What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-11 compared with 2024-02-13 · 40 added, 41 removed, 253 unchanged (24% of the section changed)

1 unchanged sentence

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K to provide an understanding of our results of operations, financial condition and cash flows.

This section of this Form 10-K

generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see “Part II, Item 7.

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We believe this combination results in timely and cost-effective delivery of clinical development services for our customers.

We believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.

We believe that we are a partner of choice for small- and mid-sized biopharmaceutical

companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.

We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic Disease, Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI.

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The majority of our customers can terminate our contracts without cause upon 30 days’ notice.

Similar to new business awards,

the number and amount of cancellations can vary significantly period over period due to timing of customer correspondence and study-specific circumstances.

Similar to new business awards, the number and amount of cancellations can vary significantly period over period due to timing of customer correspondence and study-specific circumstances.

Net new business awards represent gross new business awards received in a period offset by total cancellations in that period.

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The effect of foreign currency adjustments on backlog was as follows:

favorable foreign currency adjustments of $14.6 million for the year ended December 31, 2023 and unfavorable foreign currency adjustments of $19.1 million for the year ended December 31, 2022.

unfavorable foreign currency adjustments of $16.7 million for the year ended December 31, 2024 and favorable foreign currency adjustments of $14.6 million for the year ended December 31, 2023.

Backlog and net new business award metrics may not be reliable indicators of our future period revenue as they are subject to a variety of factors that may cause material fluctuations from period to period.

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Income from operations 446,870 336,825 110,045

Miscellaneous (expense) income, net (655) 7,068 (7,723)

Interest expense, net (488) (2,905) 2,417

Miscellaneous income (expense), net 4,056 (655) 4,711

Interest income (expense), net 24,996 (488) 25,484

Income before income taxes 475,922 335,682 140,240

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Total revenue increased by $223.2 million to $2,109.1 million for the year ended December 31, 2024, from $1,885.8 million for the year ended December 31, 2023.

The increase was broad based, but primarily driven by strong activity within the Metabolic, Oncology, AVAI and other uncategorized therapeutic areas.

The increase was broad based, but primarily driven by strong activity within the Metabolic, Oncology, Cardiology and other uncategorized therapeutic areas, compared to the same period in the prior year.

Total direct costs

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Depreciation and amortization expense increased by $2.9 million, to $29.3 million for the year ended December 31, 2024 from $26.3 million for the year ended December 31, 2023.

The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net.

Miscellaneous (expense) income, net

Miscellaneous (expense) income, net changed by $7.7 million of expense to $0.7 million of expense for the year ended December 31, 2023 from $7.1 million of income for the year ended December 31, 2022.

those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment and third-party investment gains or losses.

The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net, compared to the same period in the prior year.

Miscellaneous income (expense), net

Miscellaneous income (expense), net changed by $4.7 million, to $4.1 million of income for the year ended December 31, 2024 from $0.7 million of expense for the year ended December 31, 2023.

The change was mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment and proceeds from the recovery of a note receivable, compared to the same period in the prior year.

Interest income (expense), net

Interest income (expense), net changed by $25.5 million, to $25.0 million of income for the year ended December 31, 2024 from $0.5 million of expense for the year ended December 31, 2023.

This change was mainly attributable to increased interest income on Cash and cash equivalents and a reduction in short-term debt, compared to the same period in the prior year.

Income tax provision

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The overall effective tax rates for the years ended December 31, 2024 and 2023 were 15.0% and 15.8%, respectively.

The increase in the income tax provision and overall effective rate was primarily attributable to the increase in pre-tax book income, an increase in uncertain tax positions, and a decrease in excess tax benefits recognized from share-based compensation, which was partially offset by an increase in tax benefits related to Foreign Derived Intangible Income ("FDII") compared to the same period in the prior year.

The increase in the income tax provision was primarily attributable to the increase in pre-tax book income, which was partially offset by an increase in excess tax benefits recognized from share-based compensation and a decrease in uncertain tax positions, compared to the same period in the prior year.

The decrease in the overall effective tax rate was primarily attributable to a decrease in uncertain tax positions, which was partially offset by tax benefits related to Foreign Derived Intangible Income ("FDII").

Liquidity and Capital Resources

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Effect of exchange rates on cash, cash equivalents, and restricted cash (2,511) 1,081

Increase (decrease) in cash, cash equivalents, and restricted cash $ 217,184 $ (433,039)

Increase in cash, cash equivalents, and restricted cash $ 423,987 $ 217,184

Cash Flows from Operating Activities

Cash flows from operations are driven mainly by net income, deferred income tax benefit, depreciation, stock-based compensation expense, noncash lease expense and net movement in advanced billings, accrued expenses, and accounts receivable and unbilled, net.

