MEDP

Good day, ladies and gentlemen, and welcome to the Medpace Q1 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, please press star one one on your phone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one 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 Q1 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. 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 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 one of 2026 saw cancellations rise again, with backlog cancels reaching their highest point in over a year. Net bookings were below the level seen in Q4, but well above those in Q1 2025, with a Net Book-to-Bill Ratio of 0.88. 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 Q1 of 2026 was $706.6 million, which represents a year-over-year increase of 26.5%. Net new business awards entering backlog in the Q1 increased 23.7% from the prior year to $618.4 million, resulting in the 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 twelve months, and backlog conversion in the Q1 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. 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 Q1 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 Q1 of 2025. On a constant currency basis, Q1 EBITDA increased 28.6% compared to the prior year. EBITDA margin for the Q1 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 Q1 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 five and top 10 customers represent roughly 28% and 37%, respectively, of our last 12 months revenue.

In the Q1, 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 31st, 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%-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.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Max Smock with William Blair. You may proceed.

Hi, good morning, everyone. Thanks for taking our call. Maybe just following up on the cancellations point. August, I know you mentioned the highest that you'd 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 Q1, and then any detail you can provide around how cancellations have trended so far in the Q2 and just any other drivers in terms of therapeutic modality, indication, any sort of themes behind outsized cancellations that you saw here in the Q1. Thank you.

Yeah, sure. Hi, Max. Yeah, cancellations were, again, just the kind of random stuff you'd expect. Product performance, reprioritizations, et cetera. It wasn't particularly informed by acute financial shortages or anything like that. 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 were oncology and cardiovascular, which is kind of usual anyway. Really nothing to call out there. Q2, it's really too early to get any kind of read on cancellation rate and whether it's going to be high again in Q2. I think it's too early to make any kind of assessment of that.

Yeah, understood. Maybe following up on and sticking on the cancellations 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 that bucket, the size of that bucket today relative to maybe that $4 billion that we were at a couple 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.

Yeah. 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. It was more backlog-related cancellations that were problematic for us. I don't think that impairs our future things rolling into backlog. I think the last couple quarters of high cancellations overall and across everything including that bucket before our pipeline of opportunities in prior quarters does influence it. That was not a particular factor this quarter. Obviously, the higher cancellations take away from the total revenue opportunities in the year. Future conversion hopefully with a reduction in cancellations, if we hopefully see that, can proceed at a kind of more normalized rate.

Thanks again for taking our questions.

Sure.

Thank you. Our next question comes from David Windley with Jefferies. He may proceed.

Hi. Thanks for taking my question. Good morning. 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 wanted to make sure I heard that right and that we're interpreting that correctly. Metabolic cancellations were actually not part of your call-out, is that correct?

That's correct. We break out our therapeutic areas in our earnings release in our...

In the deck, yeah.

Presentation, the deck that comes with it. Cardiovascular, yes, is separate from metabolic. 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 out.

Okay. Yeah. I think a market concern is metabolic has been a significant revenue growth driver, as evidenced by the pie chart that you include in the deck as you reference. I think the call out on the fairly sizable cancellation that shaded down net bookings last quarter was metabolic. Maybe you could speak to, I think I asked you this last quarter, but 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 biotechs 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.

Yeah. 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. Yeah, we have 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. It has not resulted in higher cancellations.

Even in pre-backlog. You have to realize, metabolic actually, if you look at historically, quarter-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's large and it happened to be a little bit of an uptick in oncology, had a little bit of a downtick in percentage, metabolic happened to be higher. Generally, oncology is a riskier field and has more cancellations. I didn't see the disruption that you kind of described maybe others are seeing.

Okay.

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 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, when you recognize a booking, the project's kind of already going and you're highlighting higher cancellations of sub one 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.

Yeah. I'll let Kevin talk in a minute. Just on the surface 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're a larger portion of things lately. Look, that's always at risk, but our current modeling is we're going to be within our guidance range on revenue despite these cancellations.

Yeah, no.

Certainly, we have to worry about future cancellations. Kevin?

Yep, understood. Thank you.

