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Medpace Holdings, Inc.

Medpace Holdings, Inc.MEDPEarnings & Financial Report

Nasdaq · Industrials · Services-Commercial Physical & Biological Research

Medpace Holdings, Inc. is a global clinical research organization (CRO) based in Cincinnati, Ohio, employing approximately 6,000 people. Operating under a full-service model, the company also offers global central laboratory, imaging core laboratory, and bioanalytical laboratory services, as well as a Phase I unit located on its headquarters and clinical research campus in Cincinnati, Ohio.

What changed in Medpace Holdings, Inc.'s 10-K — 2022 vs 2023

Top changes in Medpace Holdings, Inc.'s 2023 10-K

156 paragraphs added · 145 removed · 131 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

7 edited+0 added−0 removed96 unchanged
In the United States, the FDA has primary authority to regulate these activities, in addition to the - 7 - Table of Contents approval process, and the subsequent manufacturing, safety, labeling, storage, record keeping and marketing for these products, which are the responsibility of our customers.
In the United States, the FDA has primary authority to regulate these activities, in addition to the approval process, and the subsequent manufacturing, safety, labeling, storage, record keeping and marketing for these - 7 - Table of Contents products, which are the responsibility of our customers.
Our commitment to compliance, people, safety, communities and the environment is further described in our 2021-2022 Corporate Responsibility Report published within the Investor Relations section of our website at investor.medpace.com. That report is not part of this Annual Report on Form 10-K.
Our commitment to compliance, people, safety, communities and the environment is further described in our 2023-2024 Corporate Responsibility Report published within the Investor Relations section of our website at investor.medpace.com. That report is not part of this Annual Report on Form 10-K.
Of the 407 management-level roles that were newly filled in 2022, approximately 56% of these roles were filled by our pipeline of internal talent. Development We have a history of identifying talented individuals and training them to excel in our disciplined operating model.
Of the 384 management-level roles that were newly filled in 2022, approximately 54% of these roles were filled by our pipeline of internal talent. Development We have a history of identifying talented individuals and training them to excel in our disciplined operating model.
Although the duration of trademark registrations varies from country to country, trademarks generally may be renewed indefinitely so long as they are in use and/or their registrations are properly maintained, and so long as they have not been found to have become generic. - 9 - Table of Contents Human Capital As of December 31, 2022 we had approximately 5,200 employees located across 40 countries.
Although the duration of trademark registrations varies from country to country, trademarks generally may be renewed indefinitely so long as they are in use and/or their registrations are properly maintained, and so long as they have not been found to have become generic. - 9 - Table of Contents Human Capital As of December 31, 2023 we had approximately 5,900 employees located across 42 countries.
As of December 31, 2021 and 2020, we had approximately 4,500 and 3,600 employees, respectively. Our associates are our most important asset and we recognize the importance of motivating and rewarding our associates by providing them with competitive benefits as part of their overall compensation and benefits package.
As of December 31, 2022 and 2021, we had approximately 5,200 and 4,500 employees, respectively. Our associates are our most important asset and we recognize the importance of motivating and rewarding our associates by providing them with competitive benefits as part of their overall compensation and benefits package.
Approximately 67% of our employees globally are women representing 65% of management and 52% of director level and above positions. In addition, of our U.S. based employees, approximately 17% are non-white, including 12% of management. None of our US employees are currently covered by a collective bargaining agreement specific to our Company.
Approximately 67% of our employees globally are women representing 65% of management and 51% of director level and above positions. In addition, of our U.S. based employees, approximately 21% are non-white, including 16% of management. None of our US employees are covered by a collective bargaining agreement specific to our Company.
Our major CRO competitors include Laboratory Corporation of America Holdings, ICON plc, Syneos Health, Inc., PPD, Inc. (now part of Thermo Fisher Scientific Inc.), IQVIA Holdings Inc. and numerous specialty and regional CROs.
Our major CRO competitors include IQVIA Holdings Inc., ICON plc, PPD, Inc. (now part of Thermo Fisher Scientific Inc.), Fortrea, Inc., and numerous specialty and regional CROs.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Our customers may delay, terminate or reduce the scope of our contracts for a variety of reasons beyond our control, including, but not limited to: • decisions to forego or terminate a particular clinical trial; • lack of available financing, budgetary limits or changing priorities; • actions by regulatory authorities; • changes in law; • production problems resulting in shortages of the drug being tested; • failure of the drug being tested to satisfy safety requirements or efficacy criteria; • unexpected or undesired clinical results; • insufficient investigator recruitment or patient enrollment in a trial; • decisions to downsize product development portfolios due to general economic conditions, market conditions or otherwise; • dissatisfaction with our performance, including the quality of data provided and our ability to meet agreed upon schedules; • shift of business to another CRO or internal resources; • product withdrawal following market launch; or - 13 - Table of Contents • shut down of our customers’ manufacturing facilities.
Our customers may delay, terminate or reduce the scope of our contracts for a variety of reasons beyond our control, including, but not limited to: • decisions to forego or terminate a particular clinical trial; • lack of available financing, budgetary limits or changing priorities; • actions by regulatory authorities; • changes in law; • production problems resulting in shortages of the drug being tested; • failure of the drug being tested to satisfy safety requirements or efficacy criteria; • unexpected or undesired clinical results; • insufficient investigator recruitment or patient enrollment in a trial; - 13 - Table of Contents • decisions to downsize product development portfolios due to general economic conditions, market conditions or otherwise; • dissatisfaction with our performance, including the quality of data provided and our ability to meet agreed upon schedules; • shift of business to another CRO or internal resources; • product withdrawal following market launch; or • shut down of our customers’ manufacturing facilities.
These considerations might result in additional costs to us or otherwise adversely impact the progress of a clinical trial, our being - 16 - Table of Contents unable to successfully achieve our projected development timelines, or potentially even lead to the termination of ongoing clinical trials or development of a product.
These - 16 - Table of Contents considerations might result in additional costs to us or otherwise adversely impact the progress of a clinical trial, our being unable to successfully achieve our projected development timelines, or potentially even lead to the termination of ongoing clinical trials or development of a product.
As a result, we are subject to heightened risks inherent in conducting business internationally, including the following: • conducting a single trial across multiple countries is complex, and issues in one country, such as a failure to comply with local regulations or restrictions, may affect the progress of the trial in the other countries, for example, by limiting the amount of data necessary for a trial to proceed, resulting in delays or potential cancellation of contracts, which in turn may result in loss of revenue; • the United States or other countries could enact legislation or impose regulations or other restrictions, including unfavorable labor regulations or tax policies, which could have an adverse effect on our ability to conduct business in or expatriate profits from those countries; - 18 - Table of Contents • tax rates in certain foreign countries may exceed those in the United States and foreign earnings may be subject to withholding requirements or the imposition of tariffs, exchange controls or other restrictions, including restrictions on repatriation; • certain foreign countries are expanding or may expand their regulatory framework with respect to patient informed consent, protection and compensation in clinical trials, and privacy, which could delay or inhibit our ability to conduct trials in such jurisdictions or which could materially increase the risks associated with performing trials in such jurisdictions; • certain foreign countries are expanding or may expand their banking regulations that govern international currency transactions, particularly cross-border transfers, which may inhibit our ability to transfer funds into or within a jurisdiction, impeding our ability to pay our principal investigators, vendors and employees, thereby impacting our ability to conduct trials in such jurisdictions; • the regulatory or judicial authorities of foreign countries may not enforce legal rights and recognize business procedures in a manner to which we are accustomed or would reasonably expect; • we may have difficulty complying with a variety of laws and regulations in foreign countries, some of which may conflict with laws in the United States; • potential violations of existing or newly adopted local laws or anti-bribery laws, such as the United States Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act of 2010, may cause a material adverse effect on our business, financial condition, results of operations, cash flows or reputation; • changes in political and economic conditions, including inflation, may lead to changes in the business environment in which we operate, as well as changes in foreign currency exchange rates; • foreign governments may enact currency exchange controls that may limit the ability to fund our operations or significantly increase the cost of maintaining operations; • customers in foreign jurisdictions may have longer payment cycles, and it may be more difficult to collect receivables in foreign jurisdictions; and • natural disasters, pandemics or international conflict, including terrorist acts, could interrupt our services, endanger our personnel or cause project delays or loss of trial materials or results. • Geopolitical issues in Europe may impact foreign countries in which we may need to enroll patients in our clinical trials, could cause such clinical trials to be delayed or suspended and could impact operations.
