MEDP - NASDAQ

Good day, ladies and gentlemen, and welcome to the Medpace Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Lauren Morris, Medpace's Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace's Second Quarter 2025 Earnings Conference Call. Also on the call today is our CEO, August Troendle; our President, Jesse Geiger; and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and 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.

Good day. RFP flow in Q2 continued to be strong, and we saw an increase in rate of decisions. Total pending RFP dollars were down on the quarter and our award notifications were strong. Cancellations were down across the pipeline and awards recognized in the backlog were the highest in the past 5 quarters with a book-to-bill of 1.03x in the second quarter of 2025. We continue to see a strong potential for book-to-bills returning to above 1.15x in Q3. Although funding challenges remain acute for many of our clients, the large majority of those clients with ongoing studies were able to obtain sufficient funding to keep the trials running. The funding environment has been stable to improve. Due to several factors, including better funding than anticipated, fewer cancellations, accelerated client decisions, rapid project start- up, shifting mix away from oncology and toward faster burning therapeutic areas and significantly higher investigator costs, we now anticipate accelerating revenue in the second half of the year. As a result, our revenue guidance has been raised by $280 million at the midpoint. Jesse will now add some additional detail.

Thank you. Good morning, everyone. Revenue for the second quarter of 2025 was $603.3 million, which represents a year-over-year increase of 14.2%. Net new business awards entering backlog in the second quarter increased 12.6% from the prior year to $620.5 million, resulting in a 1.03x net book-to-bill. Ending backlog as of June 30, 2025, was approximately $2.9 billion, a decrease of 1.8% from the prior year. We project that approximately $1.75 billion of backlog will convert to revenue in the next 12 months, and backlog conversion in the second quarter was 21.2% of beginning backlog. Now with that, I'll turn the call over to Kevin to review our financial performance in more detail as well as our guidance expectations for the balance of 2025. Kevin?

Thank you, Jesse. As Jesse mentioned, revenue was $603.3 million in the second quarter of 2025. This represented a year-over-year increase of 14.2% on a reported basis and 13.8% on a constant currency basis. Revenue for the 6 months ended June 30, 2025, was $1.16 billion and increased 11.8%. Revenue for the quarter was favorably impacted by higher reimbursable activity, particularly at investigator sites, driven by studies progressing ahead of projected schedules and the therapeutic mix shift to faster burning studies in areas like metabolic, which have a higher concentration of reimbursable costs. EBITDA of $130.5 million increased by 16.2% compared to $112.3 million in the second quarter of 2024. On a constant currency basis, second quarter EBITDA increased 18.5%. Year-to-date EBITDA was $249.1 million and increased 9.3% from the comparable prior year period. EBITDA margin for the second quarter was 21.6% compared to 21.3% in the prior year period. Year-to-date EBITDA margin was 21.4% compared to 21.9% in the prior year period. EBITDA margin in the quarter benefited from direct service activities and productivity, offset by higher reimbursable costs and foreign exchange losses behind the weaker U.S. dollar. In the second quarter of 2025, net income of $90.3 million increased 2.2% compared to net income of $88.4 million in the prior year period. Net income growth behind EBITDA growth was primarily driven by a higher effective tax rate in the quarter and lower interest income. Net income per diluted share for the quarter was $3.10 compared to $2.75 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 21% and 31%, respectively, of our year-to-date revenue. In the second quarter, we generated $148.5 million in cash flow from operating activities, and our net days sales outstanding was negative 65 days. During the second quarter, we repurchased approximately 1.75 million shares for $518.5 million. Year-to-date, we repurchased 2.9 million shares for $908.4 million. As of June 30, 2025, we had $826.3 million 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 $2.42 billion to $2.52 billion, representing growth of 14.7% to 19.5% over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is now expected in the range of $515 million to $545 million, representing growth of 7.3% to 13.5% compared to EBITDA of $480.2 million in 2024. The increase in our guidance reflects the impact of lower second quarter backlog cancellations, improved funding on several challenged programs, which we anticipate will continue through the remainder of the year and a shift in business toward faster burning therapeutic areas with a higher concentration of reimbursable costs. We now expect reimbursable cost as a percentage of revenue to increase by 200 to 300 basis points over the balance of the year. We forecast 2025 net income in the range of $405 million to $428 million. This increased guidance assumes a full year 2025 effective tax rate of 18.5% to 19%, interest income of $11.6 million and 29.4 million diluted weighted average shares outstanding for 2025. There are no additional share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $13.76 to $14.53. Guidance is based on foreign exchange rates as of June 30, 2025. With that, I will turn the call back over to the operator so we can take your questions.

