Medpace Holdings, Inc. Price & Performance (MEDP)

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 replacement for the comparable 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 medpace.com. With that, I would now like to turn the call over to August Trundle.

Good day, everyone. Our quarter one net awards were down sequentially and year over year.

With a net book to bill ratio of 0.9. This was primarily a reflection of high pipeline cancellations in prior quarters as previously discussed. Backlog cancellations were modestly elevated in Q1, but pre backlog cancellations were worse impacting Q1 and future projected backlog net awards. RFP flow was strong in Q1 but quality has been variable and decisions are slowing. We continue to see a path to improved backlog growth, reflected in book to bill ratios above 1.15 in Q3 and Q4. However, this will depend upon moderating cancellations and an improved business climate. Jesse will now provide comments on the quarter. Jesse?

Thank you, and good morning, everyone.

Revenue for the first quarter of twenty twenty five was 558,600,000.0 which represents a year over year increase of 9.3%. Net new business awards entering backlog in the first quarter decreased 18.8% from the prior year to $500,000,000 resulting in a 0.9 net book to bill. And ending backlog as of 03/31/2025, was approximately 2,800,000,000.0 a decrease of 2.1% from the prior year. We project that approximately $1,610,000,000 of backlog will convert to revenue in the next twelve months, and backlog conversion in the first quarter was 19.2% of beginning backlog. With that, I will turn the call over to Kevin to review financial performance in more detail and discuss our 2025 guidance. Kevin?

Thank you, Jesse, and good morning to everyone listening in.

As Jesse mentioned, revenue was $558,600,000 in the first quarter of twenty twenty five. This represented a year over year increase of 9.3%. EBITDA of 118,600,000.0 increased 2.6% compared to $115,700,000 in the first quarter of twenty twenty four. EBITDA margin for the first quarter was 21.2%, compared to 22.6% in the prior year period. EBITDA margin compared to the prior year period was impacted by employee related costs and foreign exchange behind the weakening of the U. S. Dollar in the quarter. In the first quarter of twenty twenty five, net income of 114,600,000.0 increased 11.7% compared to net income of 102,600,000.0 in the prior year period. Net income grows above EBITDA growth was primarily driven by a lower effective tax rate from option exercises in the quarter and higher interest income. Net income per diluted share for the quarter was $3.67 compared to $3.2 in the prior year period. Regarding customer concentration, our top five and top 10 customers represented roughly 2232% respectively, of our first quarter twenty twenty five revenue. In the first quarter, we generated $125,800,000 in cash flow from operating activities, and our net days sales outstanding was negative sixty seven point eight days. As of 03/31/2025, we had $441,400,000 in cash.

During the first quarter, we repurchased approximately 1,190,000.00 shares or 389,800,000.0 At the end of the quarter, we had 344,800,000.0 remaining under our share repurchase authorization program. Moving now to our updated guidance for 2025. Full year 2025 total revenue is now expected in the range of 2,140,000,000.00 to 2,240,000,000.00 representing growth of 1.5% to 6.2% over 2024 total revenue of $2,110,000,000 Our 2025 EBITDA is expected in the range of $462,000,000 to $492,000,000 representing a decline of 3.8% to gross of 2.5% compared to EBITDA of $480,200,000 in 2024. We forecast 2025 net income in the range of $378,000,000 to $4.00 $2,000,000 This guidance assumes a full year 2025 effective tax rate of 15.5% to 16.5% Interest income of 15,800,000.0 and $30,800,000 diluted weighted average shares outstanding for 2025. There are no additional share repurchases reflected in our in our guidance. Earnings per diluted share is now expected to be in the range of $12.26 to $13.00 $4 Guidance is based on foreign exchange rates as of 03/31/2025. With that, I will turn the call back over to the operator we can take your questions.

Thank you.

As a reminder, to ask a question, please press 1 on your telephone and wait for your name to be announced. And our first question will come from David Windley with Jefferies. Your line is open.

