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, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 31,007 $ 461,304 Accounts receivable and unbilled, net (includes $ 3.0 million and $ 2.7 million with related parties at September 30, 2022 and December 31, 2021, respectively) 249,086 186,432 Prepaid expenses and other current assets 57,648 43,176 Total current assets 337,741 690,912 Property and equipment, net 104,719 93,153 Operating lease right-of-use assets 139,071 129,558 Goodwill 662,396 662,396 Intangible assets, net 38,846 41,360 Deferred income taxes 27,023 25,134 Other assets 18,629 17,422 Total assets $ 1,328,425 $ 1,659,935 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable (includes $ 0.3 million with related parties at September 30, 2022 and December 31, 2021, respectively) $ 28,245 $ 25,678 Accrued expenses 204,117 159,286 Advanced billings (includes $ 5.7 million and $ 8.3 million with related parties at September 30, 2022 and December 31, 2021, respectively) 417,927 344,641 Short-term debt 139,700 — Other current liabilities 30,879 27,612 Total current liabilities 820,868 557,217 Operating lease liabilities 139,203 130,965 Deferred income tax liability 911 1,080 Other long-term liabilities 17,558 17,745 Total liabilities 978,540 707,007 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, 2022 and December 31, 2021, respectively — — Common stock - $ 0.01 par-value; 250,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 31,098,397 and 36,006,778 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 309 360 Treasury stock - 81,573 and 180,000 shares at September 30, 2022 and December 31, 2021, respectively ( 14,243 ) ( 5,427 ) Additional paid-in capital 759,986 727,857 (Accumulated deficit) Retained earnings ( 380,115 ) 234,984 Accumulated other comprehensive loss ( 16,052 ) ( 4,846 ) Total shareholders’ equity 349,885 952,928 Total liabilities and shareholders’ equity $ 1,328,425 $ 1,659,935 See notes to condensed consolidated financial statements. -3- Table of Contents MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue, net (includes $ 9.8 million and $ 8.7 million with related parties for the three months ended September 30, 2022 and 2021, respectively, and $ 40.3 million and $ 23.9 million with related parties for the nine months ended September 30, 2022 and 2021, respectively) $ 383,744 $ 295,567 $ 1,065,898 $ 833,825 Operating expenses: Direct service costs, excluding depreciation and amortization 136,648 112,540 394,200 322,160 Reimbursed out-of-pocket expenses 128,062 95,934 354,991 271,494 Total direct costs 264,710 208,474 749,191 593,654 Selling, general and administrative 35,418 28,046 97,999 80,757 Depreciation 4,951 4,056 13,928 11,819 Amortization 838 1,278 2,514 3,835 Total operating expenses 305,917 241,854 863,632 690,065 Income from operations 77,827 53,713 202,266 143,760 Other income, net: Miscellaneous income, net 5,649 1,064 9,027 2,253 Interest expense, net ( 1,584 ) ( 41 ) ( 2,078 ) ( 82 ) Total other income, net 4,065 1,023 6,949 2,171 Income before income taxes 81,892 54,736 209,215 145,931 Income tax provision 15,865 6,162 32,517 14,117 Net income $ 66,027 $ 48,574 $ 176,698 $ 131,814 Net income per share attributable to common shareholders: Basic $ 2.13 $ 1.35 $ 5.39 $ 3.67 Diluted $ 2.05 $ 1.29 $ 5.18 $ 3.49 Weighted average common shares outstanding: Basic 31,009 35,816 32,791 35,822 Diluted 32,253 37,519 34,098 37,641 See notes to condensed consolidated financial statements. -4- Table of Contents MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Amounts in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income $ 66,027 $ 48,574 $ 176,698 $ 131,814 Other comprehensive income Foreign currency translation adjustments, net of taxes ( 6,080 ) ( 1,483 ) ( 11,206 ) ( 3,112 ) Comprehensive income $ 59,947 $ 47,091 $ 165,492 $ 128,702 See notes to condensed consolidated financial statements. -5- Table of Contents MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (Amounts in thousands) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total BALANCE — December 31, 2020 $ 355 $ ( 5,578 ) $ 695,904 $ 115,229 $ ( 131 ) $ 805,779 Net income 43,306 43,306 Foreign currency translation ( 2,135 ) ( 2,135 ) Stock-based compensation expense 2,871 2,871 Stock options exercised 4 9,102 9,106 BALANCE — March 31, 2021 $ 359 $ ( 5,578 ) $ 707,877 $ 158,535 $ ( 2,266 ) $ 858,927 Net income 39,934 39,934 Foreign currency translation 506 506 Stock-based compensation expense 3,570 3,570 Stock options exercised 2 5,100 5,102 Repurchases of common stock ( 3 ) ( 56,154 ) ( 56,157 ) BALANCE — June 30, 2021 $ 358 $ ( 5,578 ) $ 716,547 $ 142,315 $ ( 1,760 ) $ 851,882 Net income 48,574 48,574 Foreign currency translation ( 1,483 ) ( 1,483 ) Stock-based compensation expense 4,047 4,047 Stock options exercised 1 1,003 1,004 Repurchases of common stock ( 5,939 ) ( 5,939 ) BALANCE — September 30, 2021 $ 359 $ ( 5,578 ) $ 721,597 $ 184,950 $ ( 3,243 ) $ 898,085 Common Stock Treasury Stock Additional Paid-In Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Loss Total BALANCE — December 31, 2021 $ 360 $ ( 5,427 ) $ 727,857 $ 234,984 $ ( 4,846 ) $ 952,928 Net income 61,311 61,311 Foreign currency translation ( 1,542 ) ( 1,542 ) Stock-based compensation expense 4,372 4,372 Stock options exercised 3 13,894 13,897 Repurchases of common stock ( 27 ) ( 14,243 ) ( 411,680 ) ( 425,950 ) Retirement of treasury stock 5,427 ( 5,427 ) — BALANCE — March 31, 2022 $ 336 $ ( 14,243 ) $ 746,123 $ ( 120,812 ) $ ( 6,388 ) $ 605,016 Net income 49,360 49,360 Foreign currency translation ( 3,584 ) ( 3,584 ) Stock-based compensation expense 5,653 5,653 Stock options exercised 1,524 1,524 Repurchases of common stock ( 27 ) ( 374,690 ) ( 374,717 ) BALANCE — June 30, 2022 $ 309 $ ( 14,243 ) $ 753,300 $ ( 446,142 ) $ ( 9,972 ) $ 283,252 Net income 66,027 66,027 Foreign currency translation ( 6,080 ) ( 6,080 ) Stock-based compensation expense 5,794 5,794 Stock options exercised 892 892 BALANCE — September 30, 2022 $ 309 $ ( 14,243 ) $ 759,986 $ ( 380,115 ) $ ( 16,052 ) $ 349,885 See notes to condensed consolidated financial statements. -6- Table of Contents MEDPACE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 176,698 $ 131,814 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,928 11,819 Amortization 2,514 3,835 Stock-based compensation expense 15,819 10,488 Noncash lease expense 13,460 11,878 Deferred income tax (benefit) provision ( 2,126 ) 3,299 Amortization and adjustment of deferred credit ( 465 ) ( 501 ) Other 115 213 Changes in assets and liabilities: Accounts receivable and unbilled, net ( 62,438 ) ( 25,046 ) Prepaid expenses and other current assets ( 17,397 ) ( 22,049 ) Accounts payable 770 2,150 Accrued expenses 47,848 24,691 Advanced billings 73,286 48,184 Lease liabilities ( 11,134 ) ( 11,335 ) Other assets and liabilities, net 488 2,993 Net cash provided by operating activities 251,366 192,433 CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment expenditures ( 27,636 ) ( 19,155 ) Other ( 1,886 ) ( 3,093 ) Net cash used in investing activities ( 29,522 ) ( 22,248 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock option exercises 16,313 15,212 Repurchases of common stock ( 800,667 ) ( 62,096 ) Proceeds from revolving loan 299,200 — Payments on revolving loan ( 159,500 ) — Net cash used in financing activities ( 644,654 ) ( 46,884 ) EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 7,487 ) ( 2,680 ) (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 430,297 ) 120,621 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 461,304 277,766 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period $ 31,007 $ 398,387 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION — Acquisition of property and equipment—non-cash $ 9,094 $ 5,424 See notes to condensed consolidated financial statements. -7- Table of Contents MEDPACE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 2022 (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, 2021. Share Repurchases In the second quarter of 2021, the Board approved an increase of $ 150.0 million to the Company's stock repurchase program bringing the total repurchase authorization up to $ 300.0 million. In the first quarter of 2022, the Board approved additional increases totaling $ 500.0 million to the Company's stock repurchase program. In the second quarter of 2022, the Board approved further increases of $ 110.0 million to the Company's stock repurchase program. During the nine months ended September 30, 2022, the Company repurchased 5,463,244 shares for $ 800.5 million. During the three and nine months ended September 30, 2021, the Company repurchased 34,624 and 377,783 shares for $ 5.9 million and $ 62.1 million, respectively. As of September 30, 2022, the Company has completed all authorized share repurchases under the repurchase program. 