Medpace Holdings, Inc. (MEDP) Q4 2024 Earnings Report, Transcript and Summary

And good day, ladies and gentlemen, and welcome to the Medpace Holdings, Inc. Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session. Star one one again. As a reminder, this call is being recorded. And now, I would like to introduce your host for today's conference call, Lauren Morris, Medpace Holdings, Inc.'s Director of Investor Relations. You may begin.

Good morning, and thank you for joining Medpace Holdings, Inc.'s fourth quarter and full year 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-Ks 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 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 investors.medpace.com. With that, I would now like to turn the call over to August Troendle.

Thank you, Lauren. Good day. Backlog cancellations in Q4 were within our normal range. Our book-to-bill ratio was 0.99, influenced by prior pipeline cancellations as well as the delay of some projects previously expected to enter backlog. RFPs were down slightly in Q4 compared to Q3 as the overall business environment weakened somewhat but remained up relative to Q4 2023. For the 2024 calendar year, backlog increased 3%. However, total awards and outstanding unperformed work, considering both backlog and pre-backlog awards, was down slightly. This reflects the high level of cancellations we experienced in 2024. All this provides a challenging backdrop to growth in 2025. Assuming cancellations remain in our historical range, and the business environment does not continue to deteriorate, we remain hopeful that we can achieve growth in bookings with a book-to-bill ratio above 1.15 in the second half of the year. Revenue growth for 2025 is expected to be in the low single digits. I will now turn things over to Jesse Geiger for comments on Q4.

Thank you, August, and good morning, everyone. Our revenue in the fourth quarter of 2024 was $536.6 million, which represents a year-over-year increase of 7.7%, and full year 2024 revenue was $2.11 billion, an 11.8% increase from 2023. Net new business awards entering backlog in the fourth quarter decreased 13.8% from the prior year to $529.7 million, resulting in a 0.99 net book-to-bill. For the full year 2024, net new business awards were $2.23 billion, a decrease of 5.4%, and ending backlog as of December 31, 2024, was approximately $2.9 billion, an increase of 3.2% from the prior year. Projected approximately $1.63 billion of backlog will convert to revenue in the next twelve months, and backlog conversion in the fourth quarter was 18.3% of beginning backlog. Now with that, I will turn the call over to Kevin Brady to review our financial performance in more detail and discuss our 2025 guidance.

Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $536.6 million in the fourth quarter of 2024. This represented a year-over-year increase of 7.7%. Full year 2024 revenue was $2.11 billion and increased 11.8% in 2023. EBITDA of $133.5 million increased 39.3% compared to $95.8 million in the fourth quarter of 2023. Full year EBITDA was $480.2 million and increased 32.5% 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. EBITDA margin for the quarter and for the full year were favorably impacted by reimbursable costs, which decreased by 400 basis points and 180 basis points respectively from the comparable prior year periods. EBITDA margin also benefited from direct service activities and productivity on slower headcount growth. The fourth quarter saw additional benefit from foreign exchange behind the strengthening of the US dollar in the quarter. In the fourth quarter of 2024, net income of $117 million increased 49.5% compared to net income of $78.3 million in the prior year period. For the full year of 2024, net income was $404.4 million compared to $282.8 million in 2023, which represents a 43% increase. Net income growth ahead of EBITDA growth was driven by interest income and a lower effective tax rate. Net income per diluted share for the quarter was $3.67, compared to $2.46 in the prior year period. For the full year 2024, net income per diluted share was $12.63, compared to net income per diluted share of $8.88 in 2023. Regarding customer concentration, our top five and top ten customers represent roughly 22% and 29% respectively of our full year 2024 revenue. In the fourth quarter, we generated $190.7 million in cash flow from operating activities, and our net days sales outstanding was negative 71 days. As of December 31, 2024, we had $669.4 million in cash. During the fourth quarter and full year 2024, we repurchased approximately 527,000 shares for $174.2 million. At the end of the quarter, we had $134.6 million remaining under our share repurchase authorization program. Moving now to our guidance for 2025. Full year 2025 total revenue is expected in the range of $2.11 billion to $2.21 billion, which represents flat to 4.8% growth over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is expected in the range of $462 million to $492 million, representing a decline of 3.8% to growth of 2.5% compared to EBITDA of $480.2 million in 2024. We forecast 2025 net income in the range of $378 million to $402 million. This 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 for 2025. There are no additional share repurchases reflected in our guidance. Earnings per diluted share is expected to be in the range of $11.93 to $12.69. Guidance is based on foreign exchange rates as of December 31, 2024. With that, I will turn the call back over to the operator so we can take questions.

