Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
| Large accelerated filer |
| Accelerated filer |
| |||||||||||
Non-accelerated filer |
|
| Smaller reporting company |
| ||||||||||
Emerging growth company |
| |||||||||||||
| ||||||||
| Class | Number of Shares Outstanding | |||||||
Common Stock $0.01 par value |
| |||||||
2022
Item |
|
|
| Page No. | Item Number | Page No. | ||||||
|
|
|
|
| ||||||||
|
|
| 6 | |||||||||
1. |
|
| 6 | |||||||||
1A. |
|
| 20 | |||||||||
1B. |
|
| 48 | |||||||||
2. |
|
| 48 | |||||||||
3. |
|
| 49 | |||||||||
4. |
|
| 49 | |||||||||
|
|
|
|
| ||||||||
|
|
| 50 | |||||||||
5. |
|
| 50 | |||||||||
6. |
|
| 55 | |||||||||
7. |
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
| 58 | ||||||||
7A. |
|
| 75 | |||||||||
8. |
|
| 77 | |||||||||
9. |
| Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
| 116 | ||||||||
9A. |
|
| 116 | |||||||||
9B. |
|
| 117 | |||||||||
|
|
|
|
| ||||||||
|
|
| 118 | |||||||||
10. |
|
| 118 | |||||||||
11. |
|
| 118 | |||||||||
12. |
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| 118 | ||||||||
13. |
| Certain Relationships and Related Transactions, and Director Independence |
| 118 | ||||||||
14. |
|
| 118 | |||||||||
|
|
|
|
| ||||||||
|
|
| 119 | |||||||||
15. |
|
| 119 | |||||||||
16. |
|
| 119 | |||||||||
|
|
| 120 | |||||||||
|
|
| 122 | |||||||||
- 3 -
.
sales, based on publicly available data and management’s knowledge.
- 4 -
States Food and Drug Administration, or FDA, or a similar marketing authorization application for approval by non-U.S. regulatory agencies.
“Small biopharmaceutical companies.” Small biopharmaceutical companies represent biopharmaceutical companies that have less than $250 million in sales in the year ended December 31, 2016, based on publicly available data and management’s knowledge.
We were founded in 1992 by Dr. August J. Troendle, an industry pioneer,market as a Phase II-IV focused CRO with a strong, scientifically-driven and disciplined operating model, and we continue today as a founder-led enterprise with Dr. Troendle retaining a significant ownership stake in Medpace. Throughout our 25-year history, we have grown almost exclusively organically, with our core founding members having been integrally involved in developing and instilling our differentiated culture and operating philosophy across our company. We focus on conductingconduct clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic, Cardiology, Metabolic Disease, Oncology, Endocrinology,Antiviral and Anti-infective (AVAI) and Central Nervous System or CNS,(CNS).
Our singular focus on executing our disciplined, full-service operating model is a core tenet of our differentiated approach. Our operating model entails partnering with our customers from the beginning of the clinical trial process and holistically navigating all subsequent components of the process. This approach differs from other leading CROs that provide functional or partial outsourcing services as a core component of their business. We believe our full-service approach allows us to deliver timely and high-quality results for our customers. By clearly communicating and aligning our expectations with those of our customers at the beginning of an engagement, we develop a trusted relationship where our customers typically grant us greater control over the clinical trial process. This results in greater accountability on our part and, we believe, more consistent delivery of our services. We believe our partnering approach, coupled with our full-service, scientifically-driven model, ensures efficient and high-quality trial execution, limits changes in the scope of trials and enables timely completion of trials.
We focus on providing clinical development solutions primarily to companies that recognize the benefits of utilizing our full-service outsourcing model. We believe our model is particularly attractive to small and mid-sized biopharmaceutical companies, which seek specialized capabilities and infrastructure required for complex and global clinical trials, including therapeutic expertise, insightful protocol design, project feasibility assessment and timely and high-quality trial execution. We expect that outsourced development expenditures for small and mid-sized biopharmaceutical companies will continue to grow. We believe we can expand our market share with this customer segment given our continued strategic focus and the attractiveness of our model to these companies. Furthermore, as the clinical development and regulatory processes grow increasingly more global and complex, we believe large pharmaceutical companies will increasingly recognize the benefits of our disciplined, full-service operating model. For the year ended December 31, 2017, we generated 64%, 25% and 11% of our net service revenue from small biopharmaceutical companies, mid-sized biopharmaceutical companies and large pharmaceutical companies, respectively.
- 6 -
Clinical Development Process
Services
The following graphic, based on data presented in the Pharmaceutical Research and Manufacturers of America, 2013 Biopharmaceutical Research Industry Profile and 2017 Biopharmaceutical Research Industry Profile, industry trade group publications, illustrates the various stages and typical timeline of the clinical development process:
Stages of Clinical Development
Pharmaceutical and biotechnology companies outsource product development services to CROs in order to efficiently and cost-effectively manage the clinical development process and obtain regulatory approval and reach the market in as timely a manner as possible. Historically, outsourcing was driven primarily by the need for pharmaceutical and biotechnology companies to reduce cost and maintain focus on core competencies, or to provide services or capabilities that these companies did not have internally. In recent years, the role of a CRO has evolved and CROs are now increasingly an integral component of the product development process, providing their customers with regulatory and therapeutic expertise, complex clinical trial design, broader geographic coverage, access to diverse population pools and consistent and reliable data systems and procedures.
CRO Market Size
We estimate, based on industry sources, including analyst reports and management’s knowledge, that total global biopharmaceutical clinical development expenditures were approximately $106 billion in 2016. We further estimate, based on these industry sources, that the portion of these expenditures attributable to Phase I-IV clinical development services was $53 billion, of which we estimate $27 billion was outsourced.
- 7 -
Increasing Development Expenditures. We estimate that biopharmaceutical development expenditures will grow from approximately $106 billion in 2016 to approximately $116 billion in 2019, representing a CAGR of approximately 3%. We believe that the growth in development expenditures is primarily attributed to the heightened pace of biopharmaceutical innovation, pressure on companies to replenish pipelines with new therapies, the favorable regulatory environment and the significant amount of capital raised by biotechnology and pharmaceutical companies during the last several years. There were 14,872 drugs in the development pipeline in January 2017, as identified by PharmaProjects Pharma R&D Annual Review 2017, an industry publication, which was an increase of approximately 53% compared to the 9,737 that were in development in 2010. In line with the significant capital raised by biotechnology and pharmaceutical companies, based upon financial data available from FactSet Research Systems Inc. and S&P Global Market Intelligence Inc., providers of financial information, as of September 30, 2017, the companies comprising the NASDAQ Biotechnology Index, or NBI, had approximately $136.7 billion in cash available to support ongoing clinical development. This figure represents a 26.0% increase above the cash balance of approximately $108.5 billion held by the companies comprising the NBI as of December 31, 2016, and a 135.3% increase above the cash balance of approximately $58.1 billion held by companies comprising the NBI as of December 31, 2012.
Continued Outsourcing Penetration. Outsourcing penetration is the percentage of biopharmaceutical clinical development costs that are outsourced to CROs. We estimate, based on industry sources, including analyst reports and management’s knowledge, that approximately 51% of Phase I-IV clinical development expenditures were outsourced in 2016, driven by increased clinical trial complexity, the need for regulatory and therapeutic expertise and global access to patient populations.
Pressures Facing Biopharmaceutical Industry. The biopharmaceutical industry continues to experience significant challenges, including regulatory and pricing pressures resulting from healthcare reform, intensifying generic competition, pipeline failures and the need for continued innovation. In order to combat these challenges and maintain revenue growth and operating margins, biopharmaceutical companies increasingly seek clinical expertise and seek to outsource clinical services to CROs to accelerate clinical development and maximize commercialization success.
Increasing Clinical Trial Complexity. Clinical trial design and structure have become increasingly complex based on regulatory agency sophistication, more complicated protocols and a growing focus by biopharmaceutical companies on developing new cutting-edge drug therapies. For example, based on the data available in the FDA’s Orphan Drug Product designation database, the number of orphan drug designations granted increased by approximately 151% from 190 in 2012 to 476 in 2017. This growing complexity brings new challenges in study feasibility, site selection, patient recruitment and retention due to the rarity of orphan diseases, which globally may only have hundreds or thousands of patients. Additionally, measures of clinical trial complexity significantly increased over the last decade, with the mean number of procedures per protocol increasing by 68% as indicated by the Tufts Center for the Study of Drug Development, an independent non-profit research group. We believe full-service CROs with noted therapeutic leadership, full-service clinical operations, a proprietary technology platform, strategic regulatory guidance and integrated laboratories are well suited to successfully support these types of studies.
Small and Mid-Sized Biopharmaceutical Segment
We believe small and mid-sized biopharmaceutical companies are important to the continued growth of the CRO industry. These companies are primary centers of innovation, developing new, cutting-edge therapies for niche or previously untreatable diseases, which frequently require sophisticated clinical trials. These companies have limited ability to conduct global clinical trials independently, and as a result, they typically seek a strategic partner that can provide the therapeutic experience and infrastructure required to deliver timely completion of complex, global clinical trials. In 2016, we estimate, based on industry sources, including analyst reports and management’s knowledge, that small and mid-sized biopharmaceutical companies outsourced approximately 58% of their development expenditures, representing an estimated addressable CRO market of approximately $8 billion.
Biopharmaceutical companies have a variety of options for raising money to support the funding of their drug development, including raising private equity, raising public equity and partnering with large biopharmaceutical
- 8 -
companies to jointly develop drug candidates. We believe the level of capital raised for small and mid-sized biopharmaceutical companies over the last few years is sufficient to fund significant clinical trial activity for these companies going forward. We believe that companies that are progressing with good results through a clinical trial will be able to continue to fund those clinical trials with available cash and will have additional avenues to fund these programs as necessary, including partnerships with large biopharmaceutical companies.
Our Competitive Strengths
We believe we are well positioned to capitalize on positive trends in the CRO industry based on our key competitive strengths set forth below:
Disciplined and Integrated Full-Service Model. Since our founding in 1992, we have focused on building and executing our disciplined, full-service operating model to provide clinical development services to the biotechnology and pharmaceutical industries. At the center of our differentiated operating model is our full-service focused, end-to-end approach to delivering clinical development services. We partner with customers from the beginning of the clinical trial process and holistically navigate all subsequent components of the process. While many CROs engage in functional or partial outsourcing services as a significant component of their business model, we take a disciplined approach and do not typically provide such piecemeal services. We believe that a full-service approach delivers greater efficiency, better quality and, ultimately, higher value for our customers.
In executing our operating model, we have demonstrated durable success across multiple therapeutic areas. We embed therapeutic leads, each of whom holds a Doctor of Philosophy, or Ph.D., a Doctor of Medicine, or M.D., or other doctorate level degrees into every aspect of the project, and our customers rely on this expertise throughout the entire clinical process. By clearly communicating and aligning our expectations with those of our customers at the beginning of an engagement, we tend to develop a close working relationship that is built on a level of trust that results in us being granted greater control over the clinical trial process. We have developed and consistently utilize effective standard operating procedures, or SOPs, that we believe result in high-quality and timely clinical development outcomes for our customers. Our operating model utilizes our proprietary ClinTrak clinical trial management software, or ClinTrak, which is customized and streamlined to our SOPs. We house our key decision-makers, our internally-developed technology and our corporate infrastructure in our corporate headquarters in Cincinnati, Ohio. This centralization allows us to maintain highly integrated, standardized and flexible operations, while preserving our operating philosophy and extending our global reach, resulting in a disciplined business model and attractive financial performance.
High-Science Approach with Deep Therapeutic Expertise. Customers generally seek a CRO with extensive therapeutic expertise in their focus areas. Our therapeutic expertise encompasses areas that are among the largest, most complex and fastest growing in pharmaceutical development, including Oncology, Cardiology, Metabolic Disease, Endocrinology, CNS and AVAI, as well as Medical Devices. Our core therapeutic expertise covers the therapeutic areas where a majority of all drugs are currently in development, as identified by Citeline Pharma R&D Annual Review 2016, an industry publication.
We leverage the insights of our senior leaders who have specific therapeutic expertise to employ a high-science approach to our projects. Because we believe that therapeutic expertise plays a significant role in CRO selection, we focus heavily on hiring and training our therapeutic leads in order to maximize therapeutic insights to inform clinical trial design and execution. In clinical trial execution, our therapeutic leads are embedded into every aspect of the process from start to finish. Our scientific and medical staff is fundamental to delivering high-quality trial execution and enabling timely completion of complex processes.
Attractive and Diversified Customer Base. We have a strong track record of serving our core customer base of small and mid-sized biopharmaceutical companies, which we believe represents an attractive growth opportunity. We believe outsourced development expenditures in our core customer base will continue to grow. Small and mid-sized biopharmaceutical companies, many of which are now well capitalized, have firmly established themselves at the forefront of medical innovation and the search for new therapies for previously untreatable diseases, which require increasingly complex clinical trials. CROs are integral to the clinical development process for these customers, providing regulatory and therapeutic expertise, complex clinical trial design, broader geographic
- 9 -
coverage, access to diverse population pools and consistent and reliable data systems and procedures, since these customers often lack the infrastructure and global breadth required for efficient and high-quality trial execution.
In addition, we have a highly diversified customer base comprising many of the largest global biopharmaceutical companies, as well as high-growth small and mid-sized biopharmaceutical companies. For the year ended December 31, 2017, we generated 64%, 25% and 11% of our net service revenue from small biopharmaceutical companies, mid-sized biopharmaceutical companies and large pharmaceutical companies, respectively. For the years ended December 31, 2017 and 2016, our largest customer accounted for 5.3% and 6.0% of our net service revenue, respectively, and our top 10 customers represented 32.2% and 37.0% of our net service revenue, respectively.
Partner of Choice for Biopharmaceutical Customers. Based on our extensive operating history and therapeutic experience, we believe that we have established a reputation as a partner of choice to our core customer segment of small and mid-sized biopharmaceutical companies. Acting as incubators of pharmaceutical development, small and mid-sized biopharmaceutical companies are responsible for a number of innovative drug candidates currently being developed to address unmet medical needs. Many of these drug candidates are being developed for niche and severe indications with relatively small patient populations, which require increasingly complex clinical trials. These biopharmaceutical customers, sometimes new to the clinical development process, seek to partner with us based on our differentiated approach and expertise to execute trials in a timely and efficient manner.
Global Platform with Scalable Infrastructure. We believe that we are one of the leading CROs with the scale and therapeutic expertise necessary to effectively conduct global clinical trials. We began our disciplinedinternational expansion in 2004 and have since increased the breadth and depth of our international footprint significantly. We now offer our services through a highly skilled staff of approximately 2,500 employees across 35 countries as ofDecember 31, 2017. As clinical trials become increasingly global, our platform provides our customers with broad access to diverse markets and patient populations, as well as local regulatory expertise and market knowledge, which can reduce the time and cost of these trials, while also helping to optimize the commercialization potential for new therapies.
Highly Regarded, Experienced and Committed Management Team. We are led by a dedicated and experienced senior management team with significant industry experience and knowledge focused on clinical development. We were founded in 1992 by Dr. August J. Troendle, an industry pioneer, and we continue today as a founder-led enterprise with Dr. Troendle retaining a significant ownership stake in Medpace. Our management team has been responsible for developing our scientifically-driven, disciplined operating model, building our global platform and realizing our significant organic growth in revenue and earnings. Our senior management team has an average tenure with Medpace of 13 years, including four senior managers with over 20 years with us, and brings a healthy balance of significant experience with Medpace, regulators and other companies in the industry, including public companies.
