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What changed in Medpace Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Medpace Holdings, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+122 added−119 removedSource: 10-K (2025-02-11) vs 10-K (2024-02-13)

Top changes in Medpace Holdings, Inc.'s 2024 10-K

122 paragraphs added · 119 removed · 108 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeAs 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.
Biggest changeAs of December 31, 2023 and 2022, we had approximately 5,900 and 5,200 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.
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.
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, 2024 we had approximately 5,900 employees located across 44 countries.
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.
Of the 153 management-level roles that were newly filled in 2024, approximately 67% 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.
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.
Approximately 67% of our employees globally are women representing 66% of management and 53% of director level and above positions. In addition, of our U.S. based employees, approximately 17% are non-white, including 13% of management. None of our US employees are covered by a collective bargaining agreement specific to our Company.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges 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.
Biggest changeChanges 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.
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.
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 but not limited to inflation, trade and tariffs, 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.
Industry Risks • Outsourcing trends in the biopharmaceutical industry and changes in aggregate expenditures and R&D budgets could adversely affect our operating results and growth rate. • We may be affected by healthcare reform and potential additional regulatory reforms, which may adversely impact the biopharmaceutical industry or otherwise reduce the need for our services or negatively impact our profitability. • Consolidation in the biopharmaceutical industry could lead to a reduction in our revenues. • The biopharmaceutical industry has a history of patent and other intellectual property litigation, and we might be involved in costly intellectual property lawsuits. • If we do not keep pace with rapid technological changes, our services may become less competitive or obsolete. • Circumstances beyond our control could cause the CRO industry to suffer reputational or other harm that could result in an industry-wide reduction in demand for CRO services, which could harm our business.
Industry Risks • Outsourcing trends in the biopharmaceutical industry and changes in aggregate expenditures and R&D budgets could adversely affect our operating results and growth rate. • We may be affected by healthcare reform and potential additional regulatory reforms, which may adversely impact the biopharmaceutical industry or otherwise reduce the need for our services or negatively impact our profitability. • Consolidation in the biopharmaceutical industry could lead to a reduction in our revenues. • The biopharmaceutical industry has a history of patent and other intellectual property litigation, and we might be involved in costly intellectual property lawsuits. • If we do not keep pace with rapid technological changes, including AI, our services may become less competitive or obsolete. • Circumstances beyond our control could cause the CRO industry to suffer reputational or other harm that could result in an industry-wide reduction in demand for CRO services, which could harm our business.
Further, our customers could be similarly exposed to intellectual property suits and the resulting economic and operational strain defending such claims could negatively impact such customers’ ability to fund or continue ongoing clinical trials on which we are working. If we do not keep pace with rapid technological changes, our services may become less competitive or obsolete.
Further, our customers could be similarly exposed to intellectual property suits and the resulting economic and operational strain defending such claims could negatively impact such customers’ ability to fund or continue ongoing clinical trials on which we are working. If we do not keep pace with rapid technological changes, including AI, our services may become less competitive or obsolete.
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.
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 result in disclosures of potentially sensitive information.
In addition, negative publicity regarding regulatory compliance of our customers’ clinical trials, programs or products could have an adverse effect on our business and reputation. Insufficient customer funding to complete a clinical trial. As noted above, clinical trials can cost up to tens of millions of dollars.
In addition, negative publicity regarding regulatory compliance of our customers’ clinical trials, programs or products could have an adverse effect on our business and reputation. - 22 - Table of Contents Insufficient customer funding to complete a clinical trial. As noted above, clinical trials can cost up to tens of millions of dollars.
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.
Upon a distribution of our common stock held by Medpace Investors, our Chief Executive Officer would receive approximately 85.7% of such distributed shares. Accordingly, August J.
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.
For additional information on related person transactions involving us, see the “Certain Relationships” section in our Proxy Statement for our 2025 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, 2023, we derive approximately 29.5% 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, 2024, we derive approximately 28.9% of our net revenue from our top ten customers.
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.