Certainly. And our first question for today comes from the line of Dan Leonard from UBS. Your question, please?

Thank you. Couple questions. First off, on the service gross margins in the quarter, I understand the pass-through mix component. I was hoping you could elaborate on some of the other factors that drove the outperformance on that line, whether they be headcount related or otherwise?

Hey, Dan. This is Kevin. No. It's really just the productivity of our existing staff and the programs that are in backlog progressing very nicely. And so it's really the kind of the second quarter that we've seen great progress on the direct service side.

Okay. And then as a follow-up, what are the assumptions that would get you to the high end of your revenue guidance in 2025?

Say that again, Dan? Sorry.

What are the assumptions that would get you to the high end of your revenue guidance in 2025?

Yeah. I mean, really just the business environment improving a bit and programs that are sitting in that pre-backlog bucket progressing into the backlog as awards in those programs continuing.

Understood. Thank you.

Thank you. And our next question comes from the line of Max Fleishman from William Blair. Your question please.

Good morning, everyone. Thanks for taking our questions. August, you mentioned the business environment deteriorated some over the last couple of months here. My question is, are you surprised by that given the better funding environment that we saw in 2024? What do you think is behind that deterioration? Do you think it could just be some of these companies maybe a little bit of a pause to digest, I guess, some of the uncertainty caused by the election, or is there something else going on that you would call that is really driving that weakness?

Yeah. I don't really have an explanation for it, and it was just a, you know, and this is a subjective thing. I think, you know, RFP flow was fine. It's, you know, the qualitative aspects of the type of size and type of projects we're getting and likelihood of them moving forward. And I just thought it wasn't as quite as robust as the, you know, what we've seen in the prior couple quarters. Which was really kind of accelerating and it seemed to decelerate some. And, yeah, I don't know if it's because of the election and just concerns about where things are going or, you know, what the situation is, whether it's gonna turn around. But, you know, I did note that it wasn't as robust as it had been the prior couple quarters in terms of core business department. Now cancellations on the other side, you know, there's kind of two sides to the environment, and one is, you know, kind of new opportunities, and that is maybe weakening a bit. But the cancellations were down in Q4 relative to the prior three quarters, you know, really. So, you know, it was the first quarter of the year that we had kind of a closer to normalized cancellation rate. Although, I think the cancellations were still toward the high side. So, you know, cancellation's improving. Business environment may be just a little bit weaker. We'll have to see.

Understood. Thank you for that helpful commentary. And then just following up on your comments about some of those delays. I think you called out a couple that were expected to hit bookings in the quarter. Is there any color you can provide around what was behind that or those delays and how much visibility you have into those projects hitting bookings in the next couple of quarters here? And then how do you think about the risk that those delays eventually turn into cancellations in the first half of this year? Thank you.

Yeah. I do expect those studies that I mentioned, you know, being delayed as progressing just being a little bit slightly delayed, not greatly delayed. We do have some projects that are on longer kind of hold pattern, and there's always a risk that anything cancels. I, you know, I can't hedge that. Cancellations are still, you know, top of my mind in terms of risks of us, you know, performing this year. But I think that, you know, most of what was kind of pushed out of Q4, I think will hit here in the first half of 2025.

Understood. Thanks again for taking the questions. I'll hop back in the queue.

Thank you. And our next question comes from the line of Eric Coldwell from Baird. Your question please.

Thanks very much. Good morning. I'm curious about the revenue phasing expectations through the year with a zero to five percent growth range. Are you anticipating a big drop off here in the beginning of the year and then a ramp towards the back half? Is it more linear through the year? And then what is the indirect revenue mix component or growth component? Is it down like you saw here in the fourth quarter and the deceleration seen over the last year? Are you expecting it to stabilize at this percent of revenue, go back up? What's the mix between direct and indirect fees, please?

