Moog Inc. Defense Market Growth and Q2 2026 Impact on Margins

Impact of Q1 2026 cancellations on Medpace’s project performance

1) What happened to cancellations in Q1 2026

• Medpace reported that cancellations “rose again” in Q1 2026, with backlog cancels reaching the highest point in over a year. ¹
• Management characterized the Q1 cancellations as “random stuff you’d expect” (e.g., product performance issues, re-prioritizations), and not “particularly informed by acute financial shortages.” ²
• The largest therapeutic-area concentration of cancellations was in areas that management described as “usual” risk areas—specifically oncology and cardiovascular. ²

2) How that affects project performance (execution and revenue conversion mechanics)

Medpace’s operating model implies that cancellations primarily affect:

1. Whether work progresses into paid/recognized backlog projects, and
2. Whether backlog converts into revenue within a given time window.

In Q1 2026, despite the cancellation headwind:

• Net new business awards entering backlog increased to $618.4 million (+23.7% YoY), producing a 0.88 net book-to-bill for the quarter. ³
• Ending backlog was ~$2.9 billion (+2.9% YoY), and Medpace projected ~$1.94 billion of backlog will convert to revenue in the next 12 months. ³
• Backlog conversion in Q1 was 23.3% of beginning backlog. ³

Interpretation (project performance):

• The Q1 cancellations did pressure Medpace’s book-to-bill (explicitly noted: cancellations were “higher than historically” and “gave pressure on our book-to-bill”). ²
• However, Medpace still maintained a solid backlog base and continued planned conversion (conversion rate provided and a 12-month conversion estimate), suggesting that near-term project execution was not fully derailed, even if some projects were removed or slowed. ³

3) Revenue impact profile: why performance didn’t collapse immediately

Management’s commentary indicates the cancellation effect is near-term because cancellations reduce the pool of projects that can contribute revenue in the relevant periods.

• Management stated that “obviously, the higher cancellations take away from the total revenue opportunities in the year.” ⁴

Still, they emphasized that:

• Even with the Q1 headwind, they reconfirmed guidance and said they “feel very good about the range that we have out there,” while acknowledging cancellations could potentially impact it because cancellations have a more near-term impact on guidance range. ⁵

Interpretation (project performance):

• Q1 cancellations appear to have reduced incremental opportunity flow and/or caused timing friction, but existing backlog and conversion mechanics helped prevent an immediate collapse in revenue—hence the emphasis on holding guidance range rather than withdrawing it. ³⁵

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Impact on Medpace’s future outlook

1) Guidance durability despite cancellation headwinds

• Medpace reconfirmed its revenue guidance ranges despite the Q1 cancellation pressure. ⁵
• Management explicitly linked the future risk: future cancellations “could potentially impact” guidance range because cancellations affect results near-term. ⁵
• In a separate response, management reiterated that future cancellations must abate or revenue/mix outcomes would rely on offsetting factors (more gross awards / stronger pipeline). They warned that Medpace’s growth profile on a sequential basis is a “real question” and that they need either cancellations to abate or gross awards/new notifications and a bigger pipeline. ⁶

2) Severity and persistence risk: cancellations haven’t “normalized”

• Management described that, after a period where cancellations had improved, the situation “hasn’t happened”: cancellations continued at a “much higher rate” both in backlog and pre-backlog, and this is now resulting in a sequential revenue growth challenge. ⁶
• They stated that a “reasonable growth rate” is not projected on a sequential basis going forward (i.e., near-term outlook is constrained unless cancellations cool or bookings ramp meaningfully). ⁶

Interpretation (forward outlook):

• The key outlook issue is not just one-quarter cancellations, but the apparent persistence of elevated cancellations rates versus prior expectations—creating a scenario where future sequential performance depends on either (a) fewer cancellations or (b) faster/stronger replenishment of opportunities. ⁶

3) What drives cancellations (and what’s not driving them)

This matters for outlook because it determines whether cancellations are likely to be cyclical/random versus structurally worse.

Management said Q1 cancellations were:

• Not M&A-related (i.e., not driven by acquisition activity). ⁷
• Not mainly due to acute sponsor financial shortages (though funding is always a factor in general). ²⁸

They also provided examples of how project economics can change without being “failure,” including:

• unexpected toxicity leading to cancellation, or
• trials finishing early or contracts being reduced because funding was priced for longer recruitment than needed. ⁹

Interpretation (forward outlook):

• Because management frames cancellations as “usual/random” (product/re-prioritization mechanics) rather than a single identifiable shock, their base case seems to treat cancellations as ongoing execution/timing volatility rather than a company-specific impairment. ²⁷
• However, management still highlighted that cancellations can have near-term revenue effects and may require pipeline expansion initiatives to win against that volatility. ⁵

4) Role of timing: cancellations vs delays vs progression into backlog

Medpace distinguishes cancellation from delays:

• Management noted that it’s sometimes the case that projects don’t make it into backlog in a given quarter, but may come in future quarters; similarly, backlog projects can be on hold rather than canceled. ¹⁰

Interpretation (forward outlook):

• Some “missing” revenue opportunities may be timing shifts rather than permanent loss, which could support the maintained guidance range—consistent with continued backlog conversion assumptions and reliance on conversion timing. ³¹⁰

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Bottom line

• Q1 2026 cancellations were elevated, with backlog cancels at the highest level in over a year, and this pressured net book-to-bill. ¹²
• Despite this, Medpace’s backlog size and conversion framework remained intact (ending backlog ~$2.9B, with ~$1.94B projected to convert over the next 12 months, and 23.3% conversion in Q1), supporting management’s ability to reconfirm guidance ranges. ³⁵
• For the future, management’s outlook risk is that elevated cancellations have persisted and could constrain sequential growth, making results more dependent on cancellation abatement and/or stronger gross awards and pipeline expansion. ⁶
• Management does not attribute Q1 cancellations to M&A or acute financial shortages, framing them largely as project-specific volatility (oncology/cardiovascular more affected), which implies the path to improvement is tied to market/project progression rather than a one-time strategic disruption. ²⁷