Cash flows from operations are driven mainly by net income, depreciation, deferred income tax benefit, stock-based compensation expense, noncash lease expense and net movement in advanced billings, accrued expenses, lease liabilities and accounts receivable and unbilled, net.

Accounts receivable and unbilled, net, and advanced billings fluctuate on a regular basis as we perform our services, bill our customers and ultimately collect on those receivables.

We attempt to negotiate payment terms

in order to provide for payments prior to or soon after the provision of services, but this timing of collection can vary significantly on a period by period comparative basis.

We attempt to negotiate payment terms in order to provide for payments prior to or soon after the provision of services, but this timing of collection can vary significantly on a period by period comparative basis.

Net cash flows provided by operating activities were $608.8 million for the year ended December 31, 2024 consisting of net income of $404.4 million.

Adjustments to reconcile net income to net cash provided by operating activities were $47.2 million, primarily related to depreciation of $27.8 million, stock-based compensation expense of $25.5 million, and noncash lease expense of $23.1 million, partially offset by a deferred income tax benefit of $26.6 million.

Changes in operating assets and liabilities provided $106.5 million in operating cash flows and were primarily driven by by increased advanced billings of $97.1 million and increased accrued expenses of $82.1 million, partially offset by increased accounts receivable and unbilled, net of $48.3 million.

Changes in operating assets and liabilities provided $157.2 million in operating cash flows and were primarily driven by increased advanced billings of $150.7 million, changes in Other assets and liabilities, net of $23.8 million, and increased accrued expenses of $16.9 million, partially offset by decreased lease liabilities of $21.4 million and increased prepaid expenses and other current assets of $12.1 million.

Net cash flows provided by operating activities were $433.4 million for the year ended December 31, 2023 consisting of net income of $282.8 million.

Adjustments to reconcile net income to net cash provided by operating activities were $36.6 million, primarily related to stock-based compensation expense of $21.4 million, depreciation of $19.0 million and noncash lease expense of $18.0 million, partially offset by a deferred income tax benefit of $23.0 million.

Changes in operating assets and liabilities provided $106.1 million in operating cash flows and were primarily driven by increased advanced billings of $118.1 million and increased accrued expenses of $52.5 million, offset by increased accounts receivable and unbilled, net of $66.9 million.

Adjustments to reconcile net income to net cash provided by operating activities were $44.1 million, primarily related to depreciation of $24.1 million, stock-based compensation expense of $20.5 million, and noncash lease expense of $19.6 million, partially offset by a deferred income tax benefit of $25.1 million.

Changes in operating assets and liabilities provided $106.5 million in operating cash flows and were primarily driven by increased advanced billings of $97.1 million and increased accrued expenses of $82.1 million, partially offset by increased accounts receivable and unbilled, net of $48.3 million.

Cash Flow from Investing Activities

Net cash used in investing activities was $34.6 million for the year ended December 31, 2023, primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $28.3 million for the year ended December 31, 2024, primarily consisting of property and equipment expenditures of $36.5 million, partially offset by $8.2 million in other investing activity.

Net cash used in investing activities was $34.6 million for the year ended December 31, 2023, primarily consisting of property and equipment expenditures.

Cash Flow from Financing Activities

Net cash used in financing activities was $182.6 million for the year ended December 31, 2023, primarily related to $155.0 million in repayments of the Credit Facility and $144.0 million in repurchases of common stock, partially offset by $105.0 million in proceeds from the Credit Facility and proceeds from stock options exercises of $11.4 million.

Net cash used in financing activities was $775.8 million for the year ended December 31, 2022, primarily related to $847.8 million in repurchases of common stock and $274.2 million in repayments of the Credit Facility, partially offset by $324.2 million in proceeds from the Credit Facility and proceeds from stock options exercises of $22.1 million.

Net cash used in financing activities was $154.0 million for the year ended December 31, 2024 primarily related to $169.9 million in repurchases of common stock, partially offset by proceeds from stock option exercises of $15.9 million.

Share Repurchases

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For the year ended December 31, 2022, the Company repurchased 5,463,244 shares for $800.5 million under this repurchase program.

For the year ended December 31, 2021, the Company repurchased 377,783 shares for $62.1 million.

As of June 30, 2022, the Company completed all authorized share repurchases under this repurchase program.

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For the year ended December 31, 2023, the Company repurchased 781,068 shares for $144.0 million under the new repurchase program.

For the year ended December 31, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program.

As of December 31, 2024, we have remaining authorization of $134.6 million under the new repurchase program.

