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Edited Transcript of MEDP earnings conference call or presentation 30-Jul-19 1:00pm GMT

Q2 2019 Medpace Holdings Inc Earnings Call

CINCINNATI Aug 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Medpace Holdings Inc earnings conference call or presentation Tuesday, July 30, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* August James Troendle

Medpace Holdings, Inc. - Chairman, President & CEO

* Jesse J. Geiger

Medpace Holdings, Inc. - CFO & COO of Laboratory Operations

* Kevin M. Brady

Medpace Holdings, Inc. - Executive Director of Finance

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Conference Call Participants

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* Alexander Yearley Draper

SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research

* Courtney Patrice Owens

William Blair & Company L.L.C., Research Division - Associate

* David Howard Windley

Jefferies LLC, Research Division - Equity Analyst

* Donald Houghton Hooker

KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst

* Erin Elizabeth Wilson Wright

Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst

* Stephen C. Baxter

Wolfe Research, LLC - Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Medpace second quarter earnings conference call. (Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference call, Mr. Kevin Brady, Medpace's Executive Director of Finance. You may begin.

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Kevin M. Brady, Medpace Holdings, Inc. - Executive Director of Finance [2]

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Good morning, and thank you for joining Medpace's Second Quarter 2019 Earnings Conference Call. Also on the call today is our President and CEO, August Troendle; and our CFO and COO of Laboratory Operations, Jesse Geiger.

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 other important factors that could cause actual results to differ materially from our current expectations, including the impact of the changes to the revenue recognition standards. These factors are discussed in the Risk Factors section of our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements in the future 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 on the Investor Relations section of our website at investor.medpace.com.

With that, I would now like to turn the call over to Jesse Geiger.

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [3]

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Thank you, Kevin, and good morning, everyone. As August mentioned in our earnings release, the business environment remains strong in the second quarter and our competitive win rate also remained healthy. Cancellations in the quarter returned to a level within our historical range, which were down from the elevated levels of the past 2 quarters.

Net new business awards entering backlog in the second quarter increased 16.4% from the prior year to $279.2 million, resulting in a 1.3x net book-to-bill, and ending backlog as of June 30 was $1.2 billion, an increase of 19.6% from the prior year. Revenue was $214.1 million in the second quarter of 2019, which represents year-over-year growth of 25.8% on a reported basis and 26% on a constant currency organic basis. Second quarter reimbursed out-of-pocket expenses of $71 million were relatively consistent with Q1 and represented 33.2% of revenue.

EBITDA of $40.2 million increased 20.3% compared to $33.4 million in the second quarter of 2018. On a constant currency basis, the second quarter EBITDA increased 18.2% compared to the prior year. EBITDA margin for the quarter declined 90 basis points to 18.8% versus 19.7% in the prior year period. The decrease was primarily attributable to higher reimbursed out-of-pocket expenses and employee-related costs partially offset by higher revenue. For the second quarter of '19, we did not have any adjustments to EBITDA. Second quarter of 2018 EBITDA excluded $1 million of corporate campus lease payments and included transaction-related expenses of $400,000.

In the second quarter of 2019, GAAP net income was $27.5 million compared to GAAP net income of $16.6 million in the prior year period. Adjusted net income of $30.4 million in the second quarter increased 35.7% compared to $22.4 million in the prior year. Adjusted net income growth was primarily driven by revenue growth partially offset by higher employee-related costs and reimbursed out-of-pocket expenses.

GAAP net income per diluted share for the quarter was $0.73 compared to $0.45 in the prior year period. Second quarter 2019 adjusted net income per diluted share of $0.81 grew 32.8% versus second quarter 2018 adjusted net income per diluted share of $0.61, and we did not purchase any shares in the second quarter.

