Medpace - Q3 2024
October 22, 2024
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Medpace third quarter 2024 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 call, Lauren Morris, Medpace's Director of Investor Relations. You may begin.
Lauren Morris (Director of Investor Relations)
Good morning, and thank you for joining Medpace's third quarter 2024 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 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.
August Troendle (CEO)
Good day. Backlog cancellations in Q3 were above our usual range, making for three consecutive quarters of elevated cancellations. The magnitude of cancellations in Q3 were comparable to Q1, and improved relative to Q2. As a net result of the elevated cancellations experienced in Q1 through Q3, net new business awards were depressed in Q3, generating a net book-to-bill ratio of one point zero for the quarter.
As mentioned last quarter, the elevated cancellations we've experienced are not limited to studies previously recognized in the backlog, but rather span our entire pipeline of awarded future work, and therefore impact current and anticipated future backlog recognition. This is expected to depress our reported net backlog awards in Q4 as well as in Q1 of 2025. Assuming cancellations return to a normal range and the business environment remains stable, we will be able to rebuild our pipeline of opportunities, and our reported book-to-bill numbers should approach a more usual range.
That is, greater than 1.15, in the second half of 2025. The business environment, apart from the elevated cancellations, remains decent. RFPs were down modestly on year-over-year and sequential basis, but quality appears good. We remain optimistic about future growth, although, as I indicated, it will take several quarters to replenish the flow of opportunities converting into backlog. I will now turn the call over to Jesse to provide narrative on the quarter.
Jesse Geiger (President)
Thank you, August. Good morning, everyone. Revenue for the third quarter of 2024 was $533.3 million, which represents a year-over-year increase of 8.3%. Net new business awards entering backlog in the third quarter decreased 12.7% from the prior year to $533.7 million, representing a 1.0 net book-to-bill. Ending backlog as of September thirtieth, 2024, was approximately $2.9 billion, an increase of 8.8% from the prior year. We project that approximately $1.62 billion of backlog will convert to revenue in the next twelve months, and backlog conversion in the third quarter was 18.2% of beginning backlog.
Now, with that, I will turn the call over to Kevin to review our financial performance in more detail, as well as our guidance expectations for the balance of 2024. Kevin?
Kevin Brady (CFO)
Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $533.3 million in the third quarter of 2024. This represented a year-over-year increase of 8.3%. Revenue for the nine months ended September 30, 2024, was $1.57 billion, an increase 13.3%. EBITDA of $118.8 million increased 31.7% compared to $90.2 million in the third quarter of 2023. Year-to-date EBITDA was $346.7 million, an increase 30% from the comparable prior year. EBITDA margin for the third quarter was 22.3%, compared to 18.3% in the prior year period.
Year-to-date EBITDA margin was 22%, compared to 19.2% in the prior year. EBITDA margin for the quarter was favorably impacted by reimbursable costs, which decreased by 350 basis points from the prior year. EBITDA also benefited from direct service activities and productivity. In the third quarter of 2024, net income of $96.4 million increased 36.7% compared to net income of $70.6 million in the prior year period. Net income growth ahead of EBITDA growth was primarily driven by interest income, partially offset by a higher effective tax rate in the quarter.
Net income per diluted share for the quarter was $3.01, compared to $2.22 in the prior year. Regarding customer concentration, our top five and top 10 customers represent roughly 22% and 29%, respectively, of our year-to-date revenue. In the third quarter, we generated $149.1 million in cash flow from operating activities, and our net days sales outstanding was -62 days. We did not repurchase any shares during the second quarter. As of June 30, 2024, we had $656.9 million in cash and $308.8 million remaining under our share repurchase authorization program.
Moving now to our updated guidance for 2024. Full year 2024 total revenue is now expected in the range of $2.09 billion-$2.13 billion, representing growth of 10.8%-12.9% over 2023 total revenue of $1.89 billion. Our 2024 EBITDA is now expected in the range of $450 million-$470 million, representing growth of 24.1%-29.7% compared to EBITDA of $362.5 million in 2023. We forecast 2024 net income in the range of $376 million-$388 million. This guidance assumes a full year 2024 effective tax rate of 15.5%-16.5%, interest income of $24.4 million, and 32.1 million diluted weighted average shares outstanding for 2024.
There are no share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $11.71-$12.09. Guidance is based on foreign exchange rates as of September 30, 2024. We plan to provide 2025 guidance on our fourth quarter call in February. With that, I will turn the call back over to the operator, so we can take your questions.
Operator (participant)
Thank you. At this time, if you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising that your hand is raised. If you would like to remove yourself from the queue, please press star one one again. We ask that you limit yourself to one question and one follow-up. As well, please wait for your name and company to be announced before you proceed with your question. One moment while we prepare for the first question, and our first question today is coming from David Windley of Jefferies. Your line is open.
David Windley (Managing Director and Senior Equity Research Analyst)
Hi, good morning, and thank you for taking my questions. I wanted to start, August, with the cancellations and perhaps if you could, I don't know, quantify what you're seeing, talk about if you're seeing. I think last quarter you said there wasn't really a trend in those cancellations. I wondered if a trend has emerged in terms of either therapeutic area or otherwise the nature of the cancellations, and how they, you know, if you can.