Our Growth Strategy
Key elements of our growth strategy include:
Continued Focus on Organic Growth. Our strong organic growth has been the result of consistently reinvesting our positive cash flow to support our therapeutic capabilities, service offerings and global expansion. We intend to continue to emphasize preserving our unique culture and operating philosophy as we grow our scientific capabilities and clinical trial expertise by further investing in human capital. In addition to leveraging our operating model, we intend to continue to selectively hire employees to strengthen and expand our expertise in high-growth therapeutic areas, including Oncology, CNS and AVAI. We methodically look to hire employees early in their careers and thoroughly train them to excel in our disciplined operating model, while instilling within them our corporate culture and philosophy. We apply this same training and standardization globally in order to maintain consistency and minimize inefficiencies in our operations. From 2012 through 2017, we successfully organically grew our business from approximately 1,000 employees to approximately 2,500 employees and organically grew our net service revenue from $177.4 million to $386.5 million. We intend to continue to utilize our disciplined organic growth model and robust cash flows to drive future revenue growth.
- 10 -
Leverage Our Experience and Reputation in the Attractive Clinical Development Market.Our customers value the knowledge and therapeutic expertise we have developed from a long history of successfully executing clinical trials. Given the rapid emergence of new therapies and resulting evolution of commercial priorities among many biopharmaceutical companies, we believe consistently maintaining the necessary infrastructure and human capital required to retain clinical and therapeutic expertise internally is not the most cost-effective solution for these companies. As the regulatory landscape adapts to greater clinical trial complexity, we believe that biopharmaceutical companies will increasingly engage CROs with the requisite global resources as well as therapeutic and regulatory expertise to assume full responsibility of the clinical trial process. Based on our successful execution of clinical trials across many therapeutic areas in multiple countries, as well as our focus on closely partnering with our customers through all aspects of the clinical trial process, we believe we have developed a strong reputation in the industry as a leading CRO. We believe that this reputation positions us to continue capturing additional share of the attractive clinical development market as the industry increasingly recognizes the benefits of our operating model.
Deepen Existing and Develop New Relationships with Our Core Customer Segment. We look to continue to deepen our long-standing relationships with existing customers through new engagements and expand our relationships with new small and mid-sized biopharmaceutical customers. As a strategic partner of choice, we clearly communicate and align our expectations with our customers at the beginning of an engagement to develop a close working relationship that is built on trust. We believe this trust, supported by our high-quality execution and frequent dialogue with our customers’ key decision makers, positions us to be awarded additional business in existing and new therapies, allowing us to grow alongside our customers and leading to an increasingly significant, and growing, contribution from repeat business.
While our successes to date have built a substantial customer base, we believe that there is opportunity for continued growth and penetration in our core customer segment. We place our therapeutic leads alongside our sales team to actively participate in the procurement of new customers whose portfolios align with our therapeutic expertise, which we believe further differentiates us from our competitors.
Pursue Selective and Complementary Bolt-On Acquisitions. We intend to evaluate selective targeted acquisitions to augment our organic growth and expand our current capabilities and service offerings. Our acquisition strategy is driven by our comprehensive commitment to serve customer needs. While we are continuously assessing the market for attractive opportunities, we do so selectively with a focus on targeting opportunities to acquire and integrate complementary and strategic, non-transformative acquisitions within the CRO sector in order to strengthen our competitive position and provide enhanced value to our customers.
Position Ourselves to Increase Our Presence Among Large Pharmaceutical Companies as These Customers Adopt and Appreciate the Full-Service Approach. Given the growing pressures large pharmaceutical companies are facing, including complex clinical development and regulatory processes, these companies seek solutions beyond simply outsourcing clinical development. These companies are seeking strategic partnerships that provide more holistic clinical development services and also the expertise that CRO partners offer. Given our differentiated operating model, we believe larger pharmaceutical companies will be increasingly appreciative of our proven approach to clinical development and expertise.
Our Services
We provide a full suite of services supporting the entire clinical development process from Phase I to Phase IV. We offer these servicesIV across a wide range of therapeutic areas.
Our comprehensive suite of clinical development services includes, but is not limited to, the following:
- 11 -
leadership and engagement on each project results in a close working relationship with customers built on a level of trust that results in us being granted greater control over the clinical trial process.
ClinTrakclinical trials, which is integrated with our SOPs,standard operating procedures (SOPs), allowing the CTMs to access real-time study metrics. ClinTrak is constantly evaluated and enhanced with our processes.
Study
We have a
Global
Our Global Regulatory Affairs department has a strong track record of providing
globe.
- 12 -
quality control document review process, allow Medpace to produce high-quality, submission-ready documents for each contracted project.
Biometrics
Data Sciences:
We provideData Management:NDAs or Biologics License Application for approval by the FDA, or a similar marketing authorization application for approval by non-U.S. regulatory agencies. Our data managementscience team develops detailed specifications for the collection, organization, validation, analysis and quality control of clinical trial data ensuring the most cost-effective, secure and regulatory compliant process.
Biostatistics:data. Our experienced team of biostatisticians providesprovide trial design consulting, statistical methodology recommendations, programming expertise and reporting accuracy necessary to deliver clinical trials efficiently and on time. We offer comprehensive data analysis plans, thoroughly tested and validated customized programs, interpretation of study results, integrated efficacy and safety analysis for regulatory submissions, adaptive design and statistical support throughout the clinical trial.
accuracy.
Laboratories
analysis.
viral shedding.
- 13 -
The majority of our laboratory services are performed as a component of a full-service clinical development arrangement with our customers. We also offer our laboratory services on a stand-alone basis, although this has historically represented an immaterial amount of our net service revenue. Regardless of the nature of the arrangement, our laboratory services are delivered consistently to our customers as a component of their clinical development activities.
Clinics
Our Clinics offering conductsclinics conduct studies in normal healthy volunteers, special populations, and patient populations over a spectrum of diseases including endocrine, cardiovascular and metabolic. Experience includes, but is not limited to: first-in-human, bioavailability/bioequivalence, single and multiple ascending dose, drug to drug interaction, food effect and device studies. Our 57,340 square-foot facility is located on our clinical research campus in Cincinnati, Ohio.
For the year ended December 31, 2017, we generated 64%, 25% and 11% of our net service revenue from small biopharmaceutical companies, mid-sized biopharmaceutical companies and large pharmaceutical companies, respectively.
For the years ended December 31, 2017 and 2016, our largest customer accounted for 5.3% and 6.0% of our net service revenue, respectively, and our top 10 customers represented 32.2% and 37.0% of our net service revenue, respectively.
Net New Business Awards and Backlog
New business awards represent the value of anticipated future net service 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 service 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 timeline. 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
- 14 -
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 $426.1 million, $427.0 million and $359.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Backlog represents anticipated future net service revenue from net new business awards that have commenced, but have not been completed. Reportedand backlog, will fluctuate based on new business awards, changes in scope to existing contracts, cancellations, net service revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of December 31, 2017, our backlog increased by $40.5 million, or 8.4%, to $524.4 million compared to $483.9 million as of December 31, 2016. Our backlog as of December 31, 2015 was approximately $429.7 million. Included within backlog as of December 31, 2017 is approximately $285 million to $295 million that we expect to convert to net service revenue in 2018, with the remainder expected to convert to net service revenue in years after 2018.
Backlog and net new business award metrics may not be reliable indicators of our future period net service 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. No assurance can be given that we will be able to realize the net service revenue that is included in backlog. See “Item 1A. Risk Factors—Risks Relating to Our Business—Our backlog may not convert to net service revenue at our historical conversion rates,” and “Itemsee Item 7. Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Net New Business Awards Cancellations and Backlog” of Parts I andPart II respectively, of this Annual Report on Form 10-K for more information.
10-K.
We have an experienced and highly trained global The team consists of professional business development representatives and business development support staff focused on securing business from both new and existing customers, through a consultative and strategic sales approach. We embed our medical and scientific experts from the beginning of the sales process when we first engage potential customers, and they remain embedded across the lifecycle of the sale and throughout the life of the project, program or partnership.
customers.
- 15 -
Segment and Geographic Information
We operate in one reportable segment and have operations in the North America, Europe, Africa, the Middle East, Asia-Pacific, and Latin America. See Note 3 “Summary of Significant Accounting Policies” to our consolidated financial statements for further information regarding our reportable segment. See Note 16 “Entity Wide Disclosures” to our consolidated financial statements for geographic information including revenues and long-lived assets attributed to our country of domicile and foreign countries (including any individual foreign country if material).
- 16 -
New Drug Application or IND,(IND) with the FDA, which contains, among other things, the results of pre-clinical tests, manufacturer information and other analytical data. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Each clinical trial must be conducted pursuant to, and in accordance with, an effective IND. Each human clinical trial we conduct is subject to the oversight of an IRB, which is an independent committee that has the regulatory authority to review, approve and monitor a clinical trial for which the IRB has responsibility. The FDA and IRB receive reports on the progress of each phase of clinical testing and may require the modification, suspension, or termination of clinical trials if, among other things, an unreasonable risk is presented to patients or if the design of the trial is insufficient to meet its stated objective. In addition, information about certain clinical trials must be made publicly available on the federal government website, www.clinicaltrials.gov.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 17 -
products, civil penalties, criminal prosecutions or debarment from assisting in the submission of new drug applications. See “Item 1A. Risk Factors—Risks Relating to Our Business—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”
Employee Safety and Workplace Conditions
Most of our employees are office based and subject to health and safety regulations covering offices, with which we comply. In addition to its comprehensive regulation of safety in the workplace, the U.S. Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for healthcare employers whose workers might be exposed to blood-borne pathogens such as HIV and the hepatitis B virus, which apply to our clinic and laboratories. Furthermore, certain employees might have to receive initial and periodic training to ensure compliance with applicable hazardous materials regulations and health and safety guidelines. We are subject to similar regulations with respect to our laboratories in Belgium, Singapore and China.
- 18 -
Retention
incident rates and remain committed to continuously monitoring campus- and policy-related measures that can be incorporated in order to further reduce risk for our associates.
- 19 -
as subcontractors, we are responsible for their performance and may be held liable for damages if the subcontractors fail to perform in the manner specified in their contract.
We maintain professional liability insurance in amounts we believe to be appropriate. This insurance provides coverage for vicarious liability due to negligence of the investigators who contract with us, as well as claims by our customers that a clinical trial was compromised due to an error or omission by us. If our insurance coverage is not adequate, or if insurance coverage does not continue to be available on terms acceptable to us, our business, financial condition and operating results could be materially harmed.
- 20 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21 -
existing contracts, cancellations, revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. Our backlog as of December 31, 2017 was approximately $524.4 million. Once work begins on a project, net service revenue is recognized over the duration of the project. Projects may be terminated or delayed by the customer or delayed by regulatory authorities for reasons beyond our control. To the extent projects are delayed, the timing of our net service revenue could be adversely affected. Moreover, in the event that a customer cancels a contract, we often would be entitled to receive payment for services provided up to the point of cancellation and for close-out activities for winding down the clinical trial, and reimbursement of all non-cancellable expenses. Typically, however, we have no contractual right to the full amount of the future net service revenue reflected in our backlog in the event of a permitted contract cancellation or subsequent changes in scope that reduce the value of the contract. The duration of the projects included in our backlog, and the related net service revenue recognition, generally range from a few months to several years. Our backlog may not be indicative of our future net service revenue, and we may not realize all of the anticipated future net service revenue reflected in our backlog. A number of factors may affect the realization of our net service revenue from backlog, including:
|
|
|
|
|
|
Additionally, if small and mid-sized biopharmaceutical companies become less able to access capital in the future, we may see a decrease in backlog conversion to net service revenue and net new business awards due to project delays or cancellations. These companies have contributed materially to our historical net service revenue. If they cannot commit the same or a greater level of capital to our services going forward, our results of operations may suffer.
|
|
|
|
|
|
- 22 -
|
|
|
|
|
|
|
|
|
pressures, if we are unable to either achieve efficiencies in our operating expenses or grow revenues at a rate faster than expenses.
- 23 -
|
|
|
|
|
|
The majority
If we are unable to successfully execute our growth strategies, our results of operations or financial condition could be adversely affected.
Our key growth strategies include: continued organic growth, continued maintenance of industry-leading margins (compared to our public competitors), increasing capture of the high-growth clinical development market, deepening existing and developing new relationships with our core customer segment, pursuing selective and complementary bolt-on acquisitions and increasing our capture of the large pharmaceutical company market. Though we will strive to meet these goals, we may not have or adequately build the competencies necessary to achieve our objectives. In addition, we may not receive market acceptance for our services and we may face increased competition. If we are unable to successfully continue our organic growth, continue to maintain our margins, increase our capture of the clinical development market, deepen existing and develop new relationships with our core customer segment, pursue complementary and non-transformative acquisitions or attract additional large pharmaceutical company customers, our future business, reputation, results of operations and financial condition could be adversely affected.
If we lose the services of key personnel or are unable to recruit experienced personnel, our business could be adversely affected.
Our success substantially depends on the collective performance, contributions and expertise of our senior management team, including Dr. August J. Troendle, our Chief Executive Officer and founder, and other key personnel including qualified management, professional, scientific and technical operating staff. There is significant competition for qualified personnel in the biopharmaceutical services industry, particularly for those with higher educational degrees, such as a medical or nursing degree, a Ph.D., or an equivalent degree, and our industry generally tends to experience relatively high levels of employee turnover. If any of our key employees were to join a competitor or to form a competing company, some of our customers might choose to use the services of that competitor or new company instead of our own. Furthermore, customers or other companies seeking to develop in-house capabilities may hire some of our senior management or other key employees. 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.
Our business depends on the continued effectiveness and availability of our information systems, including the information systems we use to provide our services to our customers, such as ClinTrak, and failures of these systems may materially limit our operations.
Due to the global nature of our business and our reliance on information systems to provide our services, we intend to increase our use of web-enabled and other integrated information systems in delivering our services. We already provide access to such an information system, ClinTrak, to certain of our customers in connection with the services we provide to them. As the breadth and complexity of our information systems continue to grow, we will
- 25 -
increasingly be exposed to the risks inherent in the development, integration and ongoing operation of evolving information systems, including:
|
|
|
|
|
|
The materialization of any of these risks may impede the processing of data, the delivery of databases and services and the day-to-day management of our business and could result in the corruption, loss or unauthorized disclosure of proprietary, confidential or other data. While we have disaster recovery plans in place, they might not adequately protect us in the event of a system failure. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, information system security breaches and similar events at our facilities or at those of our third party provider that backs up our data centers could result in interruptions in the flow of data to our servers and from our servers to our customers. Corruption or loss of data may result in the need to repeat a trial at no cost to the customer, but at significant cost to us, or result in the termination of a contract or damage to our reputation. Moreover, regulatory authorities may impose requirements on the use of electronic records and signatures for regulatory purposes. For example, FDA’s regulations at 21 CFR Part 11 establish the criteria pursuant to which the FDA will consider electronic records and signatures to be trustworthy, reliable, and generally equivalent to paper records and handwritten signatures. Any failures to comply with those regulatory requirements could impact our customers’ ability to rely on the data contained in those electronic records in our systems or result in the FDA’s rejection of the data. Additionally, in order for our information systems to continue to be effective going forward, we periodically need to upgrade our technology systems and increase our capacity to keep pace with technological developments and our growth as a company. Significant delays in system enhancements or inadequate performance of new or upgraded systems once completed could damage our reputation and harm our business. Our operations also may suffer if we are unable to effectively manage the implementation of and adapt to new technology systems. Any such shortcoming may require us to make substantial further investments in our IT platform, which could adversely affect our financial results. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have offices, could adversely affect our business. As our business continues to expand globally, these types of risks may be further increased by instability in the geopolitical climate of certain regions, underdeveloped and less stable utilities and communications infrastructure and other local and regional factors. Although we carry property and business interruption insurance, our coverage might not be adequate to compensate us for all lossescreate potential liability that may occur.