As of February 6, 2025, the Company's Board of Directors approved an increase of $600.0 million to the Company's new stock repurchase program.

Repurchases under the share repurchase programs are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1.

The Company constructively retires the repurchased shares associated with these approved share repurchase programs, except for a small portion which were retained as Treasury Shares on the 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 consolidated balance sheets.

Retired share repurchase amounts paid in excess of par value are reflected within Retained earnings/Accumulated deficit in the Company’s consolidated balance sheets.

The repurchase programs may be suspended or discontinued at any time without notice.

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 September 30, 2019 (the “Closing Date”), the Company obtained an unsecured credit facility (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 March 31, 2023, 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.

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 resolving 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 is guaranteed by the Guarantor and its material, direct or indirect wholly owned domestic subsidiaries, with certain exceptions, including where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences.

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The Credit Facility contains certain events of default, including, among others, non-payment of principal or interest, breach of the covenants, cross default and cross acceleration to certain other indebtedness, defaults on monetary judgment orders, certain ERISA events, certain bankruptcy and insolvency events, actual or asserted invalidity of any guarantee or security document and change in control.

As of December 31, 2023, we have no indebtedness and less than $0.1 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.

As of December 31, 2024, we have no indebtedness.

Critical Accounting Policies and Estimates

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Cost estimates are based on a detailed project budget and are developed based on many variables, including, but not limited to, the scope of the work, labor productivity, the complexity of the study, the participating geographic locations and the Company’s historical experience.

To assist with the estimation of costs expected at completion over the life of a project, regular contract reviews are performed in which performance to date is compared to the most current estimate to complete

The reviews include an assessment of costs incurred to date compared to expectations based on budget assumptions and other circumstances specific to the project.

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We record deferred tax assets and liabilities based on temporary differences between the financial statement bases and tax bases of assets and liabilities.

Deferred tax assets are recorded for tax benefit carryforwards using tax rates anticipated to be

in effect in the year in which temporary differences are expected to reverse.

Deferred tax assets are recorded for tax benefit carryforwards using tax rates anticipated to be in effect in the year in which temporary differences are expected to reverse.

If it does not appear more likely than not that the full value of a deferred tax asset will be realized, the Company records a valuation allowance against the deferred tax asset, with an offsetting charge to the Company’s income tax provision or benefit.

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The assessment of recoverability is performed on a jurisdiction by jurisdiction basis.

Based on the analysis of the above factors, we determined that a valuation allowance in the amount of $1.8 million relating to certain tax credits and other deferred tax assets should be recorded as of December 31, 2023 and $0.4 million should be recorded as of December 31, 2022 relating to certain foreign deferred tax assets that are currently not expected to be realized.

Based on the analysis of the above factors, we determined that a valuation allowance in the amount of $1.6 million should be recorded as of December 31, 2024 and $1.8 million should be recorded as of December 31, 2023 relating to certain tax credits and other deferred tax assets that are currently not expected to be realized.

Differences in actual results compared to our estimates and changes in our assumptions could result in an adjustment to the valuation allowance in the future and would generally impact earnings or other comprehensive income depending on the nature of the respective deferred asset for which the valuation allowance exists.

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The calculation of these liabilities involves dealing with uncertainties in the application of complex tax regulations in both domestic and foreign jurisdictions.

These positions may be subject to audit and review by tax authorities, and may result in future taxes, interest and penalties if we are unsuccessful in defending our positions.

These positions may be subject to audit and review by tax

authorities, and may result in future taxes, interest and penalties if we are unsuccessful in defending our positions.

If the calculation of liability related to uncertain tax positions proves to be more or less than the ultimate assessment, a tax expense or benefit to expense, respectively would result.

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As currently designed, Pillar Two will ultimately apply to our worldwide operations.

There remains uncertainty as to the final Pillar Two model rules.

We will continue to monitor US and global legislative action related to Pillar Two for potential impacts.

At this time, we do not expect Pillar Two to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.

While we do not anticipate that this will have a material impact on our tax provision or effective tax rate, we continue to monitor evolving tax legislation in the jurisdictions in which we operate.

Stock Based Compensation

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the expected stock price volatility, the calculation of the expected holding period of the award, the risk free interest rate and expected dividends on the underlying common stock.

sufficient information and the historical volatility of a group of peer companies that are most representative of our company.

Due to the lack of Company specific historical and implied volatility data, our estimate of expected volatility is based upon a blended approach that utilizes the historical volatility of the Company's common stock for periods in which the Company has sufficient information and the historical volatility of a group of peer companies that are most representative of our company.

The historical volatility is calculated based on a period of time commensurate with the expected holding period assumption.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis