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, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 656,900 $ 245,449 Accounts receivable and unbilled, net (includes $ 9.9 million and $ 2.4 million with related parties at September 30, 2024 and December 31, 2023, respectively) 311,466 298,400 Prepaid expenses and other current assets (includes $ 0.3 million with related parties at December 31, 2023) 64,229 49,979 Total current assets 1,032,595 593,828 Property and equipment, net 124,058 120,589 Operating lease right-of-use assets 130,547 144,801 Goodwill 662,396 662,396 Intangible assets, net 34,727 35,809 Deferred income taxes 76,683 74,435 Other assets 23,055 24,970 Total assets $ 2,084,061 $ 1,656,828 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable (includes $ 0.2 million and $ 3.1 million with related parties at September 30, 2024 and December 31, 2023, respectively) $ 26,201 $ 31,869 Accrued expenses 306,868 292,961 Advanced billings (includes $ 12.8 million and $ 10.1 million with related parties at September 30, 2024 and December 31, 2023, respectively) 670,939 559,860 Other current liabilities 37,346 40,441 Total current liabilities 1,041,354 925,131 Operating lease liabilities 128,277 142,122 Deferred income tax liability 2,289 2,404 Other long-term liabilities 30,702 28,221 Total liabilities 1,202,622 1,097,878 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, 2024 and December 31, 2023 — — Common stock - $ 0.01 par-value; 250,000,000 shares authorized at September 30, 2024 and December 31, 2023; 31,081,601 and 30,752,292 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively 311 308 Treasury stock - 70,073 and 70,573 shares at September 30, 2024 and December 31, 2023, respectively ( 12,235 ) ( 12,322 ) Additional paid-in capital 836,903 802,681 Retained earnings (Accumulated deficit) 65,636 ( 221,645 ) Accumulated other comprehensive loss ( 9,176 ) ( 10,072 ) Total shareholders’ equity 881,439 558,950 Total liabilities and shareholders’ equity $ 2,084,061 $ 1,656,828 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, 2024 2023 2024 2023 Revenue, net (includes $ 15.5 million with related parties for the three months ended September 30, 2024 and 2023, and $ 39.5 million and $ 44.6 million with related parties for the nine months ended September 30, 2024 and 2023, respectively) $ 533,317 $ 492,499 $ 1,572,465 $ 1,387,441 Operating expenses: Direct service costs, excluding depreciation and amortization 171,540 164,364 514,573 473,958 Reimbursed out-of-pocket expenses 192,769 194,942 579,904 525,784 Total direct costs 364,309 359,306 1,094,477 999,742 Selling, general and administrative 49,217 41,407 134,751 118,838 Depreciation 7,158 6,329 20,663 17,707 Amortization 360 549 1,082 1,649 Total operating expenses 421,044 407,591 1,250,973 1,137,936 Income from operations 112,273 84,908 321,492 249,505 Other income (expense), net: Miscellaneous (expense) income, net ( 1,025 ) ( 1,602 ) 3,435 ( 2,198 ) Interest income (expense), net 7,528 ( 105 ) 17,113 ( 2,332 ) Total other income (expense), net 6,503 ( 1,707 ) 20,548 ( 4,530 ) Income before income taxes 118,776 83,201 342,040 244,975 Income tax provision 22,350 12,651 54,672 40,463 Net income $ 96,426 $ 70,550 $ 287,368 $ 204,512 Net income per share attributable to common shareholders: Basic $ 3.11 $ 2.30 $ 9.28 $ 6.65 Diluted $ 3.01 $ 2.22 $ 8.96 $ 6.42 Weighted average common shares outstanding: Basic 31,047 30,629 30,960 30,723 Diluted 32,088 31,762 32,060 31,839 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, 2024 2023 2024 2023 Net income $ 96,426 $ 70,550 $ 287,368 $ 204,512 Other comprehensive income (loss) Foreign currency translation adjustments, net of taxes 3,413 ( 1,676 ) 896 ( 478 ) Comprehensive income $ 99,839 $ 68,874 $ 288,264 $ 204,034 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 Accumulated Deficit Accumulated Other Comprehensive Loss Total BALANCE — December 31, 2022 $ 309 $ ( 12,497 ) $ 770,794 $ ( 359,827 ) $ ( 12,392 ) $ 386,387 Net income 72,894 72,894 Foreign currency translation 1,078 1,078 Stock-based compensation expense 5,438 5,438 Stock options exercised 4 2,459 2,463 Repurchases of common stock ( 7 ) ( 120,991 ) ( 120,998 ) Re-issuance of treasury stock 175 ( 175 ) — BALANCE — March 31, 2023 $ 306 $ ( 12,322 ) $ 778,691 $ ( 408,099 ) $ ( 11,314 ) $ 347,262 Net income 61,068 61,068 Foreign currency translation 120 120 Stock-based compensation expense 4,906 4,906 Stock options exercised 1 1,695 1,696 Repurchases of common stock ( 1 ) ( 23,991 ) ( 23,992 ) BALANCE — June 30, 2023 $ 306 $ ( 12,322 ) $ 785,292 $ ( 371,022 ) $ ( 11,194 ) $ 391,060 