Unauthorized disclosure of sensitive or confidential data, whether through system failure or breaches or employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose customers. Similarly, unauthorized access to or through our information systems or those we develop for our customers, whether by our employees or third parties, including a cyberattack by computer programmers and hackers who may develop and deploy viruses, worms or other malicious software programs, could result in negative publicity, significant remediation costs, legal liability and damage to our reputation and could have a material adverse effect on our results of operations. In addition, our liability insurance might not be sufficient in type or amount to adequately cover us against claims related to security breaches, cyberattacks and other related breaches.
If the security of confidential information used in connection with our services is breached or otherwise subject to unauthorized access, our reputation and business may be materially harmed.
Our services require us to collect, store, use, and transmit significant amounts of confidential information, including personally identifiable information, and other critical data. We employ a range of information technology solutions, controls, procedures, and processes designed to protect the confidentiality, integrity, and availability of our critical assets, including our data and information technology systems. While we engage in a number of measures aimed to protect against security breaches and to minimize problems if a data breach were to occur, our information technology systems and infrastructure may be vulnerable to damage, compromise, disruption, and shutdown due to attacks or breaches by hackers or due to other circumstances, such as error or malfeasance by employees or third
- 26 -
party service providers or technology malfunction. The occurrence of any of these events, as well as a failure to promptly remedy these events should they occur, could compromise our systems, and the information stored in our systems could be accessed, publicly disclosed, lost, stolen, or damaged. Any such circumstance could adversely affect our ability to attract and maintain customers, cause us to suffer negative publicity, and subject us to legal claims and liabilities or regulatory penalties. In addition, unauthorized parties might alter information in our databases, which would adversely affect both the reliability of that information and our ability to market and perform our services. Techniques used to obtain unauthorized access or to sabotage systems change frequently, are constantly evolving and generally are difficult to recognize and react to effectively. We may be unable to anticipate these techniques or to implement adequate preventive or reactive measures. Several recent, highly publicized data security breaches at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems or those of our strategic partners or enterprise customers.
Our business could be harmed if we are unable to manage our growth effectively.
We believe that sustained growth places a strain on operational, human and financial resources. To manage our growth, we must continue to improve our operating and administrative systems and to attract and retain qualified management, professional, scientific and technical operating personnel. We believe that maintaining and enhancing both our systems and personnel at reasonable cost are instrumental to our success. We cannot assure you that we will be able to enhance our current technology or obtain new technology that will enable our systems to keep pace with developments and the needs of our customers. The nature and pace of our growth introduces risks associated with quality control and customer dissatisfaction due to delays in performance or other problems. In addition, foreign operations involve the additional risks of assimilating differences in foreign business practices, hiring and retaining qualified personnel and overcoming language barriers. Failure to manage growth effectively could have a material adverse effect on our business.
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 service revenue during the year ended December 31, 2017, we derive a significant portion of our revenues from a limited number of large customers. For the year ended December 31, 2017, we derived 32.2% and 5.3% of our net service revenue from our top 10 customers and our largest customer, respectively. In addition, approximately 45.5% and 6.3% of our backlog, as of December 31, 2017, was concentrated among our top 10 customers and our largest customer by backlog concentration, respectively. Moreover, 6.3% of our backlog, as of December 31, 2017, was concentrated with our largest customer by net service revenue. If any large customer decreases or terminates its relationship with us, our business, financial condition, results of operations or cash flows could be materially adversely affected. Also, consolidation in our actual or potential customer base results in increased competition for important market segments and fewer available customer accounts.
Additionally, conducting multiple clinical trials for different sponsors in a single therapeutic class, involving similar drugs, biologics or medical devices, may adversely affect our business if some or all of the trials are terminated because of new scientific information or regulatory decisions that affect the products as a class. Moreover, even if these trials are not terminated, they may compete with each other, thereby limiting our potential revenue going forward.
Our business is subject to international economic, political and other risks that could negatively affect our results of operations and financial condition.
- 27 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These risks and uncertainties could negatively impact our ability to, among other things, perform large, global projects for our customers. Furthermore, our ability to deal with these issues could be affected by applicable U.S. lawsmedical devices and the needprofessional malpractice of medical care providers. We also directly employ nurses and other trained employees who assist in implementing the testing involved in our clinical trials, such as drawing blood from subjects. Any professional malpractice or negligence by such investigators, nurses or other employees could potentially result in liability to protect our assets. In addition,us in the event of personal injury to or death of a subject in clinical trials. This liability, particularly if it were to exceed the limits of any indemnification agreements and insurance coverage we may be more susceptible to these risks as we enter and continue to target growth in emerging countries and regions, including Asia, Eastern Europe and Latin America, whichhave, may be subject to a relatively higher risk of political instability, economic volatility, crime, corruption and social and ethnic unrest, all of which are exacerbated in many cases by a lack of an independent and experienced judiciary and uncertainties in how local law is applied and enforced. The materialization of any such risks could have an adverse impact onadversely affect our financial condition, results of operations cash flows orand reputation.
Due to the global nature of our business, we may be exposed to liabilities under the Foreign Corrupt Practices Act and various other anti-corruption laws, and any allegation or determination that we violated these laws could have a material adverse effect on our business.
We are required to comply with the FCPA, UK Bribery Act of 2010 and other U.S. and foreign anti-corruption laws, which prohibit companies from engaging in bribery including corruptly or improperly offering, promising, or providing money or anything else of value to foreign officials and certain other recipients. In addition, the FCPA imposes certain books, records and accounting control obligations on public companies and other issuers. We operate in parts of the world in which corruption can be common and compliance with anti-bribery laws may conflict with local customs and practices. Our global operations face the risk of unauthorized payments or offers
- 28 -
being made by employees, consultants, sales agents and other business partners outside of our control or without our authorization. It is our policy to implement safeguards (including mandatory training) to prohibit these practices by our employees and business partners with respect to our operations. However, irrespective of these safeguards, or as a result of monitoring compliance with such safeguards, it is possible that we or certain other parties may discover or receive information at some point that certain employees, consultants, sales agents, or other business partners may have engaged in corrupt conduct for which we might be held responsible. Violations of the FCPA or other foreign anti-corruption laws may result in restatements of, or irregularities in, our financial statements as well as severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In some cases, companies that violate the FCPA may be debarred by the U.S. government and/or lose their U.S. export privileges. Changes in anti-corruption laws or enforcement priorities could also result in increased compliance requirements and related costs which could adversely affect our business, financial condition and results of operations. In addition, the U.S. or other governments may seek to hold us liable for FCPA violations or violations of other anti-corruption laws committed by companies in which we invest or that we acquired or will acquire.
In the past, we have had net losses and we may report net losses in the future, which could negatively impact our ability to achieve or sustain profitability.
In the past, we have had net losses and we cannot assure you that we will achieve or sustain profitability on a quarterly or annual basis in the future. For the years ended December 31, 2017, 2016 and 2015, our net income (loss) was $39.1 million, $13.4 million and $(8.7) million, respectively. If we cannot maintain profitability, the value of our stock price may be impacted.
Our effective income tax rate may fluctuate, which may adversely affect our operations, earnings and earnings per share.
Our effective income tax rate is influenced by our projected profitability in the various taxing jurisdictions in which we operate. The global nature of our business increases our tax risks. In addition, for various reasons, revenue authorities in many of the jurisdictions in which we operate are known to have become more active in their tax collection activities. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate, which in turn could have an adverse effect on our net income and earnings per share. The application of tax laws in various taxing jurisdictions, including the United States, is subject to interpretation, and tax authorities in various jurisdictions may have diverging and sometimes conflicting interpretations of the application of tax laws. Changes in tax laws or tax rulings, in the United States or other tax jurisdictions in which we operate, could materially impact our effective tax rate.
Factors that may affect our effective income tax rate include, but are not limited to:
|
|
|
|
|
|
|
|
|
|
|
|
These changes may cause fluctuations in our effective income tax rate that could adversely affect our results of operations and cause fluctuations in our earnings and earnings per share.
On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S.
- 29 -
federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We continue to examine the impact this tax reform legislation may have on our business. The impact of this tax reform on holders of our common stock is uncertain and could be adverse. This Annual Report on Form 10-K does not discuss any such tax legislation or the manner in which it might affect purchasers of our common stock. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.
Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.
As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax and intercompany pricing laws, including those relating to the flow of funds between the parent and subsidiaries. Tax authorities in the United States and in foreign markets closely monitor our corporate structure and how we account for intercompany fund transfers. If tax authorities challenge our corporate structure, transfer pricing mechanisms or intercompany transfers, our operations may be negatively impacted and our effective tax rate may increase. Tax rates vary from country to country and if regulators determine that our profits in one jurisdiction should be increased, we might not be able to fully utilize all foreign tax credits that are generated, which would increase our effective tax rate. Additionally, the Organization for Economic Cooperation and Development, or OECD, has issued certain proposed guidelines regarding base erosion and profit sharing. Once these guidelines are formally adopted by the OECD, it is possible that separate taxing jurisdictions may also adopt some form of these guidelines. In such case, we may need to change our approach to intercompany transfer pricing in order to maintain compliance under the new rules. Our effective tax rate may increase or decrease depending on the current location of global operations at the time of the change. Finally, we might not always be in compliance with all applicable customs, exchange control, Value Added Tax and transfer pricing laws despite our efforts to be aware of and to comply with such laws. In such case, we may need to adjust our operating procedures and our business could be adversely affected.
If we are unable to recruit suitable investigators and enroll patients for our customers’ clinical trials, our clinical development business may suffer.
The recruitment of investigators and patients for clinical trials is essential to our business. Investigators are typically located at hospitals, clinics or other sites and supervise the administration of the investigational drug, biologic or device to patients during the course of a clinical trial. Patients typically include people from the communities in which the clinical trials are conducted. Our clinical development business could be adversely affected if we are unable to attract suitable and willing investigators or patients for clinical trials on a consistent basis. For example, if we are unable to engage investigators to conduct clinical trials as planned or enroll sufficient patients in clinical trials, we may need to expend additional funds to obtain access to resources or else be compelled to delay or modify the clinical trial plans, which may result in additional costs to us. These considerations might result in our being unable to successfully achieve our projected development timelines, or potentially even lead to the termination of ongoing clinical trials or development of a product.
Our clinical development services could subject us to potential liability that may adversely affect our results of operations and financial condition.
- 30 -
Some of our services involve direct interaction with clinical trial patients and operation of a Phase I clinical facility, which could create potential liability that may adversely affect our results of operations and financial condition.
We operate a facility where Phase I clinical trials are conducted, which ordinarily involve testing an investigational drug, biologic or medical device on a limited number of individuals to evaluate its safety, determine a safe dosage range and identify side effects. Failure to operate such a facility and clinical trials in accordance with FDA, DEA and other applicable regulations could result in disruptions to our operations. Additionally, we face risks associated with adverse events resulting from the administration of such drugs, biologics and medical devices and the professional malpractice of medical care providers. We also directly employ nurses and other trained employees who assist in implementing the testing involved in our clinical trials, such as drawing blood from subjects. Any professional malpractice or negligence by such investigators, nurses or other employees could potentially result in liability to us in the event of personal injury to or death of a subject in clinical trials. This liability, particularly if it were to exceed the limits of any indemnification agreements and insurance coverage we may have, may adversely affect our financial condition, results of operations and reputation.
Our insurance may not cover all of our indemnification obligations and other liabilities associated with our operations.
We maintain insurance designed to provide coverage for ordinary risks associated with our operations and our ordinary indemnification obligations, which we believe to be customary for our industry. The coverage provided by such insurance may not be adequate for all claims we may make or may be contested by our insurance carriers. If our insurance is not adequate or available to pay liabilities associated with our operations, or if we are unable to purchase adequate insurance at reasonable rates in the future, our business, financial condition, results of operations or cash flows may be materially adversely impacted.
Exchange rate fluctuations may have a material adverse effect on our business, financial condition, results of operations or cash flows.
For the year ended December 31, 2017, approximately 7.6% of our revenue was denominated in currencies other than U.S. dollars, and 28.6% of our operational costs, including, but not limited to, salaries, wages and other employee benefits were denominated in foreign currencies. Of these exposures, 89.0% of our revenue denominated in foreign currencies, and 49.6% of our operational costs denominated in foreign currencies, were Euro denominated. Because a large portion of our net service revenue and expenses are denominated in currencies other than the U.S. dollar and our financial statements are reported in U.S. dollars, changes in foreign currency exchange rates could significantly affect our financial condition, results of operations and cash flows.
The revenue and expenses of our foreign operations are generally denominated in local currencies and translated into U.S. dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results into U.S. dollars for purposes of reporting our consolidated results.
We are subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of a transaction. We earn revenue from our service contracts over a period of several months and, in some cases, over several years. Accordingly, exchange rate fluctuations during such periods may affect our profitability with respect to such contracts.
- 31 -
Additionally, the majority of our global contracts are denominated in U.S. dollars or Euros, while the currency used to fund our operating costs in foreign countries is denominated in various different currencies. Fluctuations in the exchange rates of the currencies we use to contract with our customers and the currencies in which we incur cost to complete those contracts can have a significant impact on our results of operations.
We may limit these risks through exchange rate fluctuation provisions stated in our service contracts. We have not, however, mitigated all of our foreign currency transaction risk, and we may experience fluctuations in financial results from our operations outside the United States and foreign currency transaction risk associated with our service contracts.
Our relationships with existing or potential customers who are in competition with each other may adversely impact the degree to which other customers or potential customers use our services, which may adversely affect our results of operations.
The biopharmaceutical industry is highly competitive, with companies each seeking to persuade payors, providers and patients that their drug therapies are more cost-effective than competing therapies marketed or being developed by competing firms. In addition to the adverse competitive interests that biopharmaceutical companies have with each other, these companies also have adverse interests with respect to drug selection, coverage and reimbursement with other participants in the healthcare industry, including payors and providers. Biopharmaceutical companies also compete to be first to the market with new drug therapies. We regularly provide services to biopharmaceutical companies who compete with each other, and we sometimes provide services to such customers regarding competing drugs in development. Our existing or future relationships with our biopharmaceutical customers may deter other biopharmaceutical customers from using our services or, in certain instances, may result in our customers seeking to place limits on our ability to serve their competitors and other industry participants. In addition, our further expansion into the broader healthcare market may adversely impact our relationships with biopharmaceutical customers, and such customers may elect not to use our services, reduce the scope of services that we provide to them or seek to place restrictions on our ability to serve customers in the broader healthcare market with interests that are adverse to theirs. Any loss of customers or reductions in the level of revenues from a customer could have a material adverse effect on our business, financial condition, results of operations or cash flows.
If we are unable to successfully integrate potential future acquisitions, our business, financial condition, results of operations and cash flows could be adversely affected.