Yeah, no, David, you're exactly right. Despite the headwinds from cancellations that we saw in the Q1, we feel very good about the range that we have out there, which is why we reconfirmed guidance. Certainly, your future cancellations could potentially impact that because cancellations could have a more near-term impact on that. Right now, we feel good about the guidance ranges that we have out there.

Got it. Thank you.

Thank you. Our next question comes from Ann Hynes with Mizuho. You may proceed.

Great. Thank you. Good luck, Jesse. It 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?

We don't break out gross bookings. We just report on net bookings.

Directionally, was it?

We just-

Yeah. I mean.

Gross bookings, I guess.

Directionally, was it in line?

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

Okay. I get the question a lot. There's a lot of biopharma M&A buying biotech. How should we view your exposure to that going forward? 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 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 they sometimes decide they're going to fold that into their current provider or internal resources. 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.

Thank you.

Thank you. Our next question comes from Charles Rhyee with TD Cowen. You may proceed.

Yeah, thanks for taking the question. 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. Maybe just two more things around that. You talked about sort of what normally drives cancellations, either reprioritizations or drug fails. 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 a change in direction by the sponsors?

Yeah, no, we don't even track that because to even categorize it is difficult, because they're overlapping buckets. No, 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. 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. They're just so overlapping, we don't even try to break that out.

Got it. One last quick one for me. In the bookings that you did, 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? In other words, maybe there's a mixed difference and therefore, obviously we have a higher level of pass-through revenues reported this quarter, but maybe, pass-through expected in the new work a lot less, which could skew the metrics.

Kevin?

Yeah. 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. As I had mentioned last quarter, I do expect your pass-throughs as a percentage of revenue to end the year lower than what we started this year at. We were pretty high this quarter at 44% or so. I do expect that to come down as some of these metabolic studies wind down a little bit. It all depends on future work and future bookings as well.

Got it. Okay. I appreciate the comments. Thank you.

Thank you. Our next question comes from Eric Coldwell with Baird. You may proceed.

Thanks very much. I'll hit this cancel topic a different way, bear with me. You have historically, you have an average cancellation rate, and I know there's lots of volatility around that, but you have an average. I'm just curious, if cancels were average 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 one zero, or a one one? Where would you have been if the cancels were just normal and all else constant?

Yeah. What normal is, just kind of pick the middle of the range or something. I really haven't done that math, but Eric, I think directionally, yeah, it would have been still a weak book-to-bill somewhere around one, I would assume. It wasn't just massive cancellations that knocked us down from a great 1.15-0.88. It was a mixture of the two.

If I could play off that a bit. Sometimes these rates are impacted by one larger, two larger, three larger cancels. What would be the quantum? If your largest cancel hadn't happened, would you have been normal? Was it three? Just trying to get a sense on

No. Yeah. You're talking about several. Yeah. two, three-

Okay

... to drive you over. There was no very large one or something like that that drove it. There are always some of them are meaningful in size. No, there was no one or two that were outsized that drove it.

Okay. Last one for me.

Wait a minute. Just let me make one more comment. I say it was weak bookings and cancels, both were factors here. If cancels had been much better range, we would've had a better book-to-bill, but it would've been weak anyway. Even if cancels were relatively low, it would've been a poor book-to-bill. That low book-to-bill, I say, was something of an adjustment to what's progressed and what's in pre-backlog and what's canceled there and is never moving forward. Also, some things were just timing of things that move forward. Some of that you hope will eventually make it to backlog in future quarters.

Yeah. No, that's understood. One last thing. The backlog that you show 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 one year, so years two and years three, and you've had six consecutive quarters of that number coming down. Walk us through why there isn't. I think you and I spoke a quarter or two 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 sensed that you weren't concerned about that, but the Street is.

I'm just hoping you can talk us through the mindset of why seeing this plus one 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. I think this is sort of the elephant in the room that a lot of people are looking at, and it would be helpful if you could really dig into that for us.