[Operator Instructions] Our first question is going to come from the line of Ann Hynes with Mizuho.

Great. Could you just let us know what your booking expectations are for the second half? And the reason being is that your burn rate stepped up in 2Q and obviously, your guidance implies a step-up in 3Q and 4Q. And I'm just trying to figure out what that means for 2026 revenue growth. I know you don't probably want to give guidance for 2026. But do you expect an acceleration in bookings for the second half to support growth in 2026?

Yes. As I said in my prepared comments, we do believe that there's a reasonable chance of getting book-to-bills back over 1.15x, which implies a considerable increase in bookings as our revenue is also growing. So yes, we do expect bookings to increase. Now again, that's always dependent upon cancellations, which were very well behaved in this quarter. But last quarter, they were terribly high. So if things continue in the trend we saw in this quarter, then yes, we expect bookings to remain strong through the remainder of the year.

And can you provide any more information on cancellations? Like what was the rate this quarter versus what had been trending the past couple of quarters?

Yes. We don't disclose the actual rate, but it was down across the entire portfolio. So both sort of the non-backlog awards before they get the backlog was very low. And our backlog cancellations that have been at or above the upper range of what we'd consider normal. They're actually toward the lower end of expectations or usual history in this past quarter in Q2. So they were actually very well behaved. And that, of course, made us exceed what we thought we were going to do in terms of both bookings and overall performance in terms of revenue and EBITDA.

Our next question is going to come from the line of David Windley with Jefferies.

I've got a few. I'll try to go through quickly. On the burn rate, I'm not quick enough on the calculator. I heard, Kevin, you say that you do expect pass-throughs to be 200 to 300 basis points higher over the balance of the year. And that, I think, contributes in part to the higher burn rate. I was hoping you could maybe walk me to water a little bit on how much of the increased guide is pass-through versus direct revenue?

Yes, Dave. I mean, obviously, a large portion of the increase is going to be on the accelerated reimbursable cost activity, right? But we did increase also the EBITDA guide as well. And so we're also seeing some pull-through on just greater productivity on the existing staff and quite frankly, some programs that are progressing ahead of what we had projected in our schedules. So it's a combination of both. But the revenue, in particular, is certainly heavily influenced by the 200 to 300 basis point increase in expectations on the pass-throughs.

Okay. So last night, we -- on this topic, we looked [Technical Difficulty] kind of a pattern in 2023 where you also had an increase in revenue and a good chunk of that coming from pass-throughs. It sounds like maybe not quite that extreme, but similar and to get the EBITDA increase that you just mentioned on effectively the direct revenue portion, which sounds like the minority, you're having to get pretty high incremental margin, as you just alluded. Management has been talking for the last, I don't know, a year at least that staff productivity has been increasing, that you were at levels that were above historical records and probably not much upside room there. So I'd ask you to elaborate a little bit on how you're able to squeeze additional productivity out. And then to support the revenue growth and your bookings expectations, I would guess that you're expecting to kind of take the shackles off hiring a little bit and accelerate the hiring? And how should we expect that to impact margin over the next couple of quarters?

Yes, Dave, you're right. I mean I didn't expect the productivity to continue from what we saw in 2024. Certainly, we've reduced our hiring expectations a little bit coming into the year. But we're also seeing improved attrition rates, again, furthering in the past couple of quarters. And so all of that is contributing to -- I still expect some headwinds on a net basis in 2025 relative to where we are in 2024. But you're right, certainly improved versus where we were coming into the year.

