Medpace Holdings, Inc. - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

FORM 10-Q

___________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-37856

___________________________________________

Medpace Holdings, Inc.

(Exact name of registrant as specified in its charter)

___________________________________________


Delaware			32-0434904
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5375 Medpace Way, Cincinnati, OH 45227

(Address of principal executive offices) (Zip Code)

(513) 579-9911

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.01 par value	MEDP	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.


Class						Number of Shares Outstanding
Common Stock $0.01 par value						30,562,773 shares outstanding as of July 21, 2023

Table of Contents

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS


Item Number		Page
	PART I — FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 202 3 and December 31, 202 2	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 202 3 and 202 2	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 202 3 and 202 2	5
	Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 202 3 and 202 2	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 202 3 and 202 2	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

	PART II — OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	EXHIBIT INDEX	28
	SIGNATURES	29

-2-

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(Amounts in thousands, except share amounts)	As of
	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	39,138	$	28,265
Accounts receivable and unbilled, net (includes $4.6 million and $7.7 million with related parties at June 30, 2023 and December 31, 2022, respectively)	275,058		253,404
Prepaid expenses and other current assets	64,731		52,293
Total current assets	378,927		333,962
Property and equipment, net	114,817		109,849
Operating lease right-of-use assets	139,863		139,068
Goodwill	662,396		662,396
Intangible assets, net	36,908		38,008
Deferred income taxes	51,766		48,083
Other assets	22,261		21,129
Total assets	$	1,406,938	$	1,352,495
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable (includes $4.7 million and $0.3 million with related parties at June 30, 2023 and December 31, 2022, respectively)	$	33,608	$	33,069
Accrued expenses	231,925		210,125
Advanced billings (includes $14.3 million and $8.8 million with related parties at June 30, 2023 and December 31, 2022, respectively)	490,557		462,729
Short-term debt	55,000		50,000
Other current liabilities (includes $9.0 million and $12.5 million with related parties at June 30, 2023 and December 31, 2022, respectively)	41,347		47,547
Total current liabilities	852,437		803,470
Operating lease liabilities	139,390		138,867
Deferred income tax liability	1,098		1,070
Other long-term liabilities	22,953		22,701
Total liabilities	1,015,878		966,108
Commitments and contingencies (see Note 11)
Shareholders’ equity:
Preferred stock - $0.01 par-value; 5,000,000 shares authorized; no shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	—		—
Common stock - $0.01 par-value; 250,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 30,562,773 and 31,091,694 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	306		309
Treasury stock - 70,573 and 71,573 shares at June 30, 2023 and December 31, 2022, respectively	(12,322)		(12,497)
Additional paid-in capital	785,292		770,794
Accumulated deficit	(371,022)		(359,827)
Accumulated other comprehensive loss	(11,194)		(12,392)
Total shareholders’ equity	391,060		386,387
Total liabilities and shareholders’ equity	$	1,406,938	$	1,352,495

See notes to condensed consolidated financial statements.

-3-

Table of Contents

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


(Amounts in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue, net (includes $13.3 million and $17.2 million with related parties for the three months ended June 30, 2023 and 2022, respectively, and $29.1 million and $30.5 million with related parties for the six months ended June 30, 2023 and 2022, respectively)	$	460,868	$	351,207	$	894,942	$	682,154
Operating expenses:
Direct service costs, excluding depreciation and amortization	158,526		132,118		309,594		257,552
Reimbursed out-of-pocket expenses	178,025		120,093		330,842		226,929
Total direct costs	336,551		252,211		640,436		484,481
Selling, general and administrative	39,404		33,215		77,431		62,581
Depreciation	5,970		4,707		11,378		8,977
Amortization	550		838		1,100		1,676
Total operating expenses	382,475		290,971		730,345		557,715
Income from operations	78,393		60,236		164,597		124,439
Other (expense) income, net:
Miscellaneous (expense) income, net	(1,283)		2,311		(596)		3,378
Interest expense, net	(1,366)		(548)		(2,227)		(494)
Total other (expense) income, net	(2,649)		1,763		(2,823)		2,884
Income before income taxes	75,744		61,999		161,774		127,323
Income tax provision	14,676		12,639		27,812		16,652
Net income	$	61,068	$	49,360	$	133,962	$	110,671
Net income per share attributable to common shareholders:
Basic	$	2.00	$	1.52	$	4.35	$	3.28
Diluted	$	1.93	$	1.46	$	4.20	$	3.16
Weighted average common shares outstanding:
Basic	30,537		32,493		30,771		33,696
Diluted	31,575		33,695		31,864		35,034

See notes to condensed consolidated financial statements.

-4-

Table of Contents

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


(Amounts in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	61,068	$	49,360	$	133,962	$	110,671
Other comprehensive income
Foreign currency translation adjustments, net of taxes	120		(3,584)		1,198		(5,126)
Comprehensive income	$	61,188	$	45,776	$	135,160	$	105,545

See notes to condensed consolidated financial statements.

-5-

Table of Contents

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


(Amounts in thousands)	Common Stock		Treasury Stock		Additional Paid-In Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Loss		Total
BALANCE — December 31, 2021	$	360	$	(5,427)	$	727,857	$	234,984	$	(4,846)	$	952,928
Net income							61,311				61,311
Foreign currency translation									(1,542)		(1,542)
Stock-based compensation expense					4,372						4,372
Stock options exercised	3				13,894						13,897
Repurchases of common stock	(27)		(14,243)				(411,680)				(425,950)
Retirement of treasury stock			5,427				(5,427)				—
BALANCE — March 31, 2022	$	336	$	(14,243)	$	746,123	$	(120,812)	$	(6,388)	$	605,016
Net income							49,360				49,360
Foreign currency translation									(3,584)		(3,584)
Stock-based compensation expense					5,653						5,653
Stock options exercised					1,524						1,524
Repurchases of common stock	(27)						(374,690)				(374,717)
BALANCE — June 30, 2022	$	309	$	(14,243)	$	753,300	$	(446,142)	$	(9,972)	$	283,252

	Common Stock		Treasury Stock		Additional Paid-In Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Loss		Total
BALANCE — December 31, 2022	$	309	$	(12,497)	$	770,794	$	(359,827)	$	(12,392)	$	386,387
Net income							72,894				72,894
Foreign currency translation									1,078		1,078
Stock-based compensation expense					5,438						5,438
Stock options exercised	4				2,459						2,463
Repurchases of common stock	(7)						(120,991)				(120,998)
Re-issuance of treasury stock			175				(175)				—
BALANCE — March 31, 2023	$	306	$	(12,322)	$	778,691	$	(408,099)	$	(11,314)	$	347,262
Net income							61,068				61,068
Foreign currency translation									120		120
Stock-based compensation expense					4,906						4,906
Stock options exercised	1				1,695						1,696
Repurchases of common stock	(1)						(23,991)				(23,992)
BALANCE — June 30, 2023	$	306	$	(12,322)	$	785,292	$	(371,022)	$	(11,194)	$	391,060

See notes to condensed consolidated financial statements.