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 retired the repurchased shares associated with these approved share repurchases, except for a small portion which were retained as Treasury Shares on the condensed consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s condensed consolidated balance sheets. Recently Issued Accounting Standards In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity's financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its condensed consolidated financial statements and related disclosures. -8- Table of Contents (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 undistributed earnings. The Company’s Restricted Stock Awards (“RSA”) 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 Restricted Stock Units (“RSU”) and 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. This 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, 2022 and 2021 (in thousands, except for earnings per share): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Weighted-average shares: Common shares outstanding 31,009 35,816 32,791 35,822 RSAs 21 112 21 114 Total weighted-average shares 31,030 35,928 32,812 35,936 Earnings per common share—Basic Net income $ 66,027 $ 48,574 $ 176,698 $ 131,814 Less: Undistributed earnings allocated to RSAs ( 44 ) ( 151 ) ( 112 ) ( 419 ) Net income available to common shareholders—Basic $ 65,983 $ 48,423 $ 176,586 $ 131,395 Net income per common share—Basic $ 2.13 $ 1.35 $ 5.39 $ 3.67 Basic weighted-average common shares outstanding 31,009 35,816 32,791 35,822 Effect of diluted shares 1,244 1,703 1,307 1,819 Diluted weighted-average shares outstanding 32,253 37,519 34,098 37,641 Net income per common share—Diluted $ 2.05 $ 1.29 $ 5.18 $ 3.49 During the three and nine months ended September 30, 2022, the Company had (in thousands) 274.4 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. -9- Table of Contents 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, 2022. There were no transfers between Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2022 or September 30, 2021. (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, 2022 December 31, 2021 Accounts receivable $ 207,792 $ 150,496 Unbilled receivables 41,463 36,107 Less: allowance for doubtful accounts ( 169 ) ( 171 ) Total accounts receivable and unbilled, net $ 249,086 $ 186,432 Contract Liabilities Advanced billings represent 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, 2022 December 31, 2021 Advanced billings $ 417,927 $ 344,641 As of September 30, 2022, we had approximately $ 2.5 billion of performance obligations remaining to be performed for active projects. -10- Table of Contents (5) Intangible Assets, Net Intangible assets, net consisted of the following (in thousands): As of September 30, 2022 December 31, 2021 Intangible assets: Finite-lived intangible assets: Carrying amount: Customer relationships 145,051 145,051 Accumulated amortization: Customer relationships ( 137,851 ) ( 135,337 ) Total finite-lived intangible assets, net 7,200 9,714 Trade name (indefinite-lived) 31,646 31,646 Total intangible assets, net $ 38,846 $ 41,360 As of September 30, 2022, 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 2022 $ 839 2023 2,199 2024 1,443 2025 946 2026 620 Later years 1,153 $ 7,200 (6) Accrued Expenses Accrued expenses consisted of the following (in thousands): As of September 30, 2022 December 31, 2021 Employee compensation and benefits $ 63,517 $ 57,846 Project related reimbursable expenses 127,603 91,839 Other 12,997 9,601 Total accrued expenses $ 204,117 $ 159,286 (7) Debt Debt consisted of the following (in thousands): As of September 30, 2022 December 31, 2021 Revolving credit facility $ 139,700 $ — Short-term debt $ 139,700 $ — -11- Table of Contents Principal payments on debt are due as follows (in thousands): 2022 (remaining) — 2023 139,700 Total $ 139,700 On September 30, 2019 (the “Closing Date”), the Company obtained an unsecured credit facility in an aggregate principal amount up to $ 50.0 million (as amended from time to time, the “Credit Facility”) through its wholly owned subsidiaries, Medpace, Inc., as borrower (the “Borrower”), and Medpace IntermediateCo, Inc., as guarantor (the “Guarantor”). On the Closing Date, the Borrower and lender entered into a Loan Agreement (as it may be amended from time to time, the “Loan Agreement”) providing for the Credit Facility, and the Guarantor executed a Guaranty Agreement providing for its guarantee of the payment and performance of the obligations under the Loan Agreement. On December 27, 2021, the Company entered into Amendment No. 3 to the Loan Agreement, which, among other things, extends the expiration date of the revolving credit note to March 31, 2023, adds provisions for alternative rates of interest as a result of global reference rate initiatives and removes the Borrower's ability to obtain advances in any currency other than U.S. Dollars. After the LIBOR cessation date of December 31, 2021, the Credit Facility bears interest at a rate of the sum of The Secured Overnight Financing Rate (SOFR) and the benchmark replacement adjustment plus 100 basis points (1.00%). On March 15, 2022, the Company entered into Amendment No. 4 to the Loan Agreement, which increased the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $ 250.0 million. As of September 30, 2022, there were $ 0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility. (8) Leases 