As a result, we are subject to heightened risks inherent in conducting business internationally, including the following: • conducting a single trial across multiple countries is complex, and issues in one country, such as a failure to comply with local regulations or restrictions, may affect the progress of the trial in the other countries, for example, by limiting the amount of data necessary for a trial to proceed, resulting in delays or potential cancellation of contracts, which in turn may result in loss of revenue; • the United States or other countries could enact legislation or impose regulations or other restrictions, including unfavorable labor regulations or tax policies, which could have an adverse effect on our ability to conduct business in or expatriate profits from those countries; • tax rates in certain foreign countries may exceed those in the United States and foreign earnings may be subject to withholding requirements or the imposition of tariffs, exchange controls or other restrictions, including restrictions on repatriation; • certain foreign countries are expanding or may expand their regulatory framework with respect to patient informed consent, protection and compensation in clinical trials, and privacy, which could delay or inhibit our ability to conduct trials in such jurisdictions or which could materially increase the risks associated with performing trials in such jurisdictions; • certain foreign countries are expanding or may expand their banking regulations that govern international currency transactions, particularly cross-border transfers, which may inhibit our ability to transfer funds into or within a jurisdiction, impeding our ability to pay our principal investigators, vendors and employees, thereby impacting our ability to conduct trials in such jurisdictions; • the regulatory or judicial authorities of foreign countries may not enforce legal rights and recognize business procedures in a manner to which we are accustomed or would reasonably expect; • we may have difficulty complying with a variety of laws and regulations in foreign countries, some of which may conflict with laws in the United States; • potential violations of existing or newly adopted local laws or anti-bribery laws, such as the United States Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act of 2010, may cause a material adverse effect on our business, financial condition, results of operations, cash flows or reputation; • changes in political and economic conditions, including inflation, may lead to changes in the business environment in which we operate, as well as changes in foreign currency exchange rates; • foreign governments may enact currency exchange controls that may limit the ability to fund our operations or significantly increase the cost of maintaining operations; • customers in foreign jurisdictions may have longer payment cycles, and it may be more difficult to collect receivables in foreign jurisdictions; and • natural disasters, pandemics or international conflict, including terrorist acts, could interrupt our services, endanger our personnel or cause project delays or loss of trial materials or results. • Geopolitical issues in Europe, the Middle East and Asia may impact foreign countries in which we may need to enroll patients in our clinical trials, could cause such clinical trials to be delayed or suspended and could impact operations.
By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, was signed into law, which, among other things, expanded, over time, health insurance coverage, imposed health industry cost containment measures, enhanced remedies against healthcare fraud and abuse, added new transparency requirements for healthcare and health insurance industries, imposed new taxes and fees on pharmaceutical and medical device manufacturers, added new requirements for certain applicable drug and device manufacturers to disclose payments to physicians, including principal investigators, and imposed additional health policy reforms, any of which may significantly impact the biopharmaceutical industry.
By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, was signed into law, which, among other things, expanded, over time, health insurance coverage, imposed health industry cost containment measures, enhanced remedies against healthcare fraud and abuse, added new transparency requirements for healthcare and health insurance industries, imposed new taxes and fees on pharmaceutical and medical device manufacturers, added new requirements for certain applicable drug and device manufacturers to disclose payments to physicians, including principal investigators, and imposed additional health policy - 20 - Table of Contents reforms, any of which may significantly impact the biopharmaceutical industry.
Technical and Cybersecurity Risks • Our business depends on the continued effectiveness and availability of our information and digital communications systems, including the information systems we use to provide our services to our customers, such as ClinTrak, and failures of these systems may materially limit our operations. • If the security of confidential information used in connection with our services is breached or otherwise subject to unauthorized access, our reputation and business may be materially harmed.
Technical and Cybersecurity Risks • Our business depends on the continued effectiveness and availability of our information systems, including the information systems we use to provide our services to our customers, such as ClinTrak, and failures of these systems may materially limit our operations. • If the security of confidential information used in connection with our services is breached or otherwise subject to unauthorized access, our reputation and business may be materially harmed.
Other Legal, Regulatory, Insurance and Tax Risks • If we fail to perform our services in accordance with contractual requirements, government regulations and ethical considerations, we could be subject to significant costs or liability and our reputation could be adversely affected. • Some of our services involve direct interaction with clinical trial patients and operation of a Phase I clinical facility, which could create potential liability that may adversely affect our results of operations and financial condition. - 12 - Table of Contents • Our clinical development services could subject us to potential liability that may adversely affect our results of operations and financial condition. • Our operations involve the use and disposal of hazardous substances and waste which can give rise to liability that could adversely impact our financial condition. • We act as legal representative and/or data representative for some clients. • Our insurance may not cover all of our indemnification obligations and other liabilities associated with our operations. • Our effective income tax rate may fluctuate, which may adversely affect our operations, earnings and earnings per share. • If we fail to comply with federal, state and foreign healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected. • Laws and regulations regarding the protection of personal data could result in increased risks of liability or increased cost to us or could limit our service offerings. • Our business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, and the Clinical Laboratory Improvement Amendments of 1988 (CLIA), or those of other national, state or local agencies in the U.S. and other countries where we operate laboratories.
Other Legal, Regulatory, Insurance and Tax Risks • If we fail to perform our services in accordance with contractual requirements, government regulations and ethical considerations, we could be subject to significant costs or liability and our reputation could be adversely affected. - 12 - Table of Contents • Some of our services involve direct interaction with clinical trial patients and operation of a Phase I clinical facility, which could create potential liability that may adversely affect our results of operations and financial condition. • Our clinical development services could subject us to potential liability that may adversely affect our results of operations and financial condition. • Our operations involve the use and disposal of hazardous substances and waste which can give rise to liability that could adversely impact our financial condition. • We act as legal representative and/or data representative for some clients. • Our insurance may not cover all of our indemnification obligations and other liabilities associated with our operations. • Our effective income tax rate may fluctuate, which may adversely affect our operations, earnings and earnings per share. • If we fail to comply with federal, state and foreign healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected. • Laws and regulations regarding the protection of personal data could result in increased risks of liability or increased cost to us or could limit our service offerings. • Our business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, and the Clinical Laboratory Improvement Amendments of 1988 (CLIA), or those of other national, state or local agencies in the U.S. and other countries where we operate laboratories. • Environmental, Social and Governance initiatives could increase our costs, and inaction could harm our reputation and adversely impact our financial results.
For example, U.S. federal regulations under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations, including the - 24 - Table of Contents Privacy and Security Rules, or collectively, HIPAA, generally require individuals’ written authorization, in addition to any required informed consent, before protected health information may be used for research and such regulations specify standards for de-identifications and for limited data sets.
For example, U.S. federal regulations under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations, including the Privacy and Security Rules, or collectively, HIPAA, generally require individuals’ written authorization, in addition to any required informed consent, before protected health information may be used for research and such regulations specify standards for de-identifications and for limited data sets.
Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, information system intrusions or security breaches and similar events at our facilities or at those of our third party provider that backs up our data centers could result in interruptions in the flow of data to our servers and from our servers to our customers.
Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications - 17 - Table of Contents failures, computer viruses, information system intrusions or security breaches and similar events at our facilities or at those of our third party provider that backs up our data centers could result in interruptions in the flow of data to our servers and from our servers to our customers.
Several recent, highly publicized data security breaches at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems or those of our strategic partners or enterprise customers. International Risks Our business is subject to international economic, political and other risks that could negatively affect our results of operations and financial condition.
Several recent, highly publicized data security breaches at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems or those of our strategic partners or enterprise customers. - 18 - Table of Contents International Risks Our business is subject to international economic, political and other risks that could negatively affect our results of operations and financial condition.
The revenue recognition on larger, more global - 14 - Table of Contents projects could be slower than on smaller, less global projects for a variety of reasons, including, but not limited to, an extended period of negotiation between the time the project is awarded to us and the actual execution of the contract, as well as an increased timeframe for obtaining the necessary regulatory approvals.
The revenue recognition on larger, more global projects could be slower than on smaller, less global projects for a variety of reasons, including, but not limited to, an extended period of negotiation between the time the project is awarded to us and the actual execution of the contract, as well as an increased timeframe for obtaining the necessary regulatory approvals.
In some cases, companies that violate the FCPA may be debarred by the U.S. government and/or lose their U.S. export privileges. Changes in anti-corruption laws or enforcement priorities could also result in increased compliance requirements and related costs which could adversely - 19 - Table of Contents affect our business, financial condition and results of operations.
In some cases, companies that violate the FCPA may be debarred by the U.S. government and/or lose their U.S. export privileges. Changes in anti-corruption laws or enforcement priorities could also result in increased compliance requirements and related costs which could adversely affect our business, financial condition and results of operations.
However, it is possible we could be found liable for claims with respect to the actions of third party investigators and the institutions at which clinical trials may be conducted. Our operations involve the use and disposal of hazardous substances and waste which can give rise to liability that could adversely impact our financial condition.