-6-

Table of Contents

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(Amounts in thousands)	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	133,962	$	110,671
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,378		8,977
Amortization	1,100		1,676
Stock-based compensation expense	10,344		10,025
Noncash lease expense	9,659		8,959
Deferred income tax benefit	(3,709)		(1,439)
Other	(899)		(633)
Changes in assets and liabilities:
Accounts receivable and unbilled, net	(21,734)		(39,059)
Prepaid expenses and other current assets	(11,831)		(18,789)
Accounts payable	2,341		2,552
Accrued expenses	21,259		15,643
Advanced billings	27,828		56,727
Lease liabilities	(9,379)		(7,705)
Other assets and liabilities, net	(7,725)		(4,730)
Net cash provided by operating activities	162,594		142,875
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures	(17,959)		(20,457)
Other	(11)		(1,878)
Net cash used in investing activities	(17,970)		(22,335)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises	4,127		15,421
Repurchases of common stock	(144,020)		(800,667)
Proceeds from revolving loan	105,000		299,200
Payments on revolving loan	(100,000)		(49,500)
Net cash used in financing activities	(134,893)		(535,546)
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	1,142		(3,747)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	10,873		(418,753)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period	28,265		461,304
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	39,138	$	42,551
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION —
Acquisition of property and equipment—non-cash	$	5,848	$	7,441

See notes to condensed consolidated financial statements.

-7-

Table of Contents

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2023

(1) Basis of Presentation

Description of Business

Medpace Holdings, Inc. (together with its subsidiaries, “Medpace” or the “Company”), a Delaware corporation, is a global provider of clinical research-based drug and medical device development services. The Company partners with pharmaceutical, biotechnology, and medical device companies in the development and execution of clinical trials. The Company’s drug development services focus on full service Phase I-IV clinical development services and include development plan design, project management, regulatory affairs, clinical monitoring, data management and analysis, pharmacovigilance new drug application submissions, post-marketing clinical support, laboratory services, clinical human pharmacology, imaging services, and electrocardiography reading support for clinical trials.

The Company’s operations are principally based in North America, Europe, and Asia.

Unaudited Interim Financial Information

The interim condensed consolidated financial statements include the accounts of the Company, are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), and are unaudited. In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The preparation of the interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from management’s estimates and assumptions. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Share Repurchases

In 2018, the Board of Directors approved a stock repurchase program which has been amended several times to increase the aggregate amount of the stock repurchase authorization. During the three and six months ended June 30, 2022, the Company repurchased 2,717,379 shares and 5,463,244 shares for $374.6 million and $800.5 million, respectively.

In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million. During the three and six months ended June 30, 2023, the Company repurchased 126,281 shares and 781,068 shares for $23.9 million and $144.0 million, respectively. As of June 30, 2023, we have remaining authorization of $308.8 million under the new repurchase program.

Repurchases under the share repurchase program are executed in the open market or negotiated transactions under trading plans put in place pursuant to Rule 10b5-1. The Company constructively retired the repurchased shares associated with these approved share repurchases, except for a small portion which were retained as Treasury Shares on the condensed consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s condensed consolidated balance sheets.

(2) Net Income Per Share

Basic and diluted earnings or loss per share (“EPS”) are computed using the two-class method, which is an earnings allocation that determines EPS for each class of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. The Company’s Restricted Stock Awards (“RSA”) are considered participating securities because they are legally issued at the date of grant and holders are entitled to receive non-forfeitable dividends during the vesting term.

-8-

Table of Contents

The computation of diluted EPS includes additional common shares, such as unvested Restricted Stock Units (“RSU”) and stock options with exercise prices less than the average market price of the Company’s common stock during the period (“in-the-money options”), which would be considered outstanding. This assumes that additional shares would have to be issued in cases where the exercise price of stock options is less than the value of the common stock being acquired because the cash proceeds received from the stock option holder would not be sufficient to acquire that same number of shares. The Company does not compute diluted EPS in cases where the inclusion of such additional shares would be anti-dilutive in effect.

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022 (in thousands, except for earnings per share):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Weighted-average shares:
Common shares outstanding	30,537		32,493		30,771		33,696
RSAs	21		21		21		21
Total weighted-average shares	30,558		32,514		30,792		33,717
Earnings per common share—Basic
Net income	$	61,068	$	49,360	$	133,962	$	110,671
Less: Undistributed earnings allocated to RSAs	(41)		(31)		(90)		(68)
Net income available to common shareholders—Basic	$	61,027	$	49,329	$	133,872	$	110,603

Net income per common share—Basic	$	2.00	$	1.52	$	4.35	$	3.28

Basic weighted-average common shares outstanding	30,537		32,493		30,771		33,696
Effect of diluted shares	1,038		1,202		1,093		1,338
Diluted weighted-average shares outstanding	31,575		33,695		31,864		35,034

Net income per common share—Diluted	$	1.93	$	1.46	$	4.20	$	3.16

During the three and six months ended June 30, 2023, the Company had (in thousands) 16.7 stock options, respectively, that were excluded due to the exercise price exceeding the average fair value of the Company’s common stock during the period. During the three and six months ended June 30, 2022, the Company had (in thousands) 274.4 stock options, respectively, that were excluded due to the exercise price exceeding the average fair value of the Company’s common stock during the period.

(3) Fair Value Measurements

The Company follows accounting guidance related to fair value measurements that defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy for inputs used in measuring fair value. This hierarchy maximizes the use of “observable” inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy specifies three levels based on the inputs, as follows:

Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2: Valuations based on directly observable inputs or unobservable inputs corroborated by market data.

