Good day, ladies and gentlemen, and welcome to the Medpace Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Lauren Morris, Medpace Director of Investor Relations. You may begin.
Good morning and thank you for joining Medpace's Q2 2022 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, including the ongoing impact of COVID-19 on our business, are discussed in our Form 10-K and other filings with the SEC. Please note that we have 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 GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the investor relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Troendle.
Good day, everyone. Liquidity and sufficiency of trial funding for our clients, which are overwhelmingly pre-commercial biotech companies, remains a top focus for us. To date, we have seen a low level of cancellations that are directly related to financial distress. The risk of this accelerating depends upon the severity and duration of ongoing funding slowdown. I would like to characterize in a bit more detail than usual our pipeline of business opportunities. To do this, RFP. I do this because RFP values in the quarter are not necessarily reflective and present a complete and fair reflection of the landscape. It's somewhat of a mixed picture. Looking at the overall business, new business process in our industry, opportunities generally progress through three important steps.
As background, I want to provide kind of an overview of these steps. Step one, I'm going to call request for proposal, an RFP, is issued by a sponsoring company of a clinical trial, and multiple CROs respond with formal proposals to perform the work. RFP metrics are generally not disclosed by CROs, and this is because a number does not do justice to the issue. There are important qualitative differences making a summary number of the value of these RFPs largely meaningless, i.e. quality is more important than quantity. Step two, I'm going to call is the winning CRO is given an award notice, and I'm going to call this an initial award notification.
The very fact that I have to make up a name for this suggests that this metric is also not shared by any reporting CROs. The reason again is quality. There is significant uncertainty at this point in the process as to the value of the initial award, timing, funding, sometimes overall scope is not fully defined. However, one advantage of this metric is it can't be manipulated and timing is entirely dictated by the sponsor. Step three, in step three, company specific criteria are applied and eventually the award may be recognized as a backlog booking. Generally, this is called a new business award and used to calculate book-to-bill. This is generally reported by CROs.
This number should not be confused with what I have named an initial award notification in step two. CROs generally require verification of client funding, execution of a contract, et cetera, prior to recognition of an award in the backlog. They also apply subjective and qualitative criteria that may delay recognition of all or part of an award, such as concern about possible cancellation risk. How are these steps looking at Medpace? I want to review that. If I look at step one, RFPs or RFP flow is strong in Q2. In Q2, it is up 31% from Q1 on a sequential basis.
However, I have to point out that rapid growth in RFP volume is often seen in weak environments due to elevated scenario planning and to support fundraising efforts by small biopharmaceutical companies. At least in our segment of the market, this can sometimes be driven by other things than just strong business environment. Part of our assessment of RFP quality relates to anticipated timing of the program start and the presence of a credible, defined path towards startup. This has slowed and is somewhat less clear in the current environment. I think I can summarize this by saying that, quantitatively things look great, but it's hard to draw firm conclusions on any impact of funding slowdown on business.
If I look at step two, initial award notifications, our initial award notifications are down in Q2, meaningfully. They're down 45% year-on-year and 42% sequentially. They're substantially down. However, on the other hand, July initial award notifications have recovered quite a bit and look to be tracking more in line with the prior 12-month average. We're hopeful that the marked weakness seen in Q2 is not lasting. If I look at step three, new business awards that are generally reported and recognized into backlog, they remain strong with a book-to-bill of 1.28 in Q2.
Again, you should recognize that this largely represents initial award notifications from prior quarters that have now reached contract execution and nearing first patient first visit in the study, and therefore meet our backlog recognition criteria. Business development in the CRO industry has a long cycle length. COVID opportunities moved very quickly, but the average RFP takes considerable time, and there can be several quarters lag between initial award notification and new business award backlog recognition. Thus, Q2 weakness in initial award notifications might not meaningfully impact backlog bookings until Q4. We do have some concern, but things are looking by a number of metrics reasonably good, particularly RFP volume. Another factor is cancellations.
Cancellations can occur at any stage after initial award notification, but they are most impactful if the program is in backlog and ongoing. As mentioned at the start of my remarks, cancellations in Q2 remain modest and do not signal a problem. I do remain confident in our future success and above industry organic revenue growth over the longer term. This confidence is reflected in our stock purchases in Q1 and Q2. With that, I'll let Jesse and Kevin update in more detail our Q2 results. Jesse?