Yeah, Eric, as it relates to the indirect, you know, our modeling would suggest that 2025 as a percentage of revenue will be somewhere around where we landed in the fourth quarter here. So you're down from where we were in total year 2024 at levels similar to what we saw in the fourth quarter here. What was the first part of your question?

Phasing on revenue. The zero to five range, are we starting at the low end and moving to a higher level in the back half, is it more linear growth through the year or just the thought process on timing the rental production.

Yep. Yeah. It'll somewhat depend on how, you know, those programs progress into awards throughout the year. You know, certainly, we've got a, you know, a pipeline of those backlog opportunities. So I would expect there to be some linear progressions throughout the year. I wouldn't expect a major step up in the first quarter here, but hopefully sequentially growing revenues throughout the year from there. But it will depend on how the bookings progress as well.

And then if I could just squeeze in one more. Advanced Billings, kind of an intriguing topic, doesn't get a lot of airtime, but you did show quarter to quarter increases in advanced billings 2Q, 3Q, 4Q. You finished the year with advanced billings up 27% year over year. I'm not quite sure what drove that and how that happens. In a year where, you know, bookings were down, what, 5% plus and down 14% in the fourth quarter. Revenue slowed. What's keeping these advanced billings at such a high level?

Yeah. Good question, Eric. I mean, a lot of that is going to be timing based on the active programs that are in backlog and how those programs are progressing. I mean, you saw the, you know, the nice growth rates that we've seen on the direct side of the business, and we try to create payment schedules and milestone payments that kind of stay a bit ahead of the work that we're doing. And so a lot of it's just timing related on how the mix of programs is going and, you know, our ability to give the bill according to that milestone. There's milestone payments and collect against those. You know, as you know, we stay on top of sponsors and credit and making sure that we're getting paid as we're going to work.

Yeah. Fewer clients that are not paying us. We continue work. So maybe that's it.

Thanks very much. Thank you. And our next question comes from the line of David Windley from Jefferies. Your question please.

Hi. Good morning. Thank you for taking my questions. I wanted to focus on the cost side a little bit. I wondered when we were together in November, you talked about retention being at, you know, very high levels, much higher than historical norms, and that was leading to greater levels of productivity. I think the expectation was that it was probably at a peak and couldn't get much better. The fourth quarter was better. And it seems like at least some of your margin expectation next year assumes that that continues. So I wondered if you could maybe provide a little bit more precision around the productivity levels of the staff, and when you would anticipate or if you are anticipating kind of restarting hiring at any point during the 2025 calendar year or if the guidance basically assumes that staff continues to be relatively flat. Thanks.

Yeah. Hey, Dave. It's Jesse. Yeah. In terms of productivity, it does remain at a very high level. Good productivity continues. Good retention continues. You know, a lot of experienced staff just continuing to work diligently on projects. The headcount growth was fairly flat in 2024. We do anticipate accelerating hiring here in 2025. So, you know, we are targeting at the moment, you know, headcount growth in the mid to maybe upper mid single-digit level for the year. How that progresses throughout the year will be somewhat determined by, you know, what the business environment looks like and how that progresses. But we do anticipate hiring and kind of, you know, restarting the hiring engine a little bit more aggressively as we work through the year. And that, you know, will have, you know, likely a little bit of an impact on margins.

Got it. And Dave, just to build on that, we do expect headwinds on margins if you look at the guidance that's out there. And the other thing to call out on the question I answered previously is it relates to the indirect and reimbursable cost. We do expect 2025 to be at a level similar to what we saw in the fourth quarter, which would mean that as a percentage of revenue in 2025 comes down a little bit.

Right. On other cost actions, one of the things that I think you had talked about, I can't remember if it was last quarter or two quarters ago, is the beginnings of investment in offshoring. Some back-office functions, maybe data management, things like that. Where do those stand, and are some of the benefits of that activity beginning to show through in your financial expectations?

Yeah. I don't think we're, you go ahead. Okay.

I was gonna say I still think it's early times, but yeah. Go ahead, Jesse.

