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Medpace Holdings Inc
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Good day, ladies and gentlemen, and welcome to the Medpace Second Quarter 2022 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 Director of Investor Relations. You may begin.
Good morning, and thank you for joining Medpace's second quarter 2022 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, including the ongoing impact of COVID-19 on our business, 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 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 Web site at investor.medpace.com.
With that, I would now like to turn the call over to August Troendle.
Good day, everyone. Liquidity and sufficiency of trial funding for our clients, which are overwhelmingly pre-commercial biotech companies, remains a top focus for us. To-date, we have seen a low level of cancellations that are directly related to financial distress. The risk of this accelerating depends upon the severity and duration of ongoing funding slowdown.
I would like to characterize in a bit more detail than usual our pipeline of business opportunities. And to do this RFP -- I do this because RFP values in the quarter are not necessarily reflective and present a complete and fair reflection of the landscape. It's somewhat of a mixed picture. Looking at the overall new business process in our industry, opportunities generally progressed through three important steps. As background, I want to provide kind of an overview of these steps. Step one I'm going to call, request for proposal; an RFP is issued by sponsoring a company of a clinical trial and multiple CROs respond with formal proposals to perform the work.
Our metrics are generally not disclosed by CROs, and this is because a number does not do justice to the issue. There are important qualitative differences making a summary number of value of these RFPs largely meaningless, i.e., quality is more important than quantity. Step two I'm going to call is the winning CRO is given an award notice, and I'm going to call this an initial award notification. The very fact that I have to make up a name for this suggests that this metric is also not shared by any reporting CROs. The reason again is quality, there is significant uncertainty at this point in the process as to the value of the initial award, timing, funding, sometimes overall scope is not fully defined.
However, one advantage of this metric is it can't be manipulated, and timing is entirely dictated by the sponsor. Step three, in step three company-specific criteria are applied, and eventually the award may be recognized as a backlog booking. Generally, this is called a new business award, and used to calculate book-to-bill. This is generally reported by CROs, yet -- but this number should not be confused with what I have named that initial award notification, in step two. CROs generally require verification of client funding, execution of a contract, et cetera, prior to recognition of an award into backlog. They also apply subjective and qualitative criteria that may delay recognition, but all are part of an award, such as concern about possible cancellation risk.
Now, okay, so, how are these steps looking at Medpace, I want to review that. If I look at step one, RFPs, our RFP flow is strong in Q2, and Q2 is up 31% from Q1 on a sequential basis. However, I have to point out that rapid growth in RFP volume is often seen in weak environments due to elevated scenario planning and to support fundraising efforts by small biopharmaceutical companies. At least in our segment, to the market, this can sometimes be driven by other things than just strong business environment. So, part of our assessment of RFP quality relates to anticipated timing the programs start and the presence of a credible, defined path towards startup.
This has slowed and is somewhat less clear in the current environment. So, I think I can summarize this by saying that, quantitatively, things look great but it's hard to draw from conclusions on any impact of funding slowdown on business. If I look at step two, initial award notifications, our initial award notifications are down in Q2 meaningfully, they're down 45% year-on-year, and 42% sequentially. So, they're substantially down and, however, on the other hand, July initial award notifications have recovered quite a bit and look to be tracking more in line with the prior 12-month average. And we're hopeful that the marked weakness seen in Q2 is not lasting.
If I look at step three, new business awards that are generally reported and recognized into backlog, they remained strong with a book to bill of 1.28 in Q2. But again, you should recognize that this largely represents initial award notifications from prior quarters that have now reached contract execution, and nearing first patient first visit study, and therefore meet our backlog recognition criteria.
So, business development in the [sero] [Ph] industry has a long cycle length. COVID opportunities move very quickly, but the average RFP takes considerable time, and there can be several quarters lag between initial award notification and new business award backlog recognition. Thus, Q2 weakness and initial award notifications might not meaningfully impact backlog bookings until Q4. So, we do have some concern, but things are looking by a number metrics, reasonably good, particularly RFP volume.
Another factor is cancellations. Cancellations can occur at any stage after initial award notification. But they are most impactful if program is in backlog and ongoing. As mentioned at the start of my remarks, cancellations in Q2 remain modest and do not signal a problem. I do remain confident in our future success and above industry organic revenue growth over the longer term. And this confidence is reflected in our stock purchases in Q1 and Q2.
With that, I'll let Jesse and Kevin update in more detail our Q2 results. Jesse?