Regarding customer concentration, we maintain a well-diversified mix with our top 5 and top 10 customers representing roughly 21% and 31%, respectively, of our total revenue for the first half of the year. In the second quarter, we generated $46.6 million in cash flow from operating activities, and our net day sales outstanding increased compared to the first quarter from negative 9.2 days negative to 6.6 days. We paid off the remaining term loan in the second quarter and ended the quarter with no debt and $20.1 million of cash.

Moving now to our updated guidance for 2019. We now forecast total revenue in the range of $840 million to $860 million for the full year 2019, representing growth of 19.2% to 22.1% over 2018 total revenue of $704.6 million. We now forecast our 2019 EBITDA in the range of $144 million to $150 million compared to EBITDA of $140.9 million in 2018.

We anticipate our 2019 effective tax rate to be in the range of 20% to 22%. We have assumed 37.4 million fully diluted shares for 2019 and no stock repurchases in our guidance and exchange rates as of June 30, 2019. We forecast 2019 GAAP net income in the range of $93.4 million to $97.4 million and GAAP earnings per diluted shares in the range of $2.49 to $2.60. On an adjusted basis, we forecast 2019 adjusted net income in the range of $105.7 million to $109.7 million and adjusted EPS in the range of $2.82 to $2.93.

With that, I will turn the call back over to the operator so we can take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question coming from the line of David Windley with Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [2]

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August, I'm disappointed not to get your opening remarks. I'd be curious, I believe August is on the call, I thought that's what they said.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [3]

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I'm here.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [4]

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I've been curious, your description of the environment on -- in maybe a little bit more detail. And then I do have a follow-up or 2 on some mechanics.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [5]

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Okay. Business environment, I think, has been pretty stable. And again, I think there's been a lot of talk, but I did not -- I don't think I've ever said that the business environment had deteriorated badly this year at all. But compared to last year, it has been a little bit softer. This -- if you look at like RFP flow, the first 3 quarters of last year, it was very strong. And it kind of dropped some in Q4 and Q1, and that's why I've said that business environment had softened some, both the quality and the number of RFPs coming in.

What sustained us has been outstanding win rate. Our competitive win rate in the last several quarters has been very high, and that's made up for a bit of softening in the overall flow of RFPs. Things did tick up a little bit in the second quarter. Again, I would characterize it more as ongoing relatively strong environment that's a little bit weaker than the early -- certainly the first half of 2018. But still pretty strong and, in fact, strengthened a little bit in the latest quarter.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [6]

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Okay. That's very helpful. So on the mechanics. So one of the pretty common outcomes for most of your peers if they experienced a couple quarters in a row of elevated cancellations would be some disconnect in the kind of loss of revenue out of backlog and likely revenue in the relative near term and the ability to kind of cycle staff and projects into something else to actually replace that revenue. And so one would expect that, that -- and you actually described it last quarter as being a headwind, and yet, revenue was better than expectations and, importantly, looks like margin and utilization was better than expectations. I guess the last point I would think intuitively would be because you guys don't include projects in backlog until they're basically ready to start, it's not as if these products weren't already teed up. So help me understand how you guys are so nimbly able to transition from what has to be lost revenue into more revenue.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [7]

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Okay. So the cancellations were pretty sizable in Q4 and Q1, and they absolutely have a meaningful impact on our revenue generation in this year, 2019, and into 2020. I think you could say whatever we would -- revenue we would've had would've been substantially better if we hadn't had cancellations. But the timing of that is there is a bit of a delay, and you don't see a material drop-off in that revenue till a few quarters out often. And we are still expecting a larger impact in the second half of the year than in the first half of the year from that. But you're right, we do have a lot of things in play, and the environment has been very good at enabling us to fill in a lot of the gaps. And we still do expect a little bit of an air pocket here later in the year.

But how well we can fit in and -- it's really the timing of startup of other projects, how quickly we can get them moving will determine whether -- how much of a slowdown that brings. But I think there's differently a slowdown from whatever it would've been. The environment has been good enough for us and our win rate has been outstanding enough for us to generate revenue growth faster than expected. And operationally, startup of projects has gone very smoothly. So I think there's a lot of things in the mix. I don't know exactly what the impact, but certainly, we do expect some impact on revenue growth in the second half of the year.