How they break down between the cancellations of the actual backlog that we're seeing run through the book-to-bill, versus the amount that's kind of being pulled out of your pre-backlog.
August Troendle (CEO)
Yeah, sure. Sure, Dave. Well, first, the cancellations we've seen, I guess usually cancellations are a wild card, and they come out of the blue. It's kind of product performance. You know, occasionally, you know, a company has financial difficulty, but they're kind of random and unexpected. We've never seen a period in which we had just across the board kind of elevated cancellations that weren't just kind of one-offs. I mean, you have to kind of associate them all. And no, I don't see any trend across therapeutic areas or anything like that.
I think it's the only common factor is these are companies that were funded during, you know, the COVID high, and, you know, have you know run out of money. You know, is kind of the one common kind of element. You know, and you have the usual routine cancellations that are random, et cetera. But I do think that the environment we've had a-
A great deal of cancellations that are, many of them related to, you know, wind- running out of funding and, and not being able to refresh, you know, from, from the capital markets. So it is an unusual situation. But no, I don't see any particular trend in terms of therapeutic areas. It's kind of just type of company and, and, when they were funded and, lack of, you know, future funding, would be the, the elevated level of cancellations that are unexpected. Then you've got the backlog in the background kind of stuff.
In terms of backlog, recognized portion of the cancellations versus that that is part of the pipeline, but not yet in the backlog, either the amount of revenue was part of a project that was in backlog, but was not because of a regulatory, you know, threshold, you know, where there was withholding because either time or, you know, some event that prevented us from recognizing the remainder of the amount of that award. Or just things that hadn't gotten to, you know, start up, and so were, you know, in the awarded status but hadn't started.
The breakout between the two, backlog, versus the rest of it, is probably roughly equal, maybe even a little bit higher in the amount that is not pipelined, not in backlog. So it's been across the board, and I don't have the numbers. I think maybe numerically a little bit larger in the non-recognized backlog portion, but across the portfolio.
David Windley (Managing Director and Senior Equity Research Analyst)
Got it. Thank you for that. And then the follow-up question is around pricing. It sounds like, as you said, the RFP flow may have been down a little, but generally holding up okay and quality, good. I'm wondering what you are seeing in the competitive environment and actions by competitors in an environment where it seems like there's maybe a, you know, less opportunities to go around for everybody, and how, you know, how folks might be chasing those fewer opportunities.
Either, you know, by getting more aggressive about how fast they think their timelines can be, or, you know, or more direct pricing or, you know, offering better payment terms or the things that CROs tend to do. I just wonder if you're seeing any change in the pricing environment.
August Troendle (CEO)
No, I'd say if anything, we've seen improvement. I think that if you look back toward early in the year, we might have seen a little bit of that, but I actually think the business environment is pretty normalized if you take out the cancellations of stuff that was awarded during the COVID height. It is a pretty normalized business environment. I would think that we can get back to you know, robust growth in the future. It's just gonna take some time.
But no, I've not seen lately any sort of trend toward dropping pricing or you know, aggressive, overly aggressive pricing. I mean, look, it's a competitive environment, but nothing unusual in the last quarter, I don't think.
David Windley (Managing Director and Senior Equity Research Analyst)
That's interesting and good to hear. Thank you for the answers.
Operator (participant)
Thank you. One moment for the next question, and our next question for the day will be coming from Max Smock of William Blair. Your line is open.
Max Smock (Research Analyst in Healthcare)
Hey, good morning. Thanks for taking my questions. Maybe just following up on Dave's first question there around the size of the cancellations in total. Last quarter, you mentioned double the normal range. I think if they had been within the range, you quoted a book-to-bill of about 1.24. Just wondering if you can give us a similar level of detail this quarter in terms of the difference between gross and net bookings and what book-to-bill would have looked like if cancellations were within that kind of normal 4%-5% range that you've seen historically?
August Troendle (CEO)
Yeah, no. Look, I don't have a kind of an analysis of that. Certainly, even if we didn't have elevated cancellations this quarter, which were not massively, they were outside of our range, but it wasn't a large diversion like last quarter. And we still would have had relatively, you know, bookings somewhat below kind of what we've been running at, you know, sort of one point two sort of range. It would have been well below that just because of the prior, you know, the cumulative prior cancellations in Q1 and Q2.
So, you know, it, it's a mix of the, you know, the cancellations over that entire period, you know, Q1 through Q3, that causes the, you know, reduced bookings. Again, if you cancel stuff that's in the pipeline that hasn't gotten to backlog, it's gonna, you know, show up in future backlog awards and book to bill, and that's what we've seen.
Max Smock (Research Analyst in Healthcare)
Yeah, makes sense. So it's basically, it's just a little tougher to come up with that metric this quarter because you're also working off the elevated cancellations in the prior quarter. Is that the right way to think about it?
August Troendle (CEO)
That's right. Sorting it out between the two is, you know, but it-
Max Smock (Research Analyst in Healthcare)
Yeah
August Troendle (CEO)
It would have been, I don't know, you could say, you know, look, even if we had very low cancellations this quarter, we wouldn't have gotten to a 1.2, you know?