We anticipate that a portion of our future growth may come from targeted acquisitions to expand our current capabilities and service offerings. The success of any acquisition will depend upon, among other things, our ability to effectively integrate acquired personnel, operations, products and technologies into our business and to retain the key personnel and customers of our acquired businesses. In addition, we may be unable to identify suitable acquisition opportunities or obtain any necessary financing on commercially acceptable terms. We may also spend time and money investigating and negotiating with potential acquisition targets but not complete the transaction. Any acquisition could involve other risks, including, among others, the assumption of additional liabilities and expenses, difficulties and expenses in connection with integrating the acquired companies and achieving the expected benefits, issuances of potentially dilutive securities or interest-bearing debt, loss of key employees of the acquired companies, transaction expenses, diversion of management’s attention from other business concerns and, with respect to the acquisition of international companies, the inability to overcome differences in international business practices, language and customs. Our failure to successfully integrate potential future acquisitions could have an adverse effect on our business, financial condition, results of operations and cash flows.
We have a significant amount of goodwill and intangible assets on our balance sheet, and our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets.
Our balance sheet reflects goodwill and intangibles assets of $661.0 million and $98.7 million, respectively, as of December 31, 2017. Collectively, goodwill and intangibles assets represented 79.9% of our total assets as of December 31, 2017. Our goodwill was recorded in connection with Cinven’s acquisition of us in 2014. In accordance with US GAAP, goodwill and indefinite lived intangible assets are not amortized, but are subject to a periodic impairment evaluation. We assess the realizability of our indefinite lived intangible assets and goodwill annually and conduct an interim evaluation whenever events or changes in circumstances, such as operating losses
- 32 -
or a significant decline in earnings associated with the acquired business or asset, indicate that these assets may be impaired. In addition, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. If indicators of impairment are present, we evaluate the carrying value in relation to estimates of future discounted cash flows. Our ability to realize the value of the goodwill and intangible assets will depend on the future cash flows of our businesses. The carrying amount of the goodwill could be impaired if there is a downturn in our business or our industry or other factors that affect the fair value of our business, in which case a charge to earnings would become necessary. If we are not able to realize the value of the goodwill and intangible assets, we may be required to incur material charges relating to the impairment of those assets. For example, in conjunction with the 2015 fourth quarter annual assessment of goodwill, we determined that goodwill related to our Clinics reporting unit was impaired and we recognized an impairment charge of $9.3 million, which represented 100% of the goodwill that had been allocated to this reporting unit. Such impairment charges in the future could materially and adversely affect our business, financial condition, results of operations and cash flows.
Our ability to utilize our net operating loss carryforwards or certain other tax attributes may be limited.
Under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage point change, by value, in the aggregate stock ownership of certain shareholders over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards to offset its future taxable income and other pre-change tax attributes may be limited. We have experienced at least one ownership change in the past. We may experience additional ownership changes in the future. In addition, future changes in our stock ownership (including future sales by Cinven) could result in additional ownership changes. Any such ownership changes could limit our ability to use our net operating loss carryforwards to offset any future taxable income and other tax attributes. State and foreign tax laws may also impose limitations on our ability to utilize net operating loss carryforwards and other tax attributes.
We depend on third parties for support services vital totax rulings, in the United States or other tax jurisdictions in which we operate, could materially impact our business. Such support serviceseffective tax rate.
We have only a limited ability to protect our intellectual property rights, and these rights are important to our success.
Our success depends, in part, upon our ability to develop, use and protect our proprietary methodologies, analytics, systems, technologies and other intellectual property. Existing laws of the various countries in which we provide services or solutions offer only limited protection of our intellectual property rights, and the protection in some countriestax jurisdictions.
- 33 -
invention assignment and other contractual arrangements, and copyright, trademark and trade secret laws, to protect our intellectual property rights. These laws are subject to change at any time and certain agreements may not be fully enforceable, which could further restrict our ability to protect our innovations. Our intellectual property rights may not prevent competitors from independently developing services similar to or duplicative of ours. Further, the steps we take in this regard might not be adequate to prevent or deter infringement or other misappropriation of our intellectual property by competitors, former employees or other third parties, and we might not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property rights. Enforcing our rights might also require considerable time, money and oversight, and we may not be successful in enforcing our rights.
The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union, or the EU, in a national referendum. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the EU, including with respect to the laws and regulations that will apply as the United Kingdom determines which EU laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other EU member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common stock.
Potential future investmentscause fluctuations in our customers’ businesses or products could have a negative impact on our financial results.
We have in the past and may in the future enter into arrangements with our customers or other drug, biologic or medical device companies in which we take on payment risk by making strategic investments in our customers or other drug companies, providing flexible payment terms or fee financing to customers or other companies, or entering into other risk sharing arrangements on trial execution. Our financial results would be adversely affected if the amount realized from any such risk sharing arrangement was less than the value of our services under the contract related to such arrangement.
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. Although we have contingency plans in place for natural disasters or other catastrophic events, these events, including terrorist attacks, pandemic flu, hurricanes, floods and ice and snow storms, could nevertheless disrupt our operations or those of our customers, investigators and collaboration partners, which could also affect us. Even though we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage. 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.
Risks Relating to Our Industry
Outsourcing trends in the biopharmaceutical industry and changes in aggregate expenditures and R&D budgets could adversely affect our operating results and growth rate.
Our revenues depend on the level of R&D expenditures, size of the drug development pipelines and outsourcing trends of the biopharmaceutical industry, including the amount of such R&D expenditures that is outsourced and subject to competitive bidding among CROs. Accordingly, economic factors and industry trends that affect
- 34 -
biopharmaceutical companies affect our business. For example, if biopharmaceutical companies become less able to access capital in the future, they may commit less capital to our services going forward. Also, biopharmaceutical companies continue to seek long-term strategic collaborations with global CROs with favorable pricing terms. Many of our competitors seek out these collaborations, while we generally do not. If our competitors can successfully enter into these collaborations, it may reduce the share of the biopharmaceutical outsourcing business that we might otherwise be positioned to capture.
In addition, if the biopharmaceutical industry reduces its outsourcing of clinical trials or such outsourcing fails to grow at projected or expected rates, or at all, our business, financial condition, results of operations and cash flows could be materially and adversely affected. We may also be negatively impacted by consolidation and other factors in the biopharmaceutical industry, which may slow decision making by our customers, result in the delay or cancellation of existing projects, cause reductions in overall R&D expenditures or lead to increased pricing pressures. Further, in the event that one of our customers combines with a company that is using the services of one of our competitors, the combined company could decide to use the services of that competitor or another provider. All of these events could adversely affect our business, financial condition, cash flows or results of operations.
We face intense competition in many areas of our business and, if we do not compete effectively, our business may be harmed.
The CRO industry is highly competitive. We often compete for business with other CROs as well as internal development departments at some of our customers, some of which could be considered large CROs in their own right. We also compete with universities and teaching hospitals. Some of these competitors have greater financial resources and a wider range of service offerings over a greater geographic area than we do. If we do not compete successfully, our business will suffer. The industry is highly fragmented, with numerous smaller specialized companies and a handful of full-service companies with global capabilities similar to ours. Increased competition has led to price and other forms of competition, such as acceptance of less favorable contract terms, which could adversely affect our operating results. In recent years, our industry has experienced consolidation. This trend is likely to produce more competition from the resulting larger companies. Further, certain of our key competitors are private and, therefore, they do not contend with the cost pressures of being a public company. We compete with both large CROs and mid-sized CROs, and have increasingly faced more competition from larger CROs. Our ability to continue to grow and perform effectively will directly impact our success against our competitors. In addition, there are few barriers to entry for smaller specialized companies considering entering the industry. Because of their size and focus, small CROs might compete effectively against larger companies such as us, especially in lower cost geographic areas, which could have a material adverse effect on our business.
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.
Numerous government bodies are considering or have adopted various healthcare reforms and may undertake, or are in the process of undertaking, efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with healthcare providers and biopharmaceutical companies, including many of our customers. By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, was signed into law, which, among other things, expanded, over time, health insurance coverage, imposed health industry cost containment measures, enhanced remedies against healthcare fraud and abuse, added new transparency requirements for healthcare and health insurance industries, imposed new taxes and fees on pharmaceutical and medical device manufacturers, added new requirements for certain applicable drug and device manufacturers to disclose payments to physicians, including principal investigators, and imposed additional health policy reforms, any of which may significantly impact the biopharmaceutical industry. We are uncertain as to the full effects of these reforms on our business and are unable to predict what legislative proposals, if any, will be adopted in the future. If regulatory cost containment efforts limit the profitability of new drugs, our customers may reduce their R&D expenditures, which could reduce the business they outsource to us. Similarly, if regulatory requirements for product testing are relaxed or harmonized across jurisdictions, or simplified drug approval procedures are adopted, the demand for our services could decrease. The result of the recent presidential election in the United States has added to the uncertainty regarding healthcare policies and regulations as the new presidential administration and U.S. Congress have called for the repeal of the Affordable Care Act.
- 35 -
Government bodies may also adopt healthcare legislation or regulations that are more burdensome than existing regulations. For example, product safety concerns and recommendations by the Drug Safety Oversight Board could change the regulatory environment for drug products, and new or heightened regulatory requirements may increase our expenses or limit our ability to offer some of our services. Additionally, new or heightened regulatory requirements may have a negative impact on the ability of our customers to conduct industry sponsored clinical trials, which could reduce the need for our services. These developments and the lack of clarity regarding future healthcare policies and regulations have created significant uncertaintyeffective income tax rate that could adversely affect our business, financial condition, cash flows or results of operations.
Consolidation in the biopharmaceutical industry could lead to a reductionoperations and cause fluctuations in our revenues.
The biopharmaceuticalearnings and CRO industries are currently undergoing a period of increased merger activity. Several large biopharmaceutical companies have recently completed mergers and acquisitions that will consolidate the outsourcing trends and R&D expenditures into fewer companies, and many larger and medium sized biopharmaceutical companies have been acquiring smaller biopharmaceutical companies. As a result of this and future consolidations, our customer diversity may decrease and our business may be adversely affected.
earnings per share.
- 36 -
The biopharmaceutical industry has
The biopharmaceutical industry has a historymany of intellectual property litigation,these statutes and these lawsuits will likely continueregulations have not been interpreted by the courts. CLIA extends federal oversight to virtually all clinical laboratories operating in the future. Accordingly, even without wrongdoing on our part, we may face patent infringement suits by companies that have patents for similar business processes or other suits alleging infringement of their intellectual property rights. Legal proceedings relating to intellectual property could be expensive, take significant time and divert management’s attention from other business concerns, regardless of the outcome of the litigation. If we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, and we could be required to stop the infringing activity or obtain a license to use technology on unfavorable terms. 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.
- 37 -
Actions by regulatory authorities or customers to limit the scope of or withdraw an approved drug, biologic or medical device from the market could result in a loss of revenue.
Government regulators have the authority, after approving a drug, biologic or medical device, to limit its indication for useU.S. by requiring additional labeled warningsthat they be certified by the federal government or by a federally approved accreditation agency. The sanction for failure to withdraw the product’s approval for its approved indication based on safety or other concerns. Similarly, customers may act to voluntarily limit the availability of approved products or withdraw them from the market after we begin our work. If we are providing services to customers for products that are limited in availability or withdrawn, wecomply with CLIA requirements may be requiredsuspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to narrow the scopeconduct business, as well as significant fines and/or criminal penalties.
The biopharmaceutical industry generally, and drug development and clinical research more specifically, are subject to rapid technological changes. Our current competitors regulation under state law. State laws may require that laboratories and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records. We also operate laboratories outside of the U.S. and are subject to laws governing our laboratory operations in the other businesses might develop technologiescountries where we operate.
Circumstances beyond our controlbusiness. In addition, compliance with future legislation could cause the CRO industry to suffer reputational or other harm that could result in an industry-wide reduction in demand for CRO services,impose additional requirements on us, which could harm our business.
Demand for our services may be affected by perceptions of our customers regarding the CRO industry as a whole. For example, other CROs could engage in conduct that could render our customers less willing to do business with us or any CRO. Likewise, a widely reported injury to clinical trial participants could result in negative perceptions of clinical trial activity, thereby adversely impacting our industry. One or more CROs could engage in or fail to detect malfeasance, such as inadequately monitoring sites, producing inaccurate databases or analysis, falsifying patient records,costly.
Organizational Risks Relating to Our Indebtedness
Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations and may otherwise restrict our activities.
Our Senior Secured Credit Facilities (as defined below) consist of a $165.0 million Senior Secured Term Loan Facility maturing in December 2021, or the Senior Secured Term Loan Facility, and a $150.0 million Senior Secured Revolving Credit Facility maturing in December 2021, or the Senior Secured Revolving Credit Facility, and, together with the Senior Secured Term Loan Facility, the Senior Secured Credit Facilities. At December 31, 2017, we had $152.6 million of outstanding indebtedness under our Senior Secured Term Loan Facility and $70.0 million of borrowings outstanding under our Senior Secured Revolving Credit Facility. In addition, we had up to $80.0 million of additional borrowing capacity available under our Senior Secured Revolving Credit Facility. Our indebtedness could adversely affect our financial condition and thus make it more difficult for us to satisfy our obligations with respect to our Senior Secured Credit Facilities. If our cash flow is not sufficient to service our debt and adequately fund our business, we may be required to seek further additional financing or refinancing or dispose of assets. We might not be able to influence any of these alternatives on satisfactory terms or at all. Our indebtedness could also:
|
|
|
|
- 38 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For more information about our indebtedness, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness” of Part II of this Annual Report on Form 10-K and Note 8 to our audited consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
Despite our current level of indebtedness, we may incur more debt and undertake additional obligations. Incurring such debt or undertaking such additional obligations could further exacerbate the risks to our financial condition.
Although the credit agreement governing the Senior Secured Credit Facilities contains restrictions on our incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could increase. To the extent new debt is added to our current debt levels, the risks to our financial condition would increase.
While the credit agreement governing the Senior Secured Credit Facilities also contains restrictions on our ability to make loans and investments, these restrictions are subject to a number of qualifications and exceptions, and the investments incurred in compliance with these restrictions could be substantial.
Covenant restrictions under our Senior Secured Credit Facilities may limit our ability to operate our business.
The agreement governing our Senior Secured Credit Facilities contains covenants that may restrict our ability to, among other things:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 39 -
In addition, we are required to report compliance with two financial covenants that are tested at the end of each fiscal quarter. We are required to maintain a ratio of consolidated funded indebtedness minus unrestricted cash and cash equivalents (in the aggregate not to exceed $50 million and to include not more than $25 million of foreign unrestricted cash and cash equivalents) to consolidated EBITDA for the most recent four fiscal quarter period not to exceed 4.00:1.00; provided that we shall be permitted to increase the ratio to 4.50:1.00 in connection with any permitted acquisition or any other acquisition consented to by the Administrative Agent and the Required Lenders (each as defined in the Senior Secured Credit Agreement) with total cash consideration in excess of $25 million. Such increase shall be applicable for the fiscal quarter in which such acquisition is consummated and the three consecutive test periods thereafter. We are also required to maintain a ratio of consolidated EBITDA to consolidated interest expense, in each case for the most recent four fiscal quarter period, of not less than 3.00:1.00. As of December 31, 2017, we were in compliance with all covenants under our Senior Secured Credit Agreement.