Thank you, August. Good morning, everyone. Revenue for the second quarter of 2022 was $351.2 million. This represents a year-over-year increase of 26.2%. Our net new business awards entering backlog in the second quarter increased 16.3% from the prior year to $450.6 million. This resulted in a 1.28 net book to bill. And ending backlog of June 30th was approximately $2.2 billion; an increase of 24.4% from the prior year. We projected that approximately $1.13 billion of backlog will convert to revenue in the next 12 months. And backlog conversion in the second quarter was 16.8% of beginning backlog. In 2022, we continued to make progress in hiring adding 8% from the end of 2021 and 16.8% from the prior year.
With that, I'll turn the call over to Kevin to review our financial performance in more detail and discuss our updated 2022 guidance. Kevin?
Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $351.2 million in the second quarter of 2022. This represented a year-over-year increase of 26.2% on a reported basis and 27.7% on a constant currency organic basis. EBITDA of $68.1 million increased 42% compared to $47.9 million in the second quarter of 2021.
On a constant currency basis, second quarter EBITDA increased 35.3% compared to the prior year. EBITDA margin for the second quarter was 19.4% compared to 17.2% in the prior year period. The increased EBITDA margin was driven by net foreign exchange benefits behind the strong U.S. dollar and slower headcount growth in 2021. In the second quarter of 2022, net income of $49.4 million increased to 23.6% compared to net income of $39.9 million in the prior year period.
Net income growth over the prior year was primarily driven by higher EBITDA offset by higher effective tax rate. Net income per diluted share for the quarter was $1.46 compared to $1.6 in the prior year period. Share repurchases during the quarter benefited EPS by $0.04. Regarding customer concentration, our top five and top 10 customers represent roughly 17% and 25% respectively of our year-to-date revenue.
In the second quarter, we generated $96.6 million in cash flow from operating activities, and our net days sales outstanding was negative 45.5 days. During the quarter, we repurchased approximately 2.7 million shares at an average price of $137.86, for a total of $374.6 million. During the second quarter, our Board of Directors approved increases of $110 million to our share repurchase program. As of the end of the quarter, we have no share repurchase authorization remaining. Year-to-date, we have repurchased 5.5 million shares, which represented 15.2% of our common stock outstanding, at the end of 2021. Our net position at the end of the quarter was $207.1 million, composed of debt of $249.7 million and cash of $42.6 million. Our net leverage ratio is approximately 0.8 times last 12-months EBITDA.
Moving now to our updated guidance for 2022, full-year 2022 total revenue is now expected in the range of $1.405 billion to $1.435 billion, representing growth of 23% to 25.6% over 2021 total revenue, of $1.142 billion. Our 2022 EBITDA is now expected in the range of $268 million to $280 million, representing growth of 20.1% to 25.5% compared to EBITDA of $223.1 million in 2021. Based on foreign exchange rates, as of June 30, this revised guidance includes an additional foreign exchange headwind on revenue of approximately $4 million, and a foreign exchange tailwind on EBITDA of approximately $3 million related to the strengthening of the U.S. dollar.
This guidance assumes a full-year 2022 effective tax rate of 14.5% to 15.5%, and 33.8 million diluted weighted-average shares outstanding for 2022. There are no additional share repurchases in our guidance. We forecast 2022 net income in the range of $205 million to $215 million, which includes $4.3 million of interest expense on our outstanding debt. Earnings per diluted share is now expected to be in the range of $6.07 to $6.36.
With that, I will turn the call back over to the operator so we can take your questions.
Thank you. [Operator Instructions] And our first question comes from the line of Dave Windley with Jefferies. Your line is open. Please go ahead.
Hi, thanks, good morning. So I wanted to take your comments and tie them in with comments you made last quarter. In the last quarter, you described to us in air quotes, cancellations to what might be called a pre-bookings bucket of awarded programs that had not advanced the backlog let. So, I'm -- and using your terminology today, I'm interpreting that those would have been at or past that initial award notification stage. And then today, you're talking about that initial award notification being down -- that being the bucket that is down substantially. Are those one and the same or are your comments today kind of adding to what you told us last quarter? And how should we think about those two descriptions impacting bookings in the second-half of 2022?