Max Smock (Research Analyst in Healthcare)
Yeah.
August Troendle (CEO)
So that's the kind of...
Max Smock (Research Analyst in Healthcare)
Maybe, following up on that, on the gross booking side, August, have you seen any change in terms of your win rate or competitive dynamics to Dave's point around pricing or just any other factors that would cause a shift one way or another, and maybe be causing a little bit of pullback or maybe even a step up in your win rate here, in the back half of the year?
August Troendle (CEO)
Yeah, and no, look, I, our win rate was actually really strong in late last year, you know, the second half of last year, entire second half, it was very strong. Q1 was, you know, Q4, in terms of opportunities, were pretty weak. In Q1, we had, you know, very low, you know, kind of, awards. You know, you could kind of put it in that kind of context, you know, in terms of new, you know, authorizations. And then subsequently, we've had win rates that are really right in the middle of kind of the range, you know. And we're, so we're, you know, we're doing fine the last couple quarters.
The, you know, winning something and then having it canceled, though, doesn't, you know, do you a lot of good in the long term. But, you know, so it's really the cancellations. It's not our win rate, it's not the amount of awards, it's not, you know, you know, the driver has been a lot of stuff that was awarded in that kind of 2020, 2021, you know, maybe early 2022, 2022, you know, 2021 and 2022. That, you know, we've seen a lot of cancellations from things awarded in that timeframe.
Max Smock (Research Analyst in Healthcare)
Got it. I'll leave it there and hop back in the queue. Thanks for taking our questions.
Operator (participant)
Thank you. One moment for the next question. And our next question will be coming from Eric Coldwell of Baird. Your line is open.
Eric Coldwell (Senior Research Analyst)
Thanks, thanks very much. On average, over time, how much of your quarterly gross awards have come from awards that were previously made in prior periods, whether we call that pre-backlog or pipeline backlog, stuff that you had won in the past, but would put into backlog and into bookings and backlog in a future period? What was the normal cushion over time when you entered a quarter?
August Troendle (CEO)
I mean, basically nothing gets into backlog that is first awarded in that same quarter, so everything, you know, comes in from... You know, I think across the industry, you know, you get an award, and often you don't even know how much it is, really. Still, you're refining. There's still change in specs, and it's, you know, it takes a while before, you know, from award to get to a point where you've got it locked down, and for us, you know, get it started. For others, it might be under contract, you know, but if we did our backlog based on contract versus, you know, study start, it'd be about the same timeframe.
You know, we you get a contract, you're often working under a you know, a letter of intent or, you know, startup agreement, and you don't really have a contract until you know, about when the studies you know, you know, entering patients in the field, which is kind of our criteria for entering backlog. But you know, that takes multiple quarters, usually. You know, it's some things, yes, will hit the same quarter, but they're the unusual you know, opportunities.
Eric Coldwell (Senior Research Analyst)
Okay. And then, I guess. Look, the elephant in the room here is that the market has this impression that you've had growth strains on the organization that have led to quality issues, and that these cancels are actually being caused by unhappy clients who are not out of money, but in fact, leaving you to go to another CRO. You've not indicated that on this call or prior calls, but do you have a sense on how much of the cancellations actually are projects that will still go on, but they're just gonna go on with another vendor?
August Troendle (CEO)
So we've had the number of things that we've lost because of client dissatisfaction with our performance in the last year is not a small number, it's zero. You know, there have been, you know, years ago, there might have been a, you know, a case where, you know, a client was dissatisfied and moved to another CRO, but that hasn't happened.
We have had a fair number of clients that have run out of funding, have had a great deal of difficulty, and we've provided notice of termination, and they've moved it to another CRO, and some of those have subsequently been funded, and you know, so maybe we made the wrong choice at the time.
But, you know, in the kind of early in the year, things were looking pretty bad in terms of funding. We didn't feel we could just accept running the program, continuing it without payment. And, you know, I would not expect that a company that is given notice of termination by their CRO is gonna go to another CRO and say: You know, we'd like you to take over this work, and the reason is 'cause the prior CRO is terminating us. I suspect they spin it in some different way. But the fact is that is, you know, what has happened.
So it isn't even necessary that if you hear this from another CRO, that they don't actually believe that this was a performance-based move, but, you know, that's just not true.
Eric Coldwell (Senior Research Analyst)
All right. That's a good response. And then, on the last one, I'll squeeze in one more, if you don't mind. Did I hear you say that you expected to get back to a, quote, normal 1.15 plus net book-to-bill next year in the second half?
August Troendle (CEO)
Correct.
Eric Coldwell (Senior Research Analyst)
Yeah, because your average book-to-bill since the IPO through the fourth quarter of 2023 was 1.25. So I'm just curious on the disconnect between what you see as normal at 1.15, whereas history would say more like 1.25.
August Troendle (CEO)
Yeah, well, I mean, I'm not targeting 1.15. I'm kind of putting that as the floor for expectations, and that we would expect to see that. And hopefully, you know, based on the business environment, it, you know, gets to 1.2, 1.25.
