Medpace Holdings, Inc. 10-Q

Item 1. Financial Statements MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share amounts) As Of September 30, December 31. 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 219,227 $ 131,920 Accounts receivable and unbilled, net (includes $ 2.9 million and $ 1.9 million with related parties at September 30, 2020 and December 31, 2019, respectively) 134,087 155,662 Prepaid expenses and other current assets 41,691 29,446 Total current assets 395,005 317,028 Property and equipment, net 71,472 47,292 Operating lease right-of-use assets 109,533 52,152 Goodwill 662,458 662,396 Intangible assets, net 48,423 54,350 Deferred income taxes 477 376 Other assets 8,774 9,477 Total assets $ 1,296,142 $ 1,143,071 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable (includes $ 0.2 million and $ 0.2 million with related parties at September 30, 2020 and December 31, 2019, respectively) $ 15,878 $ 22,404 Accrued expenses 116,996 109,252 Advanced billings (includes $ 4.6 million and $ 3.0 million with related parties at September 30, 2020 and December 31, 2019, respectively) 202,612 192,359 Other current liabilities 22,910 18,987 Total current liabilities 358,396 343,002 Operating lease liabilities 110,670 45,212 Deferred income tax liability 19,861 12,849 Other long-term liabilities 15,586 15,725 Total liabilities 504,513 416,788 Commitments and contingencies (see Note 11) Shareholders’ equity: Preferred stock - $ 0.01 par-value; 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively - - Common stock - $ 0.01 par-value; 250,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 35,757,453 and 36,065,278 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 357 360 Treasury stock - 200,000 shares at September 30, 2020 and December 31, 2019, respectively ( 6,030 ) ( 6,030 ) Additional paid-in capital 687,618 666,585 Retained earnings 111,807 68,109 Accumulated other comprehensive loss ( 2,123 ) ( 2,741 ) Total shareholders’ equity 791,629 726,283 Total liabilities and shareholders’ equity $ 1,296,142 $ 1,143,071 See notes to condensed consolidated financial statements. - 3 - MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue, net (includes $ 3.4 million and $ 4.6 million with related parties for the three months ended September 30, 2020 and 2019, respectively, and $ 11.6 million and $ 13.7 million with related parties for the nine months ended September 30, 2020 and 2019, respectively) $ 230,373 $ 216,238 $ 666,247 $ 631,083 Operating expenses: Direct service costs, excluding depreciation and amortization 87,577 81,086 262,997 235,522 Reimbursed out-of-pocket expenses 68,637 70,984 207,376 212,563 Total direct costs 156,214 152,070 470,373 448,085 Selling, general and administrative 22,796 29,120 69,775 73,984 Depreciation 2,991 2,062 8,118 6,035 Amortization 1,950 2,995 5,927 11,834 Total operating expenses 183,951 186,247 554,193 539,938 Income from operations 46,422 29,991 112,054 91,145 Other income (expense), net: Miscellaneous income (expense), net 584 ( 273 ) 1,440 ( 574 ) Interest (expense) income, net ( 16 ) ( 253 ) 336 ( 1,956 ) Total other income (expense), net 568 ( 526 ) 1,776 ( 2,530 ) Income before income taxes 46,990 29,465 113,830 88,615 Income tax provision 5,530 5,488 19,312 17,985 Net income $ 41,460 $ 23,977 $ 94,518 $ 70,630 Net income per share attributable to common shareholders: Basic $ 1.16 $ 0.67 $ 2.64 $ 1.97 Diluted $ 1.09 $ 0.63 $ 2.50 $ 1.88 Weighted average common shares outstanding: Basic 35,552 35,939 35,654 35,829 Diluted 37,763 37,835 37,715 37,507 See notes to condensed consolidated financial statements. - 4 - MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Amounts in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net income $ 41,460 $ 23,977 $ 94,518 $ 70,630 Other comprehensive income Foreign currency translation adjustments, net of taxes 1,100 ( 1,286 ) 618 ( 1,146 ) Comprehensive income $ 42,560 $ 22,691 $ 95,136 $ 69,484 See notes to condensed consolidated financial statements. - 5 - MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (Amounts in thousands) (Accumulated Accumulated Additional Deficit) Other Common Treasury Paid-In Retained Comprehensive Stock Stock Capital Earnings Loss Total BALANCE — December 31, 2018 $ 356 $ ( 6,030 ) $ 639,381 $ ( 41,487 ) $ ( 2,517 ) $ 589,703 Impact to Retained Earnings from adoption of ASU 2016-02 9,153 9,153 BALANCE — January 1, 2019 356 ( 6,030 ) 639,381 ( 32,334 ) ( 2,517 ) 598,856 Net income 19,198 19,198 Foreign currency translation ( 274 ) ( 274 ) Stock-based compensation expense 3,183 3,183 Stock options exercised 1 933 934 BALANCE — March 31, 2019 $ 357 $ ( 6,030 ) $ 643,497 $ ( 13,136 ) $ ( 2,791 ) $ 621,897 Net income 27,455 27,455 Foreign currency translation 414 414 Stock-based compensation expense 5,385 5,385 Stock options exercised 2 2,902 2,904 