And then last question for me quickly is the August -- your comments around funding are interesting to me. Certainly, our tracker is not the gospel certainly, but we have seen some predictiveness out of it and funding year-to-date is pretty bad, really. June was much better, but we're down over 40% year-to-date. So how do you get comfortable -- I mean, I know you have a lot of visibility into the awards that you have in hand that aren't even in backlog yet. But how do you get comfort that the weak funding through the first 6 months of this year is not essentially foreshadowing another downturn in demand activity for you as it did in '23 ahead of '24?

Well, I guess I don't get myself comfortable with that. I thought we'd probably hit a bottom in Q4, but then cancellation. And look, a big part of all of our difficulty in the last year has been cancellations, not new projects and baseline level of business. Certainly in the last 9 months. It's -- so it's really been just really heavy cancellations. And if they get adequate funding, I don't know what subset that is of the total pool of funding you're talking about, but we get comfortable with that, and we can make our numbers. But could things pull back again and really impact 2026? Sure. That's quite possible. I have no idea. I do know that we have a good pipeline of things awarded, but not yet reaching backlog that should support good bookings through the remainder of this year, again, as long as cancellations don't rear their head excessively. And that should at least get us started into 2026. But is it possible there's a pullback in the future and we run into another very weak booking quarters, I don't know.

Our next question comes from the line of Jailendra Singh with Truist Securities.

Congrats on a strong quarter. I actually want to follow up on the last part of David's question. I mean it seems like macro environment and business pipeline when we caught up in early June was still choppy and pressured. Keeping that in mind, can you provide some color around how intra-quarter trends were in 2Q? The majority of trends suddenly accelerate towards the end of Q2, essentially like latter part of June and those trends have continued. Just give us some flavor how demand environment evolved in Q2 in particular?

Yes. I mean Q2 was -- again, it was really a continuation of the Q1 in terms of the business environment was -- continued to be pretty strong in terms of RFPs. I said in Q1, they were strong. It was really cancellations that backed off quite a bit, and that was sort of throughout the quarter. As I said, cancellations were actually low on the low side this quarter as opposed to being very high in the past and certainly in the prior quarter. So it was across the quarter. I mean, I didn't see any real trends of acceleration or deceleration in the quarter.

Okay. And my quick follow-up on these trials which were delayed or kind of put on hold coming back, new trials, business wins. Are you seeing in any way the scope being different? Are you seeing like reduced scope of work? Or is it like a similar scope of work as you guys agreed on? And related to that, is there any meaningful variations around EBITDA margin if the project comes at lower scope or reduced scope than previously planned?

Yes, sure. A number of projects were downscoped. And we see that -- you see that in any environment. I don't know if that was particularly prevalent, but you do see some downscoping and largely delays. I mean, slower start-up, hold off on certain regions, kind of keep the study running, but don't execute as fast as you could otherwise. So those are the kind of things that clients do to try to keep things alive while they don't have adequate funding. Obviously, your profit is going to be impacted by that, yes. I mean the most profitable project for us is a project that runs the fastest. And if it's delayed, if it's downscoped, if it's -- has some gating, et cetera, that impairs our ability to execute and to make a profit on it.

Our next question is going to come from the line of Max Smock with William Blair.

Just wanted to follow up on some of the questions that have already been asked around book-to-bill in the back half of the year and in particular, your commentary about getting back to 1.15x. If you do that in the back half of the year, I think that implies bookings are up more than 40% year-over-year. So just trying to get a sense for when you're talking about getting back to 1.15x, do you need to see further improvement in funding or the demand environment to get there? And if you don't think about -- or if you think about there not being improvement from today, what do bookings look like if the environment essentially remains unchanged from 2Q? Should we expect similar net awards in the back half of the year, roughly in line with the $620 million that you posted in the second quarter?

Yes. I will answer that. Bookings in the -- can you give me the first part of that question again with the bookings?

Yes. So if I'm just thinking about your guide and your commentary about 1.15x book-to-bill in the back half of the year, I mean, that implies net bookings up over 40%. So just trying to get a sense for how much visibility you have into that? And then what's embedded in the outlook to get back to 1.15x? Do you need to see further macro improvement? And if you don't, what does book-to-bill look like in the back half of the year?