Eric Coldwell (Senior Research Analyst)
Okay, thanks very much. I appreciate it.
Operator (participant)
Thank you. One moment for the next question. And our next question for the day will be. I'm sorry, our next question will be coming from Ann Hynes of Mizuho. Your line is open.
Ann Hynes (Senior Equity Research Analyst)
Hi, good morning. I know the past couple of years you have provided forward year guidance. Is there anything directionally you wanna say about 2025 from maybe a margin perspective? So like, for example, if we're in a maybe mid-single digit revenue growth environment, how do we view margins in that environment?
Kevin Brady (CFO)
Yeah, Ann, we're not gonna provide any context on 2025 at this point, just given, you know, just the uncertainty around cancellations. We really wanna have another quarter under our belts, so that we can provide some good perspective and guidance on the fourth quarter call.
All right. And then how should we think about margins? Like, for example, if you only grow mid-single digits, how should we view... you know, this quarter, you had a lot of cost savings. Can those continue in a lower revenue environment?
Yeah, I mean, certainly they can continue, but remember, there's a lot of other factors that come into play on margins. You know, reimbursable costs, you know, what's going on with utilization, what's going on with retention levels. You know, we're kind of operating at a pretty optimal spot right now across all those different metrics, and it just depends on how those progress throughout this quarter and into 2025 as well.
Ann Hynes (Senior Equity Research Analyst)
Great. And one last question. Did you, I might have missed this, but did you talk about gross bookings? Were they actually up in the quarter and the issue was just cancellations?
August Troendle (CEO)
Gross bookings were not up in the quarter, but again, the reason they weren't, the reason they were low was because of cancellations in the prior few quarters, so yeah, I mean, it's, you know, cancellation of pipeline work, and so I should separate what I'm saying by cancellation.
We, you know, we report the cancellation of backlog, and you know, gross bookings and backlog would have been lower, but the gross bookings and backlog this quarter were lower because of cancellations in non-backlog work prior to that, which we generally do not provide the non-backlog cancellation magnitude. Does that make sense?
Ann Hynes (Senior Equity Research Analyst)
Yeah. Thank you.
Operator (participant)
Thank you. One moment for the next question. And our next question will be coming from Dan Leonard of UBS. Your line is open.
Dan Leonard (Senior Analyst)
Thank you. First off, the dynamic you're describing where companies were funded during the sugar high of COVID are now running out of money. Any sense for when that will be completely washed out of the system? I mean, the funding peak was three years ago at this point.
August Troendle (CEO)
Yeah, you know, I keep hoping that's true, but, you know, look, we still have some clients that are kind of taking it quarter to quarter, and continuing programs that really were funded in that period and are not, you know, well-funded companies. Again, a number of them have, you know, gone bankrupt. You know, we gave termination notice to a fair number of companies because of inability to pay and terminated. Most of those didn't make it, you know. Some of them eventually did get some funding and have continued on.
But there's still a number of projects that we have or that are, you know, a challenged funding type situations. I'm hoping that that's done, but it kind of depends on the, you know, future business environment. If things turn south again, you get more of these cancellations potentially. Certainly the overhang is less, I guess you'd say, but I can't say it's entirely eliminated.
Dan Leonard (Senior Analyst)
Just a quick follow-up. Possibly you could frame your expectations on what book-to-bill could look like in the fourth quarter. I'm trying to triangulate your various comments on pre-backlog and RFPs being down and thought it would just be easier to ask.
August Troendle (CEO)
What we expect our book-to-bill to be in Q4?
Dan Leonard (Senior Analyst)
Yeah, and understand you don't want to give an explicit number, but maybe you could just, you know, offer some framing thoughts around that.
August Troendle (CEO)
Okay, so better than this past quarter. Better than one. You know, look, it, you know, a lot of things do happen during the quarter. Like I say, most things are in that pipeline, but, you know, what makes it the backlog and what gets canceled and all kinds of other things have a rather large effect on that, you know, between a 1 and a 1.2. But, I think it's not gonna be a 1.2, and it's not gonna be a 1.0. It's gonna be somewhere above a one, and look, you know, kind of if you look at it, it's gonna be depressed. So, you know, if it was gonna be 1.2, I wouldn't say that was, you know, gonna be depressed.
So we're talking about probably under one point one.
Dan Leonard (Senior Analyst)
Appreciate that. Thank you.
Operator (participant)
Thank you. One moment for the next question and our next question will be coming from Justin Bowers of DB. Your line is open.
Justin Bowers (Senior Equity Research Analyst)
Thank you. Good morning, and, thanks for the question. So just one on backlog. This is related to Dan's question, but can you give us a sense of, how much of the backlog is from that vintage from, you know, 2020 up to, you know, let's say, 2020 and 2021? And then the second part of that would be, of the sort of that not yet awarded but impacting the go-forward bookings, is there a way to quantify, what the impact of that is, or frame, how much of your typical bookings historically have reflected, some of that not yet awarded, but it shows up in the gross?
August Troendle (CEO)
I'm sorry. I'm not understanding exactly what you're looking for. How much of the unrecognized backlog is going into backlog, or you-
Justin Bowers (Senior Equity Research Analyst)
Yeah. So, part one is just like, if you look at the current backlog, how much of that is from the 2020 to 2021 vintage? And then the second part-
August Troendle (CEO)
Yeah, sure. I think that's an easier part.