Level 3: Valuations based on unobservable inputs supported by little or no market activity representing management’s determination of assumptions of how market participants would price the assets or liabilities.

The fair value of financial instruments such as cash and cash equivalents, accounts receivable and unbilled, net, accounts payable, accrued expenses and advanced billings approximate their carrying amounts due to their short term maturities.

The Company does not have material recurring fair value measurements as of June 30, 2023. There were no transfers between Level 1, Level 2 or Level 3 during the three and six months ended June 30, 2023 or June 30, 2022.

-9-

Table of Contents

(4) Contract Assets and Contract Liabilities

Contract assets and liabilities are reflected in the Company’s condensed consolidated balance sheets within the accounts reflected below.

Contract Assets

Accounts receivable represent amounts due from the Company’s customers who are concentrated primarily in the pharmaceutical, biotechnology, and medical device industries. Unbilled represents revenue recognized to date that has not been billed or is not yet contractually billable to the customer. In general, amounts become billable upon the achievement of negotiated contractual events, in accordance with predetermined payment schedules or when a reimbursable expense has been incurred. Amounts classified to unbilled are those billable to customers within one year from the respective balance sheet date.

Accounts receivable and unbilled, net consisted of the following (in thousands):


	As of
	June 30, 2023		December 31, 2022
Accounts receivable	$	243,560	$	213,169
Unbilled receivables	31,668		40,405
Less: allowance for doubtful accounts	(170)		(170)
Total accounts receivable and unbilled, net	$	275,058	$	253,404

Contract Liabilities

Advanced billings represent cash received from customers, or billed amounts per an agreed upon payment schedule, in advance of services being performed or revenue being recognized.

Advanced billings consisted of the following (in thousands):


	As of
	June 30, 2023		December 31, 2022
Advanced billings	$	490,557	$	462,729

As of June 30, 2023, we had approximately $2.9 billion of performance obligations remaining to be performed for active projects.

(5) Intangible Assets, Net

Intangible assets, net consisted of the following (in thousands):


	As of
	June 30, 2023		December 31, 2022
Intangible assets:
Finite-lived intangible assets:
Carrying amount:
Customer relationships	145,051		145,051
Accumulated amortization:
Customer relationships	(139,789)		(138,689)
Total finite-lived intangible assets, net	5,262		6,362
Trade name (indefinite-lived)	31,646		31,646
Total intangible assets, net	$	36,908	$	38,008

-10-

Table of Contents

As of June 30, 2023, estimated amortization expense of the Company’s intangible assets for each of the next five years and thereafter is as follows (in thousands):


	Amortization
Remainder of 2023	$	1,099
2024	1,443
2025	946
2026	620
2027	577
2028	577
	$	5,262

(6) Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	As of
	June 30, 2023		December 31, 2022
Employee compensation and benefits	$	57,341	$	71,197
Project related reimbursable expenses	164,835		128,416
Other	9,749		10,512
Total accrued expenses	$	231,925	$	210,125

(7) Short-term Debt

Short-term debt consisted of the following (in thousands):


	As of
	June 30, 2023		December 31, 2022
Credit facility	$	55,000	$	50,000
Short-term debt	$	55,000	$	50,000

Principal payments on Short-term debt are due as follows (in thousands):


2023 (remaining)	—
2024	55,000
Total	$	55,000

The estimated fair value of the Company’s debt based on Level 2 inputs using the market approach, which is primarily based on rates at which the debt is traded among financial institutions, approximates the carrying value as of June 30, 2023 and December 31, 2022.

On September 30, 2019 (the “Closing Date”), the Company obtained an unsecured credit facility in an aggregate principal amount up to $50.0 million (as amended from time to time, the “Credit Facility”) through its wholly owned subsidiaries, Medpace, Inc., as borrower (the “Borrower”), and Medpace IntermediateCo, Inc., as guarantor (the “Guarantor”).

-11-

Table of Contents

On the Closing Date, the Borrower and lender entered into a Loan Agreement (as it may be amended from time to time, the “Loan Agreement”) providing for the Credit Facility, and the Guarantor executed a Guaranty Agreement providing for its guarantee of the payment and performance of the obligations under the Loan Agreement. On March 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 31, 2023, the Company entered into Amendment No. 5 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $150.0 million, adjusted the interest rate and fee charged on the credit facility and extended the expiration date of revolving credit note to March 29, 2024. The Credit Facility bears interest at a rate of the sum of The Secured Overnight Financing Rate (SOFR) plus 125 basis points (1.25%) or the highest of the Prime Rate, the sum of the Overnight Bank Funding Rate plus 50 basis points (0.50%) and the sum of Daily Simple SOFR plus 100 basis points (1.00%). As of June 30, 2023, the Credit Facility interest rate was 6.3%.

The Loan Agreement contains other customary loan terms, representations and warranties, and affirmative and negative covenants, in each case, subject to customary limitations, exceptions and exclusions. The Loan Agreement contains certain events of default, including, among others, non-payment of principal or interest and breach of the covenants.

As of June 30, 2023, there were $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.

(8) Leases

The Company enters into leases for real estate and equipment. Real estate leases are for our corporate office space and laboratories around the world. Real estate leases have remaining lease terms of less than 1 year to 17 years. Many of the Company’s leases include options to extend the leases on a month to month basis or for set periods for up to 20 years. Many leases also include options to terminate the leases within 1 year or per other contractual terms.