Net income 70,550 70,550 Foreign currency translation ( 1,676 ) ( 1,676 ) Stock-based compensation expense 5,007 5,007 Stock options exercised 1 5,695 5,696 Repurchases of common stock 275 275 BALANCE — September 30, 2023 $ 307 $ ( 12,322 ) $ 795,994 $ ( 300,197 ) $ ( 12,870 ) $ 470,912 Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total BALANCE — December 31, 2023 $ 308 $ ( 12,322 ) $ 802,681 $ ( 221,645 ) $ ( 10,072 ) $ 558,950 Net income 102,591 102,591 Foreign currency translation ( 1,969 ) ( 1,969 ) Stock-based compensation expense 4,310 4,310 Stock options exercised 2 7,658 7,660 Re-issuance of treasury stock 87 ( 87 ) — BALANCE — March 31, 2024 $ 310 $ ( 12,235 ) $ 814,649 $ ( 119,141 ) $ ( 12,041 ) $ 671,542 Net income 88,351 88,351 Foreign currency translation ( 548 ) ( 548 ) Stock-based compensation expense 3,588 3,588 Stock options exercised 666 666 BALANCE — June 30, 2024 $ 310 $ ( 12,235 ) $ 818,903 $ ( 30,790 ) $ ( 12,589 ) $ 763,599 Net income 96,426 96,426 Foreign currency translation 3,413 3,413 Stock-based compensation expense 11,727 11,727 Stock options exercised 1 6,273 6,274 BALANCE — September 30, 2024 $ 311 $ ( 12,235 ) $ 836,903 $ 65,636 $ ( 9,176 ) $ 881,439 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, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 287,368 $ 204,512 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,663 17,707 Amortization 1,082 1,649 Stock-based compensation expense 19,625 15,351 Noncash lease expense 17,305 14,579 Deferred income tax benefit ( 2,433 ) ( 11,308 ) Other ( 3,836 ) 821 Changes in assets and liabilities: Accounts receivable and unbilled, net ( 13,032 ) ( 39,314 ) Prepaid expenses and other current assets ( 11,108 ) ( 8,954 ) Accounts payable ( 3,029 ) ( 921 ) Accrued expenses 13,933 54,923 Advanced billings 111,079 56,026 Lease liabilities ( 15,417 ) ( 14,433 ) Other assets and liabilities, net ( 4,051 ) ( 13,659 ) Net cash provided by operating activities 418,149 276,979 CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment expenditures ( 28,905 ) ( 26,662 ) Other 8,159 30 Net cash used in investing activities ( 20,746 ) ( 26,632 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock option exercises 14,600 9,855 Repurchases of common stock — ( 144,020 ) Proceeds from revolving loan — 105,000 Payments on revolving loan — ( 155,000 ) Net cash provided by (used in) financing activities 14,600 ( 184,165 ) EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 552 ) 760 INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 411,451 66,942 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 245,449 28,265 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period $ 656,900 $ 95,207 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION — Acquisition of property and equipment—non-cash $ 2,685 $ 4,704 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, 2024 (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, 2023. Share Repurchases In the fourth quarter of 2022, the Board approved a stock repurchase program of up to $ 500.0 million. The Company did not execute any share repurchases during the three and nine months ended September 30, 2024. The Company did not execute any share repurchases during the three months ended September 30, 2023. During the nine months ended September 30, 2023, the Company repurchased 781,068 shares for $ 144.0 million. As of September 30, 2024, the Company has remaining authorization of $ 308.8 million 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 Pronouncements In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which requires entities to enhance disclosures around segment reporting. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company expects to adopt the standard in the fourth quarter of 2024 by adding additional segment related disclosures to the consolidated financial statement footnotes. In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" which requires entities to enhance disclosures around income taxes. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its 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, 2024 and 2023 (in thousands, except for earnings per share): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Weighted-average shares: Common shares outstanding 31,047 30,629 30,960 30,723 RSAs — 21 4 21 Total weighted-average shares 31,047 30,650 30,964 30,744 Earnings per common share—Basic Net income $ 96,426 $ 70,550 $ 287,368 $ 204,512 Less: Undistributed earnings allocated to RSAs — ( 48 ) ( 41 ) ( 138 ) Net income available to common shareholders—Basic $ 96,426 $ 70,502 $ 287,327 $ 204,374 Net income per common share—Basic $ 3.11 $ 2.30 $ 9.28 $ 6.65 Basic weighted-average common shares outstanding 31,047 30,629 30,960 30,723 Effect of diluted shares 1,041 1,133 1,100 1,116 Diluted weighted-average shares outstanding 32,088 31,762 32,060 31,839 Net income per common share—Diluted $ 3.01 $ 2.22 $ 8.96 $ 6.42 During the three and nine months ended September 30, 2024, the Company had (in thousands) 5.6 and 80.2 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 nine months ended September 30, 2023, the Company had (in thousands) 0.6 stock options 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. -9- Table of Contents 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 material recurring fair value measurements as of September 30, 2024. There were no material transfers between Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2024 and September 30, 2023. (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, 2024 December 31, 2023 Accounts receivable $ 304,754 $ 275,932 Unbilled receivables 6,712 22,475 Less: allowance for doubtful accounts — ( 7 ) Total accounts receivable and unbilled, net $ 311,466 $ 298,400 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, 2024 December 31, 2023 Advanced billings $ 670,939 $ 559,860 As of September 30, 2024 and December 31, 2023, the Company had approximately $ 3.5 billion and $ 2.9 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, 2024 December 31, 2023 Intangible assets: Finite-lived intangible assets: Carrying amount: Customer relationships 145,051 145,051 Accumulated amortization: Customer relationships ( 141,970 ) ( 140,888 ) Total finite-lived intangible assets, net 3,081 4,163 Trade name (indefinite-lived) 31,646 31,646 Total intangible assets, net $ 34,727 $ 35,809 As of September 30, 2024, estimated amortization expense of the Company’s intangible assets for each of the next five years is as follows (in thousands): Amortization Remainder of 2024 $ 361 2025 946 2026 620 2027 577 2028 577 $ 3,081 (6) Accrued Expenses Accrued expenses consisted of the following (in thousands): As of September 30, 2024 December 31, 2023 Employee compensation and benefits $ 77,927 $ 75,822 Project related reimbursable expenses 219,542 205,864 Other 9,399 11,275 Total accrued expenses $ 306,868 $ 292,961 (7) Short-term Debt 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”). -11- Table of Contents 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 March 31, 2023, the Company entered into Amendment No. 5 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $ 150.0 million, adjusted the interest rate and fee charged on the credit facility and extended the expiration date of revolving credit note to March 29, 2024. On March 28, 2024, the Company entered into Amendment No. 6 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $ 10.0 million and extended the expiration date of revolving credit note to March 31, 2025. The Credit Facility bears interest at a rate of the sum of The Secured Overnight Financing Rate (SOFR) plus 125 basis points ( 1.25 %) or the highest of the Prime Rate, the sum of the Overnight Bank Funding Rate plus 50 basis points ( 0.50 %) and the sum of Daily Simple SOFR plus 100 basis points ( 1.00 %). The Loan Agreement contains other customary loan terms, representations and warranties, and affirmative and negative covenants, in each case, subject to customary limitations, exceptions and exclusions. The Loan Agreement contains certain events of default, including, among others, non-payment of principal or interest and breach of the covenants. (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 16 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, 2024 2023 2024 2023 Operating lease cost $ 7,959 $ 7,002 $ 23,727 $ 20,637 Variable lease cost 2,904 2,372 8,305 6,544 Supplemental cash flow information related to the leases was as follows (in thousands): Nine Months Ended September 30, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 16,232 $ 14,883 Right-of-use assets obtained in exchange for lease obligations: Operating leases 2,222 20,412 -12- Table of Contents Supplemental balance sheet information related to the leases was as follows (in thousands): As of September 30, 2024 December 31, 2023 Operating lease right-of-use assets - related parties $ 76,954 $ 83,065 Operating lease right-of-use assets - non-related parties 53,593 61,736 Operating lease right-of-use assets $ 130,547 $ 144,801 Other current liabilities - related parties 6,164 5,730 Other current liabilities - non-related parties 17,452 16,635 Other current liabilities $ 23,616 $ 22,365 Operating lease liabilities - related parties 85,884 