However, it is possible we could be found liable for claims with respect to the actions of third party investigators and the institutions at which clinical trials may be conducted. - 23 - Table of Contents Our operations involve the use and disposal of hazardous substances and waste which can give rise to liability that could adversely impact our financial condition.
Such actions may include injunctions or failure of such regulatory authority to grant marketing approval of our customers’ products, imposition of clinical holds or delays, suspension or withdrawal of - 21 - Table of Contents approvals, rejection of data collected in our clinical trials, license revocation, product seizures or recalls, operational restrictions, civil or criminal penalties or prosecutions, damages or fines.
Such actions may include injunctions or failure of such regulatory authority to grant marketing approval of our customers’ products, imposition of clinical holds or delays, suspension or withdrawal of approvals, rejection of data collected in our clinical trials, license revocation, product seizures or recalls, operational restrictions, civil or criminal penalties or prosecutions, damages or fines.
There is significant competition for qualified personnel in the biopharmaceutical services industry, particularly for those with higher educational degrees, such as a medical or nursing degree, a Ph.D., or an equivalent degree, and our industry generally tends to experience relatively high levels of - 26 - Table of Contents employee turnover.
There is significant competition for qualified personnel in the biopharmaceutical services industry, particularly for those with higher educational degrees, such as a medical or nursing degree, a Ph.D., or an equivalent degree, and our industry generally tends to experience relatively high levels of employee turnover.
The sanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. - 25 - Table of Contents In addition, we are subject to regulation under state law.
The sanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. In addition, we are subject to regulation under state law.
Additional legislation or regulation of this type might, among other things, require us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other personal data, each of which may require substantial expenditures or limit our ability to offer some of our services.
Additional legislation or regulation of this type might, among other things, require us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other personal data, each of - 25 - Table of Contents which may require substantial expenditures or limit our ability to offer some of our services.
Moreover, even if these trials are not terminated, they may compete with each other, thereby limiting our potential revenue going forward. We bear financial risk if we underprice our fixed-fee contracts or overrun cost estimates, and our financial results can also be adversely affected by failure to receive approval for change orders or delays in documenting change orders.
Moreover, even if these trials are not terminated, they may compete with each other, thereby limiting our potential revenue going forward. - 15 - Table of Contents We bear financial risk if we underprice our fixed-fee contracts or overrun cost estimates, and our financial results can also be adversely affected by failure to receive approval for change orders or delays in documenting change orders.
The extent to which contracts in backlog will result in net revenue depends on many factors, including, but not limited to, delivery against project schedules, scope changes, contract terminations and the nature, duration and complexity of the contracts, and can vary significantly over time.
The extent to which contracts in backlog will result in net revenue depends on many factors, including, but not limited to, - 14 - Table of Contents delivery against project schedules, scope changes, contract terminations and the nature, duration and complexity of the contracts, and can vary significantly over time.
We continue to work with our customers to develop solutions to limit disruption to clinical trials while following required regulatory guidelines and maintaining quality to ensure the health and well-being of study participants, including alternative assessment methods such as virtual monitoring visits.
We are able to work with our customers to develop solutions to limit disruption to clinical trials while following required regulatory guidelines and maintaining quality to ensure the health and well-being of study participants, including alternative assessment methods such as virtual monitoring visits.
However, there is no guarantee that the specific insurance will be available and provide cover or that a client will fulfil its obligations in relation to their indemnity. - 23 - Table of Contents Our insurance may not cover all of our indemnification obligations and other liabilities associated with our operations.
However, there is no guarantee that the specific insurance will be available and provide cover or that a client will fulfil its obligations in relation to their indemnity. Our insurance may not cover all of our indemnification obligations and other liabilities associated with our operations.
Significant delays in system enhancements or inadequate performance of new or upgraded systems once completed could damage our reputation - 17 - Table of Contents and harm our business. Our operations also may suffer if we are unable to effectively manage the implementation of and adapt to new technology systems.
Significant delays in system enhancements or inadequate performance of new or upgraded systems once completed could damage our reputation and harm our business. Our operations also may suffer if we are unable to effectively manage the implementation of and adapt to new technology systems.
Upon a distribution of our common stock held by Medpace Investors, our Chief Executive Officer would receive approximately 85.4% of such distributed shares. Accordingly, August J.
Upon a distribution of our common stock held by Medpace Investors, our Chief Executive Officer would receive approximately 85.6% of such distributed shares. Accordingly, August J.
Furthermore, we may be - 15 - Table of Contents unable to successfully negotiate changes in scope or change orders on a timely basis or at all, which could require us to incur cost outlays ahead of the receipt of any additional revenue.
Furthermore, we may be unable to successfully negotiate changes in scope or change orders on a timely basis or at all, which could require us to incur cost outlays ahead of the receipt of any additional revenue.
Clinical trials can be costly and for the year ended December 31, 2022, 78% and 16% of our net revenue was derived from small biopharmaceutical companies and mid-sized biopharmaceutical companies, respectively, which may have limited access to capital. In addition, we provide services to our customers before they pay us for some of our services.
Clinical trials can be costly and for the year ended December 31, 2023, 78% and 18% of our net revenue was derived from small biopharmaceutical companies and mid-sized biopharmaceutical companies, respectively, which may have limited access to capital. In addition, we provide services to our customers before they pay us for some of our services.
For additional information on related person transactions involving us, see the “Certain Relationships” section in our Proxy Statement for our 2023 Annual Meeting of Stockholders.
For additional information on related person transactions involving us, see the “Certain Relationships” section in our Proxy Statement for our 2024 Annual Meeting of Stockholders.
Our customer or therapeutic area concentration may have a material adverse effect on our business, financial condition, results of operations or cash flows. Although we did not have any customer that represented 10% or more of our net revenue during the year ended December 31, 2022, we derive approximately one-fourth of our net revenue from our top ten customers.
Our customer or therapeutic area concentration may have a material adverse effect on our business, financial condition, results of operations or cash flows. Although we did not have any customer that represented 10% or more of our net revenue during the year ended December 31, 2023, we derive approximately 29.5% of our net revenue from our top ten customers.
Despite our efforts to manage and remedy the impacts of COVID-19 or other future outbreaks, including epidemics, pandemics or widespread public health crisis to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.
Despite our efforts to manage the impacts of COVID-19 or other future outbreaks, including epidemics, pandemics or widespread public health crisis to the Company, the ultimate impacts of these outbreaks also depend on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain their spread and mitigate their related public health effects.
Such underpricing, significant cost overruns or delay in documentation of change orders could have a material adverse effect on our business, results of operations, financial condition or cash flows. Our business and operations have been impacted by the coronavirus (COVID-19) and may be impacted in the future by COVID-19 or other outbreaks, including epidemics, pandemics or widespread public health crisis.
Such underpricing, significant cost overruns or delay in documentation of change orders could have a material adverse effect on our business, results of operations, financial condition or cash flows. Our business and operations may be impacted in the future by epidemics, pandemics or widespread public health crisis.
Business and Economic Risks • The potential loss, delay or non-renewal of our contracts, or the non-payment by our customers for services that we have performed, could adversely affect our results. - 11 - Table of Contents • Our backlog may not convert to net revenue at our historical conversion rates. • Our operating results have historically fluctuated between fiscal quarters and years and may continue to fluctuate in the future, which may adversely affect the market price of our stock. • Our operating margins could decrease due to increased pricing pressure or other pressures, if we are unable to either achieve efficiencies in our operating expenses or grow revenues at a rate faster than expenses. • Our customer or therapeutic area concentration may have a material adverse effect on our business, financial condition, results of operations or cash flows. • We bear financial risk if we underprice our fixed-fee contracts or overrun cost estimates, and our financial results can also be adversely affected by failure to receive approval for change orders or delays in documenting change orders. • Our business and operations have been impacted by the coronavirus (COVID-19) and may be impacted in the future by COVID-19 or other outbreaks, including epidemics, pandemics or widespread public health crisis. • If we are unable to successfully execute our growth strategies or manage our growth effectively, our results of operations or financial condition could be adversely affected. • If we are unable to recruit suitable investigators and enroll patients for our customers’ clinical trials, our clinical development business may suffer. • The failure of third parties to provide us critical support services could materially adversely affect our business, financial condition, results of operations, cash flows or reputation. • Current or potential future investments by the Company in our customers’ businesses or products could have a negative impact on our financial results.
