Medpace Holdings, Inc. Q3 FY2025 earnings call

• Cancellations were well behaved in Q3, enabling record net bookings and a net book-to-bill of 1.20.
• RFP quality remained solid with decisions progressing at a usual tempo; initial award notifications were strong, and total dollar value of awarded work not yet in backlog was up ~30% YOY.
• Progress is being made to refill the pipeline of opportunities.
• Revenue in Q3 was favorably impacted by higher reimbursable cost activity, particularly investigator sites, due to a therapeutic mix shift to faster burning studies with higher reimbursable costs.
• EBITDA margins benefited from productivity and lower employee-related costs, offset by higher reimbursable costs.
• Top 5 and top 10 customers represent ~23% and 33% of year-to-date revenue.
• Repurchased approximately 14,649 shares for $4.5 million in Q3, with $821.7 million remaining under share repurchase authorization as of September 30, 2025.

In the third quarter of 2025, revenue was $659.9 million, a year-over-year increase of 23.7%. Revenue for the 9 months ended September 30, 2025, was $1.82 billion, up 15.9%. EBITDA in the third quarter was $148.4 million, an increase of 24.9% from the prior year. Net income was $111.1 million, up 15.3% year-over-year. The top 5 and top 10 customers represent roughly 23% and 33%, respectively, of year-to-date revenue. Cash flow from operating activities in the third quarter was $246.2 million, and net days sales outstanding was negative 64.3 days.

• Full year 2025 total revenue is expected in the range of $2.48 billion to $2.53 billion, representing 17.6% to 20% growth over 2024.
• 2025 EBITDA is expected in the range of $545 million to $555 million, a 13.5% to 15.6% growth from 2024.
• 2025 net income is forecast in the range of $431 million to $439 million.
• 2026 revenue is anticipated to grow in a low double-digit range off 2025 full year guidance; EBITDA expected to grow at a high single-digit pace or greater; pass-through costs to remain between 41% and 42% of revenue.

• Cancellations could impact business if not well behaved.
• Funding challenges for clients may delay projects.
• Competitive landscape could affect win rate, as more providers are often involved in opportunities, reducing win rate for everyone.
• Mix of programs and their life cycle could impact burn rate, making it difficult to predict long-term trends.

Q: Obviously, congrats on the quarter here. When we think about sort of the kind of ranges that you've given for next year, how should we think about the pass-throughs in relation to maybe the increase in metabolic work?

A: Yes. I think over the course of '26, it will level off some and might even come down a little bit. But -- and it isn't just the shift to metabolic studies. That is the largest driver, which we've talked about, of course. But timing of projects and having a lot of late-stage projects in what we're burning as we're going to start ramping up new studies, new studies are -- even if they have the same mix of pass-through costs, there's greater direct costs incurred earlier in a trial. I mean pass-through costs are late in the trial. A trial starts and -- some trials, you can get halfway through the trial in terms of direct fees, and we've earned half of our -- half of the revenue from our activities, and we haven't paid sites anything hardly. It's start-up, if it's a very short trial and start-up is a big part of it. So the pass-through parts of a trial are backloaded. So if you have a back-loaded portfolio stuff you're burning, you're going to have more pass-throughs as a -- pass-through expenses at that time. So there's a number of things driving it. But yes, we do expect pass-through to maybe peak in Q4 or so and come down over '26.

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

A: Yes. I think the driver there is the pass-throughs. I mean, look, there's a number of challenges to EBITDA, and that includes exchange rates and a number of factors. But the biggest factor, I think, is the pass-through that challenges that a little bit. But pricing, look, we've talked and everyone's talked about pricing environment as things have slowed in the industry over the last couple of years, there has been a bigger focus on pricing. Pure pricing is more an area for large pharma to get really aggressive at and has the cloud to do it. It is an area of -- it's always a competitive environment. It's always top of mind, but -- and there has been a greater focus. And some clients just can't get the cash to make it work. And so you're looking for ways to help them get there. But I do not think pricing is going to drive a meaningful change in margins at all.

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

A: Yes. I mean, the conversion of how much of it's going to anticipated pull into revenue versus backlog, I really don't have that breakout. I provided the number to -- there has been some concern that our burn rate has gone up quite a bit. Our backlog hasn't grown much this year. It's a single -- low single digit, a couple of percent up over the past year. But I wanted to let people know that the overall pipeline of awarded studies, I mean I'm not just talking about pipeline of opportunities, of awarded studies, we got a fixed scope of work -- we've negotiated the price on it. They've given us written award of that. And it just hasn't gotten to first patient in yet. So we may be working on it, et cetera. And it just hasn't gotten to first patient enrolled. And that's in our -- this bucket pre-backlog. And that is up 30%. And this pre-backlog bucket of awarded -- firm award work is larger than our backlog itself and is up 30% over the year. So I think that puts us in a good position for refilling our backlog over the next year and not having what a number of people have described as some sort of air gap in our revenue growth and things will stall, we run at a backlog kind of. So we really are improving our opportunities for backlog conversion in '26 and revenue generation.

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

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