Yeah. And I just said, we're, you know, we're just getting started there. I mean, that's more of a long-term play there. You know, we haven't really seen any of the positive impact of that just yet, but we are continuing to hire in India in a couple back-office functions and administrative functions. But, you know, I think any sort of tailwind that that creates or margin help, it will be some, but it won't be a major margin driver. You know, if you think about just the overall picture of margin profile. But it is a longer-term play than, you know, more so than anything that we're expecting to materialize here in 2025.

Got it. And then last question for me is just, I guess, around competition. It kind of comes back to a bookings question, but I'm thinking about it more again from a margin sustainability standpoint and what we hear in the market is, you know, I know you would normally say that you typically see the bigger competitors, but it sounds like in the absence of, you know, a stronger demand environment broadly that they are moving down into what would be your more traditional space more aggressively. So I wonder if you're, you know, if you're seeing that. And I would assume your reaction would be to, you know, to not sacrifice price. So maybe August, you could speak to that.

Sure. I look. I think the environment has tightened everybody's belt some. You know, I think clients are, you know, funding challenged frequently and at least in, you know, our clients. And I think there is heightened competition and, you know, pricing is a part of that, and I think you have to be as efficient as possible. You know, certainly, we have to be competitive and bring value to, you know, to the table. And, yeah, price is part of that. And we've had to, you know, defend our, you know, our volume as well as our margin.

Got it. That's helpful. Thank you very much.

Thank you. And our next question comes from the line of Jalindra Singh from Truist Securities. Your question please.

Thank you, and good morning, everyone. So going back to the comment around biotech slow, this is making delays, etcetera. I understand it is tough to know what might be driving that. But based on your conversation with these companies, are there any key catalysts they're watching for before they come comfortable going forward with the project? And related to that, have you seen any signs that sponsors are putting pressure on these companies to put dollars into play? Because it seems like funding is not an issue. And if that's the case, it could create some pent-up demand in the near term. Any thoughts on that?

Yeah. I think for our clients, funding is the issue. You know, I can't speak to clients that have cash and just don't want to spend it. So I, you know, yeah, I just don't know. I mean, look, there's also, you know, things do take time and the clients that do have cash, you know, may not be ready with their IP, you know, to move forward for other reasons. So I don't think, I mean, I don't perceive a significant number of our clients holding on to cash despite they have a program that's ready to move forward and, you know, don't want to spend. Yeah. I just don't see that, but I don't know.

Okay. That makes sense. And then my follow-up on the RFP trends in the quarter being down slightly sequentially versus Q3, can you guys speak a little bit more to the quality of RFPs? Are you seeing customers kind of prioritizing research and drugs with more promising data on our drugs in later stage trials or mix of RFPs and focus still pretty consistent? And to that point, can you remind us where your mix is across phase one to four?

Yeah. Okay. So I think RFPs were okay in Q4. Q4 just tends to be a little bit lighter in general. So I think the volume, the dollar volume of RFPs was fine, you know, from my perspective. So it was the qualitative side that I didn't think there was quite as many opportunities that looked, you know, promising in terms of size and likelihood of moving forward, etcetera. So a little bit more maybe churn in the RFP, you know, bucket than I would like. So that was kind of just my qualitative assessment, which is difficult to quantify. In terms of our breakout, you know, phase one through four, you know, phase one itself is a very small part of our business. We're talking about a couple percent, you know, one percent. But, you know, if you talk about, you know, our CPU type operations now, you know, you could generally other phase ones, you know, in oncology, etcetera, you know, you throw in with phase two and three. That's the majority of the business, and, you know, dollar numbers, you know, phase two and then the phase three are somewhat comparable type of size of the business, and we don't have a lot of, you know, very late phase type trials.

Great. Thanks a lot.

Thank you. And our next question comes from the line of Justin Bowers from Deutsche Bank. Your question please.

Hi. Good morning, everyone. Can you talk about the trends that you're seeing in your pre-backlog awards and how cancellations are trending there? Is there a similar pattern that you're seeing in the bookings or sort of in line above what you're seeing in the backlog?