Business and Economic Risks • The potential loss, delay or non-renewal of our contracts, or the non-payment by our customers for services that we have performed, could adversely affect our results. - 11 - Table of Contents • Our backlog may not convert to net revenue at our historical conversion rates. • Our operating results have historically fluctuated between fiscal quarters and years and may continue to fluctuate in the future, which may adversely affect the market price of our stock. • Our operating margins could decrease due to increased pricing pressure or other pressures, if we are unable to either achieve efficiencies in our operating expenses or grow revenues at a rate faster than expenses. • Our customer or therapeutic area concentration may have a material adverse effect on our business, financial condition, results of operations or cash flows. • We bear financial risk if we underprice our fixed-fee contracts or overrun cost estimates, and our financial results can also be adversely affected by failure to receive approval for change orders or delays in documenting change orders. • Our business and operations may be impacted in the future by epidemics, pandemics or widespread public health crisis. • If we are unable to successfully execute our growth strategies or manage our growth effectively, our results of operations or financial condition could be adversely affected. • If we are unable to recruit suitable investigators and enroll patients for our customers’ clinical trials, our clinical development business may suffer. • The failure of third parties to provide us critical support services could materially adversely affect our business, financial condition, results of operations, cash flows or reputation. • Current or potential future investments by the Company in our customers’ businesses or products could have a negative impact on our financial results. • Continued evolution and use of machine learning and generative artificial intelligence ("AI"), including risks arising from insufficient human oversight of AI or a lack of controls and procedures monitoring the use of AI in day-to-day operations as well as from potential future competitive disadvantages related to a lack of investment in AI tools, could have a negative impact on our financial results.
The pandemic and its uneven recovery have adversely affected, and in the future may continue to adversely affect, our business, in a variety of ways, including: the implementation of travel restrictions from U.S. and foreign governments, the shutdown of many businesses in countries in which we operate, delays or challenges in patient enrollment and new clinical trial start-up, challenges in clinical site initiation due to difficulties in recruiting clinical site investigators and clinical site staff shortages, and the interruption of key clinical trial activities such as clinical trial site monitoring.
These may adversely affect, our business, in a variety of ways, including, without limitation: the implementation of travel restrictions from U.S. and foreign governments; the shutdown of businesses in countries in which we operate; delays or challenges in patient enrollment and new clinical trial start-up; challenges in clinical site initiation due to difficulties in recruiting clinical site investigators and clinical site staff shortages; and the interruption of key clinical trial activities such as clinical trial site monitoring.
The departure of any key contributor, the payment of increased compensation to attract and retain qualified personnel or our inability to continue to identify, attract and retain qualified personnel or replace any departed personnel in a timely fashion may impact our ability to grow our business and compete effectively in our industry and may negatively affect our business, financial condition, results of operations, cash flows or reputation.
The departure of any key contributor, the payment of increased compensation to attract and retain qualified personnel or our inability to continue to identify, attract and retain qualified personnel or replace any departed personnel in a timely fashion may impact our ability to grow our business and compete effectively in our industry and may negatively affect our business, financial condition, results of operations, cash flows or reputation. - 27 - Table of Contents Our operations might be affected by the occurrence of a natural disaster or other catastrophic event.
These adverse effects continue to impact study participants and clinical sites which affects our ability to efficiently provide clinical trial services.
These adverse effects could impact study participants and clinical sites and limits our ability to efficiently provide clinical trial services.
In such a situation, notwithstanding the customer’s ability or willingness to pay for or otherwise facilitate the completion of the trial, we may be ethically bound to complete or wind down the trial at our own expense. Interactive voice/web response service malfunction. We develop and maintain our own, and also use third-parties to run, interactive voice/web response systems.
In such a situation, notwithstanding the customer’s ability or willingness to pay - 22 - Table of Contents for or otherwise facilitate the completion of the trial, we may be ethically bound to complete or wind down the trial at our own expense. Interactive voice/web response service malfunction.
Due to the global nature of our business, we may be exposed to liabilities under the Foreign Corrupt Practices Act and various other anti-corruption laws, and any allegation or determination that we violated these laws could have a material adverse effect on our business.
The materialization of any such risks could have an adverse impact on our financial condition, results of operations, cash flows and reputation. - 19 - Table of Contents Due to the global nature of our business, we may be exposed to liabilities under the Foreign Corrupt Practices Act and various other anti-corruption laws, and any allegation or determination that we violated these laws could have a material adverse effect on our business.
Troendle, our Chief Executive Officer and founder, through his direct ownership of 806,643 shares of our common stock and his beneficial ownership of 6,483,019 shares of our common stock held by Medpace Investors LLC (“Medpace Investors”), controls approximately 23.4% of the outstanding shares of our common stock.
As of December 31, 2023, August J. Troendle, our Chief Executive Officer and founder, through his direct ownership of 806,643 shares of our common stock and his beneficial ownership of 5,589,947 shares of our common stock held by Medpace Investors LLC (“Medpace Investors”), controls approximately 20.8% of the outstanding shares of our common stock.
If we fail to comply with federal, state and foreign healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
These changes may cause fluctuations in our effective income tax rate that could adversely affect our results of operations and cause fluctuations in our earnings and earnings per share. - 24 - Table of Contents If we fail to comply with federal, state and foreign healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
Several large biopharmaceutical companies have recently completed mergers and acquisitions that will consolidate the outsourcing - 20 - Table of Contents trends and R&D expenditures into fewer companies, and many larger and medium sized biopharmaceutical companies have been acquiring smaller biopharmaceutical companies.
Several large biopharmaceutical companies have recently completed mergers and acquisitions that will consolidate the outsourcing trends and R&D expenditures into fewer companies, and many larger and medium sized biopharmaceutical companies have been acquiring smaller biopharmaceutical companies. As a result of this and future consolidations, our customer diversity may decrease and our business may be adversely affected.
These systems automatically manage the randomization of patients in a given clinical trial to different treatment arms and regulate the supply of investigational drugs.
We develop and maintain our own, and also use third-parties to run, interactive voice/web response systems. These systems automatically manage the randomization of patients in a given clinical trial to different treatment arms and regulate the supply of investigational drugs.
Failure to comply with applicable requirements could subject us to regulatory risk, liability and potential costs associated with redoing the trials, which could damage our reputation and adversely affect our operating results. - 22 - Table of Contents Some of our services involve direct interaction with clinical trial patients and operation of a Phase I clinical facility, which could create potential liability that may adversely affect our results of operations and financial condition.
Some of our services involve direct interaction with clinical trial patients and operation of a Phase I clinical facility, which could create potential liability that may adversely affect our results of operations and financial condition.
Other Legal, Regulatory, Insurance and Tax Risks If we fail to perform our services in accordance with contractual requirements, government regulations and ethical considerations, we could be subject to significant costs or liability and our reputation could be adversely affected.
As a result, the willingness of biopharmaceutical companies to outsource R&D services to CROs could diminish and our business could thus be harmed materially by events outside our control. - 21 - Table of Contents Other Legal, Regulatory, Insurance and Tax Risks If we fail to perform our services in accordance with contractual requirements, government regulations and ethical considerations, we could be subject to significant costs or liability and our reputation could be adversely affected.
Our operations might be affected by the occurrence of a natural disaster or other catastrophic event. We depend on our customers, investigators, laboratories and other facilities for the continued operation of our business.
We depend on our customers, investigators, laboratories and other facilities for the continued operation of our business.
As a result of this and future consolidations, our customer diversity may decrease and our business may be adversely affected. The biopharmaceutical industry has a history of patent and other intellectual property litigation, and we might be involved in costly intellectual property lawsuits.
The biopharmaceutical industry has a history of patent and other intellectual property litigation, and we might be involved in costly intellectual property lawsuits. The biopharmaceutical industry has a history of intellectual property litigation, and these lawsuits will likely continue in the future.
The biopharmaceutical industry has a history of intellectual property litigation, and these lawsuits will likely continue in the future. Accordingly, even without wrongdoing on our part, we may face patent infringement suits by companies that have patents for similar business processes or other suits alleging infringement of their intellectual property rights.
Accordingly, even without wrongdoing on our part, we may face patent infringement suits by companies that have patents for similar business processes or other suits alleging infringement of their intellectual property rights. Legal proceedings relating to intellectual property could be expensive, take significant time and divert management’s attention from other business concerns, regardless of the outcome of the litigation.
In addition, compliance with future legislation could impose additional requirements on us, which may be costly. Structural and Organizational Risks Our Chief Executive Officer and founder controls a substantial amount of our outstanding common stock and his interests may be different from or conflict with those of our other shareholders. As of December 31, 2022, August J.
Changes in climate patterns or unusual weather at some of our locations can lead to increased energy usage and costs, or otherwise adversely impact our facilities and operations and disrupt our ability to conduct clinical trials in the normal course. - 26 - Table of Contents Structural and Organizational Risks Our Chief Executive Officer and founder controls a substantial amount of our outstanding common stock and his interests may be different from or conflict with those of our other shareholders.
