Good day, ladies and gentlemen, and welcome to the Medpace third quarter 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, David Ruhe, Medpace's Director of Investor Relations. You may begin.
Good morning, and thank you for joining Medpace's third quarter 2026 earnings conference call. Also on the call today is our CEO, August Troendle, and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties, as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements, even if estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today.
During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the investor relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Troendle.
Thanks, David. Good morning, everyone. The business environment remained strong in quarter three 2026. We saw high-quality RFP activity, strong initial award notifications, and a good win rate. Net new business awards reached an all-time high in the quarter, and our last 12-month growth in awards was 23.9%. We will provide guidance for 2027 at the time of our Q4 reporting in February. However, we see no large disconnect between analyst consensus estimates and our current modeling of 2027. Kevin will now review our financial results for Q3 and our updated 2026 guidance.
Thank you and good morning to everyone listening in. Revenue was $716 million in the third quarter of 2026. This represented a year-over-year increase of 8.5%. Revenue for the nine months ended September 30th, 2026, was $2.13 billion and increased 16.9%. EBITDA of $172.1 million increased 16% compared to $148.4 million in the third quarter of 2025. Year-to-date EBITDA was $474.9 million and increased 19.5% from the comparable prior year period. EBITDA margin for the third quarter was 24% compared to 22.5% in the prior year period. EBITDA margins benefited from lower reimbursable costs. Year-to-date EBITDA margin was 22.3% compared to 21.8%. In the third quarter of 2026, net income of $137.5 million increased 23.7% compared to net income of $111.1 million in the third quarter of 2025.
Net income growth above EBITDA growth was primarily driven by higher interest income and a lower effective tax rate compared to the prior year period. Year-to-date net income was $382.7 million compared to $316 million in the comparable prior year period, which represents a 21.1% increase. Net income per diluted share for the quarter was $4.84 compared to $3.86 in the prior year period. Year-to-date net income per diluted share was $13.37 compared to net income per diluted share of $10.64 in the comparable prior year period. Net new business awards entering backlog in the third quarter increased 10.6% from the prior year to $873.4 million. Net new business awards entering backlog over the last 12 months increased to $3.02 billion, representing a year-over-year increase of 23.9%. Ending backlog as of September 30th, 2026, was approximately $3.2 billion, an increase of 5.6% from the prior year.
We project that approximately $1.99 billion of backlog will convert to revenue in the next 12 months. Backlog conversion in the third quarter was 23.8% of beginning backlog. Regarding customer concentration, our top five and top 10 customers represent roughly 31% and 39%, respectively, of our last 12 months revenue. In the third quarter, we generated $216.6 million in cash flow from operating activities, and our net days sales outstanding was negative 66 days. Cash ended the quarter at $705.3 million. Effective October 20, 2026, the board terminated the company's current share repurchase authorization and approved a new share repurchase authorization of up to $1 billion. Moving now to our updated guidance for 2026. Full- year 2026 total revenue is now expected in the range of $2.835 billion-$2.855 billion, representing growth of 12%-12.8% over 2025 total revenue of $2.53 billion.
Our 2026 EBITDA is now expected in the range of $638 million-$652 million, representing growth of 14.4%-16.9% compared to EBITDA of $557.7 million in 2025. We forecast 2026 net income in the range of $514 million-$524 million. This guidance assumes a full-year 2026 effective tax rate of 19%-19.5%, interest income of $22.9 million, and 28.6 million diluted weighted average shares outstanding for 2026. There are no additional share repurchases assumed in our guidance. Earnings per diluted share is now expected to be in the range of $17.97-$18.32. Guidance is based on foreign exchange rates as of September 30th, 2026. 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. Please stand by while we compile the Q&A roster. Our first question comes from Michael Cherny of Leerink Partners. Your line is open. Michael, your line is open.
Oh, hi. Can you hear me?
Can hear you now.
Okay. My apologies there. August, maybe just to dive into a bit more about your bookings commentary. Clearly, the net bookings performance in the quarter is really strong. As you think about where that's coming from, how do you see the evolving competitive environment within the biotech world, and how do you think about where either pricing lies or your ability to continue to push forward in your differentiation within your core biotech customer? Any more color you can give on the competitive components and what led to some of this bookings growth in what is a healthy market would be great. Thank you.
August, you might be on mute.