Hi, thanks for taking my questions. Good morning. August, your comment and maybe August and Jesse, comments around RFPs and quality of RFPs. I wanted to explore We've in some of our discussions been told that biotechs and kind of your target client audience are inviting more PROs into bid situations, and in some cases, taking a larger number of CROs maybe by one or two but but a larger number of CROs forward into bid defense And maybe implied fishing for lower prices. Wanted to to get you to flesh out if you would your quality comments. Are you seeing these kinds of trends Are you seeing more price competition? And is that a little bit of what you mean when you say the quality is a little more mixed? Thanks. [indiscernible] that is true. Anytime there's a slowdown in the industry there tends to be more price competition, more broader look at CROs, but a big factor is, unfunded projects, that they're looking toward funding and getting proposals so that they can bring that back to try to make a story for moving a product forward. Rather than having, you know, some assets to move the product forward to start with.

But yeah, they do tend to, they do tend to get more churn and a larger number of CROs participating in particular bids. So RFP numbers can go up, but that just means they've doubled the number of average number of CROs are inviting to each RFP. And so everyone sees an increase in RFPs. So yeah, I do think that's a good part of it. But the more concerning issue for me is, [indiscernible] the likelihood of funding and the type of asset and where they are in their funding cycle and how far out the project is, at what stage it is, that leads to a a worsening in in quality of the RFPs.

Thanks for that. And August, your comments about you know, still depending on environment. I didn't get your exact words, but but of depending on environment, still believe you you have the potential to track till 1.15 book to bill in the second half. I noted noted your comments about backlog cancellations, but pre backlog cancellations were worse I guess I would love for you to flesh out how what would be required, I guess, to achieve that because in say middle of last year, you talked about that intensification of pre backlog cancellations, that was essentially what seemed to cement your view that you wouldn't be able to get to a higher book to bill say later last year and maybe early this year. How is that different now?

Sure.

Yeah, it the pipeline cancellations, the pre backlog cancellations particularly [indiscernible] narrowed our you know, options quite a bit. And limited the possible booking levels in the next few quarters. But you realize we have pretty good visibility in the opportunities that could most of the opportunities that could convert into backlog in the next few quarters They're kind of already known to us as opportunities, at whatever stage.

And they're sufficient to get us there. If cancellations come back to a nice reasonable range, and we don't see this across the pipeline kind of elevated level. And things continue to move forward, and we've seen a slowing in decisions on RFPs. And once in a while you also have delays in project starts. Due to funding or for other reasons and we need the projects to move into operational execution and recognition and back and we need to avoid large cancellations. So, our path there has narrowed quite a bit but we still see the reason, and it's not just a hypothetical far off, you know, I'm saying it's still possible, but it's highly improbable. We still have a reasonable path to get there. [indiscernible] cancellations come back quite a bit.

Thank you for that. I'll leave it at that. Thank you.

And our next question will come from Max Schmuck with William Blair. Your line is open.

Hi, good morning. Thanks for taking our question. August, you mentioned thinking to get back to 1.15 book to bill in the back half of the year, if you get that improved climate, I guess my question would be, what do you think bookings look like if you don't get that improved climate? And then in that scenario where we assume even a stable environment from here, how much downside is there to the top line this year? Then what would that imply for top line growth in 2026? Thank you.

How much risk is there to top line this year? You mean bookings or you're talking about to revenue in the second half? Yes, more impact on revenue in the second half. I guess three parts, If the environment is stable from here, what do book what does book to bill look like in the back half of the year? How much downside is there to how you're thinking about revenue in the back up and down your guide for this year? And then what does that all imply for top line growth in 2026?

Yeah.

Well, that's a kind of a difficult hypothetical. You know, what what kind of downside is there? That depends on how bad the environment gets. If cancellations continue kind of the way they have of recent past and particularly this past quarter and some of the quarters last year. We're gonna be in the same kind of place we've been, you know, somewhere around one, I guess. I think that's kind of the downside. But we still have you know, opportunities to again, you know, paths toward getting to 1.15. Revenue in the second half is pretty much locked in. That's kind of a different issue cause that's a different cancellation. It would mean a more later stage cancellation. To knock our revenue off. Now that's possible and of course we continue to have clients with funding difficulties that, we have to stop work on. And, cancel the project because of work. So there's still some risk to second half revenue, but most of that is pretty pretty locked in. And I really don't have a model for '26, so I can't go there yet. And the environment is just too early really talk about 2026, revenue impact of poor bookings through this year.