Yeah, sure. I guess there is area for concern. 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. It does now result in us facing a revenue. Just look at the Q1 versus remainder of year. We don't have revenue growth. We will on a year-over-year basis, but not on a sequential quarter basis. 2027 is, I don't know yet. That's too far out at this point to really get a handle on. Our growth profile both now and six 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. 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. No, I can't dodge it and say, "Oh, yeah, no, there's no issue there." Certainly, what we consider a reasonable growth rate is not projected on a sequential basis going forward.

I appreciate the candor. Thanks very much.

Thank you. Our next question comes from Jailendra Singh with Truist Securities. You may proceed.

Good morning, and thanks for taking my questions. 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 eight, nine months, surprising to see RFP weakness. Just can you give some more color on that?

Yeah. It's hard to categorize where, what sector or 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. It is a focus of the industry overall. Everybody talks about RFPs, and so I feel compelled to do it. 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. The bouncing around of RFPs is overwhelmed by the quality of the RFPs. 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?

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. I believe we have very high-quality opportunities, and I haven't seen a deterioration of that. I don't feel like we have talked about 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. Obviously, that's something that happens all the time, but the trend is actually pretty good.

I don't put a lot of stock in just the numerical value of RFP that we see in a given quarter.

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

I just don't know the impact of that. 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 it's a very competitive market. I haven't seen a large change there. Certainly, our biggest factor over the last 18 months has been cancellations. We think we do have to work on our win rate. Is that due to increasing competitiveness? I don't know. How do you measure that? I just don't have a way. Certainly, we would like to win more.

Fair point, and the last one. Last quarter, you mentioned that in 2026, you don't expect a net productivity benefit from AI as investments would largely offset the gains. 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?

Yeah. 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. There's lots of opportunity. Because it's such an attractive area for improving overall process and efficiency, it's going to take a lot of investment. The only reason we wouldn't do that investment is if we thought there was, "Oh, there's just some low-hanging fruit. We'll grab that, but really it's just a lot of hype." You'd see some efficiency.

No, I think the next two years at least, we're going to be investing more dollars in trying to achieve future benefit than we will gain in terms of efficiency. 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. I think net benefit on it all, I think you're talking about, for us, I think it's a few years out.

Great. Thanks a lot.

Thank you. Our next question comes from Luke Sergott with Barclays. You may proceed.

Hey, this is Jake on for Luke. Thanks for the question. I know large pharma isn't a big focus for you, but as they spend ahead of patent cliffs and scoop up more of these biotechs, I'm assuming the demand is less biotech-style. When would it make sense to take on more of this work, or will it always make sense to prioritize biotech?

Yeah, 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. That's pretty uniform across large pharma. It's not to say 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've chosen not to do that not because 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 of 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. It is a different model in many ways. It's not unachievable, but it's something we've decided is not for us.

Great, thank you.

Thank you. Our next question comes from Sean Dodge with BMO Capital Markets. You may proceed.

Yeah, thanks. Good morning. 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 the pull-through on those could be in impacting gross wins?

Yeah. 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. I just wanted to really express that we are focused on this, and we do see opportunities. I wanted to just point out we do believe there's opportunities to expand both the pipeline and the win rate on our opportunities to really combat higher cancellations, should they continue on, to get back to a growth rate that we want. It was more to really focus on that. In terms of timing, I'm hoping over the next few quarters, we're going to see real improvement. I think we already have, even in Q1, we had a good win rate.

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. Maybe taking that and just going back to the comments on the revenue outlook. You continued 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. Maybe just some help squaring the declining net wins with the increase in headcount.

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

All right. Thanks again.

Thank you. Our next question comes from Michael Cherny with Leerink Partners. You may proceed.

Morning. Thank you for taking the question. 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, 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, I don't think there's real applications that our clients are using now that are impacting our interaction with them. Everybody's using AI in places, many times embedded in other systems, et cetera. 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. I know you said, Kevin, no buyback in the guidance now, but given the way the stock's 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?

Yeah. 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. No, we will continue to execute under our planning strategy that we always have.

Thank you.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Ryan Halsted with RBC. You may proceed.