The components of lease expense were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	6,954	$	6,375	$	13,635	$	12,875
Variable lease cost	1,835		2,097		4,172		4,113

Supplemental cash flow information related to the leases was as follows (in thousands):


	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9,599	$	8,257

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	10,061		18,222

-12-

Table of Contents

Supplemental balance sheet information related to the leases was as follows (in thousands):


	As of
	June 30, 2023			December 31, 2022
Operating lease right-of-use assets - related parties	$	86,097		$	86,356
Operating lease right-of-use assets - non-related parties	53,766			52,712
Operating lease right-of-use assets	$	139,863		$	139,068

Other current liabilities - related parties	5,457			5,409
Other current liabilities - non-related parties	14,529			13,863
Other current liabilities	$	19,986		$	19,272

Operating lease liabilities - related parties	93,484			93,393
Operating lease liabilities - non-related parties	45,906			45,474
Operating lease liabilities	139,390			138,867
Total operating lease liabilities	$	159,376		$	158,139

Weighted Average Remaining Lease Term (years)
Operating leases	10.7			11.1
Weighted Average Discount Rate
Operating leases	5.4		%	5.2		%

Lease payments due related to lease liabilities as of June 30, 2023 were as follows (in thousands):


	Related Party Operating Leases		Non-Related Parties Operating Leases		Total Operating Leases
Remainder of 2023	$	5,632	$	8,358	$	13,990
2024	11,412		14,938		26,350
2025	11,607		12,923		24,530
2026	11,807		10,653		22,460
2027	10,839		7,477		18,316
Later years	100,278		12,171		112,449
Total lease payments	151,575		66,520		218,095
Less: imputed interest	(52,634)		(6,085)		(58,719)
Total	$	98,941	$	60,435	$	159,376

As of June 30, 2023, we have several additional leases with contractual obligations, which have not yet commenced, with future payments of $0.6 million.

(9) Shareholder’s Equity and Stock-Based Compensation

The Company granted 28,412 awards to employees under the 2016 Incentive Award Plan during the six months ended June 30, 2023, consisting of 27,162 RSU and 1,250 stock option awards having four year vesting schedules. The Company granted an additional 11,187 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the six months ended June 30, 2023. These awards are scheduled to vest on the earlier of (a) the day immediately preceding the date of the first annual meeting following the date of grant and (b) the first anniversary of the date of grant, subject to the non-employee director continuing in service through the applicable vesting date.

-13-

Table of Contents

Award Activity

The following table sets forth the Company’s stock option activity:


	Six Months Ended June 30, 2023
	Stock Options	Weighted Average Exercise Price
Outstanding - beginning of period	1,629,148	$	89.71
Granted	12,437	$	211.25
Exercised	(129,108)	$	32.21
Cancelled/Forfeited/Expired	(8,500)	$	188.55
Outstanding - end of period	1,503,977	$	95.09

Exercisable - end of period	1,059,805	$	70.46

The following table sets forth the Company’s RSA/RSU activity:


			Six Months Ended June 30, 2023
			Shares/Units
Outstanding and unvested - beginning of period			523,377
Granted			27,162
Vested			(123,039)
Forfeited			(14,755)
Outstanding and unvested - end of period			412,745

Cumulative vested shares - end of period			2,352,955

Stock-based compensation expense recognized in the condensed consolidated statements of operations related to all outstanding stock based compensation awards is summarized below (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Total direct costs	$	2,558	$	3,125	$	5,498	$	5,565
Selling, general and administrative	2,348		2,528		4,846		4,460
Total stock-based compensation expense	$	4,906	$	5,653	$	10,344	$	10,025

(10) Income Taxes

The Company’s effective income tax rate was 19.4% and 20.4% for the three months ended June 30, 2023 and 2022, respectively. The Company's effective income tax rate was 17.2% and 13.1% for the six months ended June 30, 2023 and 2022, respectively. The Company’s effective income tax rate for the three months ended June 30, 2023 and the six months ended June 30, 2023 varied from the U.S. statutory rate of 21% primarily due to the impact of the state taxes, which was favorably offset by excess tax benefits recognized from share-based compensation and tax benefits related to Foreign Derived Intangible Income (FDII).

-14-

Table of Contents

(11) Commitments and Contingencies

Legal Proceedings

The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions. The Company cannot predict with certainty the outcome of such proceedings, but it believes that adequate reserves have been recorded and losses already recognized with respect to such proceedings, which were immaterial as of June 30, 2023 and December 31, 2022. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, the Company believes that such potential losses were immaterial as of June 30, 2023.

Purchase Commitments

The Company has several minimum purchase commitments for project related supplies totaling $17.1 million as of June 30, 2023. In return for the commitment, Medpace receives preferential pricing. The commitments expire at various times through 2029.

(12) Related Party Transactions

Employee Loans

The Company periodically extends short term loans or advances to employees, typically upon commencement of employment. Total receivables as a result of these employee advances of $0.3 million existed at June 30, 2023 and December 31, 2022, respectively, and are included in the Prepaid expenses and other current assets and Other assets line items of the condensed consolidated balance sheets, respectively, depending on the contractual repayment date.

Service Agreement

LIB Therapeutics LLC and subsidiaries (“LIB”)

Certain executives and employees of the Company, including the chief executive officer, are members of LIB’s board of managers. The Company entered into a MSA dated November 24, 2015 with LIB, a company that engages in research, development, marketing and commercialization of pharmaceutical drugs. Subsequently, the Company and LIB have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from LIB of $9.7 million during the three months ended June 30, 2023 and 2022, respectively, and $23.0 million and $17.1 million during the six months ended June 30, 2023 and 2022, respectively, in the Company’s condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, respectively, the Company had Advanced billings from LIB of $11.6 million and $7.4 million in the condensed consolidated balance sheets. In addition, as of June 30, 2023 and December 31, 2022, respectively, the Company had Accounts receivable and unbilled, net from LIB of $3.1 million and $5.5 million in the condensed consolidated balance sheets. The Company had Other current liabilities with LIB of $9.0 million and $12.5 million in the consolidated balance sheets at June 30, 2023 and December 31, 2022.

CinRX Pharma, subsidiaries and affiliates (“CinRx”)

Certain executives and employees of the Company, including the chief executive officer, are members of CinRx’s board of managers and/or have equity investments in CinRx, a biotech company. The Company and CinRx have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from CinRx of $3.6 million and $7.5 million during the three months ended June 30, 2023 and 2022, respectively, and $6.1 million and $13.3 million during the six months ended June 30, 2023 and 2022, respectively, in the Company’s condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, respectively, the Company had Advanced billings from CinRx of $2.7 million and $1.4 million in the condensed consolidated balance sheets. As of June 30, 2023 and December 31, 2022 the Company had Accounts receivable and unbilled, net from CinRx of $1.6 million and $2.2 million, respectively, in the condensed consolidated balance sheets. Certain affiliates of CinRx included in previous reported quarters are no longer disclosed due to changes in the affiliate relationships.