Understood. And maybe framing it as the downside scenario wasn't the right way to do. I was thinking more like, if things stay the same, stay the way they are today and you don't get that improved climate, And just to confirm if that is the case and we're talking book to bill kind of around one point zero in the back half of the year versus you know, if you do get that improvement, you're still thinking you can get to 1.15?

Correct.

Okay. That's helpful. Thank you. And then maybe as a follow-up, there's been a lot of headlines recently around just out of the FDA and there was one over the weekend from an interview where they were saying going to require West clinical trials in certain areas going forward the mechanism of action makes sense and if there's an unmet need. Do you have any sense or can you provide us any detail around what your rare disease exposure looks like and just how you're thinking about this kind of discussion from the FDA and the talk about doing less trials in some of these indications moving forward. Is that a long term structural headwind for Medpace and for the CRO industry as a whole?

I don't know. That's that's pretty hypothetical. You make drugs easier to develop and you tend to get more development. [indiscernible] certainly if you took away the need for significant trials in an area, you're gonna that does have an impact. But I think that's very hypothetical and I Rare disease and it kind of depends on how you define it is certainly a meaningful part of our business. But I really don't make much of the, I think it's great to have the trial requirements be proportional to serious and needs of of society for drugs and you got to have the right balance. We want effective drugs but we want them developed at a reasonable cost. And that's just kind of the trade offs and I don't I don't really see it kind of risk to our industry from that.

Got it. Thank you.

And our next question comes from Ann Hynes with Mizuho Your line is open.

Hi, good morning. Maybe talk about cancellations a little bit more. Can you remind us what your cancellation rate don't think you said what it was this quarter versus it was last quarter and what it is versus historical. And maybe just type of trials that you're seeing, canceled? Is it widespread? Is it specific customers? Any incremental detail on cancellation would be very helpful. Thanks.

Sure. Yeah. We we you didn't hear it because we didn't say it because we don't disclose it. So we just don't, we don't provide cancellation rates We do talk about growing trends in in magnitude, but we don't give the rates. And the cancellations have been pretty broad but largely centered around funding issues. And you can call it reprioritization and other things and that's certainly part of it and certainly drugs that have had significant safety signals or other failures of trials that have impacted the development of the program. But funding has been a at least a part of a good portion of the cancellations, but I can't sort out a different therapeutic area or anything like that, it's kind of across the board.

Great, and then my next question is just on share repurchase. Obviously, your stock's down year to date.

It's be down a little bit more today. And there's no incremental share repurchase in your guidance. I guess what would trigger Medpace to get more aggressive on share repurchases?

Yeah. I mean Anne, this is Kevin. We'll we'll continue to take an opportunistic approach as we have in the last couple of quarters. And so we'll continue to look for those opportunities to do that. And we'll kind of see how we're able to execute. As you saw, we did increase the board authorization on share repurchases and so look for opportunities to continue to do that.

Thank you.

And our next question comes from Dan Leonard with UBS. Your line is open.

Thank you. I have a question on that small biopharma exposure that you report at 80% of your revenue. Do you have any sense for how much of that is negative enterprise value biotech? And are you concerned at all that some of these biotechs that have negative enterprise value might just start to close-up shop and return the cash?

Jesse, do you have any proportions on that? You know, We continue to see companies, you know, fail I know how many that if the drugs failed and they're not doing anything and they close-up shop, guess who cares? They don't have a viable drug to go forward with. But certainly funding difficulties is a bigger issue than drug failures and closing up shop at the current time. But Jesse, do you have any kind of metrics on? Yeah, don't have anything on negative EV quantification The things we do quantify, we'll look at [indiscernible] percentage is public versus private, fully funded companies and kind of what percentage is partnered with large pharma. But we don't we're not tracking and reporting [indiscernible] values.