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Operator [8]

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And our next question coming from the line of Sandy Draper with SunTrust.

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Alexander Yearley Draper, SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research [9]

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Just one industry question, probably for August. One of, hate to say competitor because they're -- I don't think you guy compete with them a whole lot, they're on the very large end, mentioned maybe a little bit more wage pressure or a little bit more difficult hiring. Just wanted to, August, get your thoughts on the hiring front. What you are seeing? Is there any notably change there? Obviously, industry is growing well. A lot of people looking to hire. A lot of demand, a lot of good book-to-bills across the board. So I just wanted to get your thoughts on what the hiring environment is like.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [10]

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I think it's relatively consistent. I don't think there's been a large shift in anything. It isn't like several years ago when there was a lot of bidding for oncology CRAs and there was a fair amount of acute wage pressure in some areas. I don't see that currently. I think that we are hiring aggressively, have grown headcount pretty rapidly and tend to continue that. But I don't see that as a major barrier, and I don't see it as a meaningful inflection in wages.

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Alexander Yearley Draper, SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research [11]

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Okay. Great. That's really helpful. And then the follow-up, unrelated. Just any updated thoughts on or approach to the share repurchase program? Obviously, haven't seen any recently. You have one outstanding. When you think about the use of capital and capital deployment, what -- where are the priorities? And how do you see the share repurchase fitting in?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [12]

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Sure. So you're right, we paid off the debt in the quarter. The next logical step for us in capital allocation would be share repurchases. We do have some anticipated higher capital expenditures kind of second half of this year and late and into early part of next year relative to our campus expansion here. But beyond that, we'll be opportunistic about the timing of share repurchases.

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Operator [13]

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And our next question coming from the line of Erin Wright from Crédit Suisse.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [14]

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Can you speak a little bit about the nature of the new business wins in the quarter? Was there any one-off or disproportionately larger factors or contracts that influenced the new business win trends?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [15]

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No. There really was no large award that drove anything there. It was pretty diversified.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [16]

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Okay. Great. And then, I mean, on the last call, you kind of mentioned that it's not just the economic about the RFP flow in terms of magnitude but also the quality thereon, and you seem more optimistic here. I guess how would you characterize kind of the quality that you're seeing out there today?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [17]

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I think it's, again, reasonably strong, but not quite as exciting as the first 2, 3 quarters of last year. So I think it's kind of moderated some, but it's remained strong. And I do want to point out one thing that I think a lot of people have focused on, they've looked at our book-to-bills and see here the 1.3x, maybe I should put that in context. Look, I think we're doing great, and I think we're kind of where we want to be. But a 1.3x does not translate into what it was under 605. There is -- for a full service provider like us that is doing all full service and so have a lot of -- a very substantial portion of our revenue is pass-throughs.

Book -- and those pass-through characteristics are a bit later in projects and the book-to-bill will virtually always be substantially higher under 606 basis than a 605. And so like I've said before, I think we've targeted in the past 1.15 to 1.2x under 605, I think we have to target a 1.3x or so under 606. So this 1.3x really represents something less than a 1.2x under 605. And in fact, if -- looking at this quarter, our -- if we did it on a service revenue basis, service fee basis, our book-to-bill would've been less than 1.2x. So don't translate this 1.3x into a very high number relative to our historical trends.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [18]

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Okay. And with that in mind, I mean, how should we be thinking about booking trends into the second half in terms of the pass-through dynamic?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [19]

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So again, I would -- we kind of target a 1.3x or so, and I think we're anticipating being able to achieve that.

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Operator [20]

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And our next question coming from the line of Donald Hooker with KeyBanc.