Sure. I think that it's macro improvement. It depends whether you -- whether all of our cancellations have been related to funding. And I think they are a good part of them were, yes. So we do have to see cancellations remain lower. I don't need to see new strong business environment with new opportunities, but we need to see things progress along and not be held up by funding or other factors. So -- but the current quarter, Q2 was relatively low on cancellations. If that continues, I think we're going to be there. If it's in the mid-to-upper range of cancellations, we're getting right on the edge. I mean I think prior to last quarter, prior to the prior quarter, Q1, in which we had a lot of cancellations, particularly in the pre-backlog bucket, things that we expected to be converting in this next quarter, in the next couple of quarters. A lot of things dropped out and made it a lot closer on being able to get back to that 1.15x. But I think it's still not anywhere near a slam dunk, but I think that if things continue the way they have in this past quarter, I think we'll be there. And how much more weakness and increased cancellations can occur, I don't know. But that answers your question.

Yes, it does. I'm sorry for the long-winded question on my end. Maybe just one on competition and win rate and what you saw there in the second quarter and maybe how much of your results are more a reflection of you all taking share more so than a broader rebounding demand environment from small biotech?

Yes. No, I was hoping not to have to talk about win rate. It was not great in the quarter, actually. It was more an issue of more decisions. As I said, in the prior quarter, Q1, things were not being decided. Things were being held up, a lot of funding issues and the go-ahead was not being given on new awards. They weren't making decisions. And so our pending RFP dollars increased quite a bit. That came down in this past quarter because there were a lot of decisions. Our win rate on those decisions was not particularly high, but there was a lot of decisions. So actually, awards were good. We actually had a very good new award quarter, but on a lower end win rate, competitive win rate. But that's something that bounces around quarter-to-quarter, and I never make anything out of a single quarter down. The prior quarter, it was fine. So we'll see.

Our next question is going to come from the line of Michael Cherny with Leerink.

So maybe if I could just dive a little bit more on the trajectory in back half and into '26, in particular, on the step-up in pass-through business. I think, Kevin, please correct me if I'm off here, but you said 200 to 300 basis points of increased pass-through business baked into the numbers in the back half of the year. Is this something, especially given the results this quarter that should be a new normal going forward? Or is this just a matter of luck of the draw timing on the types of contracts that are currently hitting your backlog?

Yes. I mean, certainly, in the near term, it's going to be the new normal. And again, it's heavily influenced by just the mix that we're currently seeing in areas where there is a higher concentration of reimbursable costs. So yes, in the near term, I would say it's going to be elevated. How long does this last? Not going to provide commentary on '26 at this point. But certainly, the balance of the year, we do expect it to be and continue to be elevated.

Understood. I won't poke further at the implied '26 numbers at this point in time. But maybe just a follow-up, August, to your last comment regarding the win rate and the win rate dynamics. I certainly understand how it can bounce around on a quarter-by-quarter basis. With the win rate, was there anything from a disease state perspective, from a -- or any other pieces perspective that characterized why you think the win rate shook out where it did? Or is this also just a random dispersion across your book?

Yes. It wasn't -- I mean, look, it is always concentrated because -- I mean, the factor is very large programs were less likely to win, okay? So I mean, we're talking about -- and there were some very large programs in that. And -- so size of project and our experience in the area and our experience with the client, obviously, if it's a new client and it's very large and they've got existing providers, our win rate is going to be lower. And so that's what bounces around quarter-to-quarter. It's -- we won the projects we expected to win. And unfortunately, in that quarter -- in this past quarter, there was some very large -- and we're talking about dollars. I talk about win rate, it's dollar-based. And so a very large program is a good part. I mean, it actually is a single program can be a substantial part of the total win, wins or losses in the quarter. So it just happened to bounce down in this past quarter. We did lose -- there was two very large projects in that. But no, I can't -- it was not like we're weak in a particular therapeutic area or some trend or subset. It just happens to be what projects we're close to and which ones were really large.

And one last really quick one, if I may. As the market is opening, your stock is up a lot. I know the guidance does not assume any more buyback. But conceptually, given the outstanding authorization you still have, how are you thinking about near-term balance sheet utilization and the potential for incremental buybacks?