Okay, yes. And thanks, Dave. Yes, I think my comments are really independent. We did mention that there, we'd seen some evidence of some canceled projects. Again, you're right that we're in that bucket of awarded to us. So, net of an initial award notification, but had not been recognized in the backlog, and so were not backlog cancellations. But I'm not talking about the -- when I talked about our numbers being down for the quarter, I'm not talking about the bucket, which of course would have been influenced by prior cancellations, I'm talking about the new flow into the bucket. So, I'm not talking about the level of the bucket, I'm talking about the new flows. And so, it has nothing to do with cancellations in the prior quarter.
It is new activity is down in the second quarter, so the bucket, which of course is continually emptying into backlog, is getting lower. But I'm not talking about the level, I'm talking about the flows they -- there were substantially down. So, it's kind of a real-time look at how things are progressing in business development. And the kind of things you see if people were slowing down decisions and not -- or canceling things before they even award them, then that wouldn't be a cancellation for us, we never got the award. But it does represent a weakness in the pipeline. And as I said, that's something that does tend to feed through a couple quarters out. And so, it would affect bookings in the -- later in the year, but there is a delay from getting from that bucket of initial award notifications all the way into backlog, and then, of course, have revenue impact even beyond that.
All right, thank you for that. On the guidance for the remainder of the year, you obviously had a very nice 2Q, some upsides on both revenue and EBITDA. When we take those in combination [technical difficulty] the FX impact for the second-half, you appear to be turning ever so slightly your revenue and EBITDA expectations on a constant currency basis. Is that a reflection of some of these issues that you're highlighting? Is it a reflection of clients maybe not starting projects as quickly as you had anticipated or perhaps not being able to hire quite as many people as you hoped? Or is it just kind of rounding error?
Hi, Dave, this is Kevin. On the margin side of the equation, you can see that, at the midpoint, we do still expect margins to decline a bit further in the second-half, and that it's pretty consistent with what we said in the first quarter call, that we do see some inflationary costs still coming in, and we are continuing to hire. We have a lot of retention efforts in place to reduce some of the attrition that we've seen in previous quarters. We've some office expansion coming up that are offsetting some of that net tailwind that we're seeing on FX.
Okay, thank you very much. I'll yield. Thanks.
Thank you. And our next question is going to be from the line of Christine Rains with William Blair. Your line is open. Please go ahead.
Hi. Thank you for taking the question. My first one is that I appreciate you commenting on cancellation, but curious if you have noticed a notable increase in project delays?
Yes, no, I wouldn't say that we've specifically seen a large number of delays, but there is some of that. And we've seen a bit of weakening, and more clients are fishing for funding, et cetera. So, it's -- that's hard to give a measure for and to have a consistent metric that I could point to. But anecdotally, we see some. I can't say that it is concerning at this point.
Great, thanks. And then just an update would be appreciated on staffing overall as it relates to turnover and hiring. Specifically, I noticed that pace of headcount growth slowed from the mid-20s in the back-half of the year to 20% last quarter, and then 17% this quarter. So, just in general, are you moderating the hiring plans at all or do you expect an uptick as the year progresses? Thanks.
Yes, this is Jesse. We are moderating a little bit just given the business environment. I think well-positioned for the current that we have. We're well-positioned for upcoming projects. As Kevin mentioned, we are continuing to hire, but just at a slightly slower rate than we've had last year, in 2021. And turnover has come down too, so our -- we're spending efforts on retention. And, for now, that seems to have improved, and hopefully that continues.
Great. That's all for me. Thank you.
Thank you. Our next question comes from the line of Sandy Draper with Guggenheim Partners. Your line is open. Please go ahead.
Thanks so much. Maybe just a couple of housekeeping items to start, probably for Kevin, one, can you remind me, Kevin, if I just do the simple math of taking ending backlog from last quarter add the bookings and subtract revenue, it -- the number doesn't [quite fit] [Ph]. I'm assuming FX is the majority of that. It's not a huge difference, but just can you remind me why that simple math doesn't necessarily always line up?
Yes, you're right, Sandy, the biggest impact there is going to be just changes in FX, that don't allow you to do the basic math.
Okay. Okay, got it. Second question, can you -- so, the debt -- remind me the structure of the debt, because it's showing up on the balance sheet as all $250 million is basically current portion is -- if like there's a revolver. Is that necessarily due, you have to pay it off the next 12 months, which it doesn't seem right?
Yes, Sandy, it's a one-year revolver, that the term is in March of 2023. Obviously, we've got the intent and ability to refinance that. But, yes, that's why it's classified as short-term.