Morning. Thanks for taking the questions. Maybe just going back to SG&A, 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 the efficiencies and how should we think about that going forward?

SG&A was up slightly sequentially. Right?

Oh, okay. 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?

Yeah. Certainly, because of the improved retention rates that we've seen, we continue to see some efficiencies, probably at a slower pace than we have. If you look at guidance and the midpoint of guidance, we get margins to remain in a very good spot. No, we continue to see some leverage because of that. It is reflected in our guidance.

Got it. Okay. Maybe just trying to take another angle at the cancellations. Not sure 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 things in backlog and things that haven't reached backlog. That's always one of the biggest risks. 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, well before they're ready to move forward on it or awarded it as part of a series of studies that are based on each other. It's sequential. There's always a question whether things get pushed out or sometimes they can accelerate and come in quicker than we expected. Generally, if something happens, they get pushed out or canceled.

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

Yeah. If it's a cancel, it's probably dead. Look, things don't generally come back from the cancel bucket. 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. Some of the stuff that's in backlog that gets put on hold, yeah, it could cancel. 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 it gets started or maybe it does cancel in the future.

Got it. Okay. That's helpful. Thanks for taking my questions.

Thank you. Our next question comes from Eric Coldwell with Baird. You may proceed.

Thanks for the follow-ups. I am definitely expecting a 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. 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 skis here over the next quarter, next three quarters.

Yeah. First off, just book-to-bill. It's just a horrible measure. Look, I get it. It's useful to see that the bucket's filling at a rate that's commensurate with what's pouring out into revenue, that you're either growth or non-growth in future revenue opportunity. But particularly under 606, you don't model things based on a book-to-bill. 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 and our expectation? You miss on things that are good. You missed that book-to-bill target because our revenue was so high. Oh, is that a bad thing? It's a flawed measure of performance. It's a great measure to see if the bucket's filling versus emptying. But they're different buckets, unfortunately, under 606, and you don't even know whether the good bucket's actually filling while another bucket's draining.

I don't even want to talk about book-to-bill, and I'm not going to give a guide to future book-to-bill for us. 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. The cancellations can drive you to lower levels occasionally.

Yeah. 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 in the quarter. Internally, are you modeling $650, $700? I'm just trying to get a sense on what you're thinking the dollars will be. Forget the ratio. What you need to do to be within this revenue guidance range for the year?

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

Yeah. Fair enough. On the pre-backlog, in the past, you've given some ballparks on that, and I think at one or two times-

You mean in terms of cancellations in there, or do you mean in terms of magnitude of it?

No, just the size of the pre-backlog.

Okay.

The stuff that you have, but it hasn't moved into the three-year window yet.

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

Yeah. Okay. Fair enough. Thank you very much.

Thank you. Our next question comes from Justin Bowers with Deutsche Bank. You may proceed.

Hi, good morning, everyone. August, I'm just trying to understand some of the moving parts here on the gross versus net. I think folks are a little confused on what we're seeing in the broader macro environment and biotech funding and that larger customer base. In terms of 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. Is this, 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. Was it just the opportunities weren't there in the quarter or something else? Can you help us understand that?

Yeah, sure. Now, I think maybe there's a little confusion over where things happen. In the current quarter, as I said, our wins, our awards were good and our win rate was good. Okay? 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've been, but it would've been a. I think people would be happy with it. 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 a protocol on a study for a compound that they're ready to run with. Sometimes there's a lot of moving parts 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 it never gets to start. We don't recognize that into a backlog, which are things that are ongoing. Okay? That's stuff that we start up and that's our backlog. It's the future opportunity for projects that have started. We have a lot of projects that are not started and may never start in this kind of pre-backlog.

The quarter was good in terms of clients telling us that they've now got money or they've got plans or they're going to have money and they want to use us. 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 two years ago. I mean, some of it last quarter or the quarter before, whatever. There is a little bit of a disconnect between current environment and our bookings. What current environment is a better reflector on our bookings, I don't know, two, three quarters out or so. I mean, there's a lag. Does that answer the question?