BALANCE — June 30, 2019 $ 359 $ ( 6,030 ) $ 651,784 $ 14,319 $ ( 2,377 ) $ 658,055 Net income 23,977 23,977 Foreign currency translation ( 1,286 ) ( 1,286 ) Stock-based compensation expense 9,466 9,466 Stock options exercised 1 1,794 1,795 BALANCE — September 30, 2019 $ 360 $ ( 6,030 ) $ 663,044 $ 38,296 $ ( 3,663 ) $ 692,007 Accumulated Additional Other Common Treasury Paid-In Retained Comprehensive Stock Stock Capital Earnings Loss Total BALANCE — December 31, 2019 $ 360 $ ( 6,030 ) $ 666,585 $ 68,109 $ ( 2,741 ) $ 726,283 Net income 28,954 28,954 Foreign currency translation ( 988 ) ( 988 ) Stock-based compensation expense 5,445 5,445 Stock options exercised 1 1,342 1,343 Repurchases of common stock ( 6 ) ( 43,232 ) ( 43,238 ) BALANCE — March 31, 2020 $ 355 $ ( 6,030 ) $ 673,372 $ 53,831 $ ( 3,729 ) $ 717,799 Net income 24,104 24,104 Foreign currency translation 506 506 Stock-based compensation expense 2,616 2,616 Stock options exercised 633 633 Repurchases of common stock ( 1 ) ( 7,588 ) ( 7,589 ) BALANCE — June 30, 2020 $ 354 $ ( 6,030 ) $ 676,621 $ 70,347 $ ( 3,223 ) $ 738,069 Net income 41,460 41,460 Foreign currency translation 1,100 1,100 Stock-based compensation expense 2,762 2,762 Stock options exercised 3 8,235 8,238 BALANCE — September 30, 2020 $ 357 $ ( 6,030 ) $ 687,618 $ 111,807 $ ( 2,123 ) $ 791,629 See notes to condensed consolidated financial statements. - 6 - MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 94,518 $ 70,630 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8,118 6,035 Amortization 5,927 11,834 Stock-based compensation expense 10,823 18,034 Amortization of debt issuance costs and discount - 954 Noncash lease expense 9,968 7,212 Deferred income tax provision 6,911 2,839 Amortization and adjustment of deferred credit ( 531 ) ( 601 ) Other ( 85 ) 1,768 Changes in assets and liabilities: Accounts receivable and unbilled, net 21,400 ( 5,982 ) Prepaid expenses and other current assets ( 9,820 ) ( 9,039 ) Accounts payable ( 5,611 ) 2,818 Accrued expenses 7,619 15,427 Advanced billings 10,355 21,901 Lease liabilities ( 7,507 ) ( 6,477 ) Other assets and liabilities, net 1,093 7,574 Net cash provided by operating activities 153,178 144,927 CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment expenditures ( 23,554 ) ( 12,152 ) Other 74 ( 1,262 ) Net cash used in investing activities ( 23,480 ) ( 13,414 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock option exercises 8,753 5,686 Repurchases of common stock ( 50,827 ) - Payment of debt - ( 80,438 ) Net cash used in financing activities ( 42,074 ) ( 74,752 ) EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 317 ) ( 753 ) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 87,307 56,008 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 131,920 23,282 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period $ 219,227 $ 79,290 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION— Acquisition of property and equipment—non-cash $ 10,732 $ 2,860 See notes to condensed consolidated financial statements. - 7 - MEDPACE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 2020 (1) Basis of Presentation Description of Business Medpace Holdings, Inc. (together with its subsidiaries, “Medpace” or the “Company”), a Delaware corporation, is a global provider of clinical research-based drug and medical device development services. The Company partners with pharmaceutical, biotechnology, and medical device companies in the development and execution of clinical trials. The Company’s drug development services focus on full service Phase I-IV clinical development services and include development plan design, project management, regulatory affairs, clinical monitoring, data management and analysis, pharmacovigilance new drug application submissions, post-marketing clinical support, laboratory services, clinical human pharmacology, imaging services, and electrocardiography reading support for clinical trials. The Company’s operations are principally based in North America, Europe, and Asia. Unaudited Interim Financial Information The interim condensed consolidated financial statements include the accounts of the Company, are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), and are unaudited. In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The preparation of the interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from management’s estimates and assumptions. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 . Share Repurchases In the first quarter of 2018, the Board of Directors approved a share repurchase program authorizing up to $ 50.0 million in share repurchases. In the first quarter of 2020, the Board of Directors approved an additional $ 50.0 million in share repurchases, bringing the total to $ 100.0 million authorized under the share repurchase program. There were no share repurchases during the three months ended September 30, 2020. During the nine months ended September 30, 2020, the Company repurchased 772,125 shares for $ 50.8 million. As of September 30, 2020, $ 49.2 million remained available under the repurchase program authorization. Repurchases under the share repurchase program are executed in the open market or negotiated transactions under trading plans put in place pursuant to Rule 10b5-1. The Company constructively retires all repurchased shares with all amounts paid in excess of par value reflected within Retained earnings in the Company’s condensed consolidated balance sheets. The repurchase program may be suspended or discontinued at any time without notice. Recently Adopted Accounting Standards In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard replaces the incurred loss impairment methodology with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company adopted this standard in the first quarter of 2020 and it had no impact to the condensed consolidated financial statements. (2) Net Income Per Share Basic and diluted earnings or loss per share (“EPS”) are computed using the two-class method, which is an earnings allocation that determines EPS for each class of common stock and participating securities according to dividends declared and participation rights in - 8 - undistributed earnings. Restricted Stock Awards (“RSAs”) are considered participating securities because they are legally issued at the date of grant and holders are entitled to receive non-forfeitable dividends during the vesting term. The computation of diluted EPS includes additional common shares, such as unvested stock options with exercise prices less than the average market price of the Company’s common stock during the period (“in-the-money options”), which would be considered outstanding under the treasury stock method. The treasury stock method assumes that additional shares would have to be issued in cases where the exercise price of stock options is less than the value of the common stock being acquired because the cash proceeds received from the stock option holder would not be sufficient to acquire that same number of shares. The Company does not compute diluted EPS in cases where the inclusion of such additional shares would be anti-dilutive in effect. The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except for earnings per share): Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Weighted-average shares: Common shares outstanding 35,552 35,939 35,654 35,829 RSAs 116 98 95 101 Total weighted-average shares 35,668 36,037 35,749 35,930 Earnings per common share—Basic Net income $ 41,460 $ 23,977 $ 94,518 $ 70,630 Less: Undistributed earnings allocated to RSAs 135 65 252 199 Net income available to common shareholders—Basic $ 41,325 $ 23,912 $ 94,266 $ 70,431 Net income per common share—Basic $ 1.16 $ 0.67 $ 2.64 $ 1.97 Basic weighted-average common shares outstanding 35,552 35,939 35,654 35,829 Effect of diluted shares 2,211 1,896 2,061 1,678 Diluted weighted-average shares outstanding 37,763 37,835 37,715 37,507 Net income per common share—Diluted $ 1.09 $ 0.63 $ 2.50 $ 1.88 During the three and nine months ended September 30, 2020, the Company had 4,800 and 204,205 stock options, respectively, that were excluded due to the exercise price exceeding the average fair value of the Company’s common stock during the period. During the three and nine months ended September 30, 2019, the Company had 245,000 stock options, respectively, that were excluded due to the exercise price exceeding the average fair value of the Company’s common stock during the period. (3) Fair Value Measurements The Company follows accounting guidance related to fair value measurements that defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy for inputs used in measuring fair value. This hierarchy maximizes the use of “observable” inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy specifies three levels based on the inputs, as follows: Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities. Level 2: Valuations based on directly observable inputs or unobservable inputs corroborated by market data. Level 3: Valuations based on unobservable inputs supported by little or no market activity representing management’s determination of assumptions of how market participants would price the assets or liabilities. The fair value of financial instruments such as cash and cash equivalents, accounts receivable and unbilled, net, accounts payable, accrued expenses and advanced billings approximate their carrying amounts due to their short term maturities. The Company does not have any recurring fair value measurements as of September 30, 2020. There were no transfers between Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2020 or 2019. - 9 - (4) Contract Assets and Contract