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 18 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, 2022 2021 2022 2021 Operating lease cost $ 6,482 $ 5,941 $ 19,357 $ 17,488 Variable lease cost 2,240 1,749 6,353 4,565 Supplemental cash flow information related to the leases was as follows (in thousands): Nine Months Ended September 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 12,045 $ 11,847 Right-of-use assets obtained in exchange for lease obligations: Operating leases 29,915 24,251 -12- Table of Contents Supplemental balance sheet information related to the leases was as follows (in thousands): As of September 30, 2022 December 31, 2021 Operating lease right-of-use assets $ 139,071 $ 129,558 Other current liabilities $ 18,691 $ 16,276 Operating lease liabilities 139,203 130,965 Total operating lease liabilities $ 157,894 $ 147,241 Weighted Average Remaining Lease Term (years) Operating leases 11.4 12.0 Weighted Average Discount Rate Operating leases 5.2 % 5.5 % Lease payments due related to lease liabilities as of September 30, 2022 were as follows (in thousands): Related Party Operating Leases Non-Related Parties Operating Leases Total Operating Leases Remainder of 2022 $ 2,746 $ 3,674 $ 6,420 2023 11,025 13,894 24,919 2024 11,154 11,394 22,548 2025 11,286 9,302 20,588 2026 11,422 8,108 19,530 Later years 106,988 17,570 124,558 Total lease payments 154,621 63,942 218,563 Less: imputed interest ( 54,538 ) ( 6,131 ) ( 60,669 ) Total $ 100,083 $ 57,811 $ 157,894 As of September 30, 2022, we have several additional leases with contractual obligations, which have not yet commenced, with future payments of $ 0.1 million. (9) Shareholder’s Equity and Stock-Based Compensation The Company granted 392,231 awards to employees under the 2016 Incentive Award Plan during the nine months ended September 30, 2022, consisting of 151,159 RSU and 113,838 stock option awards having four year vesting schedules and 127,234 stock option awards having two year vesting schedules. The Company granted an additional 11,418 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the nine months ended September 30, 2022. These awards are scheduled to vest on the earlier of (a) the day immediately preceding the date of the first annual meeting following the date of grant and (b) the first anniversary of the date of grant, subject to the non-employee director continuing in service through the applicable vesting date. -13- Table of Contents Award Activity The following table sets forth the Company’s stock option activity: Nine Months Ended September 30, 2022 Stock Options Weighted Average Exercise Price Outstanding - beginning of period 1,992,915 $ 68.39 Granted 252,490 $ 138.91 Exercised ( 395,863 ) $ 41.21 Cancelled/Forfeited/Expired ( 28,747 ) $ 72.76 Outstanding - end of period 1,820,795 $ 84.01 Exercisable - end of period 1,212,799 $ 56.49 The following table sets forth the Company’s RSA/RSU activity: Nine Months Ended September 30, 2022 Shares/Units Outstanding and unvested - beginning of period 602,187 Granted 151,159 Vested ( 159,000 ) Forfeited ( 40,248 ) Outstanding and unvested - end of period 554,098 Cumulative vested shares - end of period 2,191,916 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, 2022 2021 2022 2021 Total direct costs $ 3,179 $ 2,607 $ 8,744 $ 6,841 Selling, general and administrative 2,615 1,440 7,075 3,647 Total stock-based compensation expense $ 5,794 $ 4,047 $ 15,819 $ 10,488 (10) Income Taxes The Company’s effective income tax rate was 19.4 % and 11.3 % for the three months ended September 30, 2022 and 2021, respectively. The Company's effective income tax rate was 15.5 % and 9.7 % for the nine months ended September 30, 2022 and 2021, respectively. The Company’s effective income tax rate for the three months ended September 30, 2022 varied from the U.S. statutory rate of 21 % primarily due to the impact of state taxes, which was favorably offset by excess tax benefits recognized from share-based compensation. The Company's effective income tax rate for the nine months ended September 30, 2022 varied from the U.S. statutory rate of 21 % due to the impact of the state taxes, which was favorably offset by excess tax benefits recognized from share-based compensation and benefits from uncertain tax positions. -14- Table of Contents (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, 2022 and December 31, 2021. 