Got it. It doesn't sound like there's a high level of of yours independent from the broader funding environment anyway. Is that fair?

Yeah, I think companies have too much money and having returned it to investors is not a problem. For those that don't have money Understood.

And then my follow-up question, which is coming up a lot in the investment community. August do you have any sense on whether all the turnover at the F FDA is impacting your client discussions at all in making them incrementally behave differently or more worried about the future?

I think it makes everybody worried about the future. I'm not convinced there's any kind of evidence that there's been delays or problems to date or changing behavior. But we'll have to see. It's too early. Okay, Thank you.

And our next question will come from Eric Coldwell with Baird. Your line is open.

Thanks very much. I wanted to hit on the other side of growth. You've got bookings. You also have backlog burn. Backlog burn was up pretty nicely year over year. It looks like the forecast must incorporate higher levels of backlog burn this year. I'm curious how much of that is a function of the lower backlog growth and the lower bookings, which naturally changes denominator, denominator equation, but also were there unusual timing shifts in the burn rate of your backlog or project specific items this quarter? Are there execution improvements that you're showing and maybe think are sustainable We'd just like to get a better sense on the magnitude of this backlog burn reacceleration. How sustainable it is Yeah, Eric, this is Kevin. I mean, it's more a function of you saw an acceleration and revenue in the quarter. So programs were progressing well, but you also saw an increase in the reimbursable cost activity, right, that was a bit higher than what we had expected. So that's going to influence it as well. And then it's the lower bookings that August talked about. His prepared remarks, it is coming in a bit soft. So it's not that we're changing execution or anything associated with that.

I mean programs continue to progress very nicely. It's more a reflection of the numerator and denominator.

Okay. And then Kevin, last quarter on the call mid February, you had, in response one of my questions, you had suggested that you thought revenue would be more modest in the first quarter and then linearly progressing through the year.

We got quite the opposite with over 9% revenue growth, but the rest of your targeted growth rates are lower. So [indiscernible] the near 10% growth in pass throughs, what what were the other dynamics in play? Was or were you really thinking pass throughs were going to be down? And instead they grew 10%, so maybe we didn't know what to model, but in your mind that was the big delta here. I'm just you know Yeah. You told us to start slow and grow revenue, and it was the it was the opposite.

Yeah. It was six weeks left in the quarter is what we heard. So I'm just trying to figure out change.

Yeah, think the bigger influence was the reimbursable cost activity. Now having said that, your programs progressed probably a bit better than I had anticipated in the first quarter as well. But I think the bigger influence was the reimbursable.

And then, my last question for this call, just I saw a little bit of headcount growth quarter over quarter, a little bit more year over year. But maybe a bit slower than I was originally anticipating probably because of the lower bookings. But what your new outlook on turnover hiring timing of hiring this year? I'm I'm curious what your plans are at this point, what you'd like to do, and what you think is doable. In the environment?

Yeah. Thanks, Eric. We did have a little bit of modest headcount growth in the first quarter. Turnover remains pretty good. And we're still targeting headcount growth this year. Likely around mid single digit Okay. Thanks very much.

And our next question comes from Charles Rhyee with TD Cowen. Your line is open. Open.

Yes. Thanks for taking the question.

I just wanted go back a little bit when you're talking about, obviously, the funding issues with clients Are you seeing any clients because we've heard in some instances where companies have been committed, have gotten funding, but then either they're private equity or VC backers kind of maybe pulled back on some of those commitments And so maybe some of the funding data we've seen over the last year or so may not actually materialize. Just curious if that is some of the dynamics you're seeing in some of clients potentially having some funding issues?

Sure. Yeah, I definitely think that's part of it. Often, [indiscernible] represent to us that they've got funding arranged, they have commitments, have what you know, whatever, know, how strong those commitments are.

You know, VCs and others having to choose between the winners and losers in their portfolio. But that's where we are.

Yeah.