Thank you, August. Good morning, everyone. Our revenue for the Q2 of 2022 was $351.2 million. This represents a year-over-year increase of 26.2%. Our net new business awards entering backlog in the Q2 increased 16.3% from the prior year to $450.6 million. This resulted in a 1.28 net book-to-bill, and ending backlog as of June 30th was approximately $2.2 billion, an increase of 24.4% from the prior year. We project that approximately $1.13 billions of backlog will convert to revenue in the next twelve months, and backlog conversion in the Q2 was 16.8% of beginning backlog.
In 2022, we continued to make progress in hiring, adding 8% from the end of 2021 and 16.8% from the prior year. With that, I'll turn the call over to Kevin to review our financial performance in more detail and discuss our updated 2022 guidance. Kevin?
Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $351.2 million in the Q2 of 2022. This represented a year-over-year increase of 26.2% on a reported basis and 27.7% on a constant currency organic basis. EBITDA of $68.1 million increased 42% compared to $47.9 million in the Q2 of 2021. On a constant currency basis, Q2 EBITDA increased 35.3% compared to the prior year. EBITDA margin for the Q2 was 19.4% compared to 17.2% in the prior year period. The increased EBITDA margin was driven by net foreign exchange benefits behind the strong US dollar and slower headcount growth than 2021.
In the Q2 of 2022, net income of $49.4 million increased 23.6% compared to net income of $39.9 million in the prior year period. Net income growth over the prior year was primarily driven by higher EBITDA, offset by a higher effective tax rate. Net income per diluted share for the quarter was $1.46 compared to $1.06 in the prior year period. Share repurchases during the quarter benefited EPS by $0.04. Regarding customer concentration, our top five and top 10 customers represent roughly 17% and 25% respectively of our year-to-date revenue. In the Q2 , we generated $96.6 million in cash flow from operating activities, and our net days sales outstanding was negative 45.5 days.
During the quarter, we repurchased approximately 2.7 million shares at an average price of $137.86, for a total of $374.6 million. During the Q2 , our board of directors approved increases of $110 million to our share repurchase program. As of the end of the quarter, we have no share repurchase authorization remaining. Year to date, we have repurchased 5.5 million shares, which represented 15.2% of our common stock outstanding at the end of 2021. Our net position at the end of the quarter was $207.1 million, composed of debt of $249.7 million and cash of $42.6 million. Our net leverage ratio is approximately 0.8x last twelve months EBITDA.
Moving now to our updated guidance for 2022. Full year 2022 total revenue is now expected in the range of $1.405 -$1.435 billion, representing growth of 23%-25.6% over 2021 total revenue of $1.142 billion. Our 2022 EBITDA is now expected in the range of $268 -$280 million, representing growth of 20.1%-25.5% compared to EBITDA of $223.1 million in 2021. Based on foreign exchange rates as of June 30th, this revised guidance includes an additional foreign exchange headwind on revenue of approximately $4 million and a foreign exchange tailwind on EBITDA of approximately $3 million related to the strengthening of the US dollar.
This guidance assumes a full year 2022 effective tax rate of 14.5%-15.5% and 33.8 million diluted weighted average shares outstanding for 2022. There are no additional share purchases in our guidance. We forecast 2022 net income in the range of $205 -$215 million, which includes $4.3 millions of interest expense on our outstanding debt. Earnings per diluted share is now expected to be in the range of $6.07-$6.36. With that, I will turn the call back over to the operator so we can take your questions.
Thank you. To ask a question, you will need to press star one, one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Windley with Jefferies. Your line is open. Please go ahead.
Hi. Thanks. Good morning. I wanted to take your comments and tie them in with comments you made last quarter. In the last quarter, you described to us, you know, in air quotes, cancellations to what might be called a pre-bookings bucket of, you know, awarded programs that had not advanced to backlog yet. I'm using your terminology today. I'm interpreting that those would have been at or past that initial award notification stage. Then today, you're talking about that initial award notification being down, you know, that being the bucket that is down substantially. Are those one and the same or are your comments today kind of adding to what you told us last quarter? How should we think about those two descriptions impacting bookings in the H2 of 2022?
Okay. Yeah. Thanks, Dave. Yeah, I think my comments are really independent. We did mention that we'd seen some evidence of some canceled projects. Again, you're right that we're in that bucket of awarded to us, an initial award notification but had not been recognized in the backlog, and so were not backlog cancellations. But when I talked about our numbers being down for the quarter, I'm not talking about the bucket, which of course would've been influenced by prior cancellations. I'm talking about the new flow into the bucket. You know, so I'm not talking about the level of the bucket. I'm talking about new flows. It has nothing to do with cancellations in the prior quarter.