No, it's more of the same, Michael, that we'll continue to be opportunistic in buying at levels that we see to be very accretive. And if our plans don't execute, then we're okay building cash. We're very happy with what we were able to execute in the fourth quarter, first quarter and second quarter of this year.

Our next question is going to come from the line of Eric Coldwell with Baird.

I have a few, hopefully not too repetitive. I was hoping we could start with talking about following on that last line of questioning, just talking more broadly about the bookings dynamics this period. There was some speculation going around last night based on the big increase in revenue that maybe you had picked up some large studies. It does not sound like that happened this quarter, anything particularly crazy large. But I was hoping you could just maybe more specifically tell us what your largest win individually was in the quarter, if there were any rescue awards or losses that you could talk to, maybe just broadly talk about competitive dynamics. You did mention your win rate wasn't the best, but talk a bit about competitive dynamics. Just hoping to get a little more flavor on the bookings mix and breadth of those bookings to start?

Sure. Yes. And Eric, I think your question kind of, I don't know, in my head, confuses some of the moving parts here. So when we're talking about competitive wins and we're talking about wins, et cetera, those are awards, notifications. And they're not in backlog yet. We're not making any revenue off them, and it's often multiple quarters before they come in. It alright. A new award this quarter is not going to influence our revenue or anything like that. A booking would probably because that's when we're starting to get revenue if we -- but it could be late in the quarter and might not be much of a factor. It's mostly in future quarters that's going to impact. So if I look at just sort of new notifications this quarter, no, nothing particularly stands out. There's nothing particularly large. It was a pretty usual quarter. In fact, the really large stuff, we lost. And so our win -- competitive win rate was actually on the lower side, but completely understandable if you took out a couple -- those two outliers, our win rate was great. I mean it was fine. So that's not an issue. And what went into bookings this quarter? Nothing particularly unusual or notable. The big -- and there was nothing sort of a rescue or something really short-term project that we won during the quarter or something that added to it. It was just kind of usual stuff that -- stuff that progressed that a lot of it, we did not anticipate it might progress. So sort of good upside news on things progressing and we thought might not. Things went faster than expected, and we maybe didn't do as great a job at projecting what some of the pass- through, how quickly things were going to move forward on some of the investigator fees, et cetera. So that part of it. I think on a direct fee basis, we were probably pretty good at projecting it, but there are still projects that went forward that more than we expected and faster than we expected. So there was some upside. But there was nothing kind of unusual in terms of short-term quick or interim or rescue work or anything like that.

Okay. On the reimbursable indirect revenue commentary, and I hate to be this myopic, especially since it's been talked about so much, but I want to make sure I'm 100% clear. When you talk about 200 to 300 basis point increase in mix for the rest of the year, can you clarify, does that specifically mean you're looking at something 41%, 42-plus percent in the second half? Or does that mean something more like 38%, 39% for the full year compared to 2024 total levels? I'm just I'm not 100% clear what that plus 200 to 300 basis points specifically is in reference to or what the absolute percentage you're targeting is?

Yes, Eric, thanks for asking the question. To clarify, that's relative to what we saw in the second quarter. So yes, we could see this in the low 40% the back half of this year.

Okay. And then last one for me for now. So you have obviously kind of shocked the street with this update. You have enormous backlog conversion already. Now it's going up to 41.5%, 42.5% in the second half. You're -- your backlog is down 2% year-over-year, but you're seeing revenue growth as much as 27% in the back half at the high end of the range. I mean there's just a lot of questions about sustainability. And I know it's so hard to project with the mix shift in reimbursables, which are seemingly clearly driving the majority of the revenue increase, and those may or may not continue next year. But what can you give us today that can help us understand the jumping off point from these conversion rates and these growth rates as we look at 2026? I mean everybody -- I know you're not guiding now, but we all have to build models and do assessments for next year. And you've caught us so off guard. I think I'll admit, at least I'm scrambling to understand what kind of a growth rate we might be looking at in the next year. It doesn't feel sustainable, to be honest. But then again, I didn't see this quarter coming. So...