Yeah, that's helpful. 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 anytime soon. If we sort of zoom back to what Eric asked, the pre-backlog then, is that growing or has that been-

Yes.

-sort of like-

Pre-backlog did grow. We're just not going to give metrics on the size of the growth. I just one time said because there was this huge cliff people thought was happening, which like I say, at this point it's a greater risk than it was back then, because cancellations have been so large. I said that I think that pre-backlog had grown by 30% or something. We're not going to give percentage growth in pre-backlog, but yes, 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 us in the future. If you add up all those, the pool grew in the quarter.

Okay. That's helpful. 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 awards? Is there any change in the trend that you're seeing like between now and over the last few months or a few quarters?

Yeah. You're asking how we assess, like for modeling backlog conversion and conversion into backlog and future revenue, how do we assess that risk? Is that what you're asking about?

That and 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. We do make an assessment of when we think something will progress based on a number of factors. 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'd realize revenue from them. We do have the planning tools for making a model around our bookings and our revenue.

That is true, but I don't have 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.

Okay. Thank you for the questions.

Thank you. Our next question comes from David Windley with Jefferies. You may proceed.

Hi. Thanks for taking the follow-up. At the risk of belaboring, I was going to come back for one more. August, we've talked in some detail around your bookings policy and the cadence of award, and I still struggle to, I think, evangelize some of those things. I'm going to say some things, and I'm hoping you'll confirm them. Number one, you've talked about on this call an award to a booking could be as short as one-two quarters or as long as a couple of years. You've said to me in the past, the average is the inside range is maybe three-five quarters. Call it about a four-quarter average from award to booking recognition. Do you agree with that?

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

Yep. Okay. For clarity, when you recognize a booking, I think we've talked in the past and you've 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? Do you agree with that?

Yes, that's true.

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

That's frequently the case, yes.

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

No, it's not infrequent that somebody pulls the plug before we get first patient in. The costs are very small compared to launching the trial.

Right.

Things do cancel at any stage right up to once patients are in. Then it's usually it has to be something, I mean, big, a toxicity, something, a failure of the compound. But once you've invested that, it's generally you don't pull patients off of the drug just-

Right

... before patients in, it's much higher risk. You're right, we generally have, though, a very limited some LOI, some startup task order that is covering the costs that might be going before the study fully launches. 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. Yeah, sure.

Okay. 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.

Yeah. Virtually always. Yeah. No, I'm sorry. If you're talking about just backlog, yes. They've expended quite a bit of resources. When it gets to the point where the quarter in which it goes into backlog, they've expended a lot of resources, and that's highly unlikely to cancel. I'm just saying that three quarters before first patient in, the amount of work we might have done, some work in terms of some regulatory work and other things, but the investment's relatively small, and they could cancel that.

Right. I understand I'm belaboring the point, but 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. More often, I guess I'm asking in this quarter, in this particular case, what does drive the higher cancellation, asking in the context of those studies having advanced as far as they have in order for them to have already gotten into backlog.

Yeah. Generally product failure. Look, oncology happens all the time. It's not working.

Right.

It's got multiple phases possibly of it, and they're rolling one into the next, et cetera. It just gets canceled because there's unexpected toxicity. It's also sometimes goes really well and you finish early. You recruit faster and there's a cancellation because the budget was for a two-year study, or two years of recruitment, and you recruit it in one year. Actually, your client gets money back or the contract amount is reduced. 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. August, 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?

How do I view my longevity? Look, I don't know. Look, I'm committed to the company. I'm obviously very passionately interested in Medpace and its success. I'm going to be here for quite a while. 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. We do have plenty of management strength to continue to move Medpace forward.

Got it. Thank you for enduring my many additional questions. Thanks very much.

Yeah. No, thanks. Yeah, 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.

Yes. 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 Q2 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 Holdings, Inc. Fourth Quarter and Full Year 2025 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 your question has been answered or you would 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, Lauren Morris, Medpace Holdings, Inc.'s Director of Investor Relations. You may begin. Good morning.