Justin Bowers (Senior Equity Research Analyst)
Yep.
August Troendle (CEO)
I'm gonna just take that. I don't know.
Justin Bowers (Senior Equity Research Analyst)
Yeah.
August Troendle (CEO)
I don't have it broken out. It's, like I say, I think there still is, you know, an amount there. And I do point to that as, 'cause we've never seen an environment where there was, you know, three quarters in a row of, you know, kind of this, high-bid cancellation. And I do put it together that there was a disproportionate number that were kind of funded during that period. But look, this is a... I don't wanna make it sound like that's the only, you know, it's only the, you know, the post-COVID sugar high that, you know, that we're, they're coming up. This is an ongoing thing, of course.
You know, we do have a lot of clients that are dependent upon the capital markets to complete a project, okay? So just even in normal time, okay. So I think it was exacerbated, though, because there were a fair number of projects, you know, funded during that period, and they still represent a chunk of our backlog. I don't think it's a majority of the backlog, but I just don't have a breakout of just, you know, when things were awarded, et cetera. But that is, it enhances the issue in terms of the great rise in funding that was available and then the acute drop-off. You know, that's the issue. And this happens all the time.
Even now, we're getting projects that are funded because things are better than, you know, than they could be for that company, a year from now. So I don't wanna make it, you know, into just a one-time event, but I do think that contributed to the size and duration of these, you know, cancellations.
Justin Bowers (Senior Equity Research Analyst)
Understood. And then so just trying to part two of that would just be, okay, historically, in any given quarter, you know, what percentage of your bookings are related to this dynamic of in the pipeline, but not yet awarded? For example, is that, like, 10% or 20%?
August Troendle (CEO)
Virtually 100%.
Justin Bowers (Senior Equity Research Analyst)
Okay.
August Troendle (CEO)
I mean, I thought I answered that just a little bit ago. Almost, it's very rare that a project is awarded in a quarter and then, you know, it is recognized in the backlog in the same quarter. It generally takes a few to several quarters for that to happen. It, you know, 'cause our backlog recognition is the project really beginning to, you know, enroll patients, you know, in that, within the next quarter. So, and that usually takes, you know, you can say six months or whatever, but it, it's very rare that it's only a month or two.
Justin Bowers (Senior Equity Research Analyst)
Okay, understood. And then with just based on what you're seeing now with the current backlog, how does that impact your view on employee growth over, you know, the next quarter or so? And can you give us a sense of maybe like reimbursable costs now? Are we at like steady state, given what you're seeing, or would there be any change with sort of the mix there?
Jesse Geiger (President)
Yeah, I can speak to employee growth. You know, we did increase headcount. It's about 1.8% from the prior year. That's likely where we're gonna end the year, given that Q4 is historically a slower hiring period for us. We do expect accelerated growth in 2025. Putting a finer point on that is something we'll do as we issue our 2025 guidance on the next quarter call. Kevin, you wanna speak to reimbursable costs?
Kevin Brady (CFO)
Yeah, and in terms of reimbursable, I mean, we'll provide more context on 2025 next quarter. But historically, we've been in this 33%-35%. It's always been volatile. Certainly our ability to predict it has been challenged of late. You know, it was very high in the last three quarters of 2023, you know, approaching 40%, and then it dropped in Q1 and then back up in Q2 and back down in Q3. I don't think it's gonna get back to that 33%-35% range. The fourth quarter, our modeling would suggest it ticks back up, not to the levels that we saw a year ago, but higher than what we saw in the third quarter.
You know, I think costs are stabilizing and normalizing. There's still stress on sites, but you know, likely 2025 is still somewhat elevated, but perhaps not as high as what we had expected exiting 2023. But we'll try to provide some more color on the fourth quarter call.
Dan Leonard (Senior Analyst)
Understood. Thank you.
Operator (participant)
Thank you. One moment for the next question. And our next question will be coming from Charles Rhyee of TD Cowen. Your line is open.
Charles Rhyee (Managing Director and Senior Research Analyst)
Yeah, thanks for taking the questions. Just wanna follow up, August. You talked about... I know it's not all of your backlog, but when we think about that period during COVID of funding and these companies running out of money, what about the, you know, kind of significant amount of funding we had in the first half of this year? Did that not go to some of these clients, or has that money not been released?
Could it be that some of that comes back for these companies that, you know, they're waiting on funding? Anything, if you could connect sort of the companies that you're talking about here that are kind of running out of money versus maybe those that did get funding in the first part of this year. Were they not necessarily the same?
August Troendle (CEO)
Yeah. No, it's. Look, there's a lot of overlap. A fair number of companies that we work with did get funding, and their projects are continuing, and they're the ones that didn't cancel. And there's a fair number that didn't get funding, and a few actually, you know, two that I'm aware of, that we, they had a great deal of difficulty. We, you know, served them, you know, kind of notice of our plans to move on because they were unable to pay us, and they eventually did get some of that funding.