For the past several years, the COVID-19 pandemic has, and in the future may continue to have, an adverse effect on our business, operations and financial results.
Epidemics, pandemics or widespread public health crisis may have an adverse effect on our business, operations and financial results.
Removed
Our office staff are working in the office or remotely and our labs are fully operational with modifications made to ensure the safety of our employees. Depending on the duration of the disruption, ongoing studies may be cancelled and some of our clients may lack the funding to complete trials which are extended due to slowed recruitment of patients.
Added
Continued evolution and use of machine learning and generative artificial intelligence ("AI"), including risks arising from insufficient human oversight of AI or a lack of controls and procedures monitoring the use of AI in day-to-day operations as well as from potential future competitive disadvantages related to a lack of investment in AI tools, could have a negative impact on our financial results.
Removed
We work with many smaller clients with limited financial resources and market disruptions may make raising additional funds difficult for them.
Added
The development, adoption, and use for generative AI technologies are still in their early stages and ineffective or inadequate AI development or deployment practices by the Company or third-party developers or vendors could result in unintended consequences. Developing, testing, and deploying resource-intensive AI systems may require additional investment and increase our costs.
Removed
The materialization of any such risks could have an adverse impact on our financial condition, results of operations, cash flows and reputation.
Added
In addition, any latency, disruption, or failure in systems or infrastructure leveraging AI could result in delays or errors in our offerings.
Removed
Legal proceedings relating to intellectual property could be expensive, take significant time and divert management’s attention from other business concerns, regardless of the outcome of the litigation.
Added
Like many other companies, we experience attempts to gain unauthorized access to our systems and information on a regular basis, and a number of our employees work remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
Removed
As a result, the willingness of biopharmaceutical companies to outsource R&D services to CROs could diminish and our business could thus be harmed materially by events outside our control.
Added
We have limited cyber-insurance coverage that may not cover all possible events, and this insurance is subject to deductibles and coverage limitations and exclusions.
Removed
These changes may cause fluctuations in our effective income tax rate that could adversely affect our results of operations and cause fluctuations in our earnings and earnings per share.
Added
Failure to comply with applicable requirements could subject us to regulatory risk, liability and potential costs associated with redoing the trials, which could damage our reputation and adversely affect our operating results.
Added
In addition, compliance with future legislation could impose additional requirements on us, which may be costly. Environmental, Social and Governance initiatives could increase our costs, and inaction could harm our reputation and adversely impact our financial results.
Added
There has been increasing public focus by investors, customers, environmental activists, the media, and governmental and nongovernmental organizations on a variety of environmental, social, governance and other sustainability matters.
Added
In light of the importance of this to internal and external stakeholders, if we are not effective in addressing environmental, social, governance and other sustainability matters affecting our business our reputation and financial results may suffer.
Added
We may experience increased costs in order to execute upon our sustainability goals and measure achievement of those goals, which could have an adverse impact on our business and financial condition. In addition, this emphasis on environmental, social, governance and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements.
Added
For example, the SEC has published proposed rules that would require companies to provide significantly expanded climate-related disclosures in their periodic reporting and has announced plans for additional rulemakings on environmental and social topics, such as human capital management.
Added
Such rules may require us to incur significant additional costs to comply, including the implementation of significant additional internal controls processes and procedures regarding matters that have not been subject to such controls in the past, and impose increased oversight obligations on our management and Board.
Added
If we fail to comply with new laws, regulations, or reporting requirements, our reputation and business could be adversely impacted. In addition, compliance with new laws, regulations, and reporting requirements may increase our costs and result in disclosures of potentially sensitive information.

Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties. As of December 31, 2022, we had leased commercial locations in various countries across North America, Europe, Asia, South America, Africa and Australia. We also own lab and office space in Leuven, Belgium. Most of these facilities consist solely of office space; however, we have five laboratories located across four facilities and a logistics warehouse.
Item 2. Properties. As of December 31, 2023, we had leased commercial locations in various countries across North America, Europe, Asia, South America, Africa and Australia. We also own lab space in Leuven, Belgium. Most of these facilities consist solely of office space; however, we have five laboratories located across four facilities and a logistics warehouse.
Our principal executive offices are located on a corporate campus in Cincinnati, Ohio consisting of five buildings totaling approximately 600,000 square feet. The leases for four buildings in our Cincinnati site expire in 2023, 2027, 2027 and 2040. We own the fifth building.
Our principal executive offices are located on a corporate campus in Cincinnati, Ohio consisting of five buildings totaling approximately 650,000 square feet. The leases for four buildings in our Cincinnati site expire in 2027, 2027, 2032 and 2040. We own the fifth building.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Our common stock is listed for trading on the NASDAQ under the symbol “MEDP.” The Stock Price Performance Graph set forth below compares the cumulative total shareholder return on our common stock for the period from December 31, 2017 through December 31, 2022, with the cumulative total return of the Nasdaq Composite Index and the Nasdaq Health Care Index over the same period.
Our common stock is listed for trading on the NASDAQ under the symbol “MEDP.” The Stock Price Performance Graph set forth below compares the cumulative total shareholder return on our common stock for the period from December 31, 2018 through December 31, 2023, with the cumulative total return of the Nasdaq Composite Index and the Nasdaq Health Care Index over the same period.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our common stock trades on the NASDAQ Global Select Market under the symbol “MEDP”. Holders of Record On February 10, 2023, there were approximately 17 shareholders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our common stock trades on the NASDAQ Global Select Market under the symbol “MEDP”. Holders of Record On February 9, 2024, there were approximately 10 shareholders of record of our common stock.
The comparison assumes $100 was invested on December 31, 2017 in the common stock of Medpace Holdings, Inc., in the Nasdaq Composite Index, and in the Nasdaq Health Care Index and assumes reinvestment of dividends, if any. The stock price performance of the following graph is not necessarily indicative of future - 29 - Table of Contents stock price performance.
The comparison assumes $100 was invested on December 31, 2018 in the common stock of Medpace Holdings, Inc., in the Nasdaq Composite Index, and in the Nasdaq Health Care Index and assumes reinvestment of dividends, if any. The stock price performance of the following graph is not necessarily indicative of future stock price performance.
For the year ended December 31, 2021, the Company repurchased 377,783 shares for $62.1 million. For the year ended December 31, 2020, the Company repurchased 1,183,095 shares for $98.3 million. As of June 30, 2022, the Company completed all authorized share repurchases 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. In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million.
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, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program. As of December 31, 2022, we have remaining authorization of $452.8 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, 2023, we have remaining authorization of $308.8 million under the new 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 retired 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.
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 - 30 - Table of Contents 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 - 28 - Table of Contents within Accumulated deficit/Retained earnings in the Company’s consolidated balance sheets. The repurchase programs may be suspended or discontinued at any time without notice.
The repurchase programs may be suspended or discontinued at any time without notice.
Removed
This table provides certain information with respect to our monthly repurchases of the Company’s common stock during the fourth quarter of fiscal year 2022: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publically Announce Plan Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan November 1, 2022, through November 30, 2022 3,938 $ 198.55 7,028,060 $ 499,218,128 December 1, 2022 through December 31, 2022 224,309 $ 206.82 7,252,369 $ 452,825,870 Total 228,247 $ 206.68 7,252,369 All share repurchases were made using cash resources and executed pursuant to established Rule 10b5-1 trading plans.
Added
There were no share repurchases in the fourth quarter of 2023. Repurchases under the share repurchase programs are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1.
Removed
Our share repurchases may occur through open market purchases or negotiated transactions. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards. We returned $47.2 million to shareholders in the form of share repurchases in the fourth quarter of fiscal year 2022.
Removed
Refer to Note 1 – Basis of Presentation of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases.
Removed
Recent Sales of Unregistered Securities Date Equity Plan Number of Stock Options Exercised Exercise Price Approximate Aggregate Purchase Price November 4, 2022 2014 Equity Incentive Plan 37,074 $ 18.23 $ 675,900 Total 37,074 $ 675,900 All of the forgoing transactions involved issuances of securities to employees of the Company and are exempt from registration pursuant to Rule 701 promulgated under the Securities Act of 1933, as amended, as transactions pursuant to benefit plans and contracts relating to compensation.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Changes in operating assets and liabilities provided $106.1 million in operating cash flows and were primarily driven by 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..
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.
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 retired 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.
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.
Our principal sources of liquidity are operating cash flows and from borrowings under our unsecured credit facility consisting of up to a $250.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended.
Our principal sources of liquidity are operating cash flows and from borrowings under our unsecured credit facility consisting of up to a $150.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended.