Okay. And then maybe just I know you're not disclosing sort of the cancellation rates, but can you give us a sense sort of maybe between pre backlog cancellations and just cancellations out of backlog sort of maybe the relative mix between the two? And And as you kind of I know you guys said you kind of were looking at your pre backlog kind of kind of expectations for the course of the year. Has that I know you said it was higher, but was it really outside the realm that you'd expected? Or was it just kind of at the upper bounds of what you kind of thought could happen?

Yeah. I think I'd classify our backlog cancellations kind of in that range, but just outside of the range kind of, but the pre backlog cancellations were significantly worse and very high. So, overall it was a pretty high rate of pipeline cancellations.

Okay, thanks. And Jesse, maybe just quickly, you talked about headcount. Would you say you're still on track for a mid to high single digit growth? Or is that really just now dependent on what we see in terms of in the environment over the next couple of months? Yeah, I would say at this moment we're on track for mid single digit growth, but it will depend on how the environment unfolds. Things pick up we'll accelerate more aggressive hiring. Great. Thank you.

And our next question comes from Mike Michael Cherny with Leerink Partners. Your line is open.

Good morning and thanks for taking the question. Maybe just to come at the cancellations question another way, both on the existing backlog and pre backlog. Is there anything you can tell us about cadence over the course of the quarter? Clearly, we can't not on you can't control the dynamics going on at play across the changeover in HHS. But did you see any elevated activity maybe over the course into March? Given the uncertainty that's been created from the moving pieces across FDA?

Yeah, I'm not sure it had anything to do with movements at FDA.

And I mean, don't have the cadence in terms of month to month in front of me, but it didn't strike me as all back end or front end loaded. It was, you know, kind of across the quarter.

Okay, And then on the dynamics and the build back towards an improved book to bill, you talked about their conditions in place to get back to 1.15.

Is there anything you're clients are telling you in terms of how they feel about achieving those conditions conditions and what would be the comfort factors you're looking for in order to get back to those levels?

Curious along those lines where what the feedback is from the channel specifically.

Yeah, no, I have no I I think that's provided me any any input, you know, I don't think anybody knows. [indiscernible] Thank you.

And our next question comes from Jaelindra Singh with Truist. Your line is open.

Thank you, and good morning, and thanks for taking my questions. I just want to go back to revenue guidance raise for the year. You did put this metric of amount of backlog expected to convert in the next twelve months, it has been around a little over $1,600,000,000 for the last few quarters. Have you seen any cancellation in that bucket recently? Because it seems you are implying that even if booking trends and book to bill remain at the current levels first of the year, you still feel good about revenue outlook for the year. I'm wondering because it's you don't see much concern around that one $600,000,000 amount of backlog conversion.

Yeah, this is Kevin. I mean, in terms of kind of reemphasizing what August said, we feel good about the 2025 guidance because we've got the programs in backlog and barring any acceleration and cancellations, we always say cancellations in that bucket, But as long as they stay relatively normal we feel good about the revenue that's going to come out of that bucket.

Certainly revenue is or backlog has declined a little bit into that next twelve month figure has come down a little bit but we feel good again about the guidance that we have out there on revenue Okay. And then my follow-up, to go back to David's question around biotech CRO landscape getting more competitive. I mean, you're pitch to biotech companies has been giving them more personalized focus, more personalized services. Some of your peers are restructuring their approach and going after this market more aggressively How are you guys responding to that? Are you guys making any changes to your pitch or your approach as you go after these clients?

I don't think there's been a a change in our competitive dynamics lately of any material [indiscernible] tries to give the clients individual attention and think there's been no change.

Okay, thank you.

As a reminder to ask Our next question comes from Justin Bowers with DB. Your line is open.

Hi, good morning everyone.

Just a few follow ups from what's been discussed. In terms of the programs progressing faster and the step up in 1Q revenue, Is that Kevin, is that more internal or external factors? Meaning was it like execution on your end? Or is there a push from clients to maybe sort of get the data done faster? Just anything to call out the progression there?