I'm sorry. The cancellation and pre-backlog, the pre-backlog awards. Yeah. So okay. So our new order notification, that's you're just asking what the kind of volume was there?

Volume was. And then are you seeing is there any divergence in the cancellations there versus what you're seeing in your net business?

Right? Okay. Forking your backlog. Yep. And then kind of that, oh, awards that have been awarded to you know, awards that we have that are not yet in backlog. Yeah. So I think the flow is still okay. Again, I think that the business environment did soften a little bit in Q4, but our win rate was fine and so I think that things moving into our kind of awarded, but not backlog yet is still looking okay and good enough to, you know, to kind of get what we want to get. You know, second half of this year if everything else, you know, remains the same. Cancellations came down both, you know, across the portfolio. So both in, you know, more into our normal range for backlog cancellations. As well as a reduction in our cancellations in that pre-backlog kind of phase. So those came down quite a bit also, and they were actually the bigger part of cancellations in 2024 and drove most of our booking difficulty were from that pre-backlog, you know, group. Rather than the backlog group itself. So they came down nicely also along with the backlog cancellations.

Understood. And then just in terms of the demand environment and piecing together some of the other questions, it seems like quality started to improve late last year and pricing was at least stabilizing. Maybe improving, you know, a smidge. Is that still the trajectory or could that start to gain direction as well? And then maybe just comments on decision making. Like, there's been a lot of delays throughout, you know, 2024. Is that sort of a persistent trend or is the velocity change there at all?

So I think the business environment was, you know, much improved for the first three quarters of 2024, you know. So I think 2024 was, you know, came out with accelerating kind of opportunities. And, you know, aside from the cancellation, you know, so if we look at just new opportunities and not, you know, what was happening in our business environment with things being pulled, or, you know, funding problems of many of our clients. There were a lot of opportunities and they were kind of accelerating. Q4 was a little bit weaker maybe. But, you know, the environment is still not, you know, not horrible. So, you know, I don't know which direction it's going. Could just be maybe a little bit of a slowdown in Q4, and then things are gonna reaccelerate. Or it could be the signs of things are slowing down more. You know, delays and, you know, things like that. I wasn't, you know, delays on really, you know, it was funding, really. You know, we've had a few delays in and, you know, push things out of Q4, but that it hasn't really been just quarter to quarter delays in, you know, prior in the year, it was more financial difficulty and cancellations. Does that answer your question?

Yes. Yes. Thank you, August.

Thank you. And as a reminder, ladies and gentlemen, if you do have a question, our next question comes from the line of Charles Rhyee from TD Cowen. Your question please.

Yeah. Thanks for taking the questions. Maybe just maybe a little bit more clarification as we think about sort of the cancellation rates. You're saying that's kind of come back to normal. I know we talked about sort of cancellations from pre-backlog. How much longer should we expect that kind of these kind of dynamics to be impacting book-to-bill as we move through the course of the year? Do you feel like we're kind of getting at the end of that and so when we think about the difference between, let's say, the 0.99 book-to-bill in the fourth quarter sort of getting to this 1.15 as we get to the back half of the year. How would you kind of characterize that as a mix between sort of reducing sort of these pre-backlog cancellations or just expectations for RFP growth and awards?

Yeah. So I think the elevated pre-backlog cancellations throughout 2024 will have an impact throughout 2025. And I expect weak bookings in the first couple quarters of 2025. And then, hopefully, in the second half, we will get bookings that are accelerating and, you know, getting above that 1.15 sort of threshold that I look at hopefully moving in 2026 to, you know, 1.2, etcetera. But that's kind of the trajectory seeing based upon the cancellations in our portfolio of pre-backlog work, which can take up to a year to translate into backlog.

Okay. So just to follow-up there. So if we assume that that kind of activity is sounds like you're saying is kind of you feel it can be relatively constant, when we think about the weaker first half bookings, is that a function where you think, you know, you said the RFP activity in the fourth quarter was down slightly. We should expect you're seeing RFP activity here in the first quarter lower. And so is the right thing that's supposed to go?

I'm not projecting future RFPs. I'm projecting the bookings. I thought that's what you were asking.