The following table summarizes the key weighted average assumptions used in the Black-Scholes-Merton option pricing model to calculate the fair value of options during the periods: Year Ended December 31, 2022 2021 2020 Expected holding period - years 4.7 5.0 3.1 Expected volatility 36.5% 34.3% 31.0% Risk-free interest rate 1.9% 0.9% 1.0% 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 following table summarizes the key weighted average assumptions used in the Black-Scholes-Merton option pricing model to calculate the fair value of options during the periods: Year Ended December 31, 2023 2022 2021 Expected holding period - years 4.1 4.7 5.0 Expected volatility 45.4% 36.5% 34.3% Risk-free interest rate 3.8% 1.9% 0.9% 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.
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.
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 - 40 - Table of Contents sufficient information and the historical volatility of a group of peer companies that are most representative of our company.
We believe that we are a partner of choice for small- and mid-sized biopharmaceutical - 30 - Table of Contents 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.
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.
Similar to new business awards, - 33 - Table of Contents 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.
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, 2021, filed with the SEC on February 15, 2022. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties.
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, 2022, filed with the SEC on February 14, 2023. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties.
Our global platform includes approximately 5,200 employees across 40 countries, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge. How We Generate Revenue We earn fees through the performance of services detailed in our customer contracts.
Our global platform includes approximately 5,900 employees across 42 countries, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge. How We Generate Revenue We earn fees through the performance of services detailed in our customer contracts.
We have translated the Euro into U.S. dollars using the following average exchange rates based on data obtained from www.xe.com: Year Ended December 31, 2022 2021 U.S. Dollars per Euro: 1.05 1.18 Results of Operations This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
We have translated the Euro into U.S. dollars using the following average exchange rates based on data obtained from www.xe.com: Year Ended December 31, 2023 2022 U.S. Dollars per Euro: 1.08 1.05 Results of Operations This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The increase was mainly attributable to third-party investment gains and 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.
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 - 35 - Table of Contents 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.
Cash Flow from Investing Activities Net cash used in investing activities was $38.7 million for the year ended December 31, 2022, primarily consisting of property and equipment expenditures.
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 $38.7 million for the year ended December 31, 2022, primarily consisting of property and equipment expenditures.
This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. For a comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see “Part II, Item 7.
This section of this Form 10-K - 31 - Table of Contents generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. For a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see “Part II, Item 7.
We have recognized certain liabilities, including penalties and interest in the amount of $3.8 million as of December 31, 2022, within other long-term liabilities on the consolidated balance sheets. These relate to uncertain tax positions that are subject to various assumptions and judgment. Liabilities for these uncertain tax positions are assessed on a position by position basis.
We have recognized certain liabilities, including penalties and interest in the amount of $5.2 million as of December 31, 2023, within other long-term liabilities on the consolidated balance sheets. These relate to uncertain tax positions that are subject to various assumptions and judgment. Liabilities for these uncertain tax positions are assessed on a position by position basis.
The increase was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs to support the growth in service activities. Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, increased $119.5 million for the year ended December 31, 2022, compared to the same period in the prior year.
The increase was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs to support the growth in service activities. Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, increased $230.4 million for the year ended December 31, 2023, compared to the same period in the prior year.
The Company was in compliance with all financial covenants as of December 31, 2022.
The Company was in compliance with all financial covenants as of December 31, 2023.
As of December 31, 2022, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Consolidated Financial Statements, short-term debt discussed in Note 7 of the Consolidated Financial Statements, purchase commitments discussed in Note 12 of the Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology.
As of December 31, 2023, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Consolidated Financial Statements, purchase commitments discussed in Note 12 of the Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology.
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 - 39 - Table of Contents in effect in the year in which temporary differences are expected to reverse.
Stock Based Compensation In connection with the Company's initial public offering (IPO), the Board approved the formation of the 2016 Incentive Award Plan (the “2016 Plan”), which replaced our 2014 Equity Incentive Plan (the “2014 Plan”). The 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors.
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.
Net new business awards were $1,829.5 million and $1,610.4 million for the years ended December 31, 2022 and 2021, respectively. Backlog represents anticipated future net revenue from net new business awards that have commenced, but have not been completed.
Net new business awards were $2,356.7 million and $1,829.5 million for the years ended December 31, 2023 and 2022, respectively. Backlog represents anticipated future net revenue from net new business awards that have commenced, but have not been completed.
The increase was primarily attributed to higher personnel costs to support the growth in service activities. Personnel costs increased by $18.6 million in the year ended December 31, 2022, compared to the same period in the prior year.
The increase was primarily attributed to higher personnel costs to support the growth in service activities. Personnel costs increased by $19.7 million in the year ended December 31, 2023, compared to the same period in the prior year.
As of December 31, 2022, we had $199.8 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, capital expenditures, credit facility repayments, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs.
As of December 31, 2023, we had $150.0 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.
Net cash used in investing activities was $31.4 million for the year ended December 31, 2021, primarily consisting of property and equipment expenditures. - 35 - Table of Contents Cash Flow from Financing Activities 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 related to the Credit Facility and proceeds from stock options exercises of $22.1 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.
The higher personnel costs portion increased by $75.4 million in the year ended December 31, 2022, compared to the same period in the prior year. Selling, general and administrative Selling, general and administrative expenses increased by $23.0 million, to $131.4 million for the year ended December 31, 2022 from $108.4 million for the year ended December 31, 2021.
The higher personnel costs portion increased by $88.4 million in the year ended December 31, 2023, compared to the same period in the prior year. Selling, general and administrative Selling, general and administrative expenses increased by $30.0 million, to $161.4 million for the year ended December 31, 2023 from $131.4 million for the year ended December 31, 2022.
Reported backlog will fluctuate based on new business awards, changes in scope to existing contracts, cancellations, net revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of December 31, 2022, our backlog increased by $342.5 million, or 17.2% to $2,339.6 million compared to $1,997.1 million as of December 31, 2021.
Reported backlog will fluctuate based on new business awards, changes in scope to existing contracts, cancellations, net revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of December 31, 2023, our backlog increased by $473.4 million, or 20.2% to $2,813.0 million compared to $2,339.6 million as of December 31, 2022.
Depreciation and Amortization Depreciation and amortization expense increased by $1.2 million, to $22.3 million for the year ended December 31, 2022 from $21.1 million for the year ended December 31, 2021. The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net.
Depreciation and Amortization Depreciation and amortization expense increased by $4.0 million, to $26.3 million for the year ended December 31, 2023 from $22.3 million for the year ended December 31, 2022. The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net.
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. - 36 - Table of Contents As of December 31, 2022, we had $50.0 million in indebtedness under the Credit Facility.
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.
Based on the analysis of the above factors, we determined that as of December 31, 2022 and 2021 a valuation allowance in the amount of $0.4 million relating to certain foreign deferred tax assets and $0.9 million relating to certain foreign operating loss carryforwards and other deferred tax assets, respectively, 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 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.
Capital spending as a percentage of revenue increased 6 basis points to 2.53% in the year ended - 34 - Table of Contents December 31, 2022. We expect these activities will be funded from existing cash, cash flow from operations and, if necessary, borrowings under our existing or future credit facilities or other debt.
Capital spending as a percentage of revenue decreased 59 basis points to 1.94% in the year ended December 31, 2023. We expect these activities will be funded from existing cash, cash flow from operations and, if necessary, borrowings under our existing or future credit facilities or other debt.
Income tax provision Income tax provision increased by $17.5 million, to $37.5 million for the year ended December 31, 2022 from $20.0 million for the year ended December 31, 2021. The overall effective tax rates for the years ended December 31, 2022 and 2021 were 13.3% and 9.9%, respectively.
Income tax provision Income tax provision increased by $15.4 million, to $52.9 million for the year ended December 31, 2023 from $37.5 million for the year ended December 31, 2022. The overall effective tax rates for the years ended December 31, 2023 and 2022 were 15.8% and 13.3%, respectively.
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.
Costs and Expenses Our costs and expenses are comprised primarily of our total direct costs, selling, general and administrative costs, depreciation and amortization and income taxes. - 32 - Table of Contents 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.
Indebtedness 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”).
The repurchase programs may be suspended or discontinued at any time without notice. - 37 - Table of Contents Indebtedness 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 March 15, 2022, the Company entered into Amendment No. 4 to the Loan Agreement, which increased the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $250.0 million. The Company is expected to amend the Credit Facility or obtain a new credit facility prior to the March 31, 2023 expiration.
On March 15, 2022, the Company entered into Amendment No. 4 to the Loan Agreement, which increased the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $250.0 million.