And thank you for joining Medpace Holdings, Inc.'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. 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 or replacements for the comparable GAAP measure. 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 elevated again in Q4. Backlog cancellations in absolute and percent terms were the highest they have 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 I rate the overall business environment as 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 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 and 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 twelve 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 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 2024. Full year EBITDA was $557.7 million, an increase of 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 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 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 five and top ten customers represent roughly 25% and 35%, respectively, of our full year 2025 revenue. In the fourth quarter, we generated $192.7 million in cash 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 full year 2025, we repurchased 2.96 million shares for $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.

Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. In fairness to all, we ask that you please limit yourselves to one question and one follow-up. One moment while we compile our Q&A roster. Our first question will come from the line of Max Smock with William Blair. Your line is open. Please go ahead.

Hi. Great. It's Christine Raines on for Max Smock. Thanks for taking our questions. So the 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?

Yeah. Hi, Christine. This is Kevin. We do not 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 in the 41% to 42% of revenue in 2026. So slightly higher than what we finished here this year. From a cadence standpoint, nothing I would 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 have experienced in past years.

Great. That was really helpful context. Then I noticed the acceleration in headcount growth in the quarter. What do you expect headcount 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? Thanks.

Hi. It's Jesse. We do expect accelerated growth. We anticipate hiring in 2026 to be above 2025 levels, somewhere in the mid to high single-digit growth area.

Great. Thank you so much.

Thank you. And one moment for our next question. Our next question comes from the line of Justin Bowers with Deutsche Bank. Your line is open. Please go ahead.

Hi. Good morning, everyone. Just was hoping you could sort of unpack the business environment and the commentary in the prepared remarks. Like, are you quantifying RFP activity or win rates? And then also, there seemed to be a pretty good funding quarter in the funding environment in the quarter as well. So can you just help us understand that?

The business environment was, as I said, reasonably good. RFPs, if they matter, were up a bit, both quarter over quarter and year over year. But I do not think there's anything really to call out beyond that. It was a higher cancellation rate that led us to miss. Our gross bookings have again been 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 net bookings would be, and then with those cancellations, 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 the metabolic area. It's been growing quite a bit, so there were a higher level of cancellations there. Overall, bookings have continued to be, you know, oncology is our strongest. Metabolic is still there, but there were some elevated cancellations. So it was kind of otherwise relatively normal. I do not have a, you know, we're not providing what the booking would have been. We do not give gross bookings. We're just netting them out, but the kind of directional magnitude of cancellations. But they would have been substantially higher if we had cancellations in a nice range.

Okay. Thank you. I will jump back in the queue.

Thank you. One moment for our next question. Our next question comes from the line of Ann Hynes with Mizuho Securities. Your line is open. Please go ahead.

Thank you. 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 and early 2025? And again, I think 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. No. It's widespread. There was no single or couple of very large projects that canceled. It was 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 in backlog. But it was a high level overall, and again, pretty widespread. I do not know the, and I have no, there's no pattern to it. 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 cancellation trends for the remainder of the year? And I know burn rate was 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 do not guide the burn rate.

Right. Kevin, you want to say something?

Yeah. No. To August's point, we do not guide to a burn rate. It's just not something that we do.

Alright. Thanks.

Thank you. One moment for our next question. Our next question comes from the line of David Windley with Jefferies. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my questions. 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 two areas is, like, oncology is spread across tens, if not hundreds, of different kind of micro indications, 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, you know, don't have enough differentiation.

Yeah. And, you know, another big area is NASH. And there are a few others that, you know, for us are meaningful. But, yeah, it is, you know, of late heavily kind of toward the obesity, diabetes area specifically. I do not think we're at a level of overconcentration that, you know, that's a big worry. It will be decreasing as a percent of our revenue next year, I think. So I think it's going to kind of somewhat normalize, you know, head towards a more normal range, but I do not really see that as a big risk for us at this time. Does that answer your question, Dave?

I think it does. Yeah. I think it does. Thanks. I guess in 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, you know, the cancellation in Metabolic is also what makes that moderate as you go through the year. Is that right?