I mean, I would say there's nothing unusual. It's It's just that the programs, the active programs that we have in backlog just continue to progress very nicely. Not to say that we've made any major internal changes. There's always pressure from sponsors to do things faster and we we certainly do what we can. But I would say there's no no change internally as it relates to how we execute.

Okay. And then in terms of the cancellations, it sounds like most of that was concentrated or the elevation was around the pre booking. But in terms of the the in flight cancellations, was that elevated as well? And is that what trends are you seeing there? Is it more around futility? Or is it also funding related?

Yes. I mean, the the in in flight backlog cancellations tend to be a bit more related to drug performance but the funding has been a big part of even our backlog cancellations. So it's a lot of overlap. Okay. And then, just in terms of one of the earlier questions on pricing pressure. I think Medpace of this compared to the bigger guys has been pretty competitively priced.

The pressure that you talked about, is that are you seeing that from your mid sized peers? Or are you also seeing that coming from some of the the larger competitors that may be encroaching on your market space?

It's both. I mean, we're seeing competitive clients.

Yeah. We're I'm sorry. Go ahead, Jesse. Yeah.

Go ahead. You'll say it's it's from from both, you know, both peers and you know, and larger, you know, midsize and and larger competitors. But also, the pricing is influenced by just scarcity of funds as well. From the biotech perspective.

Got it. All right. Thank you. I will jump back in queue.

And our next question comes from David Windley with Jefferies. Your line is open.

Thanks for taking my follow-up.

I have a few, but I'm only going to ask one bigger one. Which is around, bites and the pass through, elements. So one of the things that we've heard anecdotally a fair amount is that the NIH grant funding let's call it debate freeze, whatever, does have academic medical [indiscernible] nervous about their situations. And while those funds probably fund investigator, you know, investigator driven grant studies and not the type that you would directly run but those funds probably also fund research infrastructure at these academic medical centers that could influence you know the the throughput capabilities of the sites that you might use in studies.

With that having been said, I'm wondering about general site access, you know, recruitment rates, how much do you use academic medical centers, and to what extent are how should we think about the pass through increase in your revenue is that inflation driven at the site? Is it just re you know, read budgeting of kind of quantity of consumption? And how much of that pass through, inflation that we saw in the quarter is also driving the revenue for the year. Thank you. Well, I think that the you know, the threats and concern around you know, academic funding at these large university centers. [indiscernible] is not reflected in any things today. A theoretical issue for the future. I I think to date, the increase in [indiscernible] investigator costs as portions of budgets relate to a number of things including complexity of the evaluations done at sites but inflation and scarcity of patients and the pandemic of course had a huge impact on operations at centers and and caused considerable cost increases and inflationary impact you might say at that sites, but costs were driven up at sites and past passed through to trials. So that's been the driver we've seen to date.

Shifting of possible overhead costs to on the sponsor driven clinical trials, commercial clinical trials. Maybe that'll happen, know, but certainly not a factor in, you know, the current dynamic.

And on the on the revenue mix for the year, If we if we were to think about you raised by a little bit is all of that raised pass through is more than the raised pass through? How should we think about the pass through influence on on revenue versus your prior expectations?

In the quarter, Dave?

I mean, I'm really thinking about the guidance for the year.

Yeah, mean, certainly it was elevated in the quarter, but we kind of see that as being more timing related We continue to feel that the cost the pass through pre fund reimbursable costs of the percentage will be at similar levels to what we saw in the back half of [indiscernible] But as you know it bounces around from quarter to quarter but the expectation for the year is that it's somewhere to what we similar to what we saw in the back half of 'twenty four.

Yeah, but the question is, the jump are revenue, is that in anticipation of jump in pass through or directly?

Yeah, Dave, I said before, we were not expecting pass throughs to be this high in the quarter so a big part of the revenue increase that we saw this quarter was influenced by the reimbursable activity. [indiscernible] Yep.

You for that.

I show no further questions at this time. I would now like to turn the call back to Lauren for closing remarks.

Thank you all for joining us on today's call and for your interest in Medpace. Look forward to speaking with you again on our second quarter twenty twenty five earnings call.

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