The Summit Hotel (“The Summit”)

The Summit Hotel, located on the Medpace campus, is owned by the chief executive officer, and managed by an unrelated hospitality management entity. Medpace incurs travel lodging and meeting expenses at The Summit. Medpace incurred expenses of $0.1 million and less than $0.1 million during the three months ended June 30, 2023 and 2022, respectively, and $0.2 million and $0.1 million during the six months ended June 30, 2023 and 2022 at The Summit, respectively.

-15-

Table of Contents

Leased Real Estate

Campus Headquarters Leases

The Company entered into an operating lease for the occupancy of office space in a building in Cincinnati, Ohio with an entity that is wholly owned by the chief executive officer of the Company. The Company has evaluated its relationship with the related party and concluded that the related party is not a variable interest entity because the Company has no direct ownership interest or relationship other than the lease. The lease was renewed in the first quarter of fiscal year 2023 for a term of ten years through December 2032 with a renewal option for one 10-year term at prevailing market rates. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for its corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. Operating lease cost recognized for the three months ended June 30, 2023 and 2022 was $0.7 million and $0.5 million and $1.3 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at June 30, 2023 and December 31, 2022 were $20.2 million and $18.2 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at June 30, 2023 were $1.4 million and $18.9 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2022 were $1.5 million and $16.7 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets.

In 2018, Medpace, Inc. entered into a multi-year lease agreement governing future occupancy of additional office space in Cincinnati, Ohio with an entity that is wholly owned by the Company’s chief executive officer and certain members of his immediate family. The Company began to occupy the premises in the second quarter of fiscal year 2020. The lease expires in 2040 and the Company has two 10-year options to extend the term of the lease. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for the corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. The Company has determined that the lease is an operating lease. Operating lease cost recognized for the three months ended June 30, 2023 and 2022 was $1.4 million and $2.8 million for the six months ended June 30, 2023 and 2022. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at June 30, 2023 and December 31, 2022 were $52.7 million and $53.5 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at June 30, 2023 were $1.2 million and $64.2 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2022 were $1.1 million and $64.8 million, respectively and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets.

The Company entered into two multi-year lease agreements governing the occupancy of space of two buildings in Cincinnati, Ohio with an entity that is wholly owned by the Company’s chief executive officer and certain members of his immediate family. The Company assumed occupancy in 2012 and the leases expire in 2027 with the Company having one 10-year option to extend the lease term. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for the corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. The Company has determined that the leases are operating leases. Operating lease cost recognized for the three months ended June 30, 2023 and 2022 was $0.9 million and $1.8 million for the six months ended June 30, 2023 and 2022. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at June 30, 2023 and December 31, 2022 were $13.3 million and $14.6 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at June 30, 2023 were $2.9 million and $10.4 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2022 were $2.8 million and $11.9 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets.

Travel Services

The Company incurs expenses for travel services for company executives provided by private aviation charter companies which is a company controlled by the chief executive officer of the Company (each a “private aviation charter”). The Company may contract directly with the private aviation charter for the use of its aircraft or indirectly through a third party aircraft management and jet charter company (the “Aircraft Management Company”). The travel services provided are primarily for business purposes, with certain personal travel paid for as part of the executives’ compensation arrangements.

-16-

Table of Contents

The Aircraft Management Company also makes the private aviation charter aircraft available to third parties. The Company incurred travel expenses of $0.4 million and $0.6 million during the three months ended June 30, 2023 and 2022, respectively, and $0.8 million and $1.0 million during the six months ended June 30, 2023 and 2022, respectively, related to these travel services. These travel expenses are recorded in Selling, general and administrative in the Company’s condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, the Company had Accounts payable to the Aircraft Management Company of $0.4 million and $0.3 million, respectively, in the condensed consolidated balance sheets.

(13) Entity Wide Disclosures

Revenue by Category

The following table disaggregates our revenue by major source (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Therapeutic Area
Oncology	$	147,089	$	115,542	$	289,040	$	220,755
Other	101,055		73,555		188,159		143,972
Metabolic	87,860		55,600		174,700		103,716
Cardiology	51,130		42,027		97,747		79,423
Central Nervous System	37,726		38,906		76,423		77,393
AVAI	36,008		25,577		68,873		56,895
Total revenue	$	460,868	$	351,207	$	894,942	$	682,154

-17-

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and with the information under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those indicated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to, those discussed under the “Forward-Looking Statements” below and “Risk Factors” in “Item 1A Risk Factors” of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained herein, are forward looking statements. Forward looking statements include, without limitation, statements regarding our results of operations; financial position and performance; liquidity and our ability to fund our business operations and initiatives; capital expenditure and debt service obligations; business strategies, plans and goals, including those related to marketing, acquisitions and expansion of our business; product approvals and plans; industry trends; general economic conditions, including inflation and other pricing pressures that could decrease our operating margins; expectations regarding consumer behaviors and trends; our culture and operating philosophy; human resource management; arrangements with and delivery of our services to the customers; conversion of backlog; dividend policy; legal proceedings; and our objectives for future operations. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” “likely,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to inherent uncertainties, risks, changes in circumstances and other important factors that are difficult to predict. Moreover, we operate in a very competitive and rapidly changing environment in which new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all important factors on our business or the extent to which any factor, or combination of such factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed may not occur and our financial condition and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We caution you therefore against relying on these forward-looking statements.

We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. For a further discussion of the risks relating to our business, see “Item 1A Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and “Part II – Other Information, Item 1A Risk Factors” herein.

Business Overview

We are one of the world’s leading clinical contract research organizations, or CROs, by revenue, solely focused on providing scientifically-driven outsourced clinical development services to the biotechnology, pharmaceutical and medical device industries. Our mission is to accelerate the global development of safe and effective medical therapeutics. We differentiate ourselves from our competitors by our disciplined operating model centered on providing full-service Phase I-IV clinical development services and our therapeutic expertise. We believe this combination results in timely and cost-effective delivery of clinical development services for our customers. We believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.

We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic Disease, Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI. Our global platform includes approximately 5,600 employees across 41 countries as of June 30, 2023, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.