Clinical trials can be costly and for the year ended December 31, 2024, 79% and 17% 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.
Any natural disaster or catastrophic event affecting us or our customers, investigators or collaboration partners could have a significant negative impact on our operations and financial performance.
Any natural disaster or catastrophic event affecting us or our customers, - 27 - Table of Contents investigators or collaboration partners could have a significant negative impact on our operations and financial performance.
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.
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.
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.
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 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.
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. We may experience increased costs, which could have an adverse impact on our business and financial condition.
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.
These systems automatically manage the randomization of patients in a given clinical trial to different treatment arms and regulate the supply of investigational drugs.
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.
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.
We depend on our customers, investigators, laboratories and other facilities for the continued operation of our business.
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.
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.
Troendle, our Chief Executive Officer and founder, through his direct ownership of 654,656 shares of our common stock and his beneficial ownership of 4,733,019 shares of our common stock held by Medpace Investors LLC (“Medpace Investors”), controls approximately 17.6% of the outstanding shares of our common - 26 - Table of Contents stock.
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.
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.
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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
As a - 21 - Table of Contents 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
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, 2024, August J.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeIncidents determined to be material are then communicated immediately to the CEO and then to the Board of Directors after such determination and disclosed in an 8-K within 4 business days upon such determination. As a part of the Company's overall integrated approach to risk management, the Company assesses, identifies and manages cybersecurity related risks.
Biggest changeIncidents determined to be material will then be communicated immediately to the CEO and then to the Board of Directors after such determination and disclosed in a Form 8-K within the required timeframe upon such determination. As a part of the Company's overall integrated approach to risk management, the Company assesses, identifies and manages cybersecurity related risks.
The full Board of Directors provides an additional level of cybersecurity risk oversight. - 28 - Table of Contents Medpace assesses and evaluates cybersecurity risk using the framework established by the National Institute of Standards and Technology (NIST).
The full Board of Directors provides an additional level of cybersecurity risk oversight. Medpace assesses and evaluates cybersecurity risk using the framework established by the National Institute of Standards and Technology (NIST).
See Item 1A. “Risk Factors” of Part I of this Annual Report on Form 10-K for discussion of cybersecurity risks that are reasonably likely to materially affect the Company.
“Risk Factors” of Part I of this Annual Report on Form 10-K for discussion of cybersecurity risks that are reasonably likely to materially affect the Company.
Added
As of the date of this Annual Report on Form 10-K, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, its business strategy, results of operations or - 28 - Table of Contents financial condition. See Item 1A.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur 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.
Biggest changeMost of our global facilities consist solely of office space; however, we have five laboratories located across four locations and two logistics warehouses. Our principal executive offices are located on a corporate campus in Cincinnati, Ohio consisting of five buildings totaling approximately 650,000 square feet.
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.
Item 2. Properties. As of December 31, 2024, we had leased commercial locations in various countries across North America, Europe, Asia, South America, Africa and Australia. We also own buildings in Leuven, Belgium for our laboratory, office and logistics operations.
Added
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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Biggest changeFor 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.
Biggest changeAs of June 30, 2022, the Company completed all authorized share repurchases under this repurchase program. In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million. For the year ended December 31, 2024, the Company repurchased 527,160 shares for $174.2 million under the new repurchase program.
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.
The Company constructively retires the repurchased shares associated with - 30 - Table of Contents these approved share repurchase programs, except for a small portion which were retained as Treasury Shares on the consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Retained earnings/Accumulated deficit in the Company’s consolidated balance sheets.
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.
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, 2019 through December 31, 2024, with the cumulative total return of the Nasdaq Composite Index and the Nasdaq Health Care Index over the same period.
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.
The comparison assumes $100 was invested on December 31, 2019 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 - 31 - Table of Contents stock price performance.
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.
For the year ended December 31, 2023, the Company repurchased 781,068 shares for $144.0 million under the new repurchase program. For the year ended December 31, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program. As of December 31, 2024, we have remaining authorization of $134.6 million under the new repurchase program.
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.
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 7, 2025, there were approximately 8 shareholders of record of our common stock.
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.
As of February 6, 2025, the Company's Board of Directors approved an increase of $600.0 million to the Company's new stock repurchase program. Repurchases under the share repurchase programs are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1.
Added
This table provides certain information with respect to our monthly repurchases of the Company's common stock during the fourth quarter of fiscal year 2024: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publically Announced Plan Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan November 1, 2024, through November 30, 2024 347,922 $ 326.40 8,381,359 $ 195,273,292 December 1, 2024, through December 31, 2024 179,238 $ 338.26 8,560,597 $ 134,644,869 Total 527,160 $ 330.43 8,560,597 All share repurchases were made using cash resources and executed pursuant to established Rule 10b5-1 trading plans.
Added
Our share repurchases may occur through open market purchases or negotiated transactions. The above table excludes shares repurchased to settle employee tax withholdings related to the vesting of stock awards. We returned $174.2 million to shareholders in the form of share repurchases in the fourth quarter of fiscal year 2024.
Added
Refer to Note 1 – Basis of Presentation of the Notes to the Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases.

Item 7. Management's Discussion & Analysis

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

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Biggest changeManagement’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.
Biggest changeYear Ended December 31, 2024 compared to Year Ended December 31, 2023 Year Ended December 31, (Amounts in thousands, except percentages) 2024 2023 Change % Change Revenue, net $ 2,109,054 $ 1,885,842 $ 223,212 11.8 % Direct service costs, excluding depreciation and amortization 682,095 638,249 43,846 6.9 % Reimbursed out-of-pocket expenses 770,654 723,088 47,566 6.6 % Total direct costs 1,452,749 1,361,337 91,412 6.7 % Selling, general and administrative 180,184 161,352 18,832 11.7 % Depreciation 27,808 24,129 3,679 15.2 % Amortization 1,443 2,199 (756) (34.4) % Total operating expenses 1,662,184 1,549,017 113,167 7.3 % Income from operations 446,870 336,825 110,045 Miscellaneous income (expense), net 4,056 (655) 4,711 Interest income (expense), net 24,996 (488) 25,484 Income before income taxes 475,922 335,682 140,240 Income tax provision 71,536 52,872 18,664 Net income $ 404,386 $ 282,810 $ 121,576 Total revenue Total revenue increased by $223.2 million to $2,109.1 million for the year ended December 31, 2024, from $1,885.8 million for the year ended December 31, 2023.
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.
Our global platform includes approximately 5,900 employees across 44 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 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.
Our principal sources of liquidity are operating cash flows and from borrowings under our unsecured credit facility consisting of up to a $10.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended.
As of December 31, 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, 2024 and 2023, 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, 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.
As of December 31, 2024, 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.
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.
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, 2024 2023 U.S. Dollars per Euro: 1.08 1.08 Results of Operations This section generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
Cash Flow from Financing Activities Net cash used in financing activities was $182.6 million for the year ended December 31, 2023, primarily related to $155.0 million in repayments of the Credit Facility and $144.0 million in repurchases of common stock, partially offset by $105.0 million in proceeds from the Credit Facility and proceeds from stock options exercises of $11.4 million.
Net cash used in financing activities was $182.6 million for the year ended December 31, 2023, primarily related to $155.0 million in repayments of the Credit Facility and $144.0 million in repurchases of common stock, partially offset by $105.0 million in proceeds from the Credit Facility and proceeds from stock option exercises of $11.4 million.
The calculation of these liabilities involves dealing with uncertainties in the application of complex tax regulations in both domestic and foreign jurisdictions. These positions may be subject to audit and review by tax authorities, and may result in future taxes, interest and penalties if we are unsuccessful in defending our positions.
The calculation of these liabilities involves dealing with uncertainties in the application of complex tax regulations in both domestic and foreign jurisdictions. These positions may be subject to audit and review by tax - 40 - Table of Contents authorities, and may result in future taxes, interest and penalties if we are unsuccessful in defending our positions.
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.
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.
We believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.
We believe that we are a partner of choice for small- and mid-sized biopharmaceutical - 32 - 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.
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.
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.
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.
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, 2023, filed with the SEC on February 13, 2024. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties.
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.
This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see “Part II, Item 7.
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.
We have recognized certain liabilities, including penalties and interest in the amount of $6.7 million as of December 31, 2024, 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 $230.4 million for the year ended December 31, 2023, 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 $47.6 million for the year ended December 31, 2024, compared to the same period in the prior year.
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.
Capital spending as a percentage of revenue decreased 21 basis points to 1.73% in the year ended December 31, 2024. 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.
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.
As of December 31, 2024, all outstanding stock based awards were classified within equity. The weighted average grant date fair value of employee stock options granted was $148.85, $85.30 and $47.57 for the years ended December 31, 2024, 2023 and 2022, respectively.
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.
Miscellaneous income (expense), net Miscellaneous income (expense), net changed by $4.7 million, to $4.1 million of income for the year ended December 31, 2024 from $0.7 million of expense for the year ended December 31, 2023.
Based on the analysis of the above factors, we determined that a valuation allowance in the amount of $1.8 million relating to certain tax credits and other deferred tax assets should be recorded as of December 31, 2023 and $0.4 million should be recorded as of December 31, 2022 relating to certain foreign deferred tax assets that are currently not expected to be realized.
Based on the analysis of the above factors, we determined that a valuation allowance in the amount of $1.6 million should be recorded as of December 31, 2024 and $1.8 million should be recorded as of December 31, 2023 relating to certain tax credits and other deferred tax assets that are currently not expected to be realized.
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.
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.
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.
For the year ended December 31, 2023, the Company repurchased 781,068 shares for $144.0 million under the new repurchase program. For the year ended December 31, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program. As of December 31, 2024, we have remaining authorization of $134.6 million under the new repurchase program.
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.
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.
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.
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 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.
Net new business awards were $2,230.0 million and $2,356.7 million for the years ended December 31, 2024 and 2023, respectively. Backlog represents anticipated future net revenue from net new business awards that have commenced, but have not been completed.
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.
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, 2024, our backlog increased by $89.2 million, or 3.2% to $2,902.2 million compared to $2,813.0 million as of December 31, 2023.
The increase in the income tax provision and overall effective rate was primarily attributable to the increase in pre-tax book income, an increase in uncertain tax positions, and a decrease in excess tax benefits recognized from share-based compensation, which was partially offset by an increase in tax benefits related to Foreign Derived Intangible Income ("FDII") compared to the same period in the prior year.
The increase in the income tax provision was primarily attributable to the increase in pre-tax book income, which was partially offset by an increase in excess tax benefits recognized from share-based compensation and a decrease in uncertain tax positions, compared to the same period in the prior year.
The 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.
The increase was primarily attributed to higher personnel costs to support the growth in service activities. Personnel costs increased by $20.3 million in the year ended December 31, 2024, compared to the same period in the prior year.
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.
The change was mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment and proceeds from the recovery of a note receivable, compared to the same period in the prior year.
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”).
The repurchase programs may be suspended or discontinued at any time without notice. Indebtedness On September 30, 2019 (the “Closing Date”), the Company obtained an unsecured credit facility (as amended from time to time, the “Credit Facility”) through its wholly owned subsidiaries, Medpace, Inc., as borrower (the “Borrower”), and Medpace IntermediateCo, Inc., as guarantor (the “Guarantor”).
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.
As of June 30, 2022, the Company completed all authorized share repurchases under this repurchase program. In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million. For the year ended December 31, 2024, the Company repurchased 527,160 shares for $174.2 million under the new repurchase program.
The Credit Facility is guaranteed by the Guarantor and its material, direct or indirect wholly owned domestic subsidiaries, with certain exceptions, including where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences. All of the obligations under the Credit Facility are unsecured. The Credit Facility is subject to customary negative covenants.
The Credit Facility is guaranteed by the Guarantor and its material, direct or indirect wholly owned domestic subsidiaries, with certain exceptions, including where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences.
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.
Compensation expense related to stock option awards to employees is recognized on a straight line basis based on the grant date fair value over the associated service period of the award, which is equal to the vesting term. - 41 - Table of Contents 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, 2024 2023 2022 Expected holding period - years 4.3 4.1 4.7 Expected volatility 43.4% 45.4% 36.5% Risk-free interest rate 3.7% 3.8% 1.9% 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.
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.
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.
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.
Year Ended December 31, Cash Flows (Amounts in thousands) 2024 2023 Net cash provided by operating activities $ 608,815 $ 433,374 Net cash used in investing activities (28,308) (34,629) Net cash used in financing activities (154,009) (182,642) Effect of exchange rates on cash, cash equivalents, and restricted cash (2,511) 1,081 Increase in cash, cash equivalents, and restricted cash $ 423,987 $ 217,184 Cash Flows from Operating Activities Cash flows from operations are driven mainly by net income, depreciation, deferred income tax benefit, stock-based compensation expense, noncash lease expense and net movement in advanced billings, accrued expenses, lease liabilities and accounts receivable and unbilled, net.
Final settlement amounts are agreed to with the customer based on remaining work to be performed. These amounts are included in revenue when we believe the amount can be estimated reliably and its realization is probable. In evaluating the probability of recognition, we consider the contractual basis for the settlement amount and the objective evidence available to support the amount.
Final settlement amounts are agreed to with the customer based on remaining work to be performed. These amounts are included in revenue when we believe the amount can be estimated reliably and its realization is probable.
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.
The higher personnel costs portion increased by $45.9 million in the year ended December 31, 2024, compared to the same period in the prior year. Selling, general and administrative Selling, general and administrative expenses increased by $18.8 million, to $180.2 million for the year ended December 31, 2024 from $161.4 million for the year ended December 31, 2023.
Adjustments to reconcile net income to net cash provided by operating activities were $36.6 million, primarily related to stock-based compensation expense of $21.4 million, depreciation of $19.0 million and noncash lease expense of $18.0 million, partially offset by a deferred income tax benefit of $23.0 million.
Adjustments to reconcile net income to net cash provided by operating activities were $47.2 million, primarily related to depreciation of $27.8 million, stock-based compensation expense of $25.5 million, and noncash lease expense of $23.1 million, partially offset by a deferred income tax benefit of $26.6 million.
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.
Depreciation and Amortization Depreciation and amortization expense increased by $2.9 million, to $29.3 million for the year ended December 31, 2024 from $26.3 million for the year ended December 31, 2023. The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net, compared to the same period in the prior year.
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.
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.
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.
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.
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.
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. We have historically funded our operations and growth with cash flow from operations and borrowings under our credit facilities.
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.
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 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.
The increase was broad based, but primarily driven by strong activity within the Metabolic, Oncology, Cardiology and other uncategorized therapeutic areas, compared to the same period in the prior year. - 35 - Table of Contents Total direct costs Total direct costs increased by $91.4 million, to $1,452.7 million for the year ended December 31, 2024 from $1,361.3 million for the year ended December 31, 2023.
We have historically funded our operations and growth with cash flow from operations and borrowings under our credit facilities. We expect to continue expanding our operations through organic growth and potentially highly selective bolt-on acquisitions and investments.
We expect to continue expanding our operations through organic growth and potentially highly selective bolt-on acquisitions and investments.
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.
On March 28, 2024, the Company entered into Amendment No. 6 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility's line of credit to up to $10.0 million, and extended the expiration date of revolving credit note to March 31, 2025.
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.
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. - 33 - 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.
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.
We attempt to negotiate payment terms in order to provide for payments prior to or soon after the provision of services, but this timing of collection can vary significantly on a period by period comparative basis. Net cash flows provided by operating activities were $608.8 million for the year ended December 31, 2024 consisting of net income of $404.4 million.
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.
These obligations are considered as a reduction in revenue when it appears probable that the arrangement thresholds will be 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.
Changes in operating assets and liabilities provided $106.5 million in operating cash flows and were primarily driven by by increased advanced billings of $97.1 million and increased accrued expenses of $82.1 million, partially offset by increased accounts receivable and unbilled, net of $48.3 million.
Changes in operating assets and liabilities provided $106.5 million in operating cash flows and were primarily driven by increased advanced billings of $97.1 million and increased accrued expenses of $82.1 million, partially offset by increased accounts receivable and unbilled, net of $48.3 million. - 37 - Table of Contents Cash Flow from Investing Activities Net cash used in investing activities was $28.3 million for the year ended December 31, 2024, primarily consisting of property and equipment expenditures of $36.5 million, partially offset by $8.2 million in other investing activity.
Net cash used in 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.
Cash Flow from Financing Activities Net cash used in financing activities was $154.0 million for the year ended December 31, 2024 primarily related to $169.9 million in repurchases of common stock, partially offset by proceeds from stock option exercises of $15.9 million.
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.
Included within backlog as of December 31, 2024 was approximately $1,620.0 million to $1,640.0 million that we expect to convert to net revenue in 2025, with the remainder expected to convert to net revenue in years after 2025. - 34 - Table of Contents The effect of foreign currency adjustments on backlog was as follows: unfavorable foreign currency adjustments of $16.7 million for the year ended December 31, 2024 and favorable foreign currency adjustments of $14.6 million for the year ended December 31, 2023.
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.
The 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors.
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.
The Company constructively retires the repurchased shares associated with these approved share repurchase programs, except for a small portion which were retained as Treasury Shares on the consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Retained earnings/Accumulated deficit in the Company’s consolidated balance sheets.
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.
As of December 31, 2024, we had cash and cash equivalents of $669.4 million, which increased from $245.4 million as of December 31, 2023.
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.
Changes in operating assets and liabilities provided $157.2 million in operating cash flows and were primarily driven by increased advanced billings of $150.7 million, changes in Other assets and liabilities, net of $23.8 million, and increased accrued expenses of $16.9 million, partially offset by decreased lease liabilities of $21.4 million and increased prepaid expenses and other current assets of $12.1 million.
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.
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.
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.
For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see “Part II, Item 7. 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, 2023, filed with the SEC on February 13, 2024.
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.
The overall effective tax rates for the years ended December 31, 2024 and 2023 were 15.0% and 15.8%, respectively.
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 decrease in the overall effective tax rate was primarily attributable to a decrease in uncertain tax positions, which was partially offset by tax benefits related to Foreign Derived Intangible Income ("FDII"). Liquidity and Capital Resources We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities.
The Company was in compliance with all financial covenants as of December 31, 2023.
All of the obligations under the Credit Facility are unsecured. - 38 - Table of Contents The Credit Facility is subject to customary negative covenants. The Company was in compliance with all financial covenants as of December 31, 2024.
Refer to "Critical Accounting Policies and Estimates—Revenue Recognition," below.
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.
Removed
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.
Added
Interest income (expense), net Interest income (expense), net changed by $25.5 million, to $25.0 million of income for the year ended December 31, 2024 from $0.5 million of expense for the year ended December 31, 2023.
Removed
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.
Added
This change was mainly attributable to increased interest income on Cash and cash equivalents and a reduction in short-term debt, compared to the same period in the prior year. Income tax provision Income tax provision increased by $18.7 million, to $71.5 million for the year ended December 31, 2024 from $52.9 million for the year ended December 31, 2023.
Removed
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
Approximately $31.8 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2024. - 36 - Table of Contents As of December 31, 2024, we had $10.0 million available for borrowing under the Credit Facility.
Removed
Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s consolidated balance sheets.
Added
As of February 6, 2025, the Company's Board of Directors approved an increase of $600.0 million to the Company's new stock repurchase program. Repurchases under the share repurchase programs are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1.
Removed
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.
Added
As of December 31, 2024, we have no indebtedness.