So, you know, some of them with us, some of them without us, and, you know, some did not get funding. But it's, you know, it's not like that funding was just, you know, evenly distributed. It was given to specific companies, and not everybody got funded.
Charles Rhyee (Managing Director and Senior Research Analyst)
Got it. That, that's helpful. You know, maybe as a follow-up, but, you know, last quarter, I think you guys talked about, you know, looking to be opportunistic with share repurchase, you know, shares. Since, you know, since earnings, since last quarter, right, have been, you know, under pressure. But then when you look, I don't think you guys bought any stock back in this last quarter. Any reason not to have been more opportunistic this past quarter? Can you talk about sort of your thoughts on, buying back shares? Thanks.
Kevin Brady (CFO)
Yeah. I mean, our strategy hasn't changed, Charles, and we try to put plans in place, and we're somewhat limited in terms of timing on when we can put things in place, and we've got certain restrictions as well. Unfortunately, you know, those plans did not trigger. We'll continue to be disciplined in our approach and opportunistically rebuying, and to the extent that we're able to execute on that plan, we'll buy shares. If not, we'll continue to build some levels of cash here.
Charles Rhyee (Managing Director and Senior Research Analyst)
Okay, thank you.
Operator (participant)
Thank you. One moment for the next question, and our next question will be coming from Jailendra Singh of Truist Securities. Your line is open.
Jailendra Singh (Managing Director)
Is it Jailendra Singh? Just wanna make sure I didn't hear the name.
Operator (participant)
Yes, that's right. You can go ahead.
Jailendra Singh (Managing Director)
Yeah. Hi, thanks. Good morning. Thanks for taking my questions. So I wanna go back to cancellations. You called out Q3 trends were similar to Q1, but better than what experienced in Q2. I want you to put a finer point on the intra-quarter trends in terms of cancellation. Last quarter, you called out trends were soft in June, but had shown signs of some stabilization in July. Did that not just actually happen as you wrapped up the month, or was it really that trends got worse in August and September?
It looks like you're expecting book-to-bill to improve in Q4. Does that mean trends were better exiting Q3 and likely continued in October, versus what a book-to-bill of one might imply? Just trying to understand the trends, recent trends and maybe something about October.
August Troendle (CEO)
Yeah, yeah, I don't have the exact dates. I think at the time of our last call, you know, we only had a couple weeks data into July, and it looked fine and probably looked like it was gonna be within the sort of usual range. But you know, over the quarter, you know, it's not like it just all ramped in the last month or it suddenly spiked at any given time, but we did have a number of cancellations through the quarter that pushed us out of what you know, we consider the normal range. But again, it wasn't.
That wasn't the reason, you know, we have a 1.0 book-to-bill. That was more driven by the you know, gutted pipeline from prior cancellations.
Jailendra Singh (Managing Director)
Okay. And then my follow-up, I want to go back to, Eric's question around market competitiveness, with some of your peers making a big push in EBP and biotech space, with an argument that they are focused on providing specialized services to meet the unique demands of this customer segment. Just trying to understand, like, have you seen this market getting more competitive?
I understand you might not have lost any client to a competitor due to client dissatisfaction, but what are your thoughts on your potential clients having more choices today versus Medpace being the partner of choice for these customers in the past?
August Troendle (CEO)
Jesse?
Jesse Geiger (President)
Yeah, yeah, I'll jump in on that. We haven't, yeah, I mean, the win rate's been good, but as August mentioned earlier on the call, it is a competitive environment. You know, we're seeing good competition in the field, but nothing, you know, nothing that we'd point to in terms of any, you know, irrational behavior or, you know, irrational or aggressive pricing competition in the market. Competitive space, but no change really that we're seeing.
Jailendra Singh (Managing Director)
Okay, great. Thanks a lot.
Operator (participant)
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. And our next question will be coming from Max Smock of William Blair.
Max Smock (Research Analyst in Healthcare)
Hi, thanks for speaking and for the follow-up. I wanted to ask, going back again to the front-end demand environment. I think last quarter you pointed to RFP flow up about 16% year-over-year. Biotech funding maybe took a little bit of a step back in the third quarter, but still overall, September was strong. Just wondering if you could comment on what you're seeing in terms of RFP flow so far in the fourth quarter, as well as give an initial kind of update on how that initial award, that pre-backlog or bookings number, has trended over the last couple of months.
August Troendle (CEO)
RFP numbers in the fourth quarter to date?
Max Smock (Research Analyst in Healthcare)
Well, or third quarter, and then, yeah, any sort of look at how those flows have trended in fourth quarter would be great as well.
August Troendle (CEO)
Okay, so fourth quarter, they were down a little bit sequentially. Not a great deal, but they did tick down. October, we wouldn't really have anything yet. You know, it takes, you know, standard turnaround for a RFP coming in is ten days, so you don't have any information on it until at least ten days after it arrives, because you don't have any numbers on it. You could just count them. And of course, what I'm talking about is dollar RFP flow. So, we really, you know, we just have numbers for, you know, September, you know, just very recently. So, I really don't have any kind of trend.
You know, certainly the RFPs have continued to come in. I just don't know how dollar-wise that would translate into in Q4. But Q3 was. It was down on the, you know, you know, more than 10%, but not a great deal.