-18-

Table of Contents

How We Generate Revenue

We earn fees through the performance of services detailed in our customer contracts. Contract scope and pricing is typically based on either a fixed-fee or unit-of-service model, with consideration of activities performed by third parties, as well as ancillary costs necessary to deliver on the contract scope that are reimbursable by our customers. Our contracts can range in duration from a few months to several years. These contracts are individually priced and negotiated based on the anticipated project scope, including the complexity of the project and the performance risks inherent in the project. The majority of our contracts are structured with an upfront fee that is collected at the time of contract signing, and the balance of the fee is collected over the duration of the contract either through an arranged billing schedule or upon completion of certain performance targets or defined milestones.

Revenue, which is distinct from billing and cash receipt, is recognized based on the satisfaction of the individual performance obligations identified in each contract. Substantially all of our customer contracts consist of a single performance obligation, as the promise to transfer the individual services defined in the contracts are not separately identifiable from other promises in the contract, and therefore not distinct. Our performance obligations are generally satisfied over time and recognized as services are performed. The progression of our contract performance obligations are measured primarily utilizing the input method of cost to cost. Cancellation provisions in our contracts allow our customers to terminate a contract either immediately or according to advance notice terms specified within the applicable contract, which is typically 30 days. Contract cancellation may occur for various reasons, including, but not limited to, adverse patient reactions, lack of efficacy, or inadequate patient enrollment. Upon cancellation, we are entitled to fees for services rendered through the date of termination, including payment for subsequent services necessary to conclude the study or close out the contract. These fees are typically discussed and agreed upon with the customer and are realized as revenue when we believe the amount can be estimated reliably and its realization is probable. Changes in revenue from period to period are driven primarily by new business volume and task order execution activity, project cancellations, and the mix of active studies during a given period that can vary based on therapeutic area and or study life cycle stage.

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.

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. The other costs of service delivery can include office rent, utilities, supplies and software licenses which are allocated between Total direct costs and selling, general and administrative expenses based on the estimated contribution among service delivery and support function efforts on a percentage basis. Total direct costs are expensed as incurred and are not deferred in anticipation of contracts being awarded or finalization of changes in scope. Total direct costs, as a percentage of net revenue, can vary from period to period due to project labor efficiencies, changes in workforce, compensation/bonus programs and service mix.

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), bad debt expense, travel, marketing and other operating expenses.

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. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the improvement or the associated remaining lease term.

Amortization

Amortization relates to finite-lived intangible assets recognized as expense using the straight-line method or using an accelerated method over their estimated useful lives of 15 years.

-19-

Table of Contents

Income Tax Provision

Income tax provision consists of federal, state and local taxes on income in multiple jurisdictions. Our income tax is impacted by the pre-tax earnings in jurisdictions with varying tax rates and any related tax credits that may be available to us. Our current and future provision for income taxes will vary from statutory rates due to the impact of valuation allowances in certain countries, income tax incentives, certain non-deductible expenses, and other discrete items.

Key Performance Metrics

To evaluate the performance of our business, we utilize a variety of financial and performance metrics. These key measures include new business awards, cancellations and backlog.

New Business Awards, Cancellations and Backlog

New business awards represent the value of anticipated future net revenue that has been awarded during the period that is recognized in backlog. This value is recognized upon the signing of a contract or receipt of a written pre-contract confirmation from a customer that confirms an agreement in principle on budget and scope. New business awards also include contract amendments, or changes in scope, where the customer has provided written authorization for changes in budget and scope or has approved us to perform additional work as of the measurement date. Awards may not be recognized as backlog after consideration of a number of factors, including whether (i) the relevant net revenue is expected only after a pending regulatory hurdle, which might result in cancellation of the study, (ii) the customer funding needed for commencement of the study is not believed to have been secured or (iii) study timelines are uncertain or not well defined. In addition, study amounts that extend beyond a three-year timeline are not included in backlog. The number and amount of new business awards can vary significantly from period to period, and an award’s contractual duration can range from several months to several years based on customer and project specifications.

Cancellations arise in the normal course of business and are reflected when we receive written confirmation from the customer to cease work on a contractual agreement. The majority of our customers can terminate our contracts without cause upon 30 days’ notice. Similar to new business awards, the number and amount of cancellations can vary significantly period over period due to timing of customer correspondence and study-specific circumstances.

Net new business awards represent gross new business awards received in a period offset by total cancellations in that period. Net new business awards were $574.8 million and $1,130.6 million for the three and six months ended June 30, 2023, respectively. Net new business awards were $450.6 million and $873.6 million for the three and six months ended June 30, 2022, respectively.

Backlog represents anticipated future net revenue from net new business awards that have not commenced or are currently in process but not complete. Reported backlog will fluctuate based on new business awards, changes in the scope of existing contracts, cancellations, revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of June 30, 2023, our backlog increased by $403.6 million, or 18.6%, to $2,571.9 million compared to $2,168.3 million as of June 30, 2022. Included within backlog as of June 30, 2023 was approximately $1,410.0 million to $1,430.0 million that we expect to convert to net revenue over the next twelve months, with the remainder expected to convert to net revenue thereafter.

The effect of foreign currency adjustments on backlog was as follows: favorable foreign currency adjustments of $0.9 million for the three months ended June 30, 2023; favorable foreign currency adjustments of $3.9 million for the six months ended June 30, 2023; unfavorable foreign currency adjustments of $17.0 million for the three months ended June 30, 2022; and unfavorable foreign currency adjustments of $15.8 million for the six months ended June 30, 2022.

Backlog and net new business award metrics may not be reliable indicators of our future period revenue as they are subject to a variety of factors that may cause material fluctuations from period to period. These factors include, but are not limited to, changes in the scope of projects, cancellations, and duration and timing of services provided.