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Donald Houghton Hooker, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [21]

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I just want to orient myself again around similar question to last quarters, orient myself around EBITDA margins. I mean, I guess, maybe you can reiterate your plans? It looks like you're hiring -- you're increasing your employee base pretty substantially this year. I think it was 20%, you mentioned, last quarter. I mean what is the right EBITDA margin now with all this growth coming in? I think we've talked about 16% to 17% in the fast. Is that a fair kind of as we look at beyond 2019 a normalized EBITDA margin for you guys?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [22]

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Yes. I think something in the 16% to 18% range is a good normalized margin. The Q2 level -- margin level was impacted by relatively flat pass-through costs compared to the revenue increase. So that did pop it up for the quarter. The 18.4%, I wouldn't view that as a sustainable margin. We are guiding to about a 17.3% at the midpoint for the year, which I think is a reasonable expectation.

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Donald Houghton Hooker, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [23]

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Are you guys going to be -- sorry.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [24]

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I just wanted to add, I think our employment growth is right about in line and doing well. We kind of had expected to -- revenue to be a little bit lower even on the service fee basis, and we expect it to get farther ahead on hiring, which was kind of our plan. We wanted to aggressively look for growth and hire ahead, and I don't think we've done that. Instead, we've sort of right along the path, I guess, you could say, a little bit closer than we would've normally planned. So I think we're in a pretty good spot. But we didn't get as far ahead as we expected, so margin has popped up a bit.

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Donald Houghton Hooker, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [25]

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Okay. So when do you think you'd be sort of "caught up" with your hiring?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [26]

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Again, I think we're caught up but we want to get ahead. We want to really kind of get a good buffer. And that's something -- I don't know. I mean we have time to do it. We're expecting it in -- here in the rest of the year. We expect to hire ahead of revenues going in through the rest of the year. Although, I think we're in a reasonably good spot now.

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Donald Houghton Hooker, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [27]

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Okay. Got you. Maybe one last question on that same front. Do you guys -- I think -- do you guys rely or use any contract labor that -- I think you might have mentioned, I guess, with the big growth rates last year, you might've had relied on some third-party contract labor. What is your sort of use of contract labor now? And kind of how do you see that trending going forward into next year?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [28]

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So we do have some. I wouldn't say it's a large amount, but we did that when -- a quarter or 2 ago and began hiring some contract staff to fill in. We still have some of that. We will unwind that at some point. But usually, we hold that staff for a year or so, at least. So that's still in place.

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Operator [29]

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And our next question coming from the line of Stephen Baxter with Wolfe Research.

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Stephen C. Baxter, Wolfe Research, LLC - Senior Analyst [30]

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So as you've had some more time to look back on Q4 and Q1, have you had any additional insights about what drove the cancellation rate up to those levels? Or I guess said another way, what didn't you see this quarter that resulted in the cancellation rate returning back down to those normal levels?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [31]

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Yes. Thanks, Stephen. No, nothing to -- kind of a look-back analysis, nothing has come out of kind of under covering what was driving the Q4, Q1 elevated levels. A lot of those at the time we identified were project reprioritizations and drug failures, nothing out of the ordinary there. And then really, Q2 has returned back to a pretty normalized level with nothing to note. But yes, I think it was just kind of ordinary course cancellations in those larger quarters, just more of them.

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Stephen C. Baxter, Wolfe Research, LLC - Senior Analyst [32]

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And a normal cancellation rate for you guys, I think you said in the past, is somewhere around like 4% or 5%. Is that still the right way to kind of think about what's normal?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [33]

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Yes. That's right.

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Stephen C. Baxter, Wolfe Research, LLC - Senior Analyst [34]

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Okay. On the balance sheet, I wanted to kind of return to the previous question on share purchase. If you guys are thinking about doing share repurchase, would you ever consider putting some debt back on the balance sheet to allow you to do more than just your free cash flow? I'd be curious to hear your thoughts on the pros and cons and why the capital structure without debt sort of is or is not the right way for you guys to trend going forward.