Okay. So, is there any -- what is sort of thinking of refinancing and putting that out longer versus, oh, let's just try to get it down and more comfortable, any thoughts to that just sort of the long-term comfort with the debt?
Yes, I think our intent right now is to go ahead and start paying that facility off. As you know, we generate significant amounts of free cash flow, and so we'll start to pay that debt facility down. We do want to make sure that we keep an eye on the stock price and what's going on there. And so we -- there is some mobility to also look at additional share purchases. But yes, the intent is to pay down that facility. And we're in discussions with our banking partners, and we'll kind of see what makes sense in the coming quarters in terms of refinancing.
Okay, and than --
And, Sandy, we are comfortable with the leverage -- we're comfortable with leverage on the balance sheet, and it's something that we're considering right now is how much do we need, for how long do we need. And as Kevin mentioned, primary use of that would be for potential share repurchases, but we're working through evaluation of capital structure currently.
Okay, great. And then, and I'm sure it's out there, remind me what the rate is on the -- is it floating or is it fixed, and what is it?
It's floating. It's [indiscernible] plus 1%.
Okay. Okay, got it, which, obviously in a [indiscernible] environment makes, I would assume, a little more focus on paying it down, so -- and I guess, so the final one which you lead me into, Kevin, which is the Board has not expanded its share repo at this point. I would assume that's because you've tapped out on the current line, you're in the process of reevaluating, but it's not a signal one way or the other that you're absolutely or actually are, it's just you're reassessing your balance sheet and where the stock is. And if you think there is an opportunity can you pursue that, but, just at this point, you're going through the evaluation process, and completed. But that's trying to put words in your mouth. Is that sort of a fair summary of where you are?
That's exactly right, Sandy. We'll continue to evaluate facilities, and what the little bit longer-term nature of what we want to do looks like, and we'll determine what's in the best interest of the company in the coming quarter there; you're exactly right.
Okay, great, thanks. And then my last one just following-up on the hiring question. Jesse, can you remind me, as you said, a little bit slower hiring this quarter but still at a pretty reasonable level. If the market really comes back how long would it take you to rebuild? And RFP pipeline, not a deal, but a resume. If things come back, what's the lag time before you can really try to step on the gas and start hiring aggressively? Obviously, slowing down is probably easier. But just trying to think about if you are on a more moderate pace right now when things come back at some point, how quickly can you start ramping hiring back up?
Yes, we are ramping up rather quickly subject to what the labor market and competitiveness is there. But just as a reminder, it does take a little bit longer -- couple of quarters up to a year sometimes for people to get fully trained and new hires to be at a good utilization and contribution. So, there is a lead time there. We're not talking about a significant pullback in hiring. We still anticipate hiring at a good rate. And more importantly with retention as a key focus, it's much easier and more productive to hang on to somebody who is already functioning and active than attention on hiring a new individual. So through combination of retention effort focus and just keeping an eye on the pulse of the business environment and how we modulate the rate of gross new hires, that's our strategy here as we navigate through the coming business environment.
Great. Those are my questions. Thanks so much.
Thank you. [Operator Instructions] And our next question comes from the line of Eric Coldwell with Baird. Your line is open. Please go ahead.
Eric?
Mr. Coldwell, your line might be on mute. Okay, we will go ahead and move to our next question. We do have a follow-up question from the line of Paul Knight with KeyBanc.
Notification stage decline of 45% year-over-year in the second quarter and then it recovered in July. Was that July recovery kind of back to what backlog growth has been meaning around mid 20s? And then, why do you think that decline happened? And then maybe there was a rally. Do you think they are re-evaluating budgets? What's your thought on why maybe there was this drop and then recovery?
I have no idea. I am hopeful that there was a pause here and things are now rolling along. There is a - look, there is a fair amount of volatility on a month-to-month basis. And, the only reason I would call out the prior quarter's reduction -- usually I wouldn't, but in the current context of us being very vigilant around looking at impact of funding flows and the fact that RFPs are not particularly reflective of environment that we have actually very RFP, I don't want to leave the impression that RFPs are great.
And so, things look fantastic. There was a -- what is really a rather substantial reduction in those awards -- those initial awards in Q2, they snap back in July not to the extent of like things were all backed up. And then, there was a huge outflow that, but the July numbers are looking in line for a quarter similar to the prior four quarters. So, it looks like it's come back to kind of our baseline run rate. But that's partial month so far. I mean it's -- I don't know that that's reflective of the next quarter. But, we are hopeful it is.