-20-

Table of Contents

Exchange Rate Fluctuations

The majority of our contracts and operational transactions are U.S. dollar denominated. The Euro represents the largest foreign currency denomination of our contractual and operational exposure. As a result, a portion of our revenue and expenses are subject to exchange rate fluctuations. We have translated the Euro into U.S. dollars using the following average exchange rates based on data obtained from www.xe.com:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
U.S. Dollars per Euro:	1.09	1.07	1.08	1.09

Results of Operations

Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022


	Three Months Ended June 30,
(Amounts in thousands, except percentages)	2023		2022		Change		% Change
Revenue, net	$	460,868	$	351,207	$	109,661	31.2	%
Direct service costs, excluding depreciation and amortization	158,526		132,118		26,408		20.0	%
Reimbursed out-of-pocket expenses	178,025		120,093		57,932		48.2	%
Total direct costs	336,551		252,211		84,340		33.4	%
Selling, general and administrative	39,404		33,215		6,189		18.6	%
Depreciation	5,970		4,707		1,263		26.8	%
Amortization	550		838		(288)		(34.4)	%
Total operating expenses	382,475		290,971		91,504		31.4	%
Income from operations	78,393		60,236		18,157
Miscellaneous (expense) income, net	(1,283)		2,311		(3,594)
Interest expense, net	(1,366)		(548)		(818)
Income before income taxes	75,744		61,999		13,745
Income tax provision	14,676		12,639		2,037
Net income	$	61,068	$	49,360	$	11,708

-21-

Table of Contents

Six Months Ended June 30, 2023 compared to Six Months Ended June 30, 2022


	Six Months Ended June 30,
(Amounts in thousands, except percentages)	2023		2022		Change		% Change
Revenue, net	$	894,942	$	682,154	$	212,788	31.2	%
Direct service costs, excluding depreciation and amortization	309,594		257,552		52,042		20.2	%
Reimbursed out-of-pocket expenses	330,842		226,929		103,913		45.8	%
Total direct costs	640,436		484,481		155,955		32.2	%
Selling, general and administrative	77,431		62,581		14,850		23.7	%
Depreciation	11,378		8,977		2,401		26.7	%
Amortization	1,100		1,676		(576)		(34.4)	%
Total operating expenses	730,345		557,715		172,630		31.0	%
Income from operations	164,597		124,439		40,158
Miscellaneous (expense) income, net	(596)		3,378		(3,974)
Interest expense, net	(2,227)		(494)		(1,733)
Income before income taxes	161,774		127,323		34,451
Income tax provision	27,812		16,652		11,160
Net income	$	133,962	$	110,671	$	23,291

Total revenue

Total revenue increased by $109.7 million to $460.9 million for the three months ended June 30, 2023, from $351.2 million for the three months ended June 30, 2022. Total revenue increased by $212.8 million to $894.9 million for the six months ended June 30, 2023, from $682.2 million for the six months ended June 30, 2022. The increase for the three months ended June 30, 2023 was primarily driven by growth within the Oncology, Metabolic, AVAI, Cardiology and other therapeutic areas, compared to the same period in the prior year. The increase for the six months ended June 30, 2023 was primarily driven by growth within the Oncology, Metabolic, Cardiology and other therapeutic areas, compared to the same period in the prior year.

Total direct costs

Total direct costs increased by $84.3 million, to $336.6 million for the three months ended June 30, 2023 from $252.2 million for the three months ended June 30, 2022. Total direct costs increased by $156.0 million, to $640.4 million for the six months ended June 30, 2023 from $484.5 million for the six months ended June 30, 2022. 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 $57.9 million and $103.9 million for the three and six months ended June 30, 2023, compared to the same period in the prior year. The higher personnel costs portion increased by $21.4 million and $40.9 million for the three and six months ended June 30, 2023, compared to the same periods in the prior year.

Selling, general and administrative

Selling, general and administrative expenses increased by $6.2 million, to $39.4 million for the three months ended June 30, 2023 from $33.2 million for the three months ended June 30, 2022. Selling, general and administrative expenses increased by $14.9 million, to $77.4 million for the six months ended June 30, 2023 from $62.6 million for the six months ended June 30, 2022. The increase was primarily attributed to higher personnel costs to support the growth in service activities. The higher personnel costs portion increased by $4.6 million and $9.5 million for the three and six months ended June 30, 2023, compared to the same periods in the prior year.

Depreciation and Amortization

Depreciation and amortization expense of $6.5 million and $12.5 million for the three and six months ended June 30, 2023 remained relatively consistent with $5.5 million and $10.7 million for the three and six months ended June 30, 2022.

-22-

Table of Contents

Miscellaneous (expense) income, net

Miscellaneous (expense) income, net decreased by $3.6 million to $1.3 million of expense for the three months ended June 30, 2023 from $2.3 million of income for the three months ended June 30, 2022. Miscellaneous (expense) income, net decreased by $4.0 million to $0.6 million of expense for the six months ended June 30, 2023 from $3.4 million of income for the six months ended June 30, 2022. These changes were mainly attributable to foreign exchange gains and losses that arise in connection with the revaluation of short-term intercompany balances between our domestic and international subsidiaries and from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment and third-party investment losses.

Income tax provision

Income tax provision increased by $2.0 million, to $14.7 million for the three months ended June 30, 2023 from $12.6 million for the three months ended June 30, 2022. Income tax provision increased by $11.2 million, to $27.8 million for the six months ended June 30, 2023 from $16.7 million for the six months ended June 30, 2022. The overall effective tax rate for the three months ended June 30, 2023 was 19.4%, compared to an overall effective tax rate of 20.4% for the three months ended June 30, 2022. The overall effective tax rate for the six months ended June 30, 2023 was 17.2% compared to an overall effective tax rate of 13.1% for the six months ended June 30, 2022. The increase in the income tax provision for the three months ended June 30, 2023 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 tax benefits related to Foreign Derived Intangible Income (“FDII”) compared to the same periods in the prior year. The decrease in the overall effective tax rate for the three months ended June 30, 2023 was primarily attributable to an increase in excess tax benefits recognized from share-based compensation and tax benefits related to FDII compared to the same periods in the prior year. The increase in the income tax provision and overall effective tax rate for the six months ended June 30, 2023 was primarily attributable to the increase in pre-tax book income and a decrease in excess tax benefits recognized from share based compensation and benefits from uncertain tax positions 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. 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. As of June 30, 2023, we had cash and cash equivalents of $39.1 million which increased from $28.3 million as of December 31, 2022. Approximately $14.5 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of June 30, 2023.

As of June 30, 2023, we had $94.8 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. 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. As of June 30, 2023, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Condensed Consolidated Financial Statements, short-term debt discussed in Note 7 of the Condensed Consolidated Financial Statements, purchase commitments discussed in Note 11 of the Condensed Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology. Capital spending as a percentage of revenue decreased by 99 basis points to 2.01% in the six months ended June 30, 2023, compared to the same period in the prior year. 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. We have deemed that foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings. While we do not anticipate the need to repatriate these foreign earnings for liquidity purposes given our cash flows from operations and borrowings under existing and future credit facilities, we would incur taxes on these earnings if the need for repatriation due to liquidity purposes arises.