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [35]

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Yes. If we saw the right opportunity, we would certainly put debt back on the balance sheet to take advantage of the share repurchases. And we do maintain -- we paid off the term debt, but we do maintain an undrawn $150 million revolver capacity that we would utilize for something just like that.

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Stephen C. Baxter, Wolfe Research, LLC - Senior Analyst [36]

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Okay. And then last one for me was just on some of the customer mix disclosures. It looks like small biopharma is up something like 50% or plus year-to-date. And a little bit of that has been offset by a little bit smaller year-over-year revenue in the midsized biopharma group? Is there any color you guys can provide on whether that's just the mix of companies coming in and out of those classifications or whether potentially there's any impact from competition in that space? Or just -- there's just noise in the numbers?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [37]

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Yes. I think it's just mix of companies in the composition. We are seeing more of the growth come out of small biopharma, but we're maintaining competitive win rates in the midsized space as well.

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Operator [38]

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(Operator Instructions) And our next question coming from the line of Courtney Owens with William Blair.

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Courtney Patrice Owens, William Blair & Company L.L.C., Research Division - Associate [39]

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Just a couple of macro questions for me. So biotech funding, we're seeing it's still strong on an absolute level, but over the -- it's not as strong, I guess, on a year-over-year level as it has been in the past couple of quarters. Are you hearing any commentary from clients or feeling kind of any softening in that environment longer term? I know you guys said currently, the environment is pretty strong. But have you guys heard any kind of pushback from clients when they're kind of looking out a few quarters from now?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [40]

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We're not. We're not currently seeing any increased funding delays where projects are held up or delayed for funding. The overall environment that we're seeing in active and perspective opportunities continues to look very strong, but it is something that we keep a close eye on.

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Courtney Patrice Owens, William Blair & Company L.L.C., Research Division - Associate [41]

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Okay. Got it. Great. And then just another one just on the macro. With continued drug pricing commentary out of Washington and more of like medical reform and stuff like that, are you guys kind of hearing any pushback or commentary from clients around that as well or no?

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [42]

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No. Not currently.

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Operator [43]

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And our next question coming from the line of David Windley with Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [44]

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I'm coming back around. So a follow-up to Courtney's question. In your -- we've tried to -- as you probably know, we've tried to understand a little bit better the composition within your small biopharma customer mix. And I don't know if there's some -- any metrics that you can provide to help kind of parse that or add some color to kind of the array of those from top to bottom. What percentage of those are public companies? What percentage of those are series B, series C, VC funded? I'm trying to get a sense for, say, relative to Courtney's biotech funding question, what types of funding, what classifications of funding are the majority of your clients reliant on?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [45]

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I don't have that in front of me. I think we have talked in the past. I don't think we've ever broken that out. But I -- we have talked in the past about how many had partnered projects versus unpartnered programs with prerevenue companies. And a good chunk of it is prerevenue. About -- I think about half of it is partnered and half is not partnered, kind of that sort of breakout. But I don't have the -- how many are public, and that, of course, changes over time and -- quite a bit, and how many are private. But again, the more important thing for us is not public or private, it's whether they have the cash on the balance sheet or they have the partner with -- partnering with a larger company that is funding things or what their approach to the funding is.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [46]

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That's helpful. On the margin, this was my other kind of mechanics question. So you've talked about the book-to-bills and you may appreciate the emphasis you put on the difference between a 606 recognition and 605, and I interpreted your comments last quarter to indicate that the mix or the weight of pass-through costs in some of your more recent bookings has grown. Is that correct or not necessarily?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [47]

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That was just a one-off last quarter. I think it was an unusually large portion, I think, list quarter, not this quarter. It's always going to be higher on a 606 versus 605. Virtually every quarter is going to be a substantially higher number under the current reporting than it would've been under a 605 basis. But obviously, it does vary quarter-to-quarter. Last quarter, it was a substantial difference in it, and it made what looked like was an increase in booking was actually a decrease in bookings quarter-to-quarter, and that's why I called it out. This quarter, that's not true. Things did grow. Service revenue basis bookings, we're up also this quarter. Like I say, still a smaller number than the 1.3x, but not as large a difference as last quarter.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [48]