And this volatility you're seeing, is it concentrated in that small biopharma group of customers that's 79% of our revenue year-to-date that we see?
Yes. Yes, that drives our numbers. And yes, that's exactly where we see this quite -- and look, you're going to see volatility in initial awards independent of the size of the company. Look, sometimes the company has lot of work coming along. And so, there can be volatility just in general. But, I think the weakness that we are seeing is being driven by that smaller biotech company, yes.
Okay. And then, my last question is do you see any therapeutic area that's weaker like cell therapy? That seems to be the most troublesome spot in the clinical trial market right now. But, what are your thoughts?
That's a small enough area for us. It's not going drive any of the larger numbers. The slowdown I do not have a particular categorization of the therapeutic area or type of study. It's broad as far as I can see.
Okay, thanks.
Thank you. And our next question is a follow-up question from the line of Christine Rains with William Blair. Please go ahead.
Hi, thanks for taking the additional questions. I was just wondering if you can comment on the historical delays from initial awards to executed awards, sort of in other words, the progression from bucket 2 to the bucket 3, and should we assume that awards are lower in Q3 as a result or more like Q4? And just kind of what you are assuming in guidance?
Yes. And look, things -- some things move faster. Some things move slower in times of if there is a funding difficulties or sometimes in lot of more difficult market things can slow down. As I mentioned during COVID, we got used to things moving -- for COVID [indiscernible] I think everyone saw that there was a very rapid -- from award to execution was very quick. But, in average it's a few quarters. I don't know how to characterize it better than that. There is quite a bit of variability. But, a slowdown in things being initially awarded in Q2, I pointed out in my prepared remarks that we generally see that in Q4 as sort of an average timeframe.
Great. That's helpful. And for the Q4, just to clarify, that's included in guidance right now? And then just as a follow-up question, your operating cost has been well below our expectations for the last two quarters. I am just curious what you are eliminating on that front. And then, that's all for me. Thank you.
I'll take the first part of that. We don't give guidance on bookings. And bookings Q4 that is things moving into backlog we have immaterial impact on this year's revenue. And so would not be part of guidance. They would potentially affect 2023 guidance when we get there. But it really wouldn't have any impact on this year's performance financially.
Christine, what was the second part of your question? I am sorry.
No worries. It was just on operating cost. They have been below expectations for the last two quarters. Just curious on what you are eliminating on the cost front. Thanks.
Yes. As I have commented before, we do expect the balance of this year for in some of our cost to increase as you think about there's still inflation out there in some of discretionary type activities. We are starting to see travel come back a bit. Things like training come back a bit. We are continuing to hire albeit at maybe slower pace, but we are continuing to hire. We've got a lot of retention efforts in place. Again, we try to improve our attrition rate. And we got some expansions overseas that are going to be coming online in the second-half. That's really what's driving some of those expected increases in cost in the second-half.
Okay, thank you.
Thank you. And our next question comes from the line of Eric Coldwell with Baird. Your line is open.
Okay, thank you. We'll try this on a new phone. Can you hear me now?
Yes.
Okay, good. I was hoping -- and I am sorry if I missed this while I was dialing back in. But, hit rate on your RFPs, I am curious if you could quantify what level that is at? And then qualify how that's stands up versus the recent past? And then, perhaps your longer term averages?
Yes and sort of what impact it might have -- that's a very good point, Eric. It could also affect initial award notifications. Obviously that's what goes into that. They did -- so yes, that's a very good question. How much of it is slowing of overall decisions and how much of it is slowing of our wins of those decisions. Our hit rate did drop a little bit in the quarter. But, it was not the driver of that reduction. I would have pointed that we -- it was a hit rate rather flow of decisions. It was substantial reduction in -- new award notifications was really driven by much fewer decisions in the quarter rather than our win rate on those. But, there was a bit of a reduction in win rate. We have had sort of a very high win rate the prior couple of quarters. And it came down a bit closer to our average over time.
Are you willing to share broadly what your average hit rate over time has been?
No, I don't think we provide them. I think we have provided that in the past and I don't see a need too here.
Okay. Second topic is you had a very sharp snapback in free cash flow this quarter. And I believe last quarter it was chalked up to some timing. You had obviously a very good quarter on cash flow which tends to be indicative of healthier environment. And then, as a follow-on to that I would say bad debt is obviously a topic we would want to look at it. There is in fact of slowdown or financial distress in the client base. So, I was hoping you could talk a bit about what you are seeing on the bad debt side? Even leading indicators there? And any recent reviews of client credit worthiness that you might be willing to discuss.