Oh, yeah. I'm sorry. Booking. I'm sorry. Yeah. Are you expecting bookings to be, you know, book-to-bill here to be sort of lower in the first half than the fourth quarter and then kind of ramping back up?

Well, no. I do not, I hope nothing is lower than Q4 in terms of booking book-to-bill. So I'm hoping that that is improved, but still well below that 1.15. So, you know, I'm looking for rather weak bookings in the first couple quarters here in 2025. Certainly hope that's above a 1.0. And I have every reason to believe it will be, but just not, you know, anywhere near our kind of more longer-term run rate.

Got it. Appreciate that. Thank you.

Thank you. And our next question comes from the line of Ann Hynes from Mizuho. Your question please.

Hi, great. Thank you. So I know this is an uncertain environment, but I guess given your guidance, do you think your revenue guidance encompasses just the uncertainty? And when you talk to your customers, how much visibility do they have in the funding environment? So I'm just trying to figure out with this new guidance, how confident are you in the visibility you have at this point in time? And maybe, what do you think at this point in time would drive upside versus downside. That'd be great. Thank you.

Okay. That's a little bit tough. How confident am I in, I have no idea where the business is going, you know, the business environment in 2025. I think we've tried to make reasonable assumptions about the future path and, you know, that's our, that's, you know, the guidance we came out with. I think there's substantial downside potential with further cancellations, a weakening business environment, and substantial upside opportunities if cancellations really, you know, drop to, you know, well into our normal range and, you know, the business environment strengthens as it had been in most of 2024. So I think, you know, we're kind of equiposed here. You know? I think we've got a, you know, a good guidance that, you know, reflects the environment we're in. But, you know, there's certainly, you know, quite a bit. And, you know, look, if this is a business that has, you know, a lot of it is established backlog, you know, for this 2025. It's already in place. It's a matter of cancellations. And cancellations can, you know, can completely destroy those hopes. But there's also the opportunity that cancellations are very low. And, you know, that's gonna be the big driver. Yeah. I don't know what else I can, you know, I can say to get you, you know, comfortable with the guidance we have.

Maybe on the cancellation part, were there any trials canceled that surprised you? Like, meaning, is the industry different than historical drivers and cancellations. And then that would be great. And then just on the competitive environment, are there any notable changes sequentially that you would call out?

No real changes. And cancellations, it's, so this past year, it's been very largely funding related. Now, like, there's cancellations come for a number of reasons. We've had products fail. You know, various reasons for a cancellation occur, you know, competitive environment changed substantially. It, you know, there's a broad, you know, number of reasons for cancellations, but overwhelmingly, they've been at least linked in good part to funding. So that is the, you know, that is the primary kind of driver that we see in terms of cancellations.

Alright. Thank you.

Thank you. And our next question is a follow-up from the line of Max Smock from William Blair. Your question please.

Hi. Thanks for squeezing in a follow-up here. I just wanted to ask a clarifying question on gross margin. One of the questions we've been getting is around whether there's any sort of tailwind to gross margin from the elevating cancellations that you saw in 2024. So just hoping you can walk through the payments that you received for those cancellations and I guess the way I think about it, just for work completed and then for wind down cost, but wanted to confirm that there's not any sort of incremental payments in there that would have artificially inflated your margins this year. And then, therefore, would be a bit of a headwind to margins in 2025 given that cancellation seemed to normalize in a bit. Thank you.

Kevin, I don't know if you want me to, yeah. Let me take a stab at that first. I think that cancellations historically have been something of a tailwind for margin. And often it kind of accelerates a lot of work on that closeout, etcetera. And also just I think our routine monitoring of percent completion. And, you know, we were, I think, you know, I think we're reasonably conservative about, you know, revenue accrual that sometimes catches up some aspects at, you know, at closeout. So I think that in general, there is something of a tailwind from cancellations. Kevin, I don't know if you have any quantification for that.

Yeah. No. It's nothing that I can quantify, but I would say, you know, while there is, you know, some slight tailwind from that, the core tailwind on margins this year has again been just the productivity of the existing employee base, it's been tremendous. Again, your headcount is flat year over year and the organization and the employee base continues to be productive in advancing programs and that's really what's driving margins. Yeah. There might be a slight tailwind from some of these cancellations. And as August mentioned, close out those programs. But by and large, it's just retention of the employee base and good utilization and just great execution.