Max Smock (Research Analyst in Healthcare)
So sorry, I'll just to clarify on that. So down 10% sequentially off a strong Q2 number, but were they up year-over-year in the third quarter?
August Troendle (CEO)
They were down slightly year-over-year.
Max Smock (Research Analyst in Healthcare)
Got it. Thank you.
August Troendle (CEO)
And they were down, they were down less than I don't know, maybe similar kind of, you know, pop down that they were had popped up in Q2.
Max Smock (Research Analyst in Healthcare)
Thank you.
August Troendle (CEO)
Somewhere, somewhere.
Operator (participant)
Thank you. One moment for the next question. We have a follow-up question from David Windley of Jefferies. Your line is open.
David Windley (Managing Director and Senior Equity Research Analyst)
I missed the name. Was that David Windley?
Operator (participant)
Yeah.
David Windley (Managing Director and Senior Equity Research Analyst)
Okay. All right, great. Thanks. So follow-up, I appreciate Eric's question on kind of addressing some rumor that's been out there head-on. Another one is that you are pursuing or have won big pharma contracts. And I suppose if those, if a big pharma opportunity was a full service opportunity and fit your model, that would be good, but the odds of that are fairly low. And so I guess my basic question here is to ask you to discuss your, you know, your go-to-market discipline, and is that still consistent in terms of your, you know, your focus on biotech and your focus on full service work?
August Troendle (CEO)
Yeah, I will not run. If nominated, I will not serve. I don't... I'm not aware of us being on large pharma work. So, no, our go-to-market remains the same. We're not jumping and trying to do large pharma. We're not doing, you know, partial service. You know, we're not doing functional. We're not doing staffing. We're not doing any of that kind of stuff. Our core business is good and strong. I, you know, think that there's been some funding difficulties that have translated into, you know, a number of cancellations here, but I think longer term, you know, we're on the winning strategy, and we don't plan on changing it.
David Windley (Managing Director and Senior Equity Research Analyst)
Got it. And further on clarification, so I think your commentary has largely answered this around the kind of the nature and source of the cancellations. One of the, you know, perhaps explanatory theories that we offered last night was that because your pass-throughs have come in light of your expectations, a couple of the three quarters year to date, that maybe some of this was a lowered forward expectation around your pass-throughs, and therefore, you know, maybe culling out some amount of pass-through sizing, pass-through estimating in the backlog.
From your commentary, it doesn't sound like that is actually part of this, but I thought I'd give you an opportunity to clarify and confirm.
August Troendle (CEO)
Kevin, do you have any kind of [crosstalk]
Kevin Brady (CFO)
Yes, yes, David, it's not related to some kind of an adjustment on, on future forward pass-through activity, if that's, if that's your question.
David Windley (Managing Director and Senior Equity Research Analyst)
Yeah, it is. Okay. Thank you.
Kevin Brady (CFO)
Yeah.
David Windley (Managing Director and Senior Equity Research Analyst)
And then, lastly, on labor, appreciate, Jesse, your answer. Sounds like, if I understood correctly, that your Q3 ending headcount is what you expect to end 4Q. And in terms of kind of utilization of those staff, I presume that your margins have benefited from not having continual flow of new employees coming in and not being billable or being underproductive. Is that correct? And is there still some of that benefit that you could squeeze out of the organization, or is that kind of at a peak?
Jesse Geiger (President)
Yeah, yeah, you're right, David. There is continued efficiency. You know, we got low turnover, you know, good utilization of staff. So, you know, plenty of staff in terms of the individuals that we're sourcing and putting onto new projects. And then also just, you know, good efficiency of existing seasoned staff, because we're not hiring as much right now or haven't been hiring as much.
The burden then on the existing employee base in terms of training and mentoring and bringing up to speed those newer individuals is lower, and therefore, their productivity on, you know, billable work is higher. So, in a good spot now.
You know, as I mentioned, we do expect to accelerate hiring as we move through next year. You know, but the rate of that and the size of that will largely just be dependent upon you know, what the bookings look like and what the future opportunities turn out to be.
David Windley (Managing Director and Senior Equity Research Analyst)
Sorry, thanks for that, Jesse. Oh, sorry.
August Troendle (CEO)
Let me just add, yeah, our turnover is the lowest, the last two quarters been the lowest, possibly ever, certainly in the last five years. You know, so it, it's just, you know, it's really, you know, in the past year, just, come down to record lows.
David Windley (Managing Director and Senior Equity Research Analyst)
Thanks, thanks for that. And I was just gonna clarify, Jesse, on the productivity point. So is there actually still even room for further productivity to lead to even higher margin in the near term? And I guess you kind of guided to that, but I just wanted to ask.
Jesse Geiger (President)
Yeah, I don't think a great deal. I mean, I think-
David Windley (Managing Director and Senior Equity Research Analyst)
Okay
Jesse Geiger (President)
... we, you know, we're at, you know, we're at good efficiency now. I don't think there's a lot more of, you know, margin expansion in terms of leveraging, you know, lower turnover and greater productivity than we currently are experiencing.