Yes, Eric. This is Kevin. On the bad debt side specifically we haven't seen an increase in bad debt. If you look at the cash flow, there is very little, if any, bad debt expense that was incurred in the quarter. We continue to monitor client payments and expectations and funding very closely. And we have been able to hold that down at this point in time. What was the first part of your question, Eric?
Just the strength in the free cash flow which looked to be a bit of a timely recovery from last quarter.
Yes, and we saw a similar timing on the other side. So we had great collections in the fourth quarter which resulted in kind of a slowdown in the first quarter. And then things snapped back on some advanced billings and collections in the second quarter.
Got it. Last one from me and it's more thematic. I am not asking you to give '23 guidance. But in a scenario where the small biotech base does slow or really any channel slows. But, obviously biotech is the majority of your book, your hiring would slow. I suspect some of your investments would slow. You have tightened the reins a bit. In this hypothetical scenario where demand slows and therefore future revenue slows, what do see happening with margins? Is it a scenario where you could actually have margin stability or expansion because your cost reduction and your hiring demands will come in so much? Or, would there still potentially be some deleveraging across the organization on fixed cost? And perhaps activities you wouldn't be willing to see slowdown because whatever the environment is perhaps it's just a short-lived nature. Just getting a sense on what your considerations are for future margin if in fact there is a eventual more notable slowdown due to lower bookings in the future?
Yes, as -- and let me jump in there. I -- historically speaking, our margin increases in such an environment.
Right.
And I would expect that to be -- I would expect that to continue to be the case. It does -- how much it does and whether it does is very upon not just revenue decrease, but opportunities, and what we're seeing in the future few quarters. But yes, there's really a slowdown, and so we're seeing a slow -- fewer opportunities. And that's an environment in which our margin would tend to increase, and maybe materially because we give up a lot of our hiring and acquisition, and trying to stay well ahead of demand on staff. So, I would expect that margin would go up.
Okay, good. Thank you very much. I'll let others jump in.
Thank you. And our next question is a follow-up question from David Windley with Jefferies. Your line is open. Please go ahead.
Hi, and thanks for taking the follow-up. I wanted to tie together a couple of Eric's good questions there. So, August, on this last -- your -- I just wanted to make sure I understand your point on opportunities, that you take your cues on hiring based on opportunities coming into the top of the funnel. And so, the more true the opportunities are the better you're able to calibrate your hiring. Is that the right interpretation of what you said?
That's right, it would be a qualitative and quantitative assessment of the funnel, and what we see a couple quarters out in project ramp, and that that's going to drive our hiring more than current -- directly current environment.
Right. And then the question on hit rate, and you commented that that was down but only a very little. Are you able to tell -- one of the comments I think you've made in the past is that, in a tight environment a client might actually issue RFPs more broadly, kind of fishing for price, so to speak, in a way that would kind of artificially inflate the RFP flow to the industry, perhaps, and that's something that you have to be wary of is are you able to tell if, like, you mentioned in your response to Eric that decisions were down in 2Q. Is that an indicator that some of the RFP flow is not real; is kind of that fishing for price type of stuff?
Yes, that's always hard to come up with a single metric. Yes, I see anecdotal things, it's hard to get an assessment of whether that's driving how much of it. If it's -- you're right, sometimes, in a weak environment, you see a lot of -- some of it's fishing for price to try to get the price down. A lot of it is really is part of the funding process. It's getting a bid to then go to look for funding with, and they need that in advance before they can raise the funds. And it -- of course, that's -- many of our clients need to raise funds before initiating a trial, so that's hard to sort out whether that's more or less than usual. Some of it is they have a certain budget and they're doing scenario planning for what they could accomplish with different amounts of funding.
So, they might have multiple different types of RFPs for really looking for what they can accomplish. So, you're right, some of it is a bit increased churn and less likely to move forward. But how to quantitate that and say if that is what drove fewer decisions and -- or that that drove RFPs; it's hard for us to sort that out.
All right, okay. I appreciate the answers. Thank you very much.
Thank you. And I'm showing no further questions, and I would like to turn the conference back over to Lauren Morris for any further remarks.
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 2022 earnings call.
This concludes today's conference. Thank you for participating. You may all disconnect. Everyone have a great day.