Medpace Holdings, Inc. Q4 FY2024 earnings call

• August Troendle noted backlog cancellations in Q4 were within normal range, book-to-bill ratio was 0.99, RFPs were slightly down in Q4 but remained up year-over-year. For 2024, backlog increased 3% but total awards and outstanding unperformed work were slightly down. - Jesse Geiger reported Q4 revenue of $536.6 million, up 7.7% Y/Y, and full year 2024 revenue of $2.11 billion, up 11.8% Y/Y. Net new business awards entering backlog in Q4 decreased 13.8% Y/Y, and full year net new business awards were $2.23 billion, a 5.4% decrease. Ending backlog as of December 31, 2024, was approximately $2.9 billion, a 3.2% increase Y/Y. - Kevin Brady reviewed financial performance: net income in Q4 2024 was $117 million, a 49.5% increase Y/Y; full year 2024 net income was $404.4 million, a 43% increase Y/Y. Cash flow from operating activities in Q4 was $190.7 million, net days sales outstanding was negative 71 days. Repurchased ~527,000 shares for $174.2 million in 2024, with $134.6 million remaining under share repurchase authorization.

In the fourth quarter of 2024, revenue was $536.6 million, a year-over-year increase of 7.7%. Full year 2024 revenue was $2.11 billion, an 11.8% increase from 2023. EBITDA in the fourth quarter of 2024 was $133.5 million, a 39.3% increase compared to the prior year period. Full year EBITDA was $480.2 million, a 32.5% increase from the comparable prior year period. EBITDA margin in the fourth quarter was 24.9% compared to 19.2% in the prior year period. Full year EBITDA margin was 22.8% compared to 19.2% in 2023. The top five and top ten customers represent roughly 22% and 29% respectively of full year 2024 revenue.

Full year 2025 total revenue is expected in the range of $2.11 billion to $2.21 billion (flat to 4.8% growth over 2024). 2025 EBITDA is expected in the range of $462 million to $492 million (decline of 3.8% to growth of 2.5% compared to 2024). 2025 net income is forecasted in the range of $378 million to $402 million. Guidance assumes a full year 2025 effective tax rate of 18% to 19%, interest income of $30.5 million, and 31.7 million diluted weighted average shares outstanding. No additional share repurchases reflected in guidance.

• Cancellations remain a top risk, with the potential for delays in projects turning into cancellations. - The business environment weakened somewhat in Q4, which could impact future growth. - Elevated pre-backlog cancellations in 2024 could continue to impact bookings in 2025.

Q: On the service gross margins in the quarter, could you elaborate on other factors driving outperformance?

A: Kevin Brady said it was the productivity of existing staff and programs in backlog progressing nicely.

Q: What are the assumptions to reach the high end of revenue guidance in 2025?

A: Jesse Geiger stated it would be the business environment improving and programs in pre-backlog bucket progressing into backlog Q: Are you surprised by the business environment deterioration given the better funding in 2024?

A: August Troendle said it was subjective, RFP flow was fine but qualitative aspects of project likelihood was weaker Q: Any color on delays in projects and risk of them turning into cancellations?

A: August Troendle said expected delays were slight, cancellations are a risk but most pushed out of Q4 expected in first half of 2025 Q: Thoughts on revenue phasing and indirect revenue mix?

A: Kevin Brady said indirect revenue mix in 2025 would be similar to Q4, revenue phasing would be somewhat linear based on program progress Q: What drove advanced billings to high levels in 2024?

A: Kevin Brady said it was timing based on active programs in backlog and ability to bill by milestones; August Troendle added fewer clients not paying Q: Productivity levels and hiring plans for 2025?

A: Jesse Geiger said productivity remains high, retention is good, and they anticipate mid to upper mid single-digit headcount growth in 2025 Q: Status of offshoring investment and benefits?

A: Jesse Geiger said they're just getting started, hiring in India for back-office functions, but no major margin impact expected in 2025 Q: Trends in pre-backlog awards and cancellations?

A: August Troendle said flow is okay, business environment softened a bit in Q4, win rate was fine Q: RFP trends, quality, and phase mix?

A: August Troendle said RFP dollar volume was fine, qualitative side had more churn, phase one is a small part, majority of business is phase two and three Q: Cancellation rates and impact on book-to-bill?

A: August Troendle said elevated pre-backlog cancellations in 2024 will impact 2025, expecting weak bookings in first couple quarters of 2025 but hoping for improvement in second half Q: Confidence in revenue guidance and upside/downside drivers?

A: August Troendle said guidance reflects reasonable assumptions, substantial downside with further cancellations/weak environment, substantial upside with low cancellations/strengthening environment Q: Cancellations drivers and competitive environment changes?

A: August Troendle said cancellations were largely funding related, no notable competitive environment changes Q: Gross margin tailwind from cancellations and performance obligations?

A: August Troendle and Kevin Brady said cancellations have a slight tailwind on margins, performance obligations include long-term projects but revenue growth is based on late-stage projects Q: FX impact on margins and FX assumption in guidance?

A: Kevin Brady said FX had a ~$4 million EBITDA impact in Q4, guidance assumes FX rates as of December 31, 2024