Liabilities Contract assets and liabilities are reflected in the Company’s condensed consolidated balance sheets within the accounts reflected below. Contract Assets Accounts receivable represent amounts due from the Company’s customers who are concentrated primarily in the pharmaceutical, biotechnology, and medical device industries. Unbilled represents revenue recognized to date that has not been billed or is not yet contractually billable to the customer. In general, amounts become billable upon the achievement of negotiated contractual events, in accordance with predetermined payment schedules or when a reimbursable expense has been incurred. Amounts classified to unbilled are those billable to customers within one year from the respective balance sheet date. Accounts receivable and unbilled, net consisted of the following (in thousands): As of September 30, December 31, 2020 2019 Accounts receivable $ 105,303 $ 127,877 Unbilled receivables 29,259 28,368 Less: allowance for doubtful accounts ( 475 ) ( 583 ) Total accounts receivable and unbilled, net $ 134,087 $ 155,662 Contract Liabilities Advanced billings represents cash received from customers, or billed amounts per an agreed upon payment schedule, in advance of services being performed or revenue being recognized. Advanced billings consisted of the following (in thousands): As of September 30, December 31, 2020 2019 Advanced billings $ 202,612 $ 192,359 As of September 30, 2020, we had approximately $ 1.5 billion of performance obligations remaining to be performed for active projects. (5) Intangible Assets, Net Intangible assets, net consisted of the following (in thousands): As of September 30, December 31, 2020 2019 Intangible assets: Finite-lived intangible assets: Carrying amount: Customer relationships 145,051 145,051 Other 3,074 3,074 Total finite-lived intangible assets 148,125 148,125 Accumulated amortization: Customer relationships ( 128,274 ) ( 122,426 ) Other ( 3,074 ) ( 2,995 ) Total accumulated amortization ( 131,348 ) ( 125,421 ) Total finite-lived intangible assets, net 16,777 22,704 Trade name (indefinite-lived) 31,646 31,646 Total intangible assets, net $ 48,423 $ 54,350 - 10 - As of September 30, 2020, estimated amortization expense of the Company’s intangible assets for each of the next five years and thereafter is as follows (in thousands): Amortization Remainder of 2020 $ 1,949 2021 5,114 2022 3,353 2023 2,199 2024 1,443 Later years 2,719 $ 16,777 (6) Accrued Expenses Accrued expenses consisted of the following (in thousands): As of September 30, December 31, 2020 2019 Employee compensation and benefits $ 36,585 $ 34,119 Project related reimbursable expenses 74,385 68,696 Other 6,026 6,437 Total accrued expenses $ 116,996 $ 109,252 (7) Debt On September 30, 2019, the Company obtained an unsecured credit facility in an aggregate principal amount up to $ 50.0 million (the “Credit Facility”) through its wholly owned subsidiaries, Medpace, Inc., as borrower, and Medpace IntermediateCo, Inc., as guarantor. Outstanding balances under the Credit Facility bear interest at a rate of LIBOR plus 100 basis points (1.00%). On March 30, 2020, the Company amended the credit facility to extend its expiration date to March 31, 2021 and add provisions for alternative interest rates when certain interbank market offered rates are not available. As of September 30, 2020, there were no outstanding borrowings under the Credit Facility and $ 0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility. - 11 - ( 8 ) Leas es The Company enters into leases for real estate and equipment. Real estate leases are for our corporate office space and laboratories around the world. Real estate leases have remaining lease terms of less than 1 year to 20 years. Many of the Company’s leases include options to extend the leases on a month to month basis or for set periods for up to 20 years. Many leases also include options to terminate the leases within 1 year or per other contractual terms. The components of lease expense were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating lease cost $ 5,514 $ 3,241 $ 14,153 $ 9,578 Variable lease cost 1,386 649 3,456 1,995 Supplemental cash flow information related to the leases was as follows (in thousands): Nine Months Ended September 30, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 9,328 $ 6,979 Right-of-use assets obtained in exchange for lease obligations: Operating leases 66,796 8,476 Supplemental balance sheet information related to the leases was as follows (in thousands): As of September 30, December 31, 2020 2019 Operating lease right-of-use assets $ 109,533 $ 52,152 Other current liabilities $ 15,097 $ 10,977 Operating lease liabilities 110,670 45,212 Total operating lease liabilities $ 125,767 $ 56,189 Weighted Average Remaining Lease Term (years) Operating leases 12.8 6.3 Weighted Average