Removed
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.
Added
In evaluating the probability of recognition, we consider the contractual basis for the settlement amount and the objective evidence available to support the amount. - 39 - Table of Contents Certain contracts contain volume rebate arrangements with our customers that provide for rebates if certain specified spending thresholds are met.
Removed
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
While we do not anticipate that this will have a material impact on our tax provision or effective tax rate, we continue to monitor evolving tax legislation in the jurisdictions in which we operate. Stock Based Compensation In connection with the Company's initial public offering (IPO), the Board approved the 2016 Incentive Award Plan (the “2016 Plan”).
Removed
Compensation expense related to stock option awards to employees is recognized on a straight line basis based on the grant date fair value over the associated service period of the award, which is equal to the vesting term.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+0 added−2 removed5 unchanged
Biggest changeMoreover, 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.
Biggest changeIn the years ended December 31, 2024 and 2023, credit losses have been immaterial and within our expectations. 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.
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 recalculated our reported pre-tax income for the years ended December 31, 2024 and 2023 using foreign exchange rates that were 10% higher and 10% lower than actual exchange rates utilized during the year.
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.
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 years ended December 31, 2024 and 2023, we had no outstanding long-term debt.
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.
For the years ended December 31, 2024 and 2023, approximately 7.7% and 8.4%, respectively, of our revenue was derived from contracts denominated in currencies other than the U.S. dollar, whereas approximately 20.9% and 21.4%, respectively, 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, 2023 and 2022 is positively impacted by approximately $17.2 million and $13.0 million, respectively.
When utilizing foreign exchange rates 10% lower than actual exchange rates, our pre-tax income for the years ended December 31, 2024 and 2023 is positively impacted by approximately $18.4 million and $17.2 million, respectively.
The Credit Facility is not subject to any interest rate caps or floors. - 42 - Table of Contents
The Credit Facility is subject to variable interest rates. The Credit Facility is not subject to any interest rate caps or floors. - 43 - Table of Contents
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.
Of these exposures, approximately 82.8% and 76.9% of revenue denominated in foreign currencies and approximately 51.6% and 51.4% of operational costs denominated in foreign currencies were Euro denominated for the years ended December 31, 2024 and 2023, 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.
When utilizing foreign exchange rates 10% higher than actual exchange rates, our pre-tax income for the years ended December 31, 2024 and 2023 is negatively impacted by approximately $18.4 million and $17.2 million, respectively.
To mitigate our foreign currency risk exposure we provide for exchange rate fluctuation adjustments subject to certain thresholds within our contracts where contract currency varies from currencies where costs will be incurred to support delivery of the contract.
To mitigate our foreign currency risk exposure we provide for exchange rate fluctuation adjustments subject to certain thresholds within our contracts where contract currency varies from currencies where costs will be incurred to support delivery of the contract. - 42 - Table of Contents Credit Risk Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, and accounts receivable and unbilled, net.
Credit Risk Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, and accounts receivable and unbilled, net. The cash and cash equivalent balances are held and maintained with high-quality financial institutions with reputable credit ratings and, consequently, we believe that such funds are subject to minimal credit risk.
The cash and cash equivalent balances are held and maintained with high-quality financial institutions with reputable credit ratings and, consequently, we believe that such funds are subject to minimal credit risk. We generally do not require collateral or other securities to support customer receivables.
Inflation Our contracts that provide for services to be performed in excess of a year generally are based on inflation assumptions for the portion of the services to be performed beyond one year. We do not have significant operations in countries where the economy is considered highly inflationary.
As of the years ended December 31, 2024 and 2023, there were no major customers accounting for more than 10% of our accounts receivable and unbilled, net. Inflation Our contracts that provide for services to be performed in excess of a year generally are based on inflation assumptions for the portion of the services to be performed beyond one year.
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 do not have significant operations in countries where the economy is considered highly inflationary. Throughout 2023, we experienced input cost inflation, including materials, labor and transportation costs, but inflation moderated in 2024.
Removed
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.
Removed
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.

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