Yeah. Exactly. That's right. I mean, in terms of, you know, pass-throughs, have been driven largely by our metabolic programs. And, you know, we do expect them to, you know, start to normalize in this next year. And it does provide a headwind overall revenue growth, but it'll be more direct revenue, I guess. Which is fine. So, yeah, I think that's correct.

Got it. And if I could just sneak one clarification on this end. To what extent, you know, like, pass-throughs have outstripped your expectations in 2025. To what extent 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. You know, I think this is not an issue of, you know, sites changing, getting more, you know, these were known to be very high pass-through projects, you know, going in. You know, they're just the design of the project is just very heavy on investigator fees. And, you know, I think, you know, the characteristics of the, you know, stage of the project and, you know, 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, you know, relatively short duration, high, you know, burn that are being added, you know, have been awarded, you know, quarter to quarter. But it's not, I think, just the addition of pass-throughs. You know? It's the study itself. You know? Yeah. Has been opened up. You know? And there were some, you know, issues with, you know, recognizing it in backlog because of uncertainty of the program stuff. Those relatively short-term programs come on, okay, you got to get awards and they burn rather quickly. You know, 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, you know, a change in the expectation, sites.

Okay. Thank you. Appreciate to ask your question. Thanks.

Thank you. One moment for our next question. Our next question will come from the line of Charles Rhyee with TD Cowen. Your line is open. Please go ahead.

Yes. Thanks for taking the question. Maybe just two 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 a lower metabolic mix as you exit '26? And then second question being, and maybe just a little bit of follow-up to David's question, the way I understand how you think about what goes into backlog versus when you talk about stuff getting canceled out of pre-backlog. So cancellations were broad-based but elevated. Were these cancellations less about funding and maybe more from either trials failing or decisions by sponsors to abandon programs?

Maybe I'll take your first question, Charles, just in terms of, you know, reimbursables, and, you know, I do expect it to start the year higher. So, yeah, to August's 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?

Oh, yeah. It's just trying to understand, you know, you've talked about backlog versus pre-backlog. And my understanding was that pre-backlog cancellations is, you know, perhaps more of a funding issue. If something's canceling out of backlog itself, that's probably more of a, is that more of an issue that other trial may be, you know, wasn't successful or, you know, or sponsors actually decide to abandon a program.

Yeah. I mean, that's the case. You know, things that, you know, start up, they restructure. They change. They decide to end study early. So there were a number of studies that ended early because of compound performance. So, yeah. I don't, but I don't think there was, there was no, like, pattern, and it wasn't just one or two very large projects.

Okay. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Sean Dodge with BMO Capital Markets. Your line is open. Please go ahead.

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 of pass-throughs. How much pressure do you expect those to create? And then the offsets, is it just predominantly more productivity gains you can drive? And then where are those productivity gains expected to come from? Is technology, offshoring, something else?

Yeah. Just and maybe just in terms of, you know, our guidance range, you know, kind of at the midpoint, it assumes kind of normal cancellation rates. As Jesse mentioned, from a hiring perspective, we expect to be in the mid to high single digits, which is lower than the expectation on revenue growth. And so what's driving that is just, you know, continued expectation that we continue to see good retention throughout 2026, which enables the productivity that we've seen, you know, throughout 2025 and exiting 2024. 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 or 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, you know, utilization overall. You know, we also have laboratory operations, which are not huge, but, you know, utilization lab is up. You know, test. So, you know, it's across the board. We've had good productivity.

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

Yeah. I'll address it a little bit. Look, I think it's too early to know what kind of changes. You know, I do think that they will occur slowly. I would not anticipate really any productivity advantage, you know, 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, you know, the benefits seen in, you know, in this first year of kind of, you know, rolling out applications. You know, where this goes in terms of, you know, how much productivity enhancement there is, you know, in the long term and what that means to us. I mean, I do think that, you know, the productivity advances are, you know, going to be to the benefit, you know, part is to be rent to the providers of the models, etcetera. But are going to be benefits to clients. And what that means in terms of encouraging more development, etcetera. But, you know, overall, you think on the surface of it, it's a net negative to, you know, a service company that, you know, makes money by providing, you know, staff to, you know, to perform work that is now, you know, made more efficient. But I think that, you know, the timing of this, it's going to take years. You know, just what that means, what the opportunities for us are, you know, are difficult to see. I don't really think we have, you know, you take barriers to prevent, you know, I mean, we're 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 need otherwise have. And that means a little bit less revenue than you would have otherwise had at least net revenue.