David Windley (Managing Director and Senior Equity Research Analyst)
Got it. That's very helpful. Thank you for taking my follow-up.
Operator (participant)
Thank you. One moment, please. And the next follow-up question will come from Eric Coldwell of Baird. Your line is open.
Eric Coldwell (Senior Research Analyst)
Thanks. Can you hear me?
Kevin Brady (CFO)
We can hear you, Eric. Go ahead.
August Troendle (CEO)
We can hear you.
Eric Coldwell (Senior Research Analyst)
Great. Yeah, great. I wanted to just wrap up here with backlog burn. You've over the last couple of years, you've had a range from the mid-16% on a quarterly basis, up to over 19%. Last three quarters, you've run consistently at 18.2%. What dynamics might be in play that would shift that burn rate up or down over the next 12 months? Just thinking about all the moving pieces of these cancellations and then, you know, pass-through volatility, et cetera.
I'm just trying to get a sense on whether you're expecting a similar low 18s rate going forward, or if you have reasons to believe that could go back to the lows of a couple of years ago or the highs of last year.
Kevin Brady (CFO)
Yeah, good question, Eric. I mean, you certainly, you know, we continue to progress of studies continues, and it's very healthy for active programs. I think the burn rate, you know, is more influenced by what's going on with bookings. So when the period that you were stating, where it was kind of in the 16%, you know, that was in the period where our bookings were closer to 1.4. And you're putting all of the programs in the backlog, and these are programs that are starting to burn, but it takes a while.
Eric Coldwell (Senior Research Analyst)
Yeah
Kevin Brady (CFO)
For those programs to burn up. Now, here lately, you've seen the reverse of that, where the burn rate started to pick up as kind of the bookings have slowed down. So it's not a function of how programs are progressing necessarily more in our case, as much as it is just the calculation on how bookings are progressing. So I think the burn rate, you'll see, just kinda stay at this level, you know, depending on what happens with future bookings.
Eric Coldwell (Senior Research Analyst)
And then last, last one for me, just, a technical one. Would you mind sharing how many projects or trials you're working on in the moment? Just maybe on an annual basis, maybe quarterly? I'm just, I get a lot of questions about how many studies or different programs you're running at a given time. I'd love to get an update for the total number, if you have that.
Kevin Brady (CFO)
I mean, it's in the hundreds, Eric.
August Troendle (CEO)
It's in the five hundreds or so.
Kevin Brady (CFO)
Yeah.
Eric Coldwell (Senior Research Analyst)
Five, five hundred range?
August Troendle (CEO)
Yeah, I think. Last time I, you know-
Kevin Brady (CFO)
Yeah, no, it is.
August Troendle (CEO)
Yes.
Eric Coldwell (Senior Research Analyst)
Perfect. Okay. Thank you very much.
Operator (participant)
Thank you. And the last question of the day will be coming from the line of Charles Rhyee of TD Cowen. Your line is open.
Charles Rhyee (Managing Director and Senior Research Analyst)
Yeah, thanks for taking this follow-up. Just a question on the pass-throughs then. Is some of the issue with pass-throughs falling, is that really from delays in trials? So the service revenues, because you're still overseeing the project, so you're billing for them, continues, but, have you seen.
You know, I think you've talked about in the past, is that just a function of delays in study starts or other things that are kind of slowing that process, so the pass-through revenues, you know, haven't been, you know, expended yet, but arguably those would come back as those projects get, you know, ramped back up? Yeah, just curious on that dynamic, if that plays into it at all. Thanks.
Kevin Brady (CFO)
Yeah, I mean, it can be a number of things. You know, it can be slower startup activities than expected. You know, it can be a mix of programs across the portfolio. It can be the timing of when sites are submitting their data files and their invoices. So there's a number of different factors that can contribute to that.
As I've said in previous calls, I mean, we're dealing with thousands of sites and hundreds of programs, and some of these things are somewhat out of our control in terms of when the data is submitted to us. So it's a number of different factors, and it's very difficult to predict from quarter to quarter. We've seen this volatility in the past. It's not something, Charles, that's new. We've seen this quarterly volatility in the past as well.
Charles Rhyee (Managing Director and Senior Research Analyst)
Great. And actually, Kevin, one last for you. You said before, you know, you're looking for certain triggers to buying back shares. Can you kind of dive into a little bit? What are generally the triggers for you to be able to go in and repurchase shares? Thanks.
Kevin Brady (CFO)
Yeah, I mean, look, I mean, we're not gonna kind of divulge our strategy, but we try to pick different levels where we see value and put plans in place at those different levels. Certainly the timing of when we do that, we've got some narrow windows to be able to execute that. And again, if those plans trigger, they trigger. But it's something that we continue to evaluate, and remain pretty disciplined in our approach.
Charles Rhyee (Managing Director and Senior Research Analyst)
Great. Appreciate it. Thank you.
Operator (participant)
Thank you. This does conclude the Q&A session. I would like to turn the call back over to Lauren for closing remarks. Please go ahead.
Lauren Morris (Director of Investor Relations)
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 2024 earnings call.
Operator (participant)
This does conclude today's conference call. Thank you for joining. You may all disconnect.