Although the covenants in our Senior Secured Credit Facilities are subject to various exceptions, we cannot assure you that these covenants will not adversely affect our ability to finance future operations or capital needs or to engage in other activities that may be in our best interest. In addition, in certain circumstances, our long-term debt requires us to maintain a specified financial ratio and satisfy certain financial condition tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. A breach of any of these covenants could result in a default under our Senior Secured Credit Facilities. If an event of default under our Senior Secured Credit Facilities occurs, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In such case, we might not have sufficient funds to repay all the outstanding amounts. In addition, our Senior Secured Credit Facilities are secured by first priority security interests on substantially all of our assets, including the capital stock of certain of our subsidiaries. If an event of default under our Senior Secured Credit Facilities occurs, the lenders thereunder could exercise their rights under the related security documents. Any acceleration of amounts due under the Senior Secured Credit Facilities or the substantial exercise by the lenders of their rights under the security documents would likely have a material adverse effect on us.
We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
Our ability to satisfy our debt obligations will depend upon, among other things:
|
|
|
|
We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Senior Secured Credit Facilities or otherwise, in an amount sufficient to fund our liquidity needs.
If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements, may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all, and any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due.
- 40 -
Interest rate fluctuations may affect our results of operations and financial condition.
Because our debt is variable-rate debt, fluctuations in interest rates could have a material effect on our business. As a result, we may incur higher interest costs if interest rates increase. These higher interest costs could have a material adverse impact on our financial condition and the levels of cash we maintain for working capital.
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could negatively impact our business.
During periods of volatile credit markets, there is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to, extending credit up to the maximum permitted by a credit facility. If our lenders are unable to fund borrowings under their revolving credit commitments or we are unable to borrow (such as having insufficient capacity under our borrowing base), it could be difficult in such environments to obtain sufficient liquidity to meet our operational needs.
Risks Relating to Ownership of Our Common Stock
Cinven and our Chief Executive Officer and founder collectively controlcontrols a substantial majorityamount of our outstanding common stock and theirhis interests may be different from or conflict with those of our other shareholders.
|
|
|
|
|
|
We are a “controlled company” within the meaning of the NASDAQ rules and, as a result,related person. Moreover, we qualify for, and rely on, exemptions from certain corporate governance requirements. Our shareholders do not have the same protections afforded to shareholders of companies that are subject to the risk that our stockholders may challenge any such requirements.
Substantially concurrently withrelated person transactions and the closingagreements entered into as part of them. If such a challenge were to be successful, we might not realize the benefits expected from the transactions being challenged. Moreover, any such challenge could result in substantial costs and a diversion of our initial public offering,management’s attention, could have a material adverse effect on our reputation, business and growth and could adversely affect our ability to realize the benefits expected from the transactions, whether or not the IPO, Cinvenallegations have merit or are substantiated.
- 41 -
agreed to vote his shares of our common stock in favor of the election of the directors affiliated with Cinven upon their nomination by our Board; provided, thatqualified personnel in the event that Cinven holds less than (a) 40% but greater thanbiopharmaceutical services industry, particularly for those with higher educational degrees, such as a medical or equal to 25% of our voting shares then outstanding, Dr. Troendle shall be required to vote for two directors affiliated with Cinven, after giving effect to the directors then sitting on the Board, (b) 25% but greater thannursing degree, a Ph.D., or equal to 10% of our voting shares then outstanding, Dr. Troendle shall be required to vote for one director affiliated with Cinven, after giving effect to the directors then sitting on the Board and (c) 10% of our voting shares then outstanding, Dr. Troendle shall not be required to vote for any directors affiliated with Cinven.
Because of the Voting Agreement and the aggregate voting power of Cinven and Dr. Troendle, we are considered a “controlled company” within the meaning of the corporate governance standards of NASDAQ. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:
|
|
|
|
|
|
After we cease to be a “controlled company,” we will be required to comply with the above-referenced requirements within one year.
We currently do not have a nominating and corporate governance committee. Accordingly, our shareholders do not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of NASDAQ. Cinven and Dr. Troendle, however, are not subject to any contractual obligation to retain their controlling interest. There can be no assurance as to the period of time during which Cinven and Dr. Troendle will maintain their ownership of our common stock. As a result, there can be no assurance as to the period of time during which we will be able to avail ourselves of the controlled company exemptions.
Upon the sale of a sufficient number of shares by Cinven or Dr. Troendle, we will no longer be a controlled company, and we may have difficulties complying with the NASDAQ rules listed above. We intend to comply with these NASDAQ rules if we cease to be a controlled company. However, there can be no assurance that we will be able to comply with such rules before the end of the phase-in period for compliance.
Our anti-takeover provisions could prevent or delay a change in control of our company, even if such change in control would be beneficial to our shareholders.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our shareholders. These provisions include:
|
|
|
|
|
|
|
|
|
|
- 42 -
|
|
|
|
These provisions could also discourage proxy contests and make it more difficult for our shareholders to elect directors of their choosing and cause us to take other corporate actions our shareholders desire. In addition, because our Board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team.
In addition, the Delaware General Corporation Law, or the DGCL, to which we are subject, prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets or business combinations with any shareholder or group of shareholders who owns at least 15% of our common stock for three years following their becoming the owner of 15% of our common stock.
Cinvenequivalent degree, and our non-employee directors may acquire interests and positions that could present potential conflicts with our and our shareholders’ interests.
Cinven and our non-employee directors make investments in companies and may, from timeindustry generally tends to time, acquire and hold interests in businesses that compete directly or indirectly with us. Cinven and our non-employee directors may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities might not be available to us. Our organizational documents contain provisions renouncing any interest or expectancy held by Cinven or by our non-employee directors in corporate opportunities. Accordingly, the interestsexperience relatively high levels of Cinven and our non-employee directors may supersede ours, causing Cinven or its affiliates or our non-employee directors and their affiliates to compete against us or to pursue opportunities instead
- 43 -
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
As a public company, we are now required to comply with the rules of the U.S. Securities and Exchange Commission, or the SEC, implementing Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore required to make a formal assessment of the effectivenesshire some of our internal control over financial reporting for that purpose. We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which requiresenior management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. As an emerging growth company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of being a newly public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that will cause us to be out of compliance with the requirements of Section 404. If we are unable to comply with the requirements of Section 404 or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by NASDAQ, the SEC or other regulatory authorities, which could require additional financial and management resources.
We have incurred and will continue to incur significant costs as a resultkey employees. The departure of operating as a public company, and our management will devote substantial time to new compliance initiatives.
As a publicly traded company, we have incurred and will continue to incur significant legal, accounting and other expenses that we were not required to incur prior to our IPO. Further, these costs may increase after we are no longer an “emerging growth company” as defined underany key contributor, the JOBS Act. In addition, compliance with new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Customer Protection Act, or the Dodd-Frank Act, and the rules and regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, and the rules and regulationspayment of the SEC, has increased and will continue to increase our legal and financial compliance costs and make some activities more difficult, time-consuming or costly. For example, the Exchange Act requires us, among other things, to file annual, quarterly and current reports with respect to our business and operating results. Being a public company and being subject to new rules and regulations has made it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to continue to obtain coverage. As such, we expect to continue to incur additional annual expenses of $3.0 million to $4.0 million related to operating as a public company. These factors may therefore strain our resources, divert management’s attention, and affect our abilitycompensation to attract and retain qualified members ofpersonnel or our Board and adversely affect our operating margins.
Furthermore, the needinability to continue to establish the corporate infrastructure demanded ofidentify, attract and retain qualified personnel or replace any departed personnel in a public companytimely fashion may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a publicly traded company. However, the measures we take may not be sufficient to satisfy our obligations as a publicly traded company.
- 44 -
Our operating results and share price may be volatile, and the market price of our common stock may drop.
Our quarterly operating results have fluctuated, and are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of shares of our common stock to wide price fluctuations regardless of our operating performance. The public market for our common stock is new and the trading price of shares of our common stock may fluctuate in response to various factors, including:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for shares of our common stock to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of shares of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
- 45 -
Shares of our common stock may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. As of December 31, 2017, we had 35,466,510 shares of outstanding common stock. Outstanding shares of our common stock are freely tradable without restriction under the Securities Act, except for any shares of our common stock that are held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be or are restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
We are also party to a registration rights agreement, or the Registration Rights Agreement, pursuant to which the shares of common stock held by Cinven and Dr. August J. Troendle, our Chief Executive Officer and founder, are eligible for resale, subject to certain limitations set forth therein.
In connection with the IPO, we filed a registration statement on Form S-8 under the Securities Act to register all shares of common stock issued or issuable under the 2016 Incentive Award Plan, which became effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market following the expiration of the applicable lock-up period. The registration statement on Form S-8 covers 6,000,000 shares of our common stock.
As shares are registered or otherwise sold pursuant to an exemption from registration under the Securities Act, our share price could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These sales might also make it more difficult for us to sell securities in the future at a time and at a price that we deem appropriate.
In the future, we may also issue additional securities if we need to raise capital or make acquisitions, which could constitute a material portion of our then-outstanding shares of common stock.
Because we have no current plans to pay regular cash dividends on our common stock, our shareholders may not receive any return on investment unless they sell their common stock for a price greater than that which they paid for it.
We do not anticipate paying any regular cash dividends on our common stock for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant. In addition,impact our ability to pay dividends is,grow our business and compete effectively in our industry and may continue to be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under our existing Senior Secured Credit Facilities. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur.
We are a holding company and rely on dividends and other payments, advances and transfers of funds from our subsidiaries to meet our obligations and pay any dividends.
We have no direct operations and no significant assets other than ownership of 100% of the capital stock of our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, and to pay any dividends with respect to our common stock. Legal and contractual restrictions in our Senior Secured Credit Facilities and other agreements which may govern future indebtedness of our subsidiaries, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. The earnings from, or other available assets of, our subsidiaries might not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or other obligations. Any of the foregoing could materially and adverselynegatively affect our business, financial condition, results of operations, cash flows or reputation.
- 46 -
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock or if our results of operations do not meet their expectations, our share price and trading volume could decline.
The trading marketother facilities for sharesthe continued operation of our common stock is influenced by the researchbusiness. Although we have contingency plans in place for natural disasters or other catastrophic events, these events, including terrorist attacks, pandemic flu, hurricanes, floods and reports that industryice and snow storms, could nevertheless disrupt our operations and IT systems or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coveragethose of our company or fail to publish reports oncustomers, investigators and collaboration partners, which could also affect us. Even though we carry business interruption insurance policies and typically have provisions in our contracts that protect us regularly,in certain events, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our share price could decline.
We are an “emerging growth company” andmight suffer losses as a result of business interruptions that exceed the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
The JOBS Act provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things:
|
|
|
|
|
|
|
|
We currently take advantage of each of the exemptions described above. In connection with our IPO, we irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standardscoverage available under Section 107(b) of the JOBS Act. We could be an emerging growth company up to the last day of the fiscal year following the fifth anniversary of the completion of our IPO. We cannot predict if investors will find our common stock less attractive ifinsurance policies or for which we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock.
Investment funds affiliated with Cinven pledged all of its owned shares of our common stock as collateral for borrowings under a credit agreement unaffiliated with Medpace.
On June 16, 2017, Cinven informed us that Medpace Limited Partnership (“MLP”), an entity formed by Cinven to hold all Cinven’s equity interests in us, entered into a credit agreement (the “MLP Credit Agreement”) with Credit Suisse AG, Cayman Islands Branch, and Morgan Stanley Bank, N.A., as lenders (together, the “Lenders”), Credit Suisse AG, Cayman Islands Branch, as administrative agent, and Credit Suisse Securities (USA) LLC, as calculation agent. Pursuant to the MLP Credit Agreement, MLP entered into a pledge agreement (the “MLP Pledge Agreement”) with Credit Suisse Securities (USA) LLC, as secured party and Morgan Stanley Bank, N.A., as secured party (together, the “Secured Parties”). Pursuant to the MLP Pledge Agreement, MLP pledged all of its shares of the Company’s common stock, $0.01 par value per share, to the Secured Parties.
On June 21, 2017 (the “MLP Funding Date”), MLP borrowed $150.0 million under the MLP Credit Agreement. Pursuant to the MLP Pledge Agreement, to secure any borrowings under the MLP Credit Agreement, MLP pledged 22,999,997 shares (collectively, the “MLP Pledged Shares”) of the Company’s common stock as of the MLP Funding Date. The MLP Pledged Shares represented approximately 46.2% of the Company’s issued and outstanding Common Stock as of December 31, 2017. All of the MLP Pledged Shares were contributed to MLP from Cinven’s Fifth Cinven Fund (No. 1) Limited Partnership, Fifth Cinven Fund (No. 2) Limited Partnership, Fifth Cinven Fund (No. 3) Limited Partnership, Fifth Cinven Fund (No. 4) Limited Partnership, Fifth Cinven Fund (No. 5) Limited
- 47 -
Partnership, Fifth Cinven Fund (No. 6) Limited Partnership, Fifth Cinven Fund FCP-SIF and Fifth Cinven Fund Co-Investment Partnership, which collectively own all of the equity interest in MLP.
The MLP Credit Agreement contains customary default provisions. In the event of a default under the MLP Credit Agreement by MLP, the Lenders and their affiliates and assignees may foreclose upon any and all MLP Pledged Shares and may seek recourse against MLP. The Company is not a party to the MLP Credit Agreement or the MLP Pledge Agreement and has no obligations thereunder, but has delivered a letter agreement to the Lenders in which it has, among other things, agreed, subject to applicable law and stock exchange rules, not to take any action intended to hinder or delay the exercise of any remedies by the Lenders under the MLP Credit Agreement or the MLP Pledge Agreement.
In the event of a foreclosure upon any or all of the MLP Pledged Shares, we may no longer be a controlled company, and we may have difficulties complying with certain NASDAQ rules that we take advantage of as a controlled company if we cease to be a controlled company. We intend to comply with these NASDAQ rules if we cease to be a controlled company. However, there can be no assurance that we will be able to comply with such rules before the end of the applicable phase-in period for compliance. See “Risk Factors—Risks Relating to Ownership of Our Common Stock—We are a “controlled company” within the meaning of the NASDAQ rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements.
Our shareholders do not have the same protections afforded to shareholders of companies that are subject to such requirements” in Item 1A of Part I of this Annual Report on Form 10-K. Additionally, any foreclosure upon the MLP Pledged Sharescoverage. Any natural disaster or catastrophic event affecting us or our customers, investigators or collaboration partners could result in sales of a substantial amount of shares of our common stock in the public market, which could cause the market price of our common stock to drop significantly, even if our business is doing well. See “Risk Factors—Risks Relating to Ownership of Our Common Stock—Shares of our common stock may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well” in Item 1A of Part I of the Annual Report on Form 10-K. Moreover, the occurrence of a foreclosure, and a subsequent sale of all, or substantially all, of the MLP Pledged Shares could result in a change of control under our Senior Secured Credit Facilities, even when such change may not be in the best interest of our stockholders. Such sale of the MLP Pledged Shares may also result in another shareholder beneficially owninghave a significant amount ofnegative impact on our common stockoperations and being able to exert a significant degree of influence or actual control over our management and affairs. Such shareholder’s interests may be different from or conflict with those of our other shareholders. See “Risk Factors—Risks Relating to Ownership of Our Common Stock—Cinven and our Chief Executive Officer and founder collectively control a substantial majority of our outstanding common stock and their interests may be different from or conflict with those of our other shareholders” in Item 1A of Part I of this Annual Report on Form 10-K.