-23-

Table of Contents


	Six Months Ended June 30,
Cash Flows (Amounts in thousands)	2023		2022
Net cash provided by operating activities	$	162,594	$	142,875
Net cash used in investing activities	(17,970)		(22,335)
Net cash used in financing activities	(134,893)		(535,546)
Effect of exchange rates on cash, cash equivalents and restricted cash	1,142		(3,747)
Increase (decrease) in cash, cash equivalents and restricted cash	$	10,873	$	(418,753)

Cash Flow from Operating Activities

Cash flows from operations are driven mainly by net income, noncash lease expense, depreciation, stock based compensation expense, and net movement in advanced billings, accrued expenses, prepaid expenses and other current assets, and accounts receivable and unbilled, net. Accounts receivable and unbilled, net and advanced billings fluctuate on a regular basis as we perform our services, bill our customers and ultimately collect on those receivables. We attempt to negotiate payment terms in order to provide for payments prior to or soon after the provision of services, but this timing of collection can vary significantly on a period by period comparative basis.

Net cash flows provided by operating activities was $162.6 million for the six months ended June 30, 2023 beginning with net income of $134.0 million. Adjustments to reconcile net income to net cash provided by operating activities were $27.9 million, primarily related to depreciation of $11.4 million, stock based compensation expense of $10.3 million and noncash lease expense of $9.7 million. Changes in operating assets and liabilities provided $0.7 million in operating cash flows and was primarily driven by increased advanced billings of $27.8 million and increased accrued expenses of $21.3 million, offset by increased accounts receivable and unbilled, net of $21.7 million and increased prepaid expenses and other current assets of $11.8 million.

Net cash flows provided by operating activities was $142.9 million for the six months ended June 30, 2022 beginning with net income of $110.7 million. Adjustments to reconcile net income to net cash provided by operating activities were $27.6 million, primarily related to stock based compensation expense of $10.0 million, depreciation of $9.0 million and noncash lease expense of $9.0 million. Changes in operating assets and liabilities provided $4.6 million in operating cash flows and was primarily driven by increased advanced billings of $56.7 million and increased accrued expenses of $15.6, offset by increased accounts receivable and unbilled, net of $39.1 million and increased prepaid expenses and other current assets of $18.8 million.

Cash Flow from Investing Activities

Net cash used in investing activities was $18.0 million for the six months ended June 30, 2023 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $22.3 million for the six months ended June 30, 2022 primarily consisting of $20.5 million in property and equipment expenditures.

Cash Flow from Financing Activities

Net cash used in financing activities was $134.9 million for the six months ended June 30, 2023 primarily related to $144.0 million in repurchases of common stock and $100.0 million in repayments of the Credit Facility, partially offset by $105.0 million in proceeds related to the Credit Facility and $4.1 million in proceeds from stock option exercises.

Net cash used in financing activities was $535.5 million for the six months ended June 30, 2022 primarily related to $800.7 million in repurchases of common stock and $49.5 million in repayments of the Credit Facility, partially offset by $299.2 million in proceeds related to the Credit Facility and $15.4 million in proceeds from stock option exercises.

Share Repurchases

-24-

Table of Contents

Indebtedness

As of June 30, 2023, we had total indebtedness of $55.0 million and $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility. Refer to Note 7 of the Notes to Condensed Consolidated Financial Statements for details regarding our Credit Facility.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, requires us to make a variety of decisions which affect reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including our historical experience and other assumptions. Actual results could differ from our estimates. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in the financial statements.

There have been no significant changes in the critical accounting policies and estimates as previously described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 4. Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer (the Principal Executive Officer) and Chief Financial Officer (the Principal Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13(a)-15(e) and 15(d) -15(e) of the Securities Exchange Act of 1934 (“Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, we concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s forms and rules, and the material information relating to the Company is accumulated and communicated to management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

-25-

Table of Contents

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. During the three months ended June 30, 2023, we upgraded our accounting enterprise resource planning (“ERP”) platform from an on-premises system to a cloud-based version. The implementation of that ERP system is expected to, among other things, improve user access security and improve a number of accounting, operational, and reporting processes and activities. Other than this upgrade, there were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are party to legal proceedings incidental to our business. While the outcome of these matters could differ from management’s expectations, we do not believe that the resolution of these matters is reasonably likely to have a material adverse effect to our financial statements.

Item 1A. Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no significant changes from the risk factors previously disclosed in our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

This table provides certain information with respect to our monthly repurchases of the Company’s common stock during the second quarter of fiscal year 2023:


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
April 1, 2023, through April 30, 2023	126,281	$	189.02	8,033,437	$	308,833,776
Total	126,281	$	189.02	8,033,437

All share repurchases were made using cash resources and executed pursuant to established Rule 10b5-1 trading plans. 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 $23.9 million to shareholders in the form of share repurchases in the second quarter of fiscal year 2023. Refer to Note 1 – Basis of Presentation of the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion regarding share repurchases.

Use of Proceeds from Registered Securities

Not applicable.

-26-

Table of Contents

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K, other than on May 1, 2023, Medpace Investors, LLC (“MPI”) adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 500,000 shares of the Company’s common stock until September 14, 2024. August J. Troendle, Chief Executive Officer and Chairman of the Board of the Company, is the sole manager and controlling unit holder of MPI and has sole voting and investment control with respect to the securities held by MPI. Mr. Troendle may be deemed to indirectly beneficially own the securities of the Company held by MPI but disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.

Item 6. Exhibits

The exhibits in the accompanying Exhibit Index preceding the signature page are filed or furnished as a part of this report and are incorporated herein by reference.

-27-

Table of Contents

EXHIBIT INDEX

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed/
Furnished
Herewith

31.1

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer

32.1

Section 1350 Certification of Chief Executive Officer

32.2

Section 1350 Certification of Chief Financial Officer

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith.

**Furnished herewith.

-28-

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			MEDPACE HOLDINGS, INC.

			/s/ Kevin M. Brady
			Kevin M. Brady
			Chief Financial Officer (Principal Financial Officer)

Date: July 25, 2023

-29-