Medpace Outperforms Q2 Expectations: Analyst Says High Expectations, Softer Margins Will Likely Temper Enthusiasm

Medpace Holdings Inc MEDP reported Q2 revenue of $460.9 million, up 31.2%Y/Y, beating the consensus of $433.69 million, representing a backlog conversion rate of 18.7%.

Net new business awards were $574.8 million, up 27.6% Y/Y, which resulted in a net book-to-bill ratio of 1.25x.

EBITDA was $83.6 million, an increase of 22.8% from EBITDA of $68.1 million for the comparable prior-year period, resulting in an EBITDA margin of 18.1%.

The company reported Q2 EPS of $1.93, compared to $1.46 a year ago, beating the consensus of $1.91.

Guidance: Medpace forecasts 2023 revenue of $1.840 billion-$1.880 billion compared to the consensus of $1.78 billion and prior guidance of $1.745 billion - $1.805 billion.

The company expects FY23 net income of $256.0 million - $271.0 million, with diluted EPS of $8.04-$8.50, compared to the consensus of $8.23 and the previous outlook of $7.81 - $8.40.

FY23 EBITDA is expected to be $340.0 million - $358.0 million. 

Analyst: William Blair analyst Max Smock says positive funding trends and uplifting remarks from companies in the pharmaceutical outsourcing domain bolstered optimism for Medpace's outlook.

However, he did harbor concerns that expectations could be too lofty, particularly following the significant surge in top-line performance in the previous quarter.

Investors are hopeful of seeing more bottom-line improvement from Medpace.

Echoing the sentiments of the previous quarter, the analyst anticipates a slight increase in the backlog that isn't projected to be recognized over the subsequent year, which could raise some eyebrows among investors. This may be interpreted as a sign of decelerated new trial initiations.

Despite the inflated top-line performance, strong bookings and direct fee revenue for another quarter suggest Medpace is still on a trajectory for significant organic growth compared to other Clinical Research Organizations.

The analyst keeps the Outperform rating.

Price Action: MEDP shares are down 0.67% at $245.28 during the premarket session on the last check Tuesday.

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