Yeah. Sorry. Having trouble here. Yeah, I guess you're kind of ultimately addressing win rate, I guess. How we're performing versus how much is environment. The business environment is a strong one. I think really across the board, I think that things have changed a little bit in terms of the mix of what we're seeing, and it's a little bit more traditional oncology are generally our largest area, a little bit less metabolic demand at the current time point. But I think there's a lot of good opportunities. And our win rate has been strong. So I think it's a combination of the two. I think we're booking good work, and a lot of it has been, in the past certainly a few years here, been a lot of cancellations have driven ultimate performance in terms of awards and revenue growth.
I hope that is somewhat reduced going forward. Our cancellations, backlog cancellations this quarter were not something to call out, but also not a help. They were toward the higher end, but within kind of the range we'd expect. So, I think that's what I can provide.
Thank you. Our next question comes from Jailendra Singh of Truist Securities. Your line is open.
Thank you, and thanks for taking my questions. First, a quick clarification, August, about your comment about current consensus being in the right range. I am assuming that applies to both revenue and EBITDA. On the revenue expectation, I think Street is modeling like 6% growth. Anything you can share in terms of how you think about direct fee revenue versus pass-through? Just mix will be helpful.
Yeah. We do not comment on direct pass-through, et cetera. If you see our pass-through expenses, I think that is kind of a way to try to back into it, not accurately, but at least directionally. I do not know. Kevin, do you have any comment on that?
No. I think we will provide more color, Jailendra, in terms of what that will look like in February. I would just reiterate what August said, that consensus looks reasonable relative to where we have yet in our current modeling, and that would include some assumptions on pass-throughs at the current moment. We will have to see how bookings progress in the next quarter. The only other thing that I would allow, while we do agree with the percentages, just a reminder that we do have a new significant expansion coming online here in Cincinnati, which will add about $20 million of operating costs in 2027.
Okay, that is helpful. Then quick follow-up on the direct fee gross margin in the quarter. Really good trends there. Anything to call out in particular? Just trying to figure out if there was anything out of the ordinary in terms of mix or change orders or timing, and if these Q3 direct fee gross margins levels are sustainable.
Yeah, I would just say, Jailendra, quarter- to- quarter, there is certainly volatility that can occur in our numbers. I know that everybody uses pass-through as a proxy for what direct service fee revenue is. That is not exactly how 606 works. Your margins, again, are good, very good. They can be lumpy from quarter to quarter. I do not see anything that would significantly disrupt the margin performance in Q4.
Great. Thanks a lot.
Thank you. Our next question comes from Kevin Caliendo of UBS. Your line is open.
Hello, this is Tucker Remmers filling in for Kevin Caliendo here. I am going to probably double-click on the last question on the margin. Headcount grew high single digits sequentially. You were able to maintain that margin level. What drove servicing margin being so strong? Why would it essentially maintain at this level going forward?
Yeah. Again, there can be some timing things that happen in a given quarter. There can be some lumpiness caused by 606. No, it was good performance overall across the business. Utilization continues to be in a good spot. While we are growing headcount, the revenue is growing faster than that at the given moment.
Okay. Then maybe if I can just follow up quickly. This is mostly a question on the mix of servicing and pass-throughs essentially in the backlog. Pass-throughs obviously dipped down in the quarter. Does that essentially imply that servicing bookings are higher in backlog? The question is essentially, would Medpace be able to maintain this 10% + servicing growth in the foreseeable future, assuming that the pass-throughs are kind of maintaining at this lower-ish 40% level?
Yeah. Again, in terms of service fee growth, obviously the bookings over the last couple of quarters have been good. We will have to see what happens in the fourth quarter. That will then influence what 2027 looks like. So in terms of growth rates, nothing to comment on in terms of 2027 at the moment other than what we have already said. In that we do not see a major disconnect with where consensus is right now.
Okay. Thank you.
Thank you. Our next question comes from Ann Hynes of Mizuho. Your line is open.
Good morning. Thank you. When I look at the implied growth rates for 2027, definitely lower than what Medpace usually does. Is that just a factor of even though bookings have been very strong this quarter, I know last three quarters were just below historically what you got, or is there anything you are seeing in the environment, maybe over the past couple of weeks as interest rates have gone up, that you think is going to impact demand next year? Thanks.
Yeah, Ann, I think that our growth profile has dropped quite a bit over the last few years related primarily to pressure from cancellations. It has been one of the biggest things, particularly this past year. We have had good opportunities. The business environment has been strong this year. It continues to be. One reason we decided to not provide any real guidance on next year yet is it is still shaping up quite a bit. Q4 awards are still an important component of next year revenue. More importantly is kind of where we shake out in terms of cancellation pattern here in Q4 and going into next year. Things are improving month- to- month in terms of us increasing our revenue expectations for 2027, and hopefully that continues. Again, a large part of that will be kind of what the cancellation profile is in Q4.