Eric, you broke up a little bit in the middle of that. So -- but I think I heard enough of it to -- so if I don't cover it, then jump back. I think that -- yes, we are -- we have had a significant shift towards faster burning stuff. Part of it, our conversion rate is high overall because the lower denominator. And of course, does that mean that we're going to burn off our backlog and then we're going to have a real gap. I don't think that's necessarily true. I think that we do have an adequate business environment to replenish things. I do think that our indirects are ramping because of a shift toward metabolic work. I don't know how long that's going to last. So if it continues, then okay, I think our growth rate next year is probably fine. If that pulls back, then I think that it can challenge growth rate, but that's because of a drop in reimbursables. And I think on a direct fee basis, we're going to do fine. So I think our profitability is going to -- there's no reason to see it dropping off. And I think that we could have growth rates similar to this year ex the pass-through stuff, right? But I don't know. We don't have the model next year. It's really dependent upon stuff that's coming in now and over the next couple of quarters. So '26 is not really addressable, but we don't have a reason to believe that we're going to have a challenge next year and have our growth go to 0 or something, unless pass-throughs drop drastically and all of our growth is directly, but I don't really see that as a -- on a 605 basis, would be fine.

Completely understood. I appreciate the commentary.

Our next question is going to come from the line of Luke Sergott with Barclays.

I just kind of want to figure out -- we've talked a lot about the moving parts. Everybody is focused on the burn rates, et cetera. But you have this elevated burn rates, everything stepped up materially. You had a big step-up in bookings. You didn't need to hire additional SG&A for the type of revenue growth that we would typically think. You had DSO step up materially also in the quarter. So -- and it doesn't sound like you picked up some ongoing work from someone else or share gains. So I'm just trying to figure out like what's going -- like what actually drove the step-up in everything and trying to foot all these different metrics?

A drop in cancellations. I mean, look, we've been running -- we've been running at growth rates of 20% plus for a long time. Things dropped back, we did have a weakening environment. But still our fundamental growth rate, I think, is pretty good ex a lot of unusual cancellations. Now that's part of the same package. I mean the same environment that causes the cancellations, reduced opportunities to some extent. But I don't know how you close the loop on those things. The environment is reasonable if cancellations are reasonably behaved. Our conversion rate is up because we have dropped both two major factors. The denominator has not grown as expected. And we have a shift towards faster burning stuff. I mean it's -- we're in an era of a lot of metabolic type of programs are particularly in the obesity space are important part of the market. So that's made things have a faster burn turnaround. But otherwise, I think the big step-up from our expectation was less cancellations than we anticipated.

Okay. And then I guess just a follow on that, your backlog that you guys report, so like anything over 12 months that's included there took a pretty big step down in the quarter. It's been declining the last few quarters and that makes sense with everything you're saying like faster burn rates and so more near-term stuff. So as you think about as this starts to roll off, like what's the average time line of these faster burning trials as we think about into '26 and '27? I mean that's like to Eric saying, like we're all trying to model here of what we're thinking for '26 and the range just gets pretty really wide?

Yes. I mean I can't give you an average for overall categories or something like that. But look, long studies are can be 6 to 10 years in duration. And oncology studies are classically kind of that and they run a very long time, and it's a slow burn. Metabolic studies, some of these can run in 2, 3 years and have a larger proportion of indirects as a part of it. And indirect, usually, the model is the direct fees burn a lot faster upfront toward the beginning. That's when a lot of work is being done in organizing and setting up and getting the trial ongoing and recruited. But a lot of the investigator fees are later on when patients are enrolled and having lots of visits. So there's usually acceleration -- the direct fees are in the first half of the study heavy and the second half, it's investigator costs. In a metabolic study, like I said, they can be very fast and it all happens at once.

Okay. And then just real quick from the last one, as I think about like from the margin and the hiring needs to meet these trials, like you talked about the efficiency on your existing base, and you guys don't do FSP. So -- and you have a really strong culture where the attrition rates are really low. So how should we think about your hiring needs in the back half if you're going to be able to sustain these type of burn rates and elevated growth?

Yes. Back half of the year, we do expect accelerated hiring. We expect to hire more in the second half than we hired in the first half. We still think we'll be kind of in the mid-single-digit to kind of upper mid-single-digit growth rate for the year. But then as we move into the third quarter and fourth quarter, depending on a lot of factors, including the business environment and new opportunities and activity, we have opportunities to accelerate that beyond that. But right now, we're very comfortable with current headcount levels and projections to handle the current and future projects, but it is dynamic and we can adapt as we go.

Our next question is going to come from the line of Charles Rhyee with TD Cowen.

I just wanted to follow up on some of the questions from earlier. August, it sounds like what you're saying is that what we've really been seeing over the last year or so plus with the weak funding environment, that's really tied really -- that's where cancellations have come in, people that can't get funded, projects cancel, but that projects themselves, new RFP, that flow has never changed. Has that always been constant over the last couple of years?

I wouldn't say that it's not changed. I'm saying that I think the big outlier, the biggest component of us for us has been very elevated cancellations. They've held things back quite a bit. I'm not saying that the overall environment, certainly over the last few years hasn't weakened from kind of the COVID high, and it came back, and it's been weaker. There's weaker funding overall. So you have less attractive opportunities. RFPs don't necessarily reflect what's going on. And so last year, there was certainly weak overall opportunities. And sometimes people looking for price that they could get it done at, et cetera, and less opportunity. But the biggest thing of late has been cancellations that just -- like I said, I thought we were past it all in Q4, and I thought this was the bottom and things are improving. And the biggest gap hasn't been the improved fundamental opportunities that we started seeing in Q4, okay? So the business environment started -- before that, yes, we had real weakness in everything. But the business environment seemed to be okay on new opportunities the last several quarters, but cancellations were just -- last quarter were horrendous. And that's what has been probably the biggest uncertainty in our modeling is cancellations rather than new opportunities and new awards. They are both components of it, but it's really been the cancellations that have thrown us off. And this past quarter, Q2 showed a great improvement in that. But we saw a great improvement in Q4. I don't know. We'll see. Q1 was -- it spiked again.

And in terms of then this quarter, cancellations were obviously much lower relative to Q1. Anything that when you look at reasons for cancellation, the cancellations, are those all tied to funding? Or is that -- how much of that maybe is changing priorities from sponsors?

You can never sort that out entirely. I think they're very highly related. Reprioritization is sometimes another word for cutting back. And so I don't know. But I do think the funding environment has been a critical part of the vast majority of cancellations.

Okay. And then you talked about earlier faster burning therapeutic areas like metabolic. But when we look at revenue contribution by category, that's sequentially the same in metabolic. It was sort of this other category we saw a big step-up in the quarter. Can you give us some examples of therapy area in that other bucket that you saw this big pickup. And just curious like what kind of visibility you have or like how much of your upcoming pipeline of RFP activity is in this other bucket? And what kind of visibility you have into that?

Yes. No, I mean it's -- and it's a bunch of different things. And I don't -- there's nothing that sort of is the vast majority of it or something. But look, the big trend has been metabolic over the last year. You look at our metabolic revenue and awards, and they've been a higher percent of the overall, and they will continue because of the awards, they're going to continue for the next couple of quarters anyway to be a growing part of our overall revenue base. And they tend to be -- overall, some of them are long term, but overall tend to be faster burning and higher indirect fees.

That's great. And maybe last one for me. You talked about faster decision-making. Anything that you can elaborate on what that might be? Is that just maybe with drug pricing kind of being kicked out with MFN maybe towards the end of the year and just people deciding, hey, you know what, we can't wait forever, and so we just got to make decisions now? Or anything that could maybe point to why this -- why decision-making maybe has picked up again?

No, I think that's funding again. I mean I think we saw things somewhat seizing up our pending RFP dollars that is RFPs we've received, we made a bid on and are just sitting there, waiting for a response and no decision and no go forward on things even that we have been awarded. And they say they're -- yes, we're going to use us. They agree to the budget, but then they want to hold off on things until -- I think largely, that's -- sometimes there's other reasons. There's drug supply, there's other waiting on some other information on the drug, et cetera, another study may be completing whatever there's lots of reasons. But funding is a big part of it. And we've -- I think we've seen a more rapid execution on sponsor side to move forward and give us authorization and get us stuff that we need to move forward has been funding related.