New activity is down in the Q2 , so the bucket, which of course is continually emptying into backlog, is getting lower. I'm not talking about the level. I'm talking about the flows. They were substantially down. It's kind of a real-time look at how things are progressing in business development. You know, it's the kind of thing you'd see if people were slowing down decisions and not or canceling, you know, things before they even award, you know.
award them, you know, then that wouldn't be a cancellation for us. We never got the award. It does represent a weakness in the pipeline. As I said, that's something that does tend to feed through a couple quarters out. It would affect bookings, you know, later in the year. There is a delay, you know, from getting that bucket of initial award notifications all the way into backlog. Of course, have revenue impact even beyond that.
Okay, thank you for that. On the guidance for the remainder of the year, you obviously had a very nice 2Q, some upsides on both revenue and EBITDA. When we take those in combination with the FX impact to the H2 , you appear to be trimming ever so slightly your revenue and EBITDA expectations on a constant currency basis. Is that a reflection of some of these issues that you're highlighting? Is it a reflection of, you know, clients maybe not starting projects as quickly as you had anticipated, or perhaps not being able to hire quite as many people as you hoped? Or is it just kind of rounding error?
No, Dave, this is Kevin. On the margin side of the equation, you know, you can see that, you know, at the midpoint, we do still expect margins to decline a bit further in the H2 . It's pretty consistent with what we said on the Q1 call, you know, that we do see some inflationary costs still coming in. We are continuing to hire. We have a lot of retention efforts in place to reduce some of the attrition that we've seen in previous quarters. We've got some office expansion coming up that are offsetting some of that net tailwind that we're seeing on FX.
Okay, thank you very much. I'll yield. Thanks.
Thank you. Our next question is going to be from the line of Christine Rains with William Blair. Your line is open. Please go ahead.
Hi. Thank you for taking the question. My first one is that I appreciate you commenting on cancellations, but curious if you have noticed a notable increase in project delays.
I think, yeah. No, I wouldn't say that we've specifically seen a large number of delays, but there is some of that. We've seen a bit of weakening and, you know, more clients are fishing for funding, et cetera. It's hard to give a measure for and to have a consistent metric that I could point to. You know, anecdotally, we see some. I can't say that it is, you know, concerning at this point.
Great. Thanks. Just an update would be appreciated on staffing overall as it relates to turnover and hiring. Specifically, I noticed that Medpace's headcount growth slowed from the mid-20s% in the back half of the year to 20% last quarter and then 17% this quarter. Just in general, are you moderating the hiring plans at all, or do you expect an uptick as the year progresses? Thanks.
Yeah, this is Jesse. We are moderating a little bit, just given the business environment. I think we're well-positioned for the current work that we have. We're well-positioned for upcoming projects. As Kevin mentioned, we are continuing to hire, but just, you know, at a slightly slower rate than we've had, you know, last year, in 2021. Turnover has come down too, so, you know, we're spending efforts on retention, and for now, that seems to have improved, and hopefully, that continues.
Great. That's all for me. Thank you.
Thank you. Our next question comes from the line of Sandy Draper with Guggenheim Partners. Your line is open. Please go ahead.
Thanks so much. Maybe just a couple of housekeeping items to start, probably for Kevin. One, can you remind me, Kevin, if I just do the simple math of taking ending backlog from last quarter, add the bookings and subtract revenue, the number doesn't quite fit. I'm assuming FX is the majority of that. It's not a huge difference, but just can you remind me, you know, why that simple math doesn't necessarily always line up?
Yeah, you're right, Sandy. You know, the biggest impact there is going to be, you know, just changes in FX that don't allow you to do the basic math.
Okay. Okay, got it. Second question. The debt. Remind me the structure of the debt 'cause it's showing up on the balance sheet as, you know, all $250 is basically current portion. I feel like it is revolver. Is that necessarily due? You have to pay it off in the next 12 months? Which it doesn't seem right.
Yeah. Sandy, it's a one-year revolver that the term is in March of 2023. You know, obviously, we've got the intent to and ability to refinance that. That's why it's classified as short term.
Okay. Is there any
What is sort of thinking of, you know, refinancing and putting that out longer versus let's just try to get it down and we're comfortable. Any thoughts to that, just sort of the long-term comfort with the debt?