We see no reason for high cancellations, but these are the kind of things that just come out of the blue. They were a little bit higher than we would have liked in the current quarter, but manageable and hopefully that continues for the rest of the year anyway.
Ann—
Maybe just a quick. Oh, go.
Yeah. Ann, just another comment that you remember the mix of pass-throughs relative to revenue will also influence that growth rate as well.
Yeah. Then just maybe any incremental color on the cancellations. Did anything surprise you about them in the quarter, or is it just funding? I guess what is driving the cancellations or any change from what has been driving them over the past few quarters?
Yeah. No, our cancellations now are primarily those of product failure. A little bit more clearly product failure. It is always, well, some of it is prioritization, too. You could say that is related to total level of funding possible, but no real signs funding is now a main driver of many of the cancellations. It is products that are not living up to expectation, safety signals, other things that are causing programs to stop. So it is kind of a, yeah, everything surprises me about them. They are all just random events and unexpected. So no real trend there.
Okay, great. Thank you.
Thank you. Our next question comes from Justin Bowers of Deutsche Bank. Your line is open.
Hi. Good morning, everyone. Just a continuation of the last question. In terms of the decision to wait until February to guide, what is more of a factor here? Is it more about the awards or is it more about cancellations? Just trying to get a better sense here of why the change from last year.
Yeah, not sure I can sort that. It's just that over the last quarter, our view on 2027 has moved, and we expect it to continue to move. It just seemed that we can't provide a very firm guide. We feel we can provide a much more firm guide in February than we would be able to now. We didn't see a real need to come out with some commentary on what we expected relative to consensus. It looked somewhat in line. I'm not saying it's the same, but it didn't look drastically off. So we decided that there's no point in making a poor guide that might not be very accurate in retrospect. So that's really it.
Understood. Just a couple of quick follow-ups there. How does the funnel look in terms of potential awards and RFPs?
I'm sorry, what look?
Like the funnel or the pipeline in terms of RFPs for the rest of the year.
Very good. No, look—
Okay.
—sort of the awards, the pending RFPs is up. Total dollar value of opportunities that we're looking at is up nicely. RFP numbers are actually down some, but I guess I kind of ignore RFP. The quality and the total pending decisions by clients is very large. They're not being held up. This is just because of volume of opportunities that have come in. It's not that things are not being awarded. Things are actually moving along at a relatively normal pace in terms of award decisions, projects moving forward, getting funding in place. Things are actually going very well, but the total number of opportunities has increased and is at a very good high.
I think that if we can win well in Q4, and certainly anywhere near as well as in Q3, and cancellations aren't really out of the range, I think things are going to improve toward our 2027 expectations.
Okay, great. I will jump back in queue. Thank you.
Thank you. Our next question comes from Ryan Halsted of RBC. Your line is open.
Morning. Thanks for taking my questions. Maybe going back to the new awards and good to see that they're growing healthy. I guess, do you have any way of clarifying how much of that new awards momentum is a result of the pre-backlog that you called out in the prior year period, kind of clearing those gating factors and moving into backlog.
Well, most of our awards come from something that was previously notified that we were chosen as the CRO to do this. So most of it is those gating factors, if you consider the start of the study being a gating factor, which we do. So, we bring things into backlog when the study starts actually operationally in the field. Now, if you're asking how much is that versus other gating factors, still the biggest one is getting started in the trial. It's a minor number of additional amounts of backlog added because there was some gating factor on an award that was already partially in backlog. I don't know if that answers your question, but most things that are awards in a given quarter were in our suspense, our pre-backlog.
Got it. Okay. You mentioned a few quarters ago, some initiatives you're putting in place to address your win rates, and clearly they're bearing fruit. Any more color you can share on just how those initiatives have been working and generating success?
No, I'm not going to give details on what they were. Again, I wanted to point out we recognized our win rate wasn't as high as we'd liked in 2025. Toward the end of 2025, we made some meaningful adjustments in our processes and how we address things, and I think they have been successful. It's very difficult over even just a couple of quarters to assess that. But I think our assessment to date is that they've been very successful, and we hope to continue to improve going forward.
Great. Thank you.
Thank you. Our next question comes from David Windley of Jefferies. Your line is open.
