trundle, CEO

Yeah, yeah. Sorry, I don't have any other comments on it, really. We had a very strong Q1. We had a Q2 that they were down. They were on the lower side of kind of the... But not, you know, unusually low. So, you know, I don't know what to say about that. 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 one or two very large programs.

So it's not like a metric that can be looked at 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 made the actual percent... Fantastic. Overall awards were good.

Christine Rainson, Analyst at William Blair

Perfect. Very helpful. Thank you.

OPERATOR

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

David Winley, Analyst at Jefferies

Hi, good morning. Thanks for taking my question, August. I wanted to try to understand — hearing you on the contingency backlog considerations that you had mentioned to me recently and mentioned again this morning — and how influential they are. So I guess I'll spin the question to: the backlog burn has ramped over a couple years, kind of making new highs. Sounds like 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?

August Trundle, CEO

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, you know, I think they may have not been as broadly implemented. There's a lot of gray area there in terms of what is a decision point. Is this look for power? Is that something that could influence their continuation of the program? 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 Metabolic, I'm not denying that it has had some effect. I just don't think it is, you know, overwhelming driver, you know, if Metabolic becomes less that. Because Metabolic, you know, conversion isn't naturally a lot faster in our systems.

I think that it can be if there's a decision point that's a very large program. I mean, you know, I'm not saying there couldn't be situations where Metabolic might be driver, but almost any other program also could be. So I just don't think that that is. Oh yeah, Metabolic is much faster burning and therefore that is the driver of our conversion rate. I don't think it has been.

UNKNOWN Analyst

Did the— It sounds like you kind of went through a, you know, logically a backlog recheck as a result of what the environment was was signaling to you.

August Trundle, CEO

Yeah. And I don't want to say that we removed any from backlog because we didn't. We didn't, you know, take anything out of backlog. We just started looking at should we put this into backlog when we have this decision point in a year from now that in the past you might have said, well, it's that's just, you know, an adjustment and they're not really, you know, it isn't really an interim look for decision about continuing the trial.

UNKNOWN Analyst

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 and that drops into revenue?

August Trundle, CEO

Yes, yeah, sure. I mean that is kind of the profile of an interim analysis to decide whether to stop the trial. And if it continues, it might be that next quarter's revenue could be significant, you know, could be influenced. Obviously any one program is not going to be a big driver of a quarter, but. But could be in the next quarter right away.

UNKNOWN Analyst

Yeah. Last question for me. On the labor side, your headcount growth did tick up a little bit. I wondered how you would assess where you stand on resources relative to the demand that you're seeing 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.

August Trundle, CEO

Yeah, I think we're in a good place. That's been substantially helped by the low turnover that we've had, which has continued through Q2, you know, very low turnover on historical terms. And we do expect high single digit, you know, growth in employees, you know, this year and I suspect we'll, you know, continue that next year. So I think we're in a good space. That employee growth has been predominantly US and then also Asia PAC and a chunk of that in in India, which does kind of represent, you know, positioning for, you know, cost.

But the biggest growth has been us. And as I think I'd mentioned previously, you know, a lot of things have, you know, kind of moved back towards us in terms of growth. But there has been some repositioning too.

UNKNOWN Analyst

Okay, thank you.

OPERATOR

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

Ryan Halstead, Analyst at RBC Capital Markets

Morning. Thanks for taking the questions. Just going back to the net new awards growth, my question is, are you able to quantify, I guess, or just size, 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? Organic new awards this year.

Kevin M. Brady, Chief Financial Officer

Yeah. So in Q2, most of the backlog recognition would have been from award notifications the prior year. So Q1 would not have influenced greatly the Q2 backlog awards.

Ryan Halstead, Analyst at RBC Capital Markets

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?

August Trundle, CEO

Yes. And then cancellations, you know, so even Q4 was, you know, I think things have improved quite a bit. It's cancellations that were driving sort of the backlog bookings decrease. And also were 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.

Ryan Halstead, Analyst at RBC Capital Markets

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

Kevin M. Brady, Chief Financial Officer

Yeah. And that commentary is related to the reimbursable component of direct cost. Right. And so I do expect some further decline in the back half of the year, and I would say a range of 41 to 42% of revenue. Q3, Q4 is kind of what we're modeling right now.

Ryan Halstead, Analyst at RBC Capital Markets

Great, thanks for taking the questions.

OPERATOR

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

Jake, Analyst at Barclays

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

Kevin M. Brady, Chief Financial Officer

Yeah, I mean you're really, it's, you know, a lot of the impact that we see from Q1 to Q2 or Q4 to Q1 is related to, you know, the annual merit cycles, you know, 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.