Yeah. I think our intent right now is to go ahead and start paying that facility off. As you know, we generate significant amounts of free cash flow, and so we'll start to pay that facility down. You know, we do want to make sure that we keep an eye on the stock price and what's going on there. There is some ability to also look at additional share purchases. Yeah, the intent is to pay down that facility. You know, we're in discussions with our banking partners, and we'll kind of see what makes sense in the coming quarters in terms of refinancing.
Okay.
Sandy, we are comfortable with the leverage. You know, we're comfortable with leverage on the balance sheet. You know, it's something that you know, we're considering right now, you know, how much do we need? For how long do we need? As Kevin mentioned-
Yeah
Primary use of that would be for potential share repurchases. You know, we're working through evaluation of capital structure currently.
Okay, great. I'm sure it's out there. What, remind me what the rate is on the. Is it floating or is it fixed, and what is it?
It's floating. It's SOFR plus 1%.
Okay. Okay, got it. Which obviously in a rising interest rate environment makes, I would assume, a little more focused on paying it down. I guess there was a final one which you led me into, Kevin, which is, Medpace has not expanded its share repo at this point. I would assume that's 'cause you've tapped out on the current line. You're in the process of reevaluating, but it's not a signal one way or the other that you're absolutely not or absolutely are. It's just you're reassessing your balance sheet and where the stock is, and if you think there's an opportunity, you can pursue that. But at this point, you're going through the evaluation process and complete it.
Without trying to put words in your mouth, is that sort of a fair summary of where you are?
That's exactly right, Sandy. We'll continue to evaluate facility and what the, you know, a little bit longer term nature of what we want to do looks like. You know, we'll determine what's in the best interest of the company in the coming quarters here. You're exactly right.
Okay. Okay, great. Thanks. My last one, just following up on the hiring question. Jesse, can you remind me, as you said, you know, a little bit slower hiring this quarter, but still at a pretty reasonable level. If the market really comes back, how long does it take you to rebuild sort of an RFP pipeline, not of deals, but of resumes? You know, if things come back, what's the lag time before you can really try to step on the gas and start hiring aggressively? Obviously, slowing down is probably easier. It just, you know, trying to think about if you're on a more moderate pace right now, you know, when things come back at some point, how quickly can you start ramping hiring back up?
Yeah, we get ramping up rather quickly, you know, subject to what the labor market, you know, the competitiveness is there. But just as a reminder, it does take a little bit longer, you know, a couple quarters, you know, up to a year sometimes for people to get fully trained and you know, new hires to be you know, at a good utilization and contribution. So there is a lead time there. You know, we're not talking about a significant pullback in hiring. You know, we still anticipate hiring at a good rate.
You know, more importantly, you know, with retention as a key focus, you know, it's much easier and more productive to hang on to somebody who's already functioning and active than, you know, attention on hiring a new individual. I think through the combination of retention effort focus and just keeping an eye on the pulse of the business environment and how we modulate the rate of gross new hires, you know, that's our strategy here as we navigate through the coming business environment.
Great. Those are my questions. Thanks so much.
Thank you. Again, if you have a question at this time, please press star then one. Our next question comes from the line of Eric Coldwell with Baird. Your line is open. Please go ahead.
Eric?
Mr. Caldwell, your line might be on mute. Okay. We'll go ahead and move to our next question. We do have a follow-up question from the line of Paul Knight with KeyBank.
Notification stage, a decline of 45% year-over-year in the Q2 , and then it recovered in July. Was that July recovery kind of back to what backlog growth has been, meaning around, you know, mid-20s? Why do you think that decline happened, and then maybe there was a rally? Do you think they're reevaluating budgets? What's your thought on why maybe there was this drop and then recovery?
I have no idea. I'm hopeful that there was a pause here, and things are now rolling along. Look, there is a fair amount of volatility on a month-to-month basis. You know, the only reason I would call out the prior quarter's reduction, usually I wouldn't. In the current context of us being very vigilant around looking at impact of funding flows and the fact that RFPs are not particularly reflective of the environment and that we have actually a very strong RFP. I didn't want to leave the impression that you know RFPs are great, and so you know things look fantastic.
There was a what is really a rather substantial reduction in those initial awards in Q2. They snapped back in July not to the extent of like things were all backed up and then there was a huge outflow. The July numbers are looking in line for a quarter similar to you know the prior four quarters. You know it looks like it's come back to kind of our baseline run rate. But that's you know a partial month so far. I mean it's I don't know that that's reflective of the next quarter but we are hopeful it is.
This volatility you're seeing, is it concentrated in that small biopharma group of customers that's 79% of revenue year to date that we see?