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And so if the pass-through cost element of bookings is dragging the book-to-bill up, I mean mechanically, that means kind of the pass-through mix is continuing to grow. Like you're adding in more pass-through costs in backlog than you're burning off in revenue in that particular quarter. I mean kind of that's the math.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [49]

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If you're doing -- if you're growing, that's always going to be the case. It's always going to be the case if you're growing because those pass-through revenues are only burned late in projects. And so we're burning -- it's disproportionately late in the project that the pass-through gets burned, so any reasonable company that has full service, unless we have negative growth. I mean even if I had flat growth, I'm going to have higher book-to-bill under a 606 basis. If I was bleeding -- I was dropping revenue over time, if I was just a shrinking company, it's possible that would not be true. But there's no situation I can see in which our 606 won't be higher.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [50]

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Okay. So -- and I am dragging this out, I apologize. But at some point, you get to the later stage in the project and the pass-through revenue is kind of bolus. And the bookings -- the pass-through bookings, if that's -- if you're in steady-state on that and the pass-through bookings are still a higher book-to-bill, then that suggests to me that your mix of pass-throughs in revenue is growing over time.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [51]

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No. No. Because it's 3 years later on and we're a 50% larger company. And so our -- you're only booking -- you're only burning that smaller cohort of studies from 3 years ago, you're burning their pass-through. And I'm burning new studies' service revenue now and booking in lots of pass-through that's going to go years from now. And unless I have flat revenue for 3 years, I won't get to steady state. And if we have flat revenue for 3 years, we're going out of business. And our economics -- so it just -- then you guys are right and Quintiles has just taken our market share. That's driven -- and it's all over for us, right?

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [52]

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Right. Okay. So last question to bring this to more current. The last quarter, you guys said pretty clearly, margin for the year will be at the first quarter level or below, and updated guidance is 60 basis points above, second quarter was way above. What...

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [53]

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I was wrong.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [54]

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What's changed in 3 months?

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [55]

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Faster revenue growth, better bookings, quicker movement onto new projects, quicker startup on a number of things, revenues burned through faster than we expected. And you're right, I was wrong. I mean there's no question my commentary about -- in first quarter that the expectations of analysts were irrationally high on our margin, et cetera, it's true. And our margin is substantially lower than last year. It's 200 basis points so far this year below last year's level, not what everybody was looking at. But it has gone faster than I expected, particularly in this last quarter. I did expect it to remain depressed at Q1 level, and it snapped back some.

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [56]

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And just to keep in mind, Dave, the pass-through costs sequentially Q1 to Q2 were flat on the elevated revenue. So that drove 200 basis points of margin increase just from Q1 to Q2. We don't expect that to continue. We do expect pass-through costs to grow in the latter half of the year, which will have an impact on margin.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [57]

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And on that point, Jesse, the outsized pass-through bookings in the first quarter that were called out, we wouldn't expect those to influence 2Q because that's too soon for the burning of pass-through costs. Is that...

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Jesse J. Geiger, Medpace Holdings, Inc. - CFO & COO of Laboratory Operations [58]

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That's right. That's right, yes.

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August James Troendle, Medpace Holdings, Inc. - Chairman, President & CEO [59]

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That's correct. Those pass-throughs will burn years from now.

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Operator [60]

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And at this time, I'm showing no further questions. I would like to turn the conference call back over to Mr. Kevin Brady for closing remarks.

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Kevin M. Brady, Medpace Holdings, Inc. - Executive Director of Finance [61]

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Thank you for joining us on today's call and for your interest in Medpace. We look forward to speaking with you again on our third quarter 2019 earnings call.

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Operator [62]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.