Hi. Thanks for taking my question. Good morning. I wanted to ask a question around kind of composition of work. What I'm driving at is, August, your intent, I think, consistent intent to do full-service work for your clients. I think you have a minimum kind of composition of the trial that you want to control in order to really want to engage with a client. What we're hearing is some additional, I guess, carve out of biometrics work within trials, otherwise FSO type trials, and then biotechs that, somewhat counterintuitive to me, but biotechs that are interested in engaging in FSP discussions, which I don't think you're interested in. So I wanted to probe if you are seeing changes in the way your target client base wants to engage around projects. Thanks.
Yeah, David, I wouldn't say that I see certainly a meaningful change in that. There's always been clients that want to carve out biometrics, sometimes internally, sometimes with another chosen provider. We do prefer totally full-service opportunities, but as long as we're able to add real value in terms of managing the recruitment, quality of the trial, execution overall. So if we have all of the front-end operations and they want to keep even data in-house as well as biometrics, as well as statistics and medical writing, that may be an opportunity that's of interest to us, yes. But I haven't really seen a step increase in the number of clients that are doing that, really. It is dependent on size of the client to a good extent. If it's truly functional, you're right, we're not interested at all.
But certainly, if it's front-end only, we do projects that are front-end only.
Got it. Thanks. Then maybe, too, you commented about the therapeutic mix shifting back toward more traditional oncology, a little less cardiometabolic. Ryan asked a question about the topic that you kind of raised last time about having some trials that have these interim looks or contingencies that may be removed midstream. I guess I'm wondering if there's an interrelationship between those two. Which therapeutic areas tend to have that interim look? How prevalent are those things? Maybe the simplest way to ask the question is, we did see the backlog beyond next 12 months kind of regrow or kind of inflate a little bit where it hasn't for a while. I'm just, again, probing around some of those moving parts in the backlog long-term versus next 12 months. Thanks.
Yeah. Okay, I guess fair question. I just don't have the analytics in front of me. I generally don't look at that, but it's possible that's related to. I don't know that there's any real shift in the amount that's rolling in versus new awards, et cetera. Our awards have pivoted more towards, both in terms of notifications and things being recognized into backlog awards, and to some extent, our RFPs have pivoted more back towards oncology. Although we also are seeing, in terms of RFPs, quite a bit of metabolic work again. There was a little bit of a drop, and so the notifications and awards are down in the metabolic area, but there's a lot of pending opportunities for metabolic for us currently. But yeah, what's driving the increase in duration?
Is it new projects that are entered and very short remaining projects that are coming out that is driving it? I think that is probably the bigger factor. But were there any gates that were reached that opened up that caused a meaningful increase in the duration of projects? I do not know. I doubt it is therapeutic related. It may be true that oncology has a bit more likely to have gates. They tend to be longer trials and have more gating. That is probably true overall, but I do not know if that is influencing what our outside of 12 months backlog change.
Yeah. Okay, great. Thank you.
Thank you. Our next question comes from Jared Haase of William Blair. Your line is open.
Hi, good morning. It is Christine Rains on for Jared. Thanks for taking our questions. The pass-through revenue mix came in nicely below your prior 41%-42% expectation for the second half. Is that range still the right expectation for 2H, and should we expect pass-through mix to step up in 4Q?
Yeah, good question. I expect it to be somewhere around where we finished the third quarter. So kind of 40% - 40.5% based on our current model.
Great. Perfect. That's very helpful. And then would you characterize customer decision timelines in the quarter as healthy? And overall, did you see any notable decline in timelines sequentially and relative to last year? Thank you.
Yeah, I think things are moving along faster than last year. I think we're in a pretty good place in terms of projects moving along well. The RFPs not being bid a thousand times and things moving along towards award and then project start up. So I think things are pretty normalized environment in terms of we're getting opportunities that clients want to move forward on in the current time frame, not sometime in the future.
Perfect. Appreciate the color.
Thank you. As a reminder, if you have a question, please press star one one. Our next question comes from Eric Coldwell of Baird. Your line is open.
Thanks very much, and good morning. Obviously a very strong margin in the quarter and clearly the lower reimbursable revenue is a contributor to that optically. I am curious if there were other drivers in the quarter that you would highlight, whether that be project or therapeutic mix, hiring perhaps being lower than you were anticipating or turnover being lower than you were anticipating, other efficiencies, any accounting oddities or one-timers. I am just continually impressed by your EBITDA margin, and I think this was the second highest quarter since ASC 606. So would love to get a sense on if there is anything unique to the quarter that, barring the optics of pass-throughs up or down, that we would be using this as some kind of a jumping off point or have a reason to have sustainably higher expectations here.