- 48 -
On August 11, 2016, our
|
| High |
|
| Low |
| ||
Fiscal Year 2017 |
|
|
|
|
|
|
|
|
Fourth Quarter |
| $ | 39.64 |
|
| $ | 31.70 |
|
Third Quarter |
| $ | 33.50 |
|
| $ | 26.56 |
|
Second Quarter |
| $ | 32.62 |
|
| $ | 21.76 |
|
First Quarter |
| $ | 37.22 |
|
| $ | 26.01 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016 |
|
|
|
|
|
|
|
|
Fourth Quarter |
| $ | 38.94 |
|
| $ | 28.50 |
|
August 11, 2016 through September 30, 2016 |
| $ | 31.35 |
|
| $ | 26.51 |
|
Holders of Record
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness” of Part II of this Annual Report on Form 10-K and Note 8 “Debt”
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publically Announce Plan | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan | ||||||||||||||||||||||
| November 1, 2022, through November 30, 2022 | 3,938 | $ | 198.55 | 7,028,060 | $ | 499,218,128 | ||||||||||||||||||||
| December 1, 2022 through December 31, 2022 | 224,309 | $ | 206.82 | 7,252,369 | $ | 452,825,870 | ||||||||||||||||||||
| Total | 228,247 | $ | 206.68 | 7,252,369 | ||||||||||||||||||||||
further discussion regarding share repurchases.
On January 10, 2017, an employee exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,851 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $30,000.
On February 2, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 925 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $13,300 and 277 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $4,500.
On February 10, 2017, an employee exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,000 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $14,400.
On February 15, 2017, an employee exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,851 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $30,000.
On February 21, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,500 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $21,600 and 462 shares of our common stock at a price of $16.89 per share for an aggregate purchase price of approximately $7,800.
On February 28, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 2,555 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $36,800 and 832 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $13,500.
On March 2, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,185 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $17,100 and 250 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $4,100.
On April 1, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 8,154 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $117,500.
On April 5, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 370 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $5,300 and 1,851 shares of our common stock at a price of $18.23 per share for an aggregate purchase price of approximately $33,700.
On April 6, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 648 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $10,500.
- 51 -
On May 2, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 11,648 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $167,800, 4,259 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $69,000 and 2,222 shares of our common stock at a price of $16.88 per share for an aggregate purchase price of approximately $37,500.
On May 5, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 9,260 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $150,100.
On May 24, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 2,777 shares of our common stock at a price of $16.21 per share for an aggregate purchase price of approximately $45,000.
On June 12, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 6,666 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $96,100 and 1,851 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $30,000.
On June 23, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 8,334 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $120,100 and 1,851 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $30,000.
On July 7, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 370 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $6,000.
On July 19, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,852 shares of our common stock at a price of $18.23 per share for an aggregate purchase price of approximately $33,800.
On July 25, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,600 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $23,100.
On August 4, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 464 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $6,700.
On August 18, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 463 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $6,700 and 278 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $4,500.
On September 5, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 50 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $700.
On September 25, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 4,167 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $60,000 and 1,852 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $30,000.
- 52 -
On October 9, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 2,221 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $32,000.
On October 16, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 23,000 shares of our common stock at a price of $16.88 per share for an aggregate purchase price of approximately $388,200.
On October 20, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 450 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $6,500.
On November 2, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 250 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $4,100.
On December 4, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 554 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $8,000.
On December 6, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 306 shares of our common stock at a price of $16.20 per share for an aggregate purchase price of approximately $5,000.
On December 12, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 473 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $6,800.
On December 18, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 1,850 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $26,700.
On December 19, 2017, employees exercised stock options granted under the 2014 Equity Incentive Plan to purchase a total of 4,008 shares of our common stock at a price of $14.41 per share for an aggregate purchase price of approximately $57,800.
The sales
| Date | Equity Plan | Number of Stock Options Exercised | Exercise Price | Approximate Aggregate Purchase Price | ||||||||||||||||||||||
| November 4, 2022 | 2014 Equity Incentive Plan | 37,074 | $ | 18.23 | $ | 675,900 | ||||||||||||||||||||
| Total | 37,074 | $ | 675,900 | |||||||||||||||||||||||
- 53 -
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share Repurchases
This table provides certain information with respect to our purchases of shares of the Company’s common stock during the fourth fiscal quarter of 2017:
Issuer’s Purchases of Equity Securities
Period |
| Total Number of Shares Purchased (a), (b) |
|
| Average Price Paid per Share (a), (b) |
|
| Total Number of Shares Purchased as Part of Publically Announced Plan (a) |
|
| Approximate Dollar Value of Share That May Yet Be Purchased Under the Plan (a) |
| ||||
October 1, 2017, through October 31, 2017 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 15,325,865 |
|
November 1, 2017, through November 30, 2017 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
December 1, 2017, through December 31, 2017 |
|
| 2,000,000 |
|
| $ | 30.16 |
|
|
| - |
|
|
| - |
|
Total |
|
| 2,000,000 |
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
Stock Performance Graph
- 54 -
Plan Information
The following tables set forth, for the periods and at the dates indicated, our selected historical consolidated financial data. We have derived the selected consolidated financial data as of December 31, 2017 and 2016, and for the Successor years ended December 31, 2017, 2016 and 2015 from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. We have derived the selected consolidated financial data as of December 31, 2014 and for the Successor nine month period ended December 31, 2014, the Predecessor three month period ended March 31, 2014 and the Predecessor year ended December 31, 2013 from our audited consolidated financial statements not appearing elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results we may achieve in any future period.
On July 25, 2016, the Board approved, and made legally effective, a 1-for-1.35 reverse stock split of the Company’s common stock. All share, stock option and per share information presented in the consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock.
The accompanying consolidated statements of operations, cash flows and shareholders' equity are presented for two periods: “Predecessor” and “Successor”, which relate to the period preceding and succeeding, respectively, the
- 55 -
Change in Control as discussed in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The Company refers to the operations of Medpace Holdings, Inc. and subsidiaries for both the Predecessor and Successor periods.
| SUCCESSOR |
|
|
| PREDECESSOR |
| ||||||||||||||||||
(in thousands except per share data) | YEAR ENDED DECEMBER 31, 2017 |
|
| YEAR ENDED DECEMBER 31, 2016 |
|
| YEAR ENDED DECEMBER 31, 2015 |
|
| NINE MONTH PERIOD FROM APRIL 1, 2014 THROUGH DECEMBER 31, 2014 |
|
|
| THREE MONTH PERIOD FROM JANUARY 1, 2014 THROUGH MARCH 31, 2014 |
|
| YEAR ENDED DECEMBER 31, 2013 |
| ||||||
Consolidated Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue, net | $ | 386,462 |
|
| $ | 370,621 |
|
| $ | 320,101 |
|
| $ | 219,791 |
|
|
| $ | 70,250 |
|
| $ | 244,270 |
|
Reimbursed out-of-pocket revenue |
| 49,690 |
|
|
| 50,961 |
|
|
| 38,958 |
|
|
| 28,708 |
|
|
|
| 7,679 |
|
|
| 28,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
| 436,152 |
|
|
| 421,582 |
|
|
| 359,059 |
|
|
| 248,499 |
|
|
|
| 77,929 |
|
|
| 272,890 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs, excluding depreciation and amortization |
| 211,773 |
|
|
| 198,510 |
|
|
| 163,707 |
|
|
| 117,550 |
|
|
|
| 38,759 |
|
|
| 119,779 |
|
Reimbursed out-of-pocket expenses |
| 49,690 |
|
|
| 50,961 |
|
|
| 38,958 |
|
|
| 28,708 |
|
|
|
| 7,679 |
|
|
| 28,620 |
|
Selling, general and administrative |
| 63,357 |
|
|
| 61,507 |
|
|
| 56,998 |
|
|
| 29,465 |
|
|
|
| 10,203 |
|
|
| 35,109 |
|
Acquisition and integration |
| - |
|
|
| - |
|
|
| - |
|
|
| 9,297 |
|
|
|
| 12,420 |
|
|
| - |
|
Impairment of goodwill |
| - |
|
|
| - |
|
|
| 9,313 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
Depreciation |
| 8,574 |
|
|
| 7,442 |
|
|
| 6,379 |
|
|
| 4,610 |
|
|
|
| 1,832 |
|
|
| 6,665 |
|
Amortization |
| 37,900 |
|
|
| 50,672 |
|
|
| 63,142 |
|
|
| 56,422 |
|
|
|
| 5,199 |
|
|
| 23,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
| 371,294 |
|
|
| 369,092 |
|
|
| 338,497 |
|
|
| 246,052 |
|
|
|
| 76,092 |
|
|
| 214,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
| 64,858 |
|
|
| 52,490 |
|
|
| 20,562 |
|
|
| 2,447 |
|
|
|
| 1,837 |
|
|
| 58,863 |
|
Other (expense) income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
| - |
|
|
| (10,726 | ) |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
Miscellaneous (expense) income, net |
| (354 | ) |
|
| (423 | ) |
|
| (1,133 | ) |
|
| (301 | ) |
|
|
| 1,213 |
|
|
| (1,718 | ) |
Interest expense, net |
| (7,559 | ) |
|
| (19,384 | ) |
|
| (27,259 | ) |
|
| (23,185 | ) |
|
|
| (3,272 | ) |
|
| (18,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
| (7,913 | ) |
|
| (30,533 | ) |
|
| (28,392 | ) |
|
| (23,486 | ) |
|
|
| (2,059 | ) |
|
| (19,718 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
| 56,945 |
|
|
| 21,957 |
|
|
| (7,830 | ) |
|
| (21,039 | ) |
|
|
| (222 | ) |
|
| 39,145 |
|
Income tax provision (benefit) |
| 17,823 |
|
|
| 8,532 |
|
|
| 843 |
|
|
| (6,703 | ) |
|
|
| 1,014 |
|
|
| 14,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | 39,122 |
|
| $ | 13,425 |
|
| $ | (8,673 | ) |
| $ | (14,336 | ) |
|
| $ | (1,236 | ) |
| $ | 24,844 |
|
Net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 1.00 |
|
| $ | 0.38 |
|
| $ | (0.28 | ) |
| $ | (0.46 | ) |
|
| $ | (0.05 | ) |
| $ | 0.99 |
|
Diluted | $ | 0.98 |
|
| $ | 0.37 |
|
| $ | (0.28 | ) |
| $ | (0.46 | ) |
|
| $ | (0.05 | ) |
| $ | 0.95 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 39,056 |
|
|
| 35,690 |
|
|
| 31,346 |
|
|
| 30,869 |
|
|
|
| 25,047 |
|
|
| 25,204 |
|
Diluted |
| 39,839 |
|
|
| 36,329 |
|
|
| 31,346 |
|
|
| 30,869 |
|
|
|
| 25,047 |
|
|
| 26,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities | $ | 97,385 |
|
| $ | 91,732 |
|
| $ | 85,870 |
|
| $ | 61,995 |
|
|
| $ | 13,207 |
|
| $ | 97,704 |
|
Net cash used in investing activities |
| (12,237 | ) |
|
| (13,422 | ) |
|
| (6,432 | ) |
|
| (905,992 | ) |
|
|
| (827 | ) |
|
| (4,472 | ) |
Net cash (used in) provided by financing activities |
| (97,828 | ) |
|
| (58,008 | ) |
|
| (116,489 | ) |
|
| 900,171 |
|
|
|
| (17,968 | ) |
|
| (95,851 | ) |
| SUCCESSOR |
|
|
| PREDECESSOR |
| ||||||||||||||||||
(in thousands) | YEAR ENDED DECEMBER 31, 2017 |
|
| YEAR ENDED DECEMBER 31, 2016 |
|
| YEAR ENDED DECEMBER 31, 2015 |
|
| NINE MONTH PERIOD FROM APRIL 1, 2014 THROUGH DECEMBER 31, 2014 |
|
|
| THREE MONTH PERIOD FROM JANUARY 1, 2014 THROUGH MARCH 31, 2014 |
|
| YEAR ENDED DECEMBER 31, 2013 |
| ||||||
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog (at period end) (1) |
| 524,402 |
|
|
| 483,918 |
|
|
| 429,659 |
|
|
| 394,023 |
|
|
|
| 386,047 |
|
|
| 359,341 |
|
Net new business awards (2) |
| 426,082 |
|
|
| 426,960 |
|
|
| 359,538 |
|
|
| 231,918 |
|
|
|
| 97,220 |
|
|
| 291,577 |
|
- 56 -
| SUCCESSOR |
| |||||||||||||
| AS OF |
|
| AS OF |
|
| AS OF |
|
| AS OF |
| ||||
(Amounts in thousands ) | DECEMBER 31, 2017 |
|
| DECEMBER 31, 2016 |
|
| DECEMBER 31, 2015 |
|
| DECEMBER 31, 2014 |
| ||||
Consolidated Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 26,485 |
|
| $ | 37,099 |
|
| $ | 14,880 |
|
| $ | 54,285 |
|
Restricted cash |
| 7 |
|
|
| 308 |
|
|
| 2,857 |
|
|
| 1,104 |
|
Accounts receivable billed and unbilled, net: |
| 83,079 |
|
|
| 79,767 |
|
|
| 65,088 |
|
|
| 65,248 |
|
Working capital |
| (62,735 | ) |
|
| (35,355 | ) |
|
| (39,296 | ) |
|
| (319 | ) |
Total assets |
| 950,717 |
|
|
| 979,105 |
|
|
| 984,041 |
|
|
| 1,096,912 |
|
Total long-term debt, net (including current portion) |
| 221,611 |
|
|
| 163,642 |
|
|
| 377,941 |
|
|
| 491,773 |
|
Total liabilities |
| 447,187 |
|
|
| 368,395 |
|
|
| 570,567 |
|
|
| 694,942 |
|
Total shareholders' equity |
| 503,530 |
|
|
| 610,710 |
|
|
| 413,474 |
|
|
| 401,970 |
|
Total liabilities and shareholders' equity |
| 950,717 |
|
|
| 979,105 |
|
|
| 984,041 |
|
|
| 1,096,912 |
|
|
|
|
|
- 57 -