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

Jake, Analyst at Barclays

Great, thank you.

OPERATOR

Thank you. And our next question comes from Eric Caldwell of Baird. Your line is open.

Eric Caldwell, Analyst at Baird

Thank you. Good morning. I just wanted to circle back first to David's questions and on the backlog burn rate, I think I get the gist of what you're saying. Just to be very clear. Your long-term average backlog burn rate up until the beginning of 25 was about 18%. Now you're at 24%. You're saying metabolic was not the main driver. It sounds like you're saying the main driver was that you tightened the screws, I guess, if you will, tightened the screws on your policies around what you put into backlog, so, you know, effectively changed SOPs on what went in there.

And you were more restrictive on gating factors. I just want to clarify that that was in fact the main driver of this increase 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?

August Trundle, CEO

Yeah, thanks, Eric. Let me clarify. I don't think that metabolic is an overwhelming driver of the difference and I'm not saying that metabolic programs might have been contributed, but I think it's a bigger part. Was the policy implementation really enhanced? It was the same policy as written. We didn't change the SOP. It just a matter if we were 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 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 even to a large extent they may, you know, they may to some extent, but I really think there's three components. Maybe metabolic is a little bit faster burning. On average, we had implementation of our policy, you know, up given, given the cancellations that were going on.

And I think the overall dynamics of awards and size of backlog and AIs and all the, you know, rest of it, you know, causing 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 zero or doubles in our backlog, that that's going to have a big influence on our conversion rate. Okay, so that's the. Whether metabolic comes down or not. I don't think that is the driver of reducing conversion rate overwhelmingly.

I don't think that's going to be a big change between 18 and 24. All that said I would expect that our conversion rate does tend to drop down some over time as we have new awards and more programs and all the rest of it and hopefully get into a lower cancellation environment.

Eric Caldwell, Analyst at Baird

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?

Kevin M. Brady, Chief Financial Officer

Yeah, that's fair, Eric. I did anticipate it coming down a little bit more in the first and second quarter, but as I had mentioned in the second quarter I thought it would be for the year on the higher end, closer to 42%. It might be just north of even that watermark.

Eric Caldwell, Analyst at Baird

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.

Kevin M. Brady, Chief Financial Officer

Yeah, I mean it certainly can be. I mean I would say that the mix of programs going into backlog, is it significantly different on a percentage basis? Maybe it's a little bit lower. But I think what's more indicative of what happens in 2027 is just the programs that end up earning revenue and where they are in their life cycle. As we've said before, studies that are later in their life cycle have a tendency to even burn a bit more reimbursable pass-throughs.

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.

Eric Caldwell, Analyst at Baird

Gotcha. 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.

August Trundle, CEO

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

Eric Caldwell, Analyst at Baird

Thank you.

OPERATOR

Thank you. As a reminder, if you have a question, please press star 11. And our next question comes from Justin Bowers of Deutsche Bank. Your line is open.

Justin Bowers, Analyst at Deutsche Bank

Hi, good morning. I have a few questions, but just wanted to continue with Eric's line of questioning and just clarify a couple 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?

Kevin M. Brady, Chief Financial Officer

I think the average age of projects and the booking characteristics—what was more recently put into backlog—does have an influence on the conversion rate, and I think that will change over time. I think that, and that would put pressure downward on the conversion rate. Again, I don't want to try to project the conversion rate. I don't know that it's going to come down. I don't know how fast it would come down if it did. But I just think that a lot of the increase over time has been related to the average age of projects and, you know, kind of the dynamics of what's coming in and off of backlog, and that would, I would expect, more or less revert towards our historical norms. You know, 24% is kind of high relative to historical values, and so I would think that that is going to come down, but not making a statement on, you know, we've projected a decrease through any kind of, you know, formal analysis.

Justin Bowers, Analyst at Deutsche Bank

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 timeline of when that actually shows up either as awards 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?

August Trundle, CEO

Yeah, the timing of when biotechs spend their money—look, I'm not the person to talk to, 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, you know, I don't know overall, so I don't really have a, you know, good insight into that.

Justin Bowers, Analyst at Deutsche Bank

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

August Trundle, CEO

Yeah, sorry, no—I mean, we're seeing more clients that come with recent funding and are able to move forward in programs. We have seen better funding for things. So, yeah, the trajectory's been better and the opportunities, you know, moving along nicely. It isn't like a lot of things are hung up now or, you know, things. So I think trajectory has improved with the funding environment.

Justin Bowers, Analyst at Deutsche Bank

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

OPERATOR

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

David Rue, Director of Investor Relations

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

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.