Okay. That's very helpful. Thanks again.

Thank you. And one moment for our next question. Our next question comes from the line of Jailendra Singh with Truist Securities. Your line is open. Please go ahead.

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

I'm sorry. Changes between pre-backlog and backlog? Yeah. Just in general in terms of decision making, like, are projects being getting delayed or, like, the way of moving from pre-backlog to backlog is that is the business still moving at the same pace outside of cancellation?

Yeah. Look. I think things are moving along pretty well. There isn't at least an incremental, you know, sudden change in, you know, the progression of product. Nothing's seizing up or anything like that. So I think things are relatively normal. You always have cases where some things are held or slowed down for whatever reasons, drug availability, some they're waiting on results or something. There's always reasons why things can progress in the backlog slower than anticipated. They can change the design of the trial. You have to then rework things 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 and 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, like, top three CROs kind of getting more aggressive in the market. Have you seen them kind of continuing to be aggressive in terms of broadening their focus within 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.

Yeah. I don't think there's anything to say there. I mean, you know, 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, see the same competitors in the space, and it seems to be the same as it was, you know, five years ago.

Got it. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Dan Leonard with UBS. Your line is open. Please go ahead.

Thank you very much. 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 the percentage point, but nothing to call out there. It's not a focus. Large pharma is not a focus for us.

Thank you. 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, you know, what are you trying to accomplish?

Yeah. I don't think we're just gonna Jesse, do you want to comment on that?

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

Thank you very much.

And one moment for our next question. Our next question will come from the line of Luke Sergott with Barclays. Your line is open. Please go ahead.

Great. Thanks for the question here. I just wanted to kind of follow-up on Dave and on the kind of the margin questions. So, you know, as we like, can you help us understand the near-term leverage that you have to pull as a project starts to ramp on? And what I really want to get at is, let's assume you get some type of booking, you know, a year ago, and your assumption is that, you know, 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 go, you know, as metabolic and continue to gain share.

Yeah. I mean, in terms of our, you just remember that in terms of our business model, we like to hire heads because we are a training shop. We like to train and develop our people. And when you've got larger attrition rates, you're having to replace those individuals that are 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, you know, 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 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, you know, two years ago. So what you're seeing is that productivity and that improved utilization continue to play through for us.

Alright. Great. And then I guess from your performance obligations over the last, you know, that are over three years long have continued to kind of trend down here off of, like, your peaks of 2024. Obviously, there's most of this probably due to 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 a, you know, average change in the duration of our trials because we had this, you know, substantial ramp in metabolic trials, and a number of trials overall that were, 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, you know, in the last few years, last year particularly. But I don't think there's a long-term trend in terms of trial duration changing for a given indication and, you know, stage of a trial.

Okay. Great. Thanks.

Thank you. And one moment for our next question. Our next question will come from the line of Michael Cherny with Leerink Partners. Your line is open. Please go ahead.

Great. Thank you. This is Dan Clark on for Michael Cherny. 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, you know, our pricing on net has changed materially over time. So I don't, you know, 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 driver of a margin change.

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 AI angle? Thank you.

I think more, okay. Go ahead, Justin.

I was gonna say it's a balanced conversation. Because we do take a very measured approach to AI. You know, 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, you know, 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.

Alright. Thank you. And one moment for our next question. Next question comes from the line of Jay Lewis with Baird. Your line is open. Please go ahead.

Hey, thanks. Appreciate the question. 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 or 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, you know, exact magnitude on that.

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

I'm sorry. What have a feedback?

Yeah. 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, they 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 we get incorporated into a large pharma. But generally not a short-term risk. But it happens not infrequently.

Good. Thank you.

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 Holdings, Inc. 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.