Estimates—Revenue Recognition," below. 2023. 2021. Year Ended December 31, 2017 2016 2015 U.S. Dollars per Euro: 1.13 1.11 1.10 Year Ended December 31, (Amounts in thousands, except percentages) 2017 2016 Change % Change Service revenue, net $ 386,462 $ 370,621 $ 15,841 4.3 % Reimbursed out-of-pocket revenue 49,690 50,961 (1,271 ) (2.5 )% Total revenue 436,152 421,582 14,570 3.5 % Direct costs, excluding depreciation and amortization 211,773 198,510 13,263 6.7 % Reimbursed out-of-pocket expenses 49,690 50,961 (1,271 ) (2.5 )% Selling, general and administrative 63,357 61,507 1,850 3.0 % Depreciation 8,574 7,442 1,132 15.2 % Amortization 37,900 50,672 (12,772 ) (25.2 )% Total operating expenses 371,294 369,092 2,202 0.6 % Income from operations 64,858 52,490 12,368 Loss on extinguishment of debt - (10,726 ) 10,726 Miscellaneous expense, net (354 ) (423 ) 69 Interest expense, net (7,559 ) (19,384 ) 11,825 Income before income taxes 56,945 21,957 34,988 Income tax provision 17,823 8,532 9,291 Net income $ 39,122 $ 13,425 $ 25,697 10-K.10-K to provide an understanding of our results of operations, financial condition and cash flows. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. For a comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 15, 2022. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those indicated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to, those discussed under the “Forward-Looking Statements” above and “Item IA. Risk Factors” in Part I of this Annual Report on Form 10-K. 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 biopharmaceuticalCardiology,Oncology, Metabolic Disease, Oncology, Endocrinology,Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI, as well as therapeutic expertise in Medical Devices.AVAI. Our global platform includes approximately 2,5005,200 employees across 3540 countries, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.Asset AcquisitionIn May 2017, the Company acquired out of bankruptcy NephroGenex, Inc. (“Nephrogenex” or the “Debtor”), a publicly-held pharmaceutical company that had previously filed for relief under Chapter 11 of the United States Bankruptcy Code. The Company, which was the largest unsecured creditor of Nephrogenex, entered into an agreement through the bankruptcy process, to exchange its unsecured claim for 100% of the common stock in the post-bankruptcy, debt-free Debtor. The assets of the acquired Debtor consist primarily of tax attributes as well as in-process research and development and other intangible assets. An analysis by the Company determined that substantially all the fair value of the assets on the date of acquisition is captured in the tax attributes, as the intangible assets account for a relatively immaterial portion of the fair market value of the total assets received. The acquisition of the Debtor was accounted for as an asset purchase.The Company allocated its consideration paid of $1.2 million, consisting of accounts receivable and unbilled receivables and transaction related costs, on a pro rata basis to the assets acquired based on their respective fair values. Acquired assets include intangible assets of $0.5 million, deferred tax assets of $22.2 million, consisting of tax effected net operating losses in the amount of $13.5 million, tax effected capitalized research and development expenses of $8.5 million and tax effected federal tax credits of $0.2 million, and deferred tax liabilities of $0.1 million. The excess amount of fair value received over consideration paid of $21.4 million was recorded as a Deferred credit in the consolidated balance sheets and will be recognized within income tax provision in proportion to the realization of the deferred tax assets and federal tax credits prospectively.During the fourth quarter of the year ended December 31, 2017, the Deferred tax assets and related Deferred credit balances were revalued due primarily to the impact of tax reform. See Note 12 of the Notes to Consolidated Financial Statements for further discussion of the impact of tax reform on our consolidated financial statements.Our revenue consists of net service revenue and reimbursed-out-of-pocket revenue.- 58 - customer 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, andwith 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. This payment structure is standard in the CRO industry.Net service revenue,generally recognized based on the proportional performance methodology, which is determined by assessing the proportion of performance completed or delivered to date compared to total specific measures to be delivered or completed under the termssatisfaction of the individual performance obligations identified in each contract. The measures utilizedSubstantially all of our customer contracts consist of a single performance obligation, as the promise to assesstransfer 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 specific to the service provided. Net service revenue for unit-of-service contracts isgenerally satisfied over time and recognized as services are performed or delivered.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 and reimbursable costs incurred 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 net service revenue when collectionwe believe the amount can be estimated reliably and its realization is reasonably assured.probable. Changes in net service revenue from period to period are driven primarily by new business volume and task order execution activity, project cancellations, changes in estimated costs to complete performance obligations, and the mix of active studies during a given period that can vary based on therapeutic area and or study life cycle stage.Reimbursed Out-of-Pocket RevenueReimbursed out-of-pocket revenue consists primarily of expenses we incur in relation Refer to projects that are reimbursed by our customers with no profit or mark-up. These expenses are defined in our contracts"Critical Accounting Policies and generally include, but are not limited to, travel, meetings, printing, and shipping and handling fees. Such reimbursements received are included in revenue with the expenditures reflected as a separate component of operating expense. Certain fees paid to investigators and other disbursements in which we act as an agent on behalf of the study sponsor are reflected in the consolidated statements of operations with no resulting effect on our revenue or expenses. In addition, as noted above, we also have reimbursed out-of-pocket expenditures that are directly offset by our reimbursed out-of-pocket revenue. Excluding Depreciation and AmortizationDirect excluding depreciation and amortization, 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 license expenses,licenses which are allocated between Total direct costs excluding depreciation and amortization and selling, general and administrative expenses based on the estimated contribution among service delivery and support function efforts on a percentage basis. DirectTotal direct costs excluding depreciation and amortization exclude reimbursed out-of-pocket expenses. Direct costs, excluding depreciation and amortization are expensed as incurred and are not deferred in anticipation of contracts being awarded or finalization of changes in scope. DirectTotal direct costs, excluding depreciation and amortization as a percentage of net service revenue, can vary from period to period due to project labor efficiencies, changes in workforce, compensation/bonus programs and service mix.- 59 -and deemed assets from landlord building construction are amortized on a straight-line basis over the shorter of the estimated useful life of the improvement or the associated remaining lease term.which range in term from 17 months toof 15 years.service revenue that has been awardedrecognized in backlog during the period that is recognized in backlog.period. 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 service 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 timelinethree years from measurement date 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.agreement.agreement or when we believe the future revenue is unlikely to be realized. 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.$426.1 million, $427.0$1,829.5 million and $359.5$1,610.4 million for the years ended December 31, 2017, 20162022 and 2015,2021, respectively.- 60 - service 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 the scope ofto existing contracts, cancellations, net revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of December 31, 2017,2022, our backlog increased by $40.5$342.5 million, or 8.4%,17.2% to $524.4$2,339.6 million compared to $483.9$1,997.1 million as of December 31, 2016.2021. Included within backlog as of December 31, 20172022 was approximately $285$1,200.0 million to $295$1,220.0 million that we expect to convert to net service revenue in 2018, 2023, with the remainder expected to convert to net service revenue in years after 2018.favorableunfavorable foreign currency adjustments of $3.2$19.1 million for the year ended December 31, 2017;2022 and unfavorable foreign currency adjustments of $3.4$5.5 million for the year ended December 31, 2016; and unfavorable foreign currency adjustments of $3.6 million for the year ended December 31, 2015.Year Ended December 31, 2022 2021 U.S. Dollars per Euro: 1.05 1.18 20172022 compared to Year Ended December 31, 20162021Year Ended December 31, (Amounts in thousands, except percentages) 2022 2021 Change % Change Revenue, net Revenue, net $ 1,459,996 $ 1,142,377 $ 317,619 27.8 % Direct service costs, excluding depreciation and amortization Direct service costs, excluding depreciation and amortization 534,887 441,090 93,797 21.3 % Reimbursed out-of-pocket expenses 492,671 373,132 119,539 32.0 % Total direct costs Total direct costs 1,027,558 814,222 213,336 26.2 % Selling, general and administrative 131,400 108,421 22,979 21.2 % Depreciation 18,989 16,005 2,984 18.6 % Amortization 3,352 5,114 (1,762) (34.5) % Total operating expenses 1,181,299 943,762 237,537 25.2 % Income from operations 278,697 198,615 80,082 Miscellaneous income, net Miscellaneous income, net 7,068 3,342 3,726 Interest (expense) income, net Interest (expense) income, net (2,905) (105) (2,800) Income before income taxes 282,860 201,852 81,008 Income tax provision 37,492 20,004 17,488 Net income $ 245,368 $ 181,848 $ 63,520
- 61 -
Service
For the year ended December 31, 2017 service revenue, net increased by $15.8$317.6 million to $386.5 million, from $370.6$1,460.0 million for the year ended December 31, 2016.2022, from $1,142.4 million for the year ended December 31, 2021. The increase was broad based, but primarily driven by strong activity within the Oncology, Metabolic, Cardiology and other uncategorizedCentral Nervous System therapeutic areas.
Reimbursed out-of-pocket revenue decreased
Direct costs, excluding depreciation and amortization and Reimbursed out-of-pocket expenses
Our direct costs, excluding depreciation and amortization increased by $13.3 million, to $211.8$119.5 million for the year ended December 31, 2017 from $198.52022, compared to the same period in the prior year. The higher personnel costs portion increased by $75.4 million in the year ended December 31, 2022, compared to the same period in the prior year.
Selling, generalyear.
Selling, generalAmortization
Depreciation and Amortization
Depreciation and amortization expense decreased by $11.6 million, to $46.5 million for the year ended December 31, 2017 from $58.1 for the year ended December 31, 2016. The decrease in depreciation and amortization was primarily related to the amortization of our definite lived intangible assets, which are amortized on an accelerated basis.
Loss on extinguishment of debt
During the year ended December 31, 2016, in connection with entering into the Senior Secured Credit Facilities (as defined below), the Company recorded a loss on extinguishment of long-term debt of $10.7 million in the fourth quarter of 2016, of which $10.2 millionincreased depreciation related to unamortized loan origination fees from the credit agreement for our 2014 Senior Secured Credit Facilities (as defined below)Property and $0.5 million related to third party fees incurred during the fourth quarter of 2016. There was no extinguishment of long-term debt in the year ended December 31, 2017.
equipment, net.
- 62 -
Interest expense, net decreasedpayment.
Income tax provision
Income tax provision increased by $9.3 million, to $17.8 million for the year ended December 31, 2017 from $8.5 million for the year ended December 31, 2016.2021. The overall effective tax rates for the years ended December 31, 20172022 and 20162021 were 31.3%13.3% and 38.9%9.9%, respectively. On December 22, 2017,The increase in the U.S. government enacted comprehensive tax legislation commonly referred to as “Tax Cuts and Jobs Act” (TCJA). The effective tax rate for 2017 decreased from 2016 primarily due to the impact from the TCJA. Excluding the impacts of the new federal tax reform legislation, our effective income tax provision and overall effective rate in 2017 would have been an expense of 36.2%. The remaining difference was primarily attributable to the impact of state taxes, domestic and foreign uncertain tax positions and the tax impact associated with acquired tax attributes.
The 2017 TCJA significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes a reduction in the U.S. federal tax rate from 35% to 21%, allows for the expensing of capital expenditures and puts into effect the migration from a “worldwide” system of taxation to a territorial system. The provisional impact on the year ended December 31, 2017 effective tax rate from the TCJA was primarily attributable to a one-time transition tax of $0.6 million on unrepatriated earnings of foreign subsidiaries as well as a tax benefit of $3.4 million related to the revaluation of the Deferred Credit which was partially offset by the revaluation of our deferred tax assets and liabilities and other miscellaneous tax attributes due to the reduction of the U.S. corporate tax rate from 35% to 21%.
We are still evaluating the impact of the TCJA on our future effective tax rate, but at this time, we expect that the overall impact of the TCJA will decrease our effective tax rate compared to prior years.
Year ended December 31, 2016 compared to Year ended December 31, 2015
|
| Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
| |||||
(Amounts in thousands, except percentages) |
| 2016 |
|
| 2015 |
|
| Change |
|
| % Change |
|
|
| ||||
Service revenue, net |
| $ | 370,621 |
|
| $ | 320,101 |
|
| $ | 50,520 |
|
|
| 15.8 | % |
|
|
Reimbursed out-of-pocket revenue |
|
| 50,961 |
|
|
| 38,958 |
|
|
| 12,003 |
|
|
| 30.8 | % |
|
|
Total revenue |
|
| 421,582 |
|
|
| 359,059 |
|
|
| 62,523 |
|
|
| 17.4 | % |
|
|
Direct costs, excluding depreciation and amortization |
|
| 198,510 |
|
|
| 163,707 |
|
|
| 34,803 |
|
|
| 21.3 | % |
|
|
Reimbursed out-of-pocket expenses |
|
| 50,961 |
|
|
| 38,958 |
|
|
| 12,003 |
|
|
| 30.8 | % |
|
|
Selling, general and administrative |
|
| 61,507 |
|
|
| 56,998 |
|
|
| 4,509 |
|
|
| 7.9 | % |
|
|
Impairment of goodwill |
|
| - |
|
|
| 9,313 |
|
|
| (9,313 | ) |
|
| (100.0 | )% |
|
|
Depreciation |
|
| 7,442 |
|
|
| 6,379 |
|
|
| 1,063 |
|
|
| 16.7 | % |
|
|
Amortization |
|
| 50,672 |
|
|
| 63,142 |
|
|
| (12,470 | ) |
|
| (19.7 | )% |
|
|
Total operating expenses |
|
| 369,092 |
|
|
| 338,497 |
|
|
| 30,595 |
|
|
| 9.0 | % |
|
|
Income from operations |
|
| 52,490 |
|
|
| 20,562 |
|
|
| 31,928 |
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
| (10,726 | ) |
|
| - |
|
|
| (10,726 | ) |
|
|
|
|
|
|
Miscellaneous expense, net |
|
| (423 | ) |
|
| (1,133 | ) |
|
| 710 |
|
|
|
|
|
|
|
Interest expense, net |
|
| (19,384 | ) |
|
| (27,259 | ) |
|
| 7,875 |
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
| 21,957 |
|
|
| (7,830 | ) |
|
| 29,787 |
|
|
|
|
|
|
|
Income tax provision |
|
| 8,532 |
|
|
| 843 |
|
|
| 7,689 |
|
|
|
|
|
|
|
Net (loss) income |
| $ | 13,425 |
|
| $ | (8,673 | ) |
| $ | 22,098 |
|
|
|
|
|
|
|
- 63 -
Service revenue, net and Reimbursed out-of-pocket revenue
For the year ended December 31, 2016 service revenue, net increased by $50.5 million to $370.6 million, from $320.1 million for the year ended December 31, 2015. The increase was primarily driven by strong activity within the Oncology and AVAI therapeutic areas.
Reimbursed out-of-pocket revenue increased by $12.0 million to $51.0 million for the year ended December 31, 2016, from $39.0 million for the year ended December 31, 2015. Reimbursed out-of-pocket revenues can fluctuate significantly from period to period based on the timing of program initiation or closeout, and these changes do not necessarily correlate to changes in net service revenue. The reimbursements were offset by an equal amount of reimbursed out-of-pocket expenses.
Direct costs, excluding depreciation and amortization and Reimbursed out-of-pocket expenses
Our direct costs, excluding depreciation and amortization increased by $34.8 million, to $198.5 million for the year ended December 31, 2016 from $163.7 million for the year ended December 31, 2015. The increase was primarily attributed to increases in employee related costs for additional personnel of $23.7 million, contracted services of $4.7 million, and laboratory costs of $2.3 million, all to support the growth in project activities.
Selling, general and administrative
Selling, general and administrative expenses increased by $4.5 million, to $61.5 million for the year ended December 31, 2016 from $57.0 million for the year ended December 31, 2015. The increase was primarily driven by an increase in bad debt of $3.0 million in the year ended December 31, 2016 compared to the prior year, primarily due to higher bad debt expense incurred in 2016 of approximately $1.3 million compared to 2015, and a net bad debt recovery in the year ended December 31, 2015 of $1.6 million that did not recur in 2016. The year ended December 31, 2015 also benefitted from a $1.1 million gain on litigation from the settlement of an employment matter. The costs for certain advisory and professional fees related to the IPO in 2016 resulted in increases in expenses of $0.9 million while charitable contributions increased $0.6 million for the year ended December 31, 2016 compared to the prior year. These increases were partially offset by a $1.4 million decrease in employee related costs for the year ended December 31, 2016 compared to the prior year. This decrease was the result of a $4.3 million one-time stock based compensation award to our Chief Executive Officer during the year ended December 31, 2015, partially offset by an increase in other employee related costs of $2.9 million for the year ended December 31, 2016.
