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Item 7. Management’s Discussion and Analysis

2026-02-10 compared with 2025-02-11 · 59 added, 66 removed, 227 unchanged (36% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 11, 2025.

This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties.

This item and the related

discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties.

Actual results and the timing of events may differ materially from those indicated in such forward-looking statements.

Important factors that may cause such differences include, but are not limited to, those discussed under the “Forward-Looking Statements” above and “Item IA.

Factors that may cause such differences include, but are not limited to, those discussed under the “Forward-Looking Statements” above and “Item IA.

Risk Factors” in Part I of this Annual Report on Form 10-K.

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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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Total Direct Costs

Total direct costs are primarily driven by labor and related employee benefits, but also include contracted third party service related expenses, fees paid to site investigators, reimbursed out of pocket expenses, laboratory supplies and other expenses contributing to service delivery.

expenses contributing to service delivery.

The other costs of service delivery can include office rent, utilities, supplies and software licenses which are allocated between Total direct costs and selling, general and administrative expenses based on the estimated contribution among service delivery and support function efforts on a percentage basis.

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

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.

favorable foreign currency adjustments of $25.1 million for the year ended December 31, 2025 and unfavorable foreign currency adjustments of $16.7 million for the year ended December 31, 2024.

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 534,935 446,870 88,065

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

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

Miscellaneous (expense) income, net (5,338) 4,056 (9,394)

Interest income, net 12,780 24,996 (12,216)

Income before income taxes 542,377 475,922 66,455

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Total revenue increased by $421.2 million, to $2,530.2 million for the year ended December 31, 2025, from $2,109.1 million for the year ended December 31, 2024.

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.

The increase was primarily driven by strong activity within the Metabolic, Oncology and Central Nervous System therapeutic areas, compared to the same period in the prior year.

Total direct costs

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Depreciation and Amortization

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, 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.

Depreciation and amortization expense of $28.1 million for the year ended December 31, 2025, remained relatively consistent with $29.3 million for the year ended December 31, 2024.

Miscellaneous (expense) income, net

Miscellaneous (expense) income, net changed by $9.4 million of expense, to $5.3 million of expense for the year ended December 31, 2025, from $4.1 million of income for the year ended December 31, 2024.

This change was mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term intercompany balances between our domestic and international subsidiaries and 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, third-party

investment gains or losses and proceeds from the recovery of a note receivable, compared to the same period in the prior year.

Interest income, net

Interest income, net decreased by $12.2 million, to $12.8 million for the year ended December 31, 2025, from $25.0 million for the year ended December 31, 2024.

This change was mainly attributable to decreased interest income on Cash and cash equivalents, 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, 2025 and 2024 were 16.8% and 15.0%, respectively.

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").

The increase in the income tax provision was primarily attributable to the increase in pre-tax book income, increase in uncertain tax positions, increase in Global Intangible Low-Taxed Income ("GILTI") (net of foreign tax credits), and decrease in tax benefits related to Foreign Derived Intangible Income ("FDII") which was partially offset by an increase in excess tax benefits recognized from share-based compensation, compared to the same period in the prior year.

The increase in the overall effective tax rate was primarily attributable to a decrease in tax benefits related to FDII, increase in uncertain tax positions and an increase in GILTI (net of foreign tax credits) which was partially offset by an increase in excess tax benefits recognized from share-based compensation compared to the same period in the prior year.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S.

The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions.

Where relevant, the Company has reflected any material items that were enacted in the consolidated financial statements for the year ended December 31, 2025.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities.

Our principal sources of liquidity are operating cash flows and from borrowings under our unsecured credit facility consisting of up to a $10.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended.

As of December 31, 2024, we had cash and cash equivalents of $669.4 million, which increased from $245.4 million as of December 31, 2023.

All $10.0 million of the line of credit is available for borrowing as of December 31, 2025.

As of December 31, 2025, we had cash and cash equivalents of $497.0 million, which decreased from $669.4 million as of December 31, 2024 primarily due to repurchases of common stock.

Approximately $21.2 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2025.

As of December 31, 2024, we had $10.0 million available for borrowing under the Credit Facility.

Our expected primary cash needs on both a short and long-term basis are for investment in operational growth, including additional lease commitments, capital expenditures, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs.

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We believe that our sources of liquidity and capital will be sufficient to finance our cash needs for the next 12 months and on a longer-term basis.

However, we cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Credit Facility or otherwise, in an amount sufficient to fund our liquidity needs.

However, we cannot assure

you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Credit Facility or otherwise, in an amount sufficient to fund our liquidity needs.

Year Ended December 31,

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Effect of exchange rates on cash, cash equivalents, and restricted cash 5,918 (2,511)

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

(Decrease) increase in cash, cash equivalents, and restricted cash $ (172,387) $ 423,987

Cash Flows from Operating Activities

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.

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

Advanced billings and accounts receivable and unbilled, net 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.

Net cash flows provided by operating activities were $713.2 million for the year ended December 31, 2025 beginning with net income of $451.1 million.

Adjustments to reconcile net income to net cash provided by operating activities were $165.8 million, primarily related to deferred income tax provision of $80.8 million, stock-based compensation expense of $34.8 million, depreciation of $27.2 million and noncash lease expense of $23.0 million.