90,568 Operating lease liabilities - non-related parties 42,393 51,554 Operating lease liabilities 128,277 142,122 Total operating lease liabilities $ 151,893 $ 164,487 Weighted Average Remaining Lease Term (years) Operating leases 9.7 10.0 Weighted Average Discount Rate Operating leases 5.7 % 5.6 % Lease payments due related to lease liabilities as of September 30, 2024 were as follows (in thousands): Related Party Operating Leases Non-Related Parties Operating Leases Total Operating Leases Remainder of 2024 $ 2,875 $ 5,599 $ 8,474 2025 11,607 18,054 29,661 2026 11,807 14,811 26,618 2027 10,839 11,533 22,372 2028 8,609 6,524 15,133 Later years 91,669 10,017 101,686 Total lease payments 137,406 66,538 203,944 Less: imputed interest ( 45,358 ) ( 6,693 ) ( 52,051 ) Total $ 92,048 $ 59,845 $ 151,893 As of September 30, 2024, we have additional leases with contractual obligations, which have not yet commenced , including future payments of $ 4.8 million. (9) Shareholder’s Equity and Stock-Based Compensation The Company granted 191,776 awards to employees under the 2016 Incentive Award Plan during the nine months ended September 30, 2024, consisting of 116,626 RSU and 24,650 stock option awards having five year vesting schedules, 500 RSU having four year vesting schedules and 50,000 stock option awards that vested upon issuance. The Company granted an additional 6,542 stock option awards to non-employee directors under the 2016 Incentive Award Plan during the nine months ended September 30, 2024. 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, 2024 Stock Options Weighted Average Exercise Price Outstanding - beginning of period 1,343,287 $ 100.75 Granted 81,192 $ 378.45 Exercised ( 235,451 ) $ 62.01 Cancelled/Forfeited/Expired ( 4,953 ) $ 191.17 Outstanding - end of period 1,184,075 $ 127.12 Exercisable - end of period 854,262 $ 107.24 The following table sets forth the Company’s RSA/RSU activity: Nine Months Ended September 30, 2024 Shares/Units Outstanding and unvested - beginning of period 390,998 Granted 117,126 Vested ( 93,858 ) Forfeited ( 21,186 ) Outstanding and unvested - end of period 393,080 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, 2024 2023 2024 2023 Total direct costs $ 2,787 $ 2,745 $ 7,565 $ 8,243 Selling, general and administrative 8,940 2,262 12,060 7,108 Total stock-based compensation expense $ 11,727 $ 5,007 $ 19,625 $ 15,351 (10) Income Taxes The Company’s effective income tax rate was 18.8 % and 15.2 % for the three months ended September 30, 2024 and 2023, respectively. The Company's effective income tax rate was 16.0 % and 16.5 % for the nine months ended September 30, 2024 and 2023, respectively. The Company’s effective income tax rate for the three months ended September 30, 2024 and the nine months ended September 30, 2024 varied from the U.S. statutory rate of 21 % primarily due to the impact of the state taxes, which was favorably offset by excess tax benefits recognized from share-based compensation and tax benefits related to Foreign Derived Intangible Income (FDII). -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, 2024 and December 31, 2023. 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, 2024. Purchase Commitments The Company has several minimum purchase commitments for project related supplies totaling $ 15.9 million as of September 30, 2024. 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 $ 0.3 million at September 30, 2024 and December 31, 2023, 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 $ 8.3 million and $ 10.1 million during the three months ended September 30, 2024 and 2023, respectively, and $ 18.7 million and $ 33.1 million during the nine months ended September 30, 2024 and 2023, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2024 and December 31, 2023, respectively, the Company had Advanced billings from LIB of $ 7.2 million and $ 7.6 million in the condensed consolidated balance sheets. In addition, as of September 30, 2024 and December 31, 2023, respectively, the Company had Accounts receivable and unbilled, net from LIB of $ 8.3 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 $ 7.2 million and $ 5.3 million during the three months ended September 30, 2024 and 2023, respectively, and $ 20.8 million and $ 11.4 million during the nine months ended September 30, 2024 and 2023, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2024 and December 31, 2023, respectively, the Company had Advanced billings from CinRx of $ 5.6 million and $ 2.5 million in the condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023 the Company had Accounts receivable and unbilled, net from CinRx of $ 1.6 million and $ 1.9 million, respectively, in the condensed consolidated balance sheets. In addition, as of September 30, 2024 and December 31, 2023 the Company had Prepaid expenses and other current assets with CinRx of less than $ 0.1 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 $ 0.1 million during the three months ended September 30, 2024 and 2023, and $ 0.3 million during the nine months ended September 30, 2024 and 2023 at The Summit. -15- Table of Contents Leased Real Estate Campus Headquarters Leases The Company entered into an operating lease for the occupancy of office space in a building in Cincinnati, Ohio 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 was renewed in the first quarter of fiscal year 2023 for a term of ten years through December 2032 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. The Company has determined that the lease is an operating lease. Operating lease cost recognized for the three months ended September 30, 2024 and 2023 was $ 0.7 million. Operating lease cost recognized for the nine months ended September 30, 2024 and 2023 was $ 2.1 million and $ 2.0 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, 2024 and December 31, 2023 were $ 18.1 million and $ 19.3 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2024 were $ 1.6 million and $ 16.9 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, 2023 were $ 1.5 million and $ 18.1 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, 2024 and 2023 was $ 1.5 million. Operating lease cost recognized for the nine months ended September 30, 2024 and 2023 was $ 4.3 million. 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, 2024 and December 31, 2023 were $ 50.6 million and $ 51.9 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2024 were $ 1.5 million and $ 62.4 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, 2023 were $ 1.3 million and $ 63.5 million, respectively and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The Company entered into a multi-year lease agreement governing the occupancy of office space in a building 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 lease expires 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 lease is an operating lease. Operating lease cost recognized for the three months ended September 30, 2024 and 2023 was $ 0.6 million. Operating lease cost recognized for the nine months ended September 30, 2024 and 2023 was $ 1.9 million. 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, 2024 and December 31, 2023 were $ 6.9 million and $ 8.5 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2024 were $ 2.2 million and $ 4.8 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, 2023 were $ 2.1 million and $ 6.4 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The Company entered into a multi-year lease agreement governing the occupancy of office space in a building 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 lease expires in 2027 with the Company having one 10-year option to extend the lease term. In the first quarter of 2024, the Company reduced the lease term in connection with -16- Table of Contents a plan to replace the leased office beginning in early 2025. 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, 2024 and 2023 was $ 0.7 million and $ 0.3 million, respectively. Operating lease cost recognized for the nine months ended September 30, 2024 and 2023 was $ 2.2 million and $ 0.8 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, 2024 and December 31, 2023 were $ 1.4 million and $ 3.4 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2024 were $ 0.9 million and $ 1.8 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, 2023 were $ 0.9 million and $ 2.5 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 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 $ 0.4 million and $ 0.7 million during the three months ended September 30, 2024 and 2023, respectively, and $ 1.4 million and $ 1.5 million during the nine months ended September 30, 2024 and 2023, 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, 2024 and December 31, 2023, the Company had Accounts payable to the Aircraft Management Company of $ 0.1 million and $ 0.4 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, 2024 2023 2024 2023 Therapeutic Area Oncology $ 164,917 $ 149,326 $ 483,067 $ 438,366 Metabolic 124,733 103,118 334,674 277,818 Other 107,371 106,160 328,203 294,319 Cardiology 55,814 44,360 172,150 142,107 Central Nervous System 42,098 43,989 132,753 120,412 AVAI 38,384 45,546 121,618 114,419 Total revenue $ 533,317 $ 492,499 $ 1,572,465 $ 1,387,441 -17- Table of Contents