Understood. Thanks again for squeezing in a follow-up.

Thank you. And our next question is a follow-up from the line of Eric Coldwell from Baird. Your question please.

Hey, thanks. I was hoping you could help us with performance obligations. Your performance obligations as reported in SEC filings actually grew at a nice and accelerating clip all year. Third quarter was up 25% year over year. It was up over 9% quarter over quarter. So I'm struggling a bit with trying to triangulate between what should be, and that's historically been, an extremely high positive correlation to future revenue growth. Which was a number that spiked dramatically in 3Q versus what you're telling us on the bookings and the revenue outlook for this year, which obviously are much lower. So how did that come to pass? Performance obligations were up 25% in the third quarter. And why is that not as correlated to revenue growth in 2025 as it has been historically?

Those look very far out. You know, we have, you know, five-year projects, and all of it goes into performance obligation. But only a portion of that is near term. As that is included in our backlog even if it reaches backlog. I mean, so you get backlog. Okay. We get an award usually by the time we got a signed contract and it's an obligation. It's usually in backlog, but it's only a part of it that's in backlog. And you'd expect if you have a lot of projects canceling, a lot of new stuff, being added in that, you know, the average duration goes up and that would increase the gap between performance obligations and backlog. But, you know, that's, I don't know that, you know, quantitatively break that down into exactly, you know, but it's not something I think that would be unexpected. You know, revenue growth is going to be based upon, you know, late-stage projects, you don't have your fastest conversion, and, you know, you get it's all in backlog and early-stage stuff, there's still a lot of stuff held out.

Would there be any on top of the timing nuance of cancels now, awards for later, is there any other more structural shift in the nature of the programs or the average duration of an incremental program coming in today is longer than what you would have in the past, is there anything like that occurring? And then finally, I don't know if you could help us with this, but would you be willing to foreshadow what the performance obligations look like in the 10-K that will be coming later?

Yeah. I mean, in terms of the foreshadowing, I mean, we'll publish that later today. Okay. I don't think that the difference will be dramatically different than what you saw in the third quarter. Again, as August mentioned, the tail on studies is really the largest driver of that delta. Because remember, we only put in the first three years of a program in the backlog. And there's other factors like there's an interim analysis, we only put the study in up to that interim analysis. There's a lot of differences between the accounting version versus the backlog version, but it's consistent from period to period. No structural changes, I guess, in other words there.

Okay. Thank you very much. I do think backlog is a better reflection of what, you know, we think is, you know, we do have that look. We've given them a price. We've given them what we're, you know, we do, and we're obligated to do it even if they go into that next phase of the study. But sometimes, those are really just options that the client holds, you know, and it's not likely to even get, you know, I mean, I think our backlog is a better reflection of what we think is, you know, qualified stuff that we're likely to perform.

Yeah. I agree.

Thank you. And our next question comes from the line of David Windley from Jefferies. Your question please.

Hi. The beauty of a short cover call is we get to have multiple follow-ups here. Maybe I don't know if you like that or not. But I wanted to ask one as well. First of all, to clarify an answer you just gave to Eric. So August, you said late-stage programs are, I think your point was burning more directly into revenue versus early-stage programs. I want to clarify by that that you mean the late stage of programs. Right? So not the difference between phase one and phase three, but the latter part of the phase three rather than the earlier part of the phase three.

Right.

Appreciate that. And then Kevin, I think you mentioned on margin some benefit, I believe, from FX, and I didn't hear a quantification of that. Wondered if you might quantify that. And then what is your FX assumption in the guidance for 2025? Thanks.

Yeah. The guidance assumes FX rates as of December 31. And in terms of the impact in the fourth quarter, it was probably about $4 million EBITDA impact for the fourth quarter net.

Okay. Alright. Great. It's all for me. Thank you.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Lauren Morris for any further remarks.

Thank you for joining us on today's call and for your interest in Medpace Holdings, Inc. We look forward to speaking with you again on our first quarter 2025 earnings call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.