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, 2022. Purchase Commitments The Company has several minimum purchase commitments for project related supplies totaling $ 14.3 million as of September 30, 2022. In return for the commitment, Medpace receives preferential pricing. The commitments expire at various times through 2029. (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, 2022 and December 31, 2021, 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 Agreement 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 $ 9.5 million and $ 2.3 million during the three months ended September 30, 2022 and 2021, respectively, and $ 26.6 million and $ 5.6 million during the nine months ended September 30, 2022 and 2021, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, respectively, the Company had Advanced billings from LIB of $ 4.7 million and $ 2.9 million in the condensed consolidated balance sheets. In addition, as of September 30, 2022 and December 31, 2021, respectively, the Company had Accounts receivable and unbilled, net from LIB of $ 1.7 million and $ 0.5 million in the condensed consolidated balance sheets. CinRX Pharma, subsidiaries and affiliates (“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 $ 0.5 million and $ 6.4 million during the three months ended September 30, 2022 and 2021, respectively, and $ 13.8 million and $ 18.3 million during the nine months ended September 30, 2022 and 2021, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, respectively, the Company had Advanced billings from CinRx of $ 1.0 million and $ 5.4 million in the condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021 the Company had Accounts receivable and unbilled, net from CinRx of $ 1.3 million and $ 2.1 million, respectively, in the condensed consolidated balance sheets. Certain affiliates of CinRx included in previous reported quarters are no longer disclosed due to changes in the affiliate relationship. 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 $ 0.1 million and $ 0.2 million during the three months ended September 30, 2022 and 2021, respectively, and $ 0.2 million and $ 0.3 million during the nine months ended September 30, 2022 and 2021 at The Summit, respectively. -15- Table of Contents 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. In Q3 2021, the Company accounted for the renewal option, as it became reasonably certain it would be exercised per the agreement, by extending the lease term through November 2032. 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, 2022 and 2021 was $ 0.6 million and $ 1.7 million and $ 1.6 million for the nine months ended September 30, 2022 and 2021, 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, 2022 and December 31, 2021 were $ 18.6 million and $ 19.7 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2022 were $ 1.5 million and $ 17.1 million, respectively, 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, 2021 were $ 1.5 million and $ 18.3 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. 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 months ended September 30, 2022 and 2021 was $ 1.5 million and $ 4.3 million for the nine months ended September 30, 2022 and 2021. 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, 2022 and December 31, 2021 were $ 53.9 million and $ 55.1 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2022 were $ 1.1 million and $ 65.1 million, respectively, 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, 2021 were $ 0.9 million and $ 65.9 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, 2022 and 2021 was $ 0.9 million and $ 2.7 million for the nine months ended September 30, 2022 and 2021. 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, 2022 and December 31, 2021 were $ 15.3 million and $ 17.2 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2022 were $ 2.7 million and $ 12.6 million, respectively, 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, 2021 were $ 2.6 million and $ 14.6 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 private aviation charter companies which is a company controlled by the chief executive officer of the Company (each a “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 -16- Table of Contents 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 $ 0.6 million and $ 0.4 million during the three months ended September 30, 2022 and 2021, respectively, and $ 1.6 million and $ 0.9 million during the nine months ended September 30, 2022 and 2021, 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, 2022 and December 31, 2021, the Company had Accounts payable to the Aircraft Management Company of $ 0.2 million, respectively, 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Therapeutic Area Oncology $ 122,834 $ 94,724 $ 343,589 $ 267,110 Other 72,767 64,088 216,739 197,146 Metabolic 63,478 42,133 167,194 112,771 Cardiology 49,802 34,736 129,225 86,538 Central Nervous System 43,418 32,854 120,811 86,217 AVAI 31,445 27,032 88,340 84,043 Total revenue $ 383,744 $ 295,567 $ 1,065,898 $ 833,825 -17- Table of Contents