Year Ended December 31, Cash Flows (Amounts in thousands) 2022 2021 Net cash provided by operating activities $ 388,050 $ 263,327 Net cash used in investing activities (38,742) (31,364) Net cash used in financing activities (775,775) (44,453) Effect of exchange rates on cash, cash equivalents, and restricted cash (6,572) (3,972) (Decrease) increase in cash, cash equivalents, and restricted cash $ (433,039) $ 183,538 Cash Flows from Operating Activities Cash flows from operations are driven mainly by net income, stock-based compensation expense, noncash lease expense, depreciation and net movement in advanced billings, accrued expenses, and accounts receivable and unbilled, net.
Year Ended December 31, Cash Flows (Amounts in thousands) 2023 2022 Net cash provided by operating activities $ 433,374 $ 388,050 Net cash used in investing activities (34,629) (38,742) Net cash used in financing activities (182,642) (775,775) Effect of exchange rates on cash, cash equivalents, and restricted cash 1,081 (6,572) Increase (decrease) in cash, cash equivalents, and restricted cash $ 217,184 $ (433,039) 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.
Net cash flows provided by operating activities were $263.3 million for the year ended December 31, 2021 consisting of net income of $181.8 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 $14.8 million, primarily related to noncash lease expense of $16.3 million, depreciation of $16.0 million, stock-based compensation expense of $14.5 million and amortization of intangibles of $5.1 million, partially offset by a deferred income tax benefit of $37.1 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.
As of December 31, 2022, we had $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.
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.
Miscellaneous income, net Miscellaneous income, net increased by $3.7 million to $7.1 million for the year ended December 31, 2022 from $3.3 million for the year ended December 31, 2021.
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.
Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s consolidated balance sheets. The repurchase programs may be suspended or discontinued at any time without notice.
Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s consolidated balance sheets.
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 assumptions. The reviews include an assessment of costs incurred to date compared to expectations based on budget assumptions and other circumstances specific to the project.
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 - 38 - Table of Contents assumptions.
The increase was broad based, but primarily driven by strong activity within the Oncology, Metabolic, Cardiology and Central Nervous System therapeutic areas. - 33 - Table of Contents Total direct costs Total direct costs increased by $213.3 million, to $1,027.6 million for the year ended December 31, 2022 from $814.2 million for the year ended December 31, 2021.
The increase was broad based, but primarily driven by strong activity within the Metabolic, Oncology, AVAI and other uncategorized therapeutic areas. Total direct costs Total direct costs increased by $333.8 million, to $1,361.3 million for the year ended December 31, 2023 from $1,027.6 million for the year ended December 31, 2022.
We record revenue net of any tax assessments by governmental authorities that are imposed and concurrent with specific revenue generating transactions. Performance Obligations Substantially all of our contracts consist of a single performance obligation, as the promise to transfer the individual services described in the contracts are not separately identifiable from other promises in the contracts, and therefore not distinct.
Performance Obligations Substantially all of our contracts consist of a single performance obligation, as the promise to transfer the individual services described in the contracts are not separately identifiable from other promises in the contracts, and therefore not distinct.
For the year ended December 31, 2021, the Company repurchased 377,783 shares for $62.1 million. For the year ended December 31, 2020, the Company repurchased 1,183,095 shares for $98.3 million. As of June 30, 2022, the Company completed all authorized share repurchases 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. In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million.
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, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program. As of December 31, 2022, we have remaining authorization of $452.8 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, 2023, we have remaining authorization of $308.8 million under the new repurchase program.
The total estimated costs necessary to complete is updated and any revisions to the existing cost estimate results in cumulative adjustments to the amount of revenue recognized in the period in which the revisions are identified.
The reviews include an assessment of costs incurred to date compared to expectations based on budget assumptions and other circumstances specific to the project. The total estimated costs necessary to complete is updated and any revisions to the existing cost estimate results in cumulative adjustments to the amount of revenue recognized in the period in which the revisions are identified.
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. - 38 - Table of Contents As of December 31, 2022 and 2021, as a result of an updated analysis of future cash needs in the United States and opportunities for investment outside the United States, we assert that all foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings.
As of December 31, 2023 and 2022, as a result of an updated analysis of future cash needs in the United States and opportunities for investment outside the United States, we assert that all foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings.
As of December 31, 2022, we had cash and cash equivalents of $28.3 million, which decreased from $461.3 million as of December 31, 2021 due primarily to share repurchases. Approximately $9.7 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2022.
As of December 31, 2023, we had cash and cash equivalents of $245.4 million, which increased from $28.3 million as of December 31, 2022. Approximately $29.5 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2023.
Selling, General and Administrative Selling, general and administrative expenses are primarily driven by compensation and related employee benefits, as well as rent, utilities, supplies, software licenses, professional fees (e.g., legal and accounting expenses), travel, marketing and other operating expenses. - 31 - Table of Contents Depreciation Depreciation is provided on our property and equipment on the straight-line method at rates adequate to allocate the cost of the applicable assets over their estimated useful lives, which is three to five years for computer hardware, software, phone, and medical imaging equipment, five to seven years for furniture and fixtures and other equipment, and thirty to forty years for buildings.
Depreciation Depreciation is provided on our property and equipment on the straight-line method at rates adequate to allocate the cost of the applicable assets over their estimated useful lives, which is three to five years for computer hardware, software, phone, and medical imaging equipment, five to seven years for furniture and fixtures and other equipment, and thirty to forty years for buildings.
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 $388.1 million for the year ended December 31, 2022 consisting of net income of $245.4 million.
We attempt to negotiate payment terms - 36 - Table of Contents 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 used in financing activities was $44.5 million for the year ended December 31, 2021, primarily related to $62.1 million in repurchases of common stock, offset by proceeds from stock options exercises of $17.6 million.
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.
Certain contracts contain volume rebate arrangements with our customers that provide for rebates if certain specified spending thresholds are met.
Certain contracts contain volume rebate arrangements with our customers that provide for rebates if certain specified spending thresholds are met. These obligations are considered as a reduction in revenue when it appears probable that the arrangement thresholds will be met.
Changes in operating assets and liabilities provided $66.7 million in operating cash flows and were primarily driven by increased advanced billings of $89.0 million and increased accrued expenses of $26.2 million, offset by increased accounts receivable and unbilled, net of $25.0 million, decreased lease liabilities of $15.6 million and increased prepaid expenses and other current assets of $9.1 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.
Included within backlog as of December 31, 2022 was approximately $1,200.0 million to $1,220.0 million that we expect to convert to net revenue in 2023, with the remainder expected to convert to net revenue in years after 2023. - 32 - Table of Contents The effect of foreign currency adjustments on backlog was as follows: unfavorable foreign currency adjustments of $19.1 million for the year ended December 31, 2022 and unfavorable foreign currency adjustments of $5.5 million for the year ended December 31, 2021.
Included within backlog as of December 31, 2023 was approximately $1,520.0 million to $1,540.0 million that we expect to convert to net revenue in 2024, with the remainder expected to convert to net revenue in years after 2024.
For a comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see “Part II, Item 7. 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, 2021, filed with the SEC on February 15, 2022.
For a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see “Part II, Item 7.
These obligations are considered as a reduction in revenue when it appears probable that the arrangement thresholds will be met. - 37 - Table of Contents We occasionally enter into incentive fee arrangements with customers that provide for additional compensation if certain defined contractual milestones or performance thresholds are met.
We occasionally enter into incentive fee arrangements with customers that provide for additional compensation if certain defined contractual milestones or performance thresholds are met. These additional fees are included in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee and when achievement of the incentive milestone is deemed probable.
The increase in the income tax provision and overall effective rate was primarily attributable to the increase in pre-tax book income compared to the same periods in the prior year. Liquidity and Capital Resources We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities.
Liquidity and Capital Resources We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities.
The weighted average grant date fair value of employee stock options granted was $47.57, $52.70 and $15.19 for the years ended December 31, 2022, 2021 and 2020, respectively. - 39 - Table of Contents Effect of Recent Accounting Pronouncements Refer to Note 2 of the Notes to Consolidated Financial Statements for management’s discussion of the effect of recent accounting pronouncements.
As of December 31, 2023, all outstanding stock based awards were classified within equity. The weighted average grant date fair value of employee stock options granted was $85.30, $47.57 and $52.70 for the years ended December 31, 2023, 2022 and 2021, respectively.
Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Year Ended December 31, (Amounts in thousands, except percentages) 2022 2021 Change % Change Revenue, net $ 1,459,996 $ 1,142,377 $ 317,619 27.8 % Direct service costs, excluding depreciation and amortization 534,887 441,090 93,797 21.3 % Reimbursed out-of-pocket expenses 492,671 373,132 119,539 32.0 % Total direct costs 1,027,558 814,222 213,336 26.2 % Selling, general and administrative 131,400 108,421 22,979 21.2 % Depreciation 18,989 16,005 2,984 18.6 % Amortization 3,352 5,114 (1,762) (34.5) % Total operating expenses 1,181,299 943,762 237,537 25.2 % Income from operations 278,697 198,615 80,082 Miscellaneous income, net 7,068 3,342 3,726 Interest (expense) income, net (2,905) (105) (2,800) Income before income taxes 282,860 201,852 81,008 Income tax provision 37,492 20,004 17,488 Net income $ 245,368 $ 181,848 $ 63,520 Total revenue Total revenue increased by $317.6 million to $1,460.0 million for the year ended December 31, 2022, from $1,142.4 million for the year ended December 31, 2021.
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, 2022, filed with the SEC on February 14, 2023. - 34 - Table of Contents Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Year Ended December 31, (Amounts in thousands, except percentages) 2023 2022 Change % Change Revenue, net $ 1,885,842 $ 1,459,996 $ 425,846 29.2 % Direct service costs, excluding depreciation and amortization 638,249 534,887 103,362 19.3 % Reimbursed out-of-pocket expenses 723,088 492,671 230,417 46.8 % Total direct costs 1,361,337 1,027,558 333,779 32.5 % Selling, general and administrative 161,352 131,400 29,952 22.8 % Depreciation 24,129 18,989 5,140 27.1 % Amortization 2,199 3,352 (1,153) (34.4) % Total operating expenses 1,549,017 1,181,299 367,718 31.1 % Income from operations 336,825 278,697 58,128 Miscellaneous (expense) income, net (655) 7,068 (7,723) Interest expense, net (488) (2,905) 2,417 Income before income taxes 335,682 282,860 52,822 Income tax provision 52,872 37,492 15,380 Net income $ 282,810 $ 245,368 $ 37,442 Total revenue Total revenue increased by $425.8 million to $1,885.8 million for the year ended December 31, 2023, from $1,460.0 million for the year ended December 31, 2022.
Refer to "Critical Accounting Policies and Estimates—Revenue Recognition," below. Costs and Expenses Our costs and expenses are comprised primarily of our total direct costs, selling, general and administrative costs, depreciation and amortization and income taxes.
Refer to "Critical Accounting Policies and Estimates—Revenue Recognition," below.
These additional fees are included in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee and when achievement of the incentive milestone is deemed probable. These estimates are based on anticipated performance, our best judgment at the time or ultimately, upon achievement of the threshold or milestone.
These estimates are based on anticipated performance, our best judgment at the time or ultimately, upon achievement of the threshold or milestone. We record revenue net of any tax assessments by governmental authorities that are imposed and concurrent with specific revenue generating transactions.
Removed
On December 27, 2021, the Company entered into Amendment No. 3 to the Credit Facility which extends the expiration date of the revolving credit note to March 31, 2023 and adds provisions for alternative rates of interest as a result of global reference rate initiatives and removes the ability to obtain advances in any currency other than U.S. Dollars.
Added
Selling, General and Administrative Selling, general and administrative expenses are primarily driven by compensation and related employee benefits, as well as rent, utilities, supplies, software licenses, professional fees (e.g., legal and accounting expenses), travel, marketing and other operating expenses.
Removed
After the LIBOR cessation date of December 31, 2021, the Credit Facility bears interest at a rate of the sum of The Secured Overnight Financing Rate (SOFR) and the benchmark replacement adjustment plus 100 basis points (1.00%).
Added
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.
Removed
As of December 31, 2022, all outstanding stock based awards were classified within equity.
Added
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.
Added
Net cash flows provided by operating activities were $388.1 million for the year ended December 31, 2022 consisting of net income of $245.4 million.
Added
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.
Added
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.
Added
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.
Added
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. There remains uncertainty as to the final Pillar Two model rules.
Added
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.
Added
Effect of Recent Accounting Pronouncements Refer to Note 2 of the Notes to Consolidated Financial Statements for management’s discussion of the effect of recent accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+1 added−1 removed8 unchanged
Moreover, in many cases we require advance payment from our customers for a portion of the study contract price upon the signing of a service contract which helps to mitigate credit risk. As of the years ended December 31, 2022 and 2021, there were no major customers accounting for more than 10% of our accounts receivable and unbilled, net.
Moreover, in many cases we require advance payment from our customers for a portion of the study contract price upon the signing of a service contract which helps to mitigate credit risk. As of the years ended December 31, 2023 and 2022, there were no major customers accounting for more than 10% of our accounts receivable and unbilled, net.
Since the second half of fiscal 2021 and throughout 2022, we have experienced input cost inflation, including materials, labor and transportation costs.
Since the second half of fiscal 2021 and throughout 2022 and 2023, we have experienced input cost inflation, including materials, labor and transportation costs.
We recalculated our reported pre-tax income for the years ended December 31, 2022 and 2021 using foreign exchange rates that were 10% higher and 10% lower than actual exchange rates utilized during the year.
We recalculated our reported pre-tax income for the years ended December 31, 2023 and 2022 using foreign exchange rates that were 10% higher and 10% lower than actual exchange rates utilized during the year.
We generally do not require collateral or other securities to support customer receivables. In the years ended December 31, 2022 and 2021, credit losses have been immaterial and within our expectations.
We generally do not require collateral or other securities to support customer receivables. In the years ended December 31, 2023 and 2022, credit losses have been immaterial and within our expectations.
For the years ended December 31, 2022 and 2021, approximately 8.9% and 10.6%, respectively, of our revenue was derived from contracts denominated in currencies other than the U.S. dollar, whereas approximately 22.9% and 25.9% of our operational costs, including, but not limited to, salaries, wages and other employee benefits, were derived in foreign currencies.
For the years ended December 31, 2023 and 2022, approximately 8.4% and 8.9%, respectively, of our revenue was derived from contracts denominated in currencies other than the U.S. dollar, whereas approximately 21.4% and 22.9% of our operational costs, including, but not limited to, salaries, wages and other employee benefits, were derived in foreign currencies.
When utilizing foreign exchange rates 10% lower than actual exchange rates, our pre-tax income for the years ended December 31, 2022 and 2021 is positively impacted by approximately $13.0 million and $12.3 million, respectively.
When utilizing foreign exchange rates 10% lower than actual exchange rates, our pre-tax income for the years ended December 31, 2023 and 2022 is positively impacted by approximately $17.2 million and $13.0 million, respectively.
When utilizing foreign exchange rates 10% higher than actual exchange rates, our pre-tax income for the years ended December 31, 2022 and 2021 is negatively impacted by approximately $13.0 million and $12.3 million, respectively.
When utilizing foreign exchange rates 10% higher than actual - 41 - Table of Contents exchange rates, our pre-tax income for the years ended December 31, 2023 and 2022 is negatively impacted by approximately $17.2 million and $13.0 million, respectively.
Of these exposures, approximately 74.2% and 78.5% of revenue denominated in foreign currencies and approximately 45.9% and 47.1% of operational costs denominated in foreign currencies were Euro denominated for the years ended December 31, 2022 and 2021, respectively.
Of these exposures, approximately 76.9% and 74.2% of revenue denominated in foreign currencies and approximately 51.4% and 45.9% of operational costs denominated in foreign currencies were Euro denominated for the years ended December 31, 2023 and 2022, respectively.
Each quarter-point increase or decrease in the applicable interest rate as of the year ended December 31, 2022 would change our interest expense by approximately $0.2 million. The Credit Facility is not subject to any interest rate caps or floors. - 41 - Table of Contents
As of the year ended December 31, 2022, we had outstanding amounts related to the Credit Facility of $50.0 million. The Credit Facility is subject to variable interest rates. Each quarter-point increase or decrease in the applicable interest rate as of the year ended December 31, 2022 would change our interest expense by approximately $0.2 million.
Additionally, if actual rates are greater than our inflation assumptions, inflation could have a material adverse effect on our operations or financial condition. - 40 - Table of Contents Interest Rates We are primarily exposed to interest rate risk through our Credit Facility.
Additionally, if actual rates are greater than our inflation assumptions, inflation could have a material adverse effect on our operations or financial condition. Interest Rates We are primarily exposed to interest rate risk through our Credit Facility. As of the year ended December 31, 2023, we had no outstanding long-term debt.
Removed
As of the year ended December 31, 2022, we had outstanding amounts related to the Credit Facility of $50.0 million. As of the year ended December 31, 2021, we had no outstanding long-term debt. The Credit Facility is subject to variable interest rates.
Added
The Credit Facility is not subject to any interest rate caps or floors. - 42 - Table of Contents

Other MEDP 10-K year-over-year comparisons