Changes in operating assets and liabilities provided $96.3 million in operating cash flows and was primarily driven by increased advanced billings of $143.8 million, increased accrued expenses of $97.1 million and changes in Other assets and liabilities, net of $11.2 million, partially offset by increased accounts receivable and unbilled, net of $106.2 million, increased prepaid expenses and other current assets of $27.1 million and decreased lease liabilities of $25.2 million.

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.

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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 $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 $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 $31.1 million for the year ended December 31, 2025, primarily consisting of property and equipment expenditures.

Cash Flow from Financing Activities

Net cash used in financing activities was $860.4 million for the year ended December 31, 2025 primarily related to $917.4 million in repurchases of common stock, partially offset by proceeds from stock option exercises of $57.0 million.

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 option exercises of $11.4 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

In 2018, the Board of Directors approved a stock repurchase program which has been amended several times to increase the aggregate amount of the stock repurchase authorization.

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

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

In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million.

For the year ended December 31, 2024, the Company repurchased 527,160 shares for $174.2 million under the new repurchase program.

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.

In 2022, the Company's Board of Directors (the "Board") approved a share repurchase program which has been amended several times to increase the aggregate amount of the share repurchase authorization.

For the year ended December 31, 2025, the Company repurchased 2,961,924 shares for $912.9 million under the repurchase program.

For the year ended December 31, 2024, the Company repurchased 527,160 shares for $174.2 million under the repurchase program.

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

As of December 31, 2025, the Company has remaining authorization of $821.7 million under the 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.

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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 (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.

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.

All of the obligations under the Credit Facility are unsecured.

The Credit Facility is subject to customary negative covenants.

The Company was in compliance with all financial covenants as of December 31, 2024.

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, 2024, we have no indebtedness.

As of December 31, 2025, we had no indebtedness.

Refer to Note 7 of the Notes to Consolidated Financial Statements for details regarding our Credit Facility.

Critical Accounting Policies and Estimates

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Contracts generally provide for pricing modifications upon scope of work changes.

We recognize revenue, at an amount to which we expect to be entitled, related to work performed in connection with scope changes when the underlying services are performed and a binding contractual commitment has been established with the customer.

We recognize revenue, at an amount to which we expect to be entitled, related to work performed in connection with scope changes when the underlying services

are performed and a binding contractual commitment has been established with the customer.

If our customers do not agree to pricing changes upon changes in our scope of work, we could be exposed to cost overruns and reduced contract profitability.

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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 $1.6 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.

Based on the analysis of

the above factors, we determined that a valuation allowance in the amount of $1.8 million relating to certain foreign and federal deferred tax assets should be recorded as of December 31, 2025 and $1.6 million should be recorded as of December 31, 2024 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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These undistributed earnings of foreign subsidiaries will support future growth in foreign markets and maintain current operating needs of foreign locations.

We will continue to monitor our assertion related to investment of foreign earnings.

We will continue to monitor our assertion related to investment of foreign earnings and how this assertion may be impacted by the OBBBA.

See Note 11 of the Notes to Consolidated Financial Statements for further information regarding this assertion.

The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two), with certain aspects of Pillar Two effective January 1, 2024 and other aspects effective January 1, 2025.

While it is uncertain whether the U.S.

will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two.

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

The Organization for Economic Co-operation and Development ("OECD") has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two).

On January 5, 2026, the OECD/G20 announced the Side-by-Side ("SbS") package, implemented as administrative guidance and modifying the operation of Pillar 2 rules.

The package introduces new safe harbors for multinational companies where domestic and international tax systems meet robust requirements to coexist with Pillar 2, which would fully exempt U.S.-parented groups from the application of two of the three Pillar 2 top-up taxes.

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

In connection with the Company's initial public offering (IPO), the Board approved the 2016 Incentive Award Plan (the “2016 Plan”).

The 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors.

A variety of discretionary awards (collectively, the “Awards”) for employees and non-employee directors are authorized under the 2016 Plan, including vested common shares, stock options, stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), or other cash based or stock dividend equivalent awards.

On February 6, 2025 and May 16, 2025, respectively, the Board adopted and the Company's stockholders approved the 2016 Amended and Restated Incentive Award Plan (the "Amended 2016 Plan").

The Amended 2016 Plan extended the term to expire in 2035, but did not change the number of shares authorized for issuance.

The Amended 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors.

A variety of discretionary awards (collectively, the “Awards”) for employees and non-employee directors are authorized under the Amended 2016 Plan, including vested common shares, stock options, stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), or other cash based or stock dividend equivalent awards.

All of our currently outstanding awards are subject to equity classification pursuant to the terms of the award grants and based on accounting guidance which governs such transactions.

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The risk free rate is based on extrapolated rates of U.S.

Treasury bonds whose terms are consistent with the expected holding period of the stock options.

Treasury bonds whose terms are consistent

with the expected holding period of the stock options.

We have assumed a dividend yield of zero as we have not historically paid any dividends on our common stock.

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Expected dividend yield 0.0% 0.0% 0.0%

The assumptions used in the table above reflect both grant date inputs to arrive at the grant date fair values for stock options subject to equity-classified stock compensation accounting and reflect a fair value calculation for stock options outstanding in the period subject to liability-classified stock compensation accounting.

The assumptions used in the table above reflect grant date inputs to arrive at the grant date fair values for stock options subject to equity-classified stock compensation accounting.

As of December 31, 2025, all outstanding stock based awards were classified within equity.

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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