Yes. Yeah. That drives our numbers and yes, that's exactly where we see this, you know, quite a. I mean, look, you're going to see volatility in initial awards, independent of the size of the company. Look, sometimes the company has a lot of work coming along and so there can be volatility just in general. I think the weakness that we're seeing is being driven by that smaller biotech company, yes.
Okay. Like, I guess last question is, do you see any therapeutic area that's weaker like, cell therapy as that seems to be the most troublesome spot in the clinical trial market right now? What are your thoughts?
That's a small enough area for us that it's not going to drive any of the larger numbers. I do not have a particular categorization of the therapeutic area or type of study. It's broad as far as I can see.
Okay, thanks.
Thank you. Our next question is a follow-up question from the line of Christine Rains with William Blair. Please go ahead.
Hi. Thanks for taking the additional questions. I was just wondering if you can comment on the historical delays from initial awards to executed awards, sort of in other words, the progression from bucket two to bucket three. Should we assume net awards are lower in Q3 as a result or more like Q4 and just kind of what you're assuming in guidance?
Yeah. Look, some things move faster, some things move slower. In times of funding difficulties or, you know, sometimes in a more difficult market, things can slow down. As I mentioned, you know, during COVID, you got used to things moving, you know, for COVID it was not, you know, work. I think everyone saw that there was a very rapid from award to execution, which was very quick. On average, it's a few quarters. You know, I don't know how to characterize it better than that. There is quite a bit of variability.
A slowdown in things being initially awarded in Q2. I pointed out in my prepared remarks that we generally see that in Q4, as sort of an average timeline.
Great. That's helpful. For the Q4, just to clarify what's included in guidance right now. Just as a follow-up question, your operating costs have been well below our expectations for the last two quarters. Just curious what you're eliminating on that front. That's all for me. Thank you.
I'll take the first part of that. We don't give guidance on bookings, and bookings in Q4, that is, things moving into backlog would have an immaterial impact on this year's revenue, and so would not be part of guidance. They would potentially affect 2023 guidance when we get there. They really wouldn't have any impact on this year's performance financially.
Christine, what was the second part of your question? I'm sorry.
No worries. It was just on operating costs. They've been below expectations for the last two quarters. Just curious on what you're eliminating on the cost front. Thanks.
Yeah. As I had commented before, you know, we do expect.
The balance of this year for, you know, some of our cost to increase as you think about, you know, there's still inflation out there. You know, some of our discretionary type activities, we're starting to see travel, you know, come back a bit. You know, things like training come back a bit. You know, we are continuing to hire, albeit at a maybe a slower pace, but we're continuing to hire. We've got a lot of retention efforts in place, you know, again, to try to improve our attrition rate. You know, we've got some office expansions overseas that are going to be coming online in the H2 . That's really what's driving some of those expected increases in cost in the H2 .
Okay, thank you. Thank you. Our next question comes from the line of Eric Coldwell with Baird.
Okay.
Your line is open.
Okay. Thank you. We'll try this on a new phone. Can you hear me now?
Yes.
Okay, good.
Yeah.
I was hoping, and I'm sorry if I missed this while I was dialing back in, but hit rate on your RFPs. I'm curious if you could quantify what level that is at, and then qualify how that stands up versus the recent past and then perhaps your longer term averages.
Yeah. Sort of what impact that might have. That's a very good point, Eric. It could also affect the initial award notifications. Obviously, that's what goes into that.
Right.
Yes, that's a very good question. How much of it is slowing of overall decisions and how much of it is slowing in our wins of those decisions? Our hit rate did drop a little bit in the quarter. It was not the driver of that reduction. I would have pointed out that we, you know, it was a hit rate rather than flow of decisions. It was that substantial reduction in new award notifications was really driven by much fewer decisions in the quarter rather than our win rate on those. There was a little a bit of a reduction in win rate.
We've had sort of a very high win rate the prior couple quarters, and it came down a bit closer to our average over time.
Are you willing to share broadly what your average hit rate over time has been?
No, I don't think we've provided that in the past, and I don't see, you know, a need to here.
Okay. Second topic is you had a very sharp snapback in free cash flow this quarter, and I believe last quarter was chalked up to some timing. You had obviously a very good quarter on cash flow, which, you know, tends to be indicative of a healthier environment. As the follow-on to that, I would say bad debt is obviously a topic we would want to look at if there is in fact a slowdown or financial distress in the client base. I was hoping you could talk a bit about what you're seeing on the bad debt side, even leading indicators there, and you know, any recent reviews of client credit worthiness that you might be willing to discuss.
Yeah, Eric, this is Kevin. You know, on the bad debt side specifically, we haven't seen an increase in bad debt. If you look at the cash flow, there's very little, if any, bad debt expense that was incurred in the quarter. We continue to monitor your client payments and expectations and funding very closely, and we've been able to hold that down at this point in time. Yeah, what was the first part of your question, Eric?
Just the strength in the free cash flow, which looked to be a bit of a timing recovery.
Yeah.
From last quarter. Yeah.
Yeah, that's what we saw, a similar timing on the other side. We had great collections in the Q4 , which resulted in kind of a slowdown in the Q1 , and then things snapped back on some advanced billings and collections in the Q2 .
Got it. Last one for me, and it's more thematic. I'm not asking you to give 2023 guidance, but in a scenario where the small biotech base does slow, or really any channel slows, but obviously biotech's the majority of your book, your hiring would slow. I suspect some of your investments would slow. You'd tighten the reins a bit. In this hypothetical scenario where demand slows and therefore future revenue slows, what do you see happening with margin? Is it a scenario where you could actually have margin stability or expansion because your cost reduction and your hiring demands would come in so much?
Would there still potentially be some deleveraging across the organization on fixed costs and perhaps activities you wouldn't be willing to see sort of slow down because whatever the environment is, perhaps it's just a short-lived nature? Just getting a sense on what your considerations are for future margin, if in fact there is an eventual, you know, more notable slowdown due to lower bookings in the future.
Yeah. Let me jump in there. Historically speaking, our margin increases in such an environment.
Right.
I would expect that to continue to be the case. You know, it does. How much it does and whether it does is very dependent upon, not just,
Revenue decrease, but opportunities and what we're seeing, you know, in the future few quarters. Yes, there's really a slowdown, and so we're seeing a slow, you know, fewer opportunities. That's an environment in which our margin would tend to increase, maybe materially because we give up a lot of our hiring and acquisition in trying to stay well ahead of demand on staff. I would expect that margin would go up.
Okay, good. Thank you very much. I'll let others jump in.
Thank you. Our next question is a follow-up question from David Windley with Jefferies. Your line is open. Please go ahead.
Hi. Thanks for taking the follow-up. I wanted to tie together a couple of Eric's good questions there. August, I just want to make sure I understand your point on opportunities that you take your cues on hiring based on opportunities coming into the top of the funnel. The more true the opportunities are, the better you're able to calibrate your hiring. Is that the right interpretation of what you said?
That's right. It would be a qualitative and quantitative assessment of the funnel and you know, what we see a couple of quarters out in project ramp. That's going to drive our hiring more than you know, the current direct environment.
Right. Then the question on hit rate, and you commented that was down but only a very little. Are you able to tell. One of the comments I think you've made in the past is that in a tight environment, a client might actually issue RFPs more broadly, kind of fishing for price, so to speak, in a way that would, you know, would kind of artificially inflate the RFP flow of the industry perhaps. That's something that you have to be wary of. Are you able to tell if. Like, you mentioned in your response to Eric that decisions were down in 2Q. Is that an indicator that some of the RFP flow is not real? You know, is kind of that fishing for price type of stuff?
Yeah, that's always hard to, you know, come up with a single metric. You know, you see anecdotal things. It's hard to get, you know, an assessment of whether that's driving how much of it. You know, but you're right. Sometimes in a weak environment, you see a lot of. Some of it's fishing for price to try to get the price down. A lot of it's really as part of the funding process. You know, it's getting a bid to then go to look for funding with. They need that in advance before they can raise the funds. Of course, that's many of our clients need to raise funds before initiating a trial, so that's hard to sort out whether that's more or less than usual.
Some of it is they have a certain budget, and they're doing scenario planning for what they could accomplish with different amounts of funding, you know. They might have, you know, multiple different type of RFPs for, you know, really looking for, you know, what they can accomplish. You're right. Some of it is a bit increased churn and less likely to move forward. How to quantitate that and say that is, you know, what drove, you know, fewer decisions and/or, you know, that drove RFPs, it's hard for us to sort that out.
All right. Okay. I appreciate the answers. Thank you very much.
Thank you. I am showing no further questions, and I would like to turn the conference back over to Lauren Morris for any further remarks.
Thank you for joining us on today's call and for your interest in Medpace. We look forward to speaking with you again on our Q3 2022 earnings call.
This concludes today's conference. Thank you for participating. You may all disconnect. Everyone, have a great day.