Discount Rate Operating leases 5.9 % 6.0 % Lease payments due related to lease liabilities as of September 30, 2020 were as follows (in thousands): Related Party Non-Related Parties Total Operating Leases Operating Leases Operating Leases Remainder of 2020 $ 2,889 $ 2,516 $ 5,405 2021 10,105 11,015 21,120 2022 9,886 7,885 17,771 2023 8,346 6,641 14,987 2024 8,464 4,890 13,354 Later years 103,600 11,890 115,490 Total lease payments 143,290 44,837 188,127 Less: imputed interest ( 56,589 ) ( 5,771 ) ( 62,360 ) Total $ 86,701 $ 39,066 $ 125,767 - 12 - The Company began to occupy an additional leased corporate headquarters building in the second quarter of fiscal year 2020. See Note 12 for details of this related party lease. As of September 30, 2020, we have several additional leases with contractual obligations, which have not yet commenced, with future payments of $ 1.5 million through 2025. (9) Shareholder’s Equity and Stock-Based Compensation The Company granted 347,197 awards to employees under the 2016 Incentive Award Plan during the nine months ended September 30, 2020, consisting of 20,724 restricted stock awards (“RSA”) and 119,768 restricted stock units (“RSU”) vesting after four years , 4,800 stock option awards and 2,500 RSU vesting after three years , and 199,405 fully-vested stock option awards. The Company granted an additional 23,148 stock option awards, vesting after one year , to non-employee directors under the 2016 Incentive Award Plan, during the nine months ended September 30, 2020. The Company granted 778,986 awards to employees under the 2016 Incentive Award Plan during the nine months ended September 30, 2019, consisting of 10,000 stock option awards and 190,310 RSU vesting after four years , 5,000 stock option awards vesting after one year , 551,676 fully-vested stock option awards and 22,000 stock option awards with vesting in twelve equal monthly installments beginning on March 31, 2019. The Company granted an additional 38,832 stock option awards, vesting after one year , to non-employee directors under the 2016 Incentive Award Plan, during the nine months ended September 30, 2019. Award Activity The following table sets forth the Company’s stock option activity: Nine Months Ended September 30, 2020 Weighted Average Stock Options Exercise Price Outstanding - beginning of period 3,030,071 $ 34.50 Granted 227,353 $ 105.77 Exercised ( 464,300 ) $ 22.00 Forfeited/Expired ( 82,151 ) $ 36.39 Outstanding - end of period 2,710,973 $ 42.56 Exercisable - end of period 1,675,075 $ 47.49 The following table sets forth the Company’s RSA/RSU activity: Nine Months Ended September 30, 2020 Shares/Units Outstanding and unvested - beginning of period 569,770 Granted 142,992 Vested - Forfeited ( 60,890 ) Outstanding and unvested - end of period 651,872 Cumulative vested shares - end of period 1,913,916 Stock-based compensation expense recognized in the condensed consolidated statements of operations related to all outstanding stock based compensation awards is summarized below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Total direct costs $ 1,898 $ 1,807 $ 5,678 $ 5,085 Selling, general and administrative 864 7,659 5,145 12,949 Total stock-based compensation expense $ 2,762 $ 9,466 $ 10,823 $ 18,034 - 13 - (10) Income Taxes The Company’s effective income tax rate was 11.8 % and 18.6 % for the three months ended September 30, 2020 and 2019, respectively. The Company’s effective income tax rate was 17.0 % and 20.3 % for the nine months ended September 30, 2020 and 2019, respectively. The Company’s effective income tax rate for the three and nine months ended September 30, 2020 varied from the U.S. statutory rate of 21 % primarily due to the impact of state taxes, which was favorably offset by previously acquired tax attributes, tax benefits related to Foreign Derived Intangible Income (FDII) and excess tax benefits recognized from share-based compensation. (11) Commitments and Contingencies Legal Proceedings The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions. The Company cannot predict with certainty the outcome of such proceedings, but it believes that adequate reserves have been recorded and losses already recognized with respect to such proceedings, which were immaterial as of September 30, 2020 and December 31, 2019. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, the Company believes that such potential losses were immaterial as of September 30, 2020. Purchase Commitments The Company has several minimum purchase commitments for project related supplies totaling $ 10.2 million. In return for the commitment, Medpace receives preferential pricing. The commitments expire at various times through 2026. (12) Related Party Transactions Employee Loans The Company periodically extends short term loans or advances to employees, typically upon commencement of employment. Total receivables as a result of these employee advances of $ 0.2 million existed at September 30, 2020 and December 31, 2019, respectively, and are included in the Prepaid expenses and other current assets and Other assets line items of the condensed consolidated balance sheets, respectively, depending on the contractual repayment date. Service Agreements Cymabay Therapeutics, Inc. (“Cymabay”) Cymabay is a clinical-stage biopharmaceutical company developing therapies to treat metabolic diseases with high unmet medical need, including serious rare and orphan disorders. A Medpace employee was a member Cymabay’s board of directors from the first quarter of 2016 until his resignation in the first quarter of 2020. The Company and Cymabay entered into a MSA dated October 21, 2016. Subsequently, the Company and Cymabay have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from Cymabay of $ 3.5 million and $ 9.4 million during the three and nine months ended September 30, 2019 , respectively, in the Company’s condensed consolidated statements of operations. As of December 31, 2019, the Company had Advanced billings from Cymabay of $ 1.6 million in the condensed consolidated balance sheets. As of December 31, 2019, the Company had Accounts receivable and unbilled, net from Cymabay of $ 1.4 million recorded in the condensed consolidated balance sheets. As of the first quarter of 2020, Cymabay is no longer considered a related party. LIB Therapeutics LLC and subsidiaries (“LIB”) Certain executives and employees of the Company, including the chief executive officer, are members of LIB’s board of managers. The Company entered into a MSA dated November 24, 2015 with LIB, a company that engages in research, development, marketing and commercialization of pharmaceutical drugs. Subsequently, the Company and LIB have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from LIB of $ 0.6 million and $ 0.5 million during the three months ended September 30, 2020 and 2019, respectively, and $ 2.0 million and $ 1.5 million during the nine months ended September 30, 2020 and 2019, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2020 and December 31, 2019, respectively, the Company had Advanced billings from LIB of $ 0.7 million and $ 0.5 million recorded in the condensed consolidated balance sheets. In addition, as of September 30, 2020 and December 31, 2019, respectively, the Company had Accounts receivable and unbilled, net from LIB of $ 0.3 million and $ 0.3 million recorded in the condensed consolidated balance sheets. - 14 - CinRX Pharma and subsidiaries (“CinRx”) Certain executives and employees of the Company, including the chief executive officer, are members of CinRx’s board of managers and/or have equity investments in CinRx, a biotech company. The Company and CinRx have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from CinRx of $ 2.7 million and $ 0.5 million during the three months ended September 30, 2020 and 2019, respectively, and $ 9.5 million and $ 2.8 million during the nine months ended September 30, 2020 and 2019, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2020 and December 31, 2019, respectively, the Company had Advanced billings from CinRx of $ 3.9 million and $ 0.9 million recorded in the condensed consolidated balance sheets. As of September 30, 2020 and December 31, 2019 the Company had Accounts receivable and unbilled, net from CinRx of $ 2.6 million and $ 0.2 million, respectively, in the condensed consolidated balance sheets. The Summit Hotel (“The Summit”) The Summit Hotel, located on the Medpace campus, is owned by the chief executive officer, and managed by an unrelated hospitality management entity. Medpace incurs travel lodging and meeting expenses at The Summit. Medpace incurred expenses of less than $ 0.1 million and $ 0.2 million during the three months ended September 30, 2020 and 2019, respectively, and $ 0.2 million and $ 0.5 million during the nine months ended September 30, 2020 and 2019, respectively, at The Summit. Leased Real Estate Headquarters Lease The Company entered into an operating lease for its corporate headquarters with an entity that is wholly owned by the chief executive officer of the Company. The Company has evaluated its relationship with the related party and concluded that the related party is not a variable interest entity because the Company has no direct ownership interest or relationship other than the lease. The lease for headquarters is for an initial term of twelve years through November 2022 with a renewal option for one 10 -year term at prevailing market rates. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for its corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. Operating lease cost recognized for the three months ended September 30, 2020 and 2019 was $ 0.5 million, respectively, and $ 1.5 million, for the nine months ended September 30, 2020 and 2019, respectively. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at September 30, 2020 and December 31, 2019 were $ 3.9 million and $ 5.3 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2020 were $ 1.8 million and $ 2.1 million, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2019 were $ 1.8 million and $ 3.5 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. - 15 - In 2018, Medpace, Inc. entered into a multi-year lease agreement governing future occupancy of additional office space in Cincinnati, Ohio with an entity that is wholly owned by the Company’s chief executive officer and certain members of his immediate family. The Company began to occupy the premises in the second quarter of fiscal year 2020. The lease expires in 2040 and the Company has two 10 -year options to extend the term of the lease. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for the corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. The Company has determined that the lease is an operating lease. Operating lease cost recognized for the three and nine months ended September 30, 2020 was $ 1.3 million and $ 2.2 million, respectively. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at September 30, 2020 were $ 52.1 million in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2020 were $ 1.0 million and $ 61.5 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The Company entered into two multi-year lease agreements governing the occupancy of space of two buildings in Cincinnati, Ohio with an entity that is wholly owned by the Company’s chief executive officer and certain members of his immediate family. The Company assumed occupancy in 2012 and the leases expire in 2027 with the Company having one 10 -year option to extend the lease term. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for the corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. The Company has determined that the leases are operating leases. Operating lease cost recognized for the three months ended September 30, 2020 and 2019 was $ 0.9 million, respectively, and $ 2.7 million for the nine months ended September 30, 2020 and 2019, respectively. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at September 30, 2020 and December 31, 2019 were $ 20.2 million and $ 21.9 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2020 were $ 2.4 million and $ 17.8 million, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2019 were $ 2.3 million and $ 19.7 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. Travel Services The Company incurs expenses for travel services for company executives provided by a private aviation charter company that is owned by the chief executive officer and the executive vice president of operations of the Company (“private aviation charter”). The Company may contract directly with the private aviation charter for the use of its aircraft or indirectly through a third party aircraft management and jet charter company (the “Aircraft Management Company”). The travel services provided are primarily for business purposes, with certain personal travel paid for as part of the executives’ compensation arrangements. The Aircraft Management Company also makes the private aviation charter aircraft available to third parties. The Company incurred travel expenses of $ 0.2 million and $ 0.3 million during the three months ended September 30, 2020 and 2019, respectively, and $ 0.6 million and $ 0.9 million during the nine months ended September 30, 2020 and 2019, respectively, related to these travel services. These travel expenses are recorded in Selling, general and administrative in the Company’s condensed consolidated statements of operations. As of September 30, 2020 and December 31, 2019, the Company had Accounts payable to the Aircraft Management Company of $ 0.2 million, respectively, and less than $ 0.1 million in the condensed consolidated balance sheets. (13) Entity Wide Disclosures Revenue by Category The following table disaggregates our revenue by major source (in thousands): Three months Ended Nine months Ended September 30, September 30, 2020 2019 2020 2019 Therapeutic Area Oncology $ 68,633 $ 65,529 $ 203,474 $ 186,152 Other 55,541 46,707 151,306 140,668 Metabolic 29,617 34,919 95,902 102,287 AVAI 27,243 24,243 75,377 66,831 Cardiology 27,593 21,733 75,247 68,792 Central Nervous System 21,746 23,107 64,941 66,353 Total revenue $ 230,373 $ 216,238 $ 666,247 $ 631,083 - 16 - In the current quarter and for all periods presented, the revenue associated with medical device projects, previously a separate therapeutic area, has been included in the respective therapeutic area that best aligns with the therapeutic focus of the medical device project and represents how management evaluates disaggregated revenue in its internal reporting. - 17 -