No, Eric, nothing to specifically call out. Just other than what I mentioned earlier, that certainly there is volatility in our margin percentages quarter- to- quarter, right? There can be some timing aspects to when certain contracts are signed. The business is performing very well on the direct service side, to your point. Attrition rates are in a very good spot. The business continues to deliver. Some of it certainly can be influenced by just the volatility that we see and some of the 606 impacts. Again, I do not expect there to be a major degradation in the fourth quarter. Again, there is some level of headwind in 2027 as we absorb the Cincinnati campus expansion, but we will provide more color on that in February.
Okay. Then on, I think you touched on it, but I did want to specifically ask about turnover rates, hiring, salaries, wages, benefits, inflation, what your thoughts are going into 2027. I have recently conversed with a few of your peers, some of the mid-tier biotech-focused privates, et cetera. What I am picking up is that everybody had, almost everybody had exceptionally low turnover in recent years, and in many cases, actually record low turnover. Voluntary turnover, at least. But we are picking up some signs that turnover levels are starting to come back, that a number of firms are starting to hire again. People are more willing to jump ship if there is more options, and companies need to start paying up for talent. So I am just curious what your overall view on the staff marketplace looks like as we go into 2027.
Turnover looks very low. I think we've continued with low turnover. I do not know what else to say on that.
No pressures on incremental or abnormal pressures on salaries—
Salaries—
—wages, benefits at this point?
No. It is an ongoing thing, but no, I do not think there is any real change over the past year.
That's great.
In terms of the rate, obviously, it's always increasing some, but within our expectations, yeah.
No, that's where I was going, so thank you for that. Last one from me. Last quarter, August, you seemed a lot more upbeat about, I don't know, maybe it's just the focus of what we're talking about today, but there was a lot more commentary on, I think, bookings and the big second half ramp that you expected. You were obviously accurate with book-to-bill getting back above that 1.2 ZIP code and strong awards that came in this quarter. It felt like there was a little less commentary on that on the fourth quarter, some modest mentions of higher cancels out of backlog. I'm just, help us get to—
Yeah, no—
—the right spot for the fourth quarter. If, you know—
Yeah. Look, it's going to be cancellations, but no, I don't feel any different. I think that Q4, if things go right, it is going to be another record awards. I hate to look at book-to-bill, I just think it's a bad measure. I'd rather focus on award growth and trailing 12 awards, and I would expect another step up. Things look very good. We have a lot of stuff in the pipeline, both in terms of opportunities, RFPs that are pending award. We had a very strong quarter in terms of awards of notifications themselves. And I would expect business awards, things moving into backlog to continue to move upward going forward next quarter and sequentially. So, no real difference on that. It just comes down to whether we get some unusual cancellations or not.
Thank you so much. That's very helpful. Have a great day. Thanks.
Yeah. Thank you.
Thank you. Our next question comes from Luke Sergott of Barclays. Your line is open.
Hey, thanks again for the question. You guys had a pretty big step up in the large pharma side. I just wanted to know what you're seeing there from a share dynamic, especially over the last couple of years. I know that the revenue is really contingent on what you won over the last two years ago. Just give a sense of, are there any specific indications, or are you adding new logos, or is this just more about assets and where those existing relations progressing through the development pipeline?
Yeah. Most of our large pharma opportunities come from a limited number of providers. Often it's related to biotech clients we had that got acquired. So it's not really a direct outreach from us to try to win large pharma work at new clients. So it's supporting existing clients that largely are there because we had an acquisition of a former client of ours.
I think that's it.
Okay. Just more of the same that's been going on there. Then, I guess, can you talk about pricing and competitiveness on the RFP? You guys are investing there to add capacity. It feels like market's in full recovery mode right now. Are things starting to tighten up and you're able to maybe get some price in some types of services on the full service side?
We've not really gone to I think there were some that really focused on pricing. We focus on quality of deliverables. I do think that some of the crazy approaches taken by some in the past few years have died out. I think we're kind of back to a normalized environment.
Good to hear. Thanks.
Thank you. I'm showing no further questions at this time. I'd like to turn it back to David Ruhe for closing 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 fourth quarter 2026 earnings call.
This concludes today's conference call. Thank you for participating, and you may now disconnect.