[Operator Instructions] Our next question is going to come from the line of Justin Bowers with Deutsche Bank.

So Jesse, just a quick cleanup question. On the employee growth, it's -- you were breaking up a little bit, but it sounded like accelerated hiring in the second half and mid-to-upper single digit. Is that for the second half? Or is that for the full year?

Yes, accelerated hiring in the second half. So hiring more in the second half than the first half, mid-to-high single digit for the full year growth rate.

Okay. So second half employee growth should be mid-to-high single digit year-over-year.

Correct.

I think we're talking about the full year would be high single-digit growth over the prior year.

Okay. So then you're looking at...

Obviously, it has increased some around double [indiscernible].

Yes. For the 6 months year-to-date, we grew revenue 1.5% or so. We expect that to accelerate. We hired -- I'm sorry, 2.5% for the first half because the headcount growth is up 2.5% for the 6 months. We expect a growth rate in the second half at or slightly above that for the second half.

So you're expecting...

5% to 6% for the full year.

Okay. All right. And then in terms of what's the growth this year at the top line that you -- what does the guidance assume for growth on a 605 basis for the top line?

Yes. Justin, we don't provide a 605 basis look. I think if you just model it kind of using the guidance that we have out there and assume kind of the 200 to 300 basis point increase in reimbursable costs over the balance of the year, you kind of back into what that could be.

Okay. And then in terms of -- it sounds like the burn rate is fairly sustainable, likely to increase in the back half of the year. What does the pre-backlog or your current authorizations, but not yet in backlog, the mix look like? Is that similar to what the revenue composition has been like this year? Or are there any notable differences to call out in terms of therapeutic mix?

Yes. We're seeing a move towards more metabolic and that will continue. It looks like, based upon anticipated awards, yes.

Okay. And then on the cancellations, there's really two things that jump out. One was just the improved execution and the changes there during the quarter. And then clearly, like the cancellations cited as well. When did you -- like when did that start to really inflect or turn? Was that something that -- was that sort of May where things really started to change? Or did that -- was that exiting March or?

Yes. I don't have the monthly breakout. And we kind of reconcile these things quarterly. So there isn't like we obviously do know the date of notification of something, et cetera. But I've just not tried to sort out when exactly cancels and if they were low in March before this quarter began or didn't start until May after the quarter was well into it or what, but pretty much across the quarter, we had lower cancellations. But I can't -- I just don't have the good data of just when you call it -- there's -- and what do you mean by when? It's kind of -- they give us a notification, but we don't really know what's happening and then they finally reconcile what exactly we're going to do to close this thing down or these are kind of things that have a period to them. But look, I think Q2 was much lower than Q1.

Okay. And then maybe just one last one for me online. With what was change order activity like during the quarter? And how did that change from 1Q or even what you saw towards the tail end of last year?

I don't have the numbers on just what the magnitude of change orders were, but there's nothing been particularly unusual there.

Yes, Justin, I wouldn't say there's anything unusual on change orders. They happen all the time, but nothing that would stick out.

Okay. Nothing. Okay. I just have one follow-up.

Look, again, change orders, sometimes they award something, it's going to be a global study of this, but they want to award it first is just the first region or something. And then we're going to -- planning in 6 months and you don't have the budget for it until then. And so it's -- what's even a change order. It's difficult. It's when we get authorization and then when it meets our criteria for going into backlog.

Okay. I'll jump -- we'll catch up after the call.

Our next question comes from the line of Kyle Crews with UBS.

You've historically disclosed around a high single-digit revenue exposure to cell and gene therapy. Can you talk about the impact of Sarepta recently having their clinical trials put on hold and kind of the pausing of the platform technology designation there and the impact to your company?

Has no impact to us.

Can you maybe speak more broadly to the cell and gene therapy market and what you've seen there and if you're still that exposed to it?

Look, we don't have a great deal of exposure to the overall area, but we certainly do have exposure, but I don't think there's -- not Sarepta, they're not -- it's not -- I don't think it's going to have an impact on our programs. But...

And I'm showing no further questions at this time. And I would like to hand the conference back over to Lauren Morris for any 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 Third Quarter 2025 Earnings Call.