Impairment of goodwill
There was no impairment of goodwill for the year ended December 31, 2016. During the year ended December 31, 2015, we determined that the fair value of our Clinics reporting unit did not exceed its carrying value resulting in a $9.3 million impairment of goodwill. This impairment was identified during the annual impairment assessment in the fourth quarter of 2015 when we updated our forecasted discounted cash flows to reflect operating results that lagged prior forecasted results.
Depreciation and Amortization
Depreciation and amortization expense decreased by $11.4 million, to $58.1 million for the year ended December 31, 2016 from $69.5 million for the year ended December 31, 2015. The decrease in depreciation and amortization was primarily related to the amortization of our definite lived intangible assets, which are amortized on an accelerated basis.
Loss on extinguishment of debt
During the year ended December 31, 2016, in connection with entering into the Senior Secured Credit Facilities (as defined below), the Company recorded a loss on extinguishment of long-term debt of $10.7 million in the fourth quarter of 2016, of which $10.2 million related to unamortized loan origination fees from the credit agreement for our 2014 Senior Secured Credit Facilities (as defined below) and $0.5 million related to third party fees incurred
- 64 -
during the fourth quarter of 2016. There was no extinguishment of long-term debt in the year ended December 31, 2015.
Miscellaneous expense, net
Miscellaneous expense, net decreased by $0.7 million to $0.4 million of expense for the year ended December 31, 2016 from $1.1 million of expense for the year ended December 31, 2015. These changes were 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, and 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. Additionally, a $0.5 million gain was recognized during the year ended December 31, 2016 in connection with the settlement of certain liabilities related to a prior year change in control.
Interest expense, net
Interest expense, net decreased by $7.9 million to $19.4 million for the year ended December 31, 2016 from $27.3 million for the year ended December 31, 2015. The decrease in interest expense, net for the year ended December 31, 2016 was primarily related to the lower average outstanding balance under our Senior Secured Term Loan Facility (as defined below) and 2014 Senior Secured Term Loan Facility (as defined below) compared to the prior year. Additionally, our Senior Secured Term Loan Facility, which we entered into in the fourth quarter of 2016, has a lower rate of interest compared to the 2014 Senior Secured Term Loan Facility.
Income tax provision
Income tax provision increased by $7.7 million, to $8.5 million for the year ended December 31, 2016 from $0.8 million for the year ended December 31, 2015. The overall effective tax rates for the years ended December 31, 2016 and 2015 were 38.9% and negative 10.8%, respectively. The change in effective tax rates and the increase in income tax provision was primarily due to an increase in pre-tax book income coupled with relatively consistent year over year rate reconciliation drivers.
compared to the same periods in the prior year.
On August 16, 2016, the Company completed its IPO of its common stock at a price of $23.00 per share. We issued and sold 8,050,000 shares of common stock in the IPO. The IPO raised net proceeds of approximately $173.6 million after deducting underwriting discounts and commissions. We used the proceeds from our IPO, combined with cash on hand, to repay $175.0 million of outstanding borrowings under our 2014 Senior Secured Term Loan Facility.
On December 8, 2016, the Company entered into a credit agreement (the “Senior Secured Credit Agreement”) consisting of a $165.0 million term loan (the “Senior Secured Term Loan Facility”) and a $150.0 million revolving credit facility (the “Senior Secured Revolving Credit Facility” and, together with the Senior Secured Term Loan Facility, the “Senior Secured Credit Facilities”). 2022.
- 65 -
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Year Ended December 31, |
| Year Ended December 31, | |||||||||||||||||||||||||
Cash Flows (Amounts in thousands) |
| 2017 |
|
| 2016 |
|
| 2015 |
| Cash Flows (Amounts in thousands) | 2022 | 2021 | |||||||||||||||||
Net cash provided by operating activities |
| $ | 97,385 |
|
| $ | 91,732 |
|
| $ | 85,870 |
| Net cash provided by operating activities | $ | 388,050 | $ | 263,327 | ||||||||||||
Net cash used in investing activities |
|
| (12,237 | ) |
|
| (13,422 | ) |
|
| (6,432 | ) | Net cash used in investing activities | (38,742) | (31,364) | ||||||||||||||
Net cash used in financing activities |
|
| (97,828 | ) |
|
| (58,008 | ) |
|
| (116,489 | ) | Net cash used in financing activities | (775,775) | (44,453) | ||||||||||||||
Effect of exchange rates on cash, cash equivalents, and restricted cash |
|
| 1,765 |
|
|
| (632 | ) |
|
| (601 | ) | Effect of exchange rates on cash, cash equivalents, and restricted cash | (6,572) | (3,972) | ||||||||||||||
(Decrease) increase in cash, cash equivalents, and restricted cash |
| $ | (10,915 | ) |
| $ | 19,670 |
|
| $ | (37,652 | ) | (Decrease) increase in cash, cash equivalents, and restricted cash | $ | (433,039) | $ | 183,538 | ||||||||||||
- 66 -
operating cash flows and were primarily driven by increased advanced billings of $89.0 million and increased accrued expenses of $4.5 million primarily related to employee related costs, increased advanced billings of $14.7$26.2 million, offset by increased accounts receivable and unbilled, services, net of $13.7$25.0 million, decreased lease liabilities of $15.6 million and increased prepaid expenses and other current assets of $3.7 million, and a decrease in other assets and liabilities, net of $0.8$9.1 million.
Cash Flow from Investing Activities
equipment expenditures.
$274.2 million in repayments of the Credit Facility, partially offset by $324.2 million in proceeds related to the Credit Facility and proceeds from stock options exercises of $22.1 million.
Cash Flow from Financing Activities
Net cash used in financing activities was $97.8 million in the year ended December 31, 2017,2021, primarily related to $155.6$62.1 million in repurchases of common stock, and $42.4 million in payments on our Senior Secured Credit Facilities, offset by $100.0 million in proceeds from stock options exercises of $17.6 million.
Net cash used in financing activities was $58.0 million forBoard of Directors approved a stock repurchase program which has been amended several times to increase the aggregate amount of the stock repurchase authorization. For the year ended December 31, 2016 primarily related to $390.12022, the Company repurchased 5,463,244 shares for $800.5 million in principal payments on our 2014 Senior Secured Term Loan Facility, offset by the IPO proceeds received of $173.6 million, and the proceeds from the issuance of debt, net of original issue discount of $164.5 million related to the Senior Secured Credit Facilities. The remaining activity consisted of rental payments on deemed landlord assets, payment of debt issuance costs, and the payment of common stock issuance costs.
Net cash used in financing activities was $116.5 million inunder this repurchase program. For the year ended December 31, 2015, primarily related to $116.1 million in principal payments on our 2014 Senior Secured Term Loan Facility.
Share Repurchases
In November 2017, the Board members who are not affiliated with Cinven (the “Disinterested Directors”) approved an agreement to repurchase 2,000,000 shares of the Company’s common stock from Cinven in connection with a Secondary Offering (as described in Note 1 of the Notes to the Consolidated Financial Statements) for aggregate consideration of approximately $60.3 million, representing a purchase price of $30.16 per share. The Company funded the repurchase with approximately $60.0 million in borrowings under the Senior Secured Revolving Credit Facility and cash on hand.
In August 2017, the Disinterested Directors of the Company approved a stock repurchase agreement with Medpace Limited Partnership, a Guernsey limited partnership (the “Limited Partnership” acting through its general partner, Medpace GP Limited, a Guernsey company, the “General Partner” and, the Limited Partnership acting through the General Partner, “Cinven”), pursuant to which2021, the Company repurchased 2,000,000377,783 shares offor $62.1 million. For the Company’s common stock from Cinven for aggregate consideration of approximately $60.5 million, representing a purchase price of $30.27 per share. The Company funded the repurchase with cash on hand and $40.0 million in borrowings under our Senior Secured Revolving Credit Facility.
- 67 -
In April 2017, the Board ofyear ended December 31, 2020, the Company repurchased 1,183,095 shares for $98.3 million. As of June 30, 2022, the Company completed all authorized a share repurchases under this repurchase program with an authorized repurchase level of $50.0 million. The share repurchase program was cancelled inprogram.
The Company has elected to constructively retire all repurchased shares with allprograms, 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 Common stock par value are reflected within Accumulated deficitdeficit/Retained earnings in the Company’s consolidated balance sheets, except for 200,000 shares, which are reflected within treasury stock in the Company’s consolidated balance sheets.
The repurchase programs may be suspended or discontinued at any time without notice.
The Senior Secured Credit Facilities areis guaranteed by the Parent 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 Senior Secured Credit FacilitiesFacility are secured, subject to certain permitted liens and other exceptions, by substantially all of the assets of the Borrower and each guarantor, including, but not limited to, a perfected pledge of all of the capital stock of the Borrower and of each guarantor (other than the Parent Guarantor) and, subject to certain exceptions, perfected security interests in substantially all other tangible and intangible assets of the Borrower and each guarantor.
As of December 31, 2017, there was $152.6 million outstanding under the Senior Secured Term Loan Facility and $70.0 million in borrowings outstanding under the Senior Secured Revolvingunsecured.
Borrowings under the Senior Secured Credit Facilities bear interest at a rate equal to, at our option, either (i) the adjusted Eurocurrency rate based on LIBOR for U.S. dollar deposits for loans denominated in dollars, EURIBOR for Euro deposits for loans denominated in Euros and the offer rate for any other currencies for loans denominated in such other currencies for the relevant interest period plus an applicable margin from 1.25% to 2.25% based on the total net leverage ratio from less than 1.50:1.00 to greater than 3.75:1:00, or (ii) an alternative base rate (determined by reference to the highest of (a) the prime commercial lending rate of the administrative agent, as established from time to time, (b) the Federal Funds Rate plus 0.50% and (c) the one-month adjusted Eurocurrency rate for loans in U.S. dollars plus 1.00%) plus an applicable margin from 0.25% to 1.25% based on the total net leverage ratio from less than 1.50:1.00 to greater than 3.75:1:00. The applicable margin as of December 31, 2017 was 1.25% for Eurocurrency loans and 0.25% for base rate loans. At our discretion, we may choose interest periods of one, two, three or six months, which determines the interest rate to be applied. Interest on the Eurocurrency rate loan continues to be payable at the end of the selected Eurocurrency term and interest on the base rate tranche of the Senior Secured Term Loan Facility is payable quarterly in conjunction with any required principal payments.
We also pay commitment fees on a quarterly basis at an annual rate of 0.375% of the unused borrowings under the Senior Secured Revolving Credit Facility for the first full fiscal quarter after the Closing Date, and thereafter at
- 68 -
0.50% if the total net leverage ratio is greater than or equal to 3.00:1.00, or 0.375% if the total net leverage ratio is less than 3.00:1.00.
The Senior Secured Term Loan Facility will amortize in quarterly installments in aggregate annual amounts equal to (i) 7.5% of the original principal amount of the Senior Secured Term Loan Facility during the first year after the Closing Date, (ii) 10.0% of the original principal amount of the Senior Secured Term Loan Facility during the second year after the Closing Date, (iii) 10.0% of the original principal amount of the Senior Secured Term Loan Facility during the third year after the Closing Date, (iv) 12.5% of the original principal amount of the Senior Secured Term Loan Facility during the fourth year after the Closing Date and (v) 15.0% of the original principal amount of the Senior Secured Term Loan Facility during the fifth year after the Closing Date. The first amortization payment was due on March 31, 2017 and the remaining balance of the original principal amount of the Senior Secured Term Loan Facility outstanding at maturity will be paid in a final balloon payment. The Senior Secured Revolving Credit Facility terminates on the fifth anniversary of the Closing Date and loans thereunder may be borrowed, repaid, and re-borrowed up to such date.
The following amounts are required to be prepaid in addition to quarterly installment payments and will be applied to repay the Senior Secured Term Loan Facility, subject to certain thresholds, carve-outs, exceptions and reinvestment rights: (a) to the extent that the net cash proceeds of non-ordinary course asset sales or other dispositions of property in a transaction or related transactions by the Borrower and its subsidiaries (including, without limitation, insurance and condemnation proceeds) exceeds $10 million in any fiscal year, 100% of such excess net cash proceeds; (b) 100% of the net cash proceeds of certain debt incurred by the Borrower and its restricted subsidiaries after the Closing Date; and (c) to the extent that net cash proceeds received by the Borrower and its restricted subsidiaries in connection with the disposition of any accounts receivable or related assets to a permitted receivables financing subsidiary exceeds $5 million at any time, 100% of such excess net cash proceeds. In addition to the mandatory payments above, the Borrower may voluntarily repay the outstanding Senior Secured Term Loan Facility without premium or penalty, subject to certain restrictions.
The Senior Secured Credit Facilities are subject to customary negative covenants that, among other things, limit the Borrower and its restricted subsidiaries to, subject to certain exceptions and carve outs:
create, incur or assume any lien upon any of the property, assets or revenue;
make or hold certain investments;
|
|
merge, dissolve, liquidate or consolidate with or into another person;
make certain dispositions of property or other assets (including sale leaseback transactions);
declare or make certain restricted payments, including dividends;
enter into certain transactions with affiliates;
prepay subordinated debt;
enter into burdensome agreements;
engage in any material line of business substantially different from currently conducted business; or
change fiscal year.
In addition, the Borrower is required to report compliance with two financial covenants that are tested at the end of each fiscal quarter. The Borrower is required to maintain a ratio of consolidated funded indebtedness minus unrestricted cash and cash equivalents (in the aggregate not to exceed $50 million and to include not more than $25 million of foreign unrestricted cash and cash equivalents) to consolidated EBITDA for the most recent four fiscal quarter period not to exceed 4.00:1.00; provided that the Borrower shall be permitted to increase the ratio to 4.50:1.00 in connection with any permitted acquisition or any other acquisition consented to by Administrative Agent and the Required Lenders (as defined in the Senior Secured Credit Agreement) with total cash consideration in excess of $25 million. Such increase shall be applicable for the fiscal quarter in which such acquisition is
- 69 -
consummated and the three consecutive test periods thereafter. The Borrower is also required to maintain a ratio of consolidated EBITDA to consolidated interest expense, in each case for the most recent four fiscal quarter period, of not less than 3.00:1.00.covenants. The Company was in compliance with all financial covenants as of December 31, 2017.
2022.
Contractual Obligations and Commercial Commitments
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease obligations, are not recognized as liabilities in our consolidated financial statements but are required to be disclosed. The following table summarizes our future payments for all contractual obligations and commercial commitments for the years subsequent to the year ended December 31, 2017:
|
| Payments Due by Period |
| |||||||||||||||||
Contractual Obligations (In thousands) |
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| More than 5 years |
| |||||
Long-term debt obligations |
| $ | 222,625 |
|
| $ | 16,500 |
|
| $ | 37,125 |
|
| $ | 169,000 |
|
| $ | - |
|
Interest on long-term debt |
|
| 22,588 |
|
|
| 6,489 |
|
|
| 11,534 |
|
|
| 4,565 |
|
|
| - |
|
Operating lease obligations |
|
| 27,763 |
|
|
| 7,005 |
|
|
| 9,839 |
|
|
| 7,655 |
|
|
| 3,264 |
|
Deemed landlord liabilities |
|
| 39,750 |
|
|
| 3,852 |
|
|
| 7,925 |
|
|
| 8,131 |
|
|
| 19,842 |
|
Total |
| $ | 312,726 |
|
| $ | 33,846 |
|
| $ | 66,423 |
|
| $ | 189,351 |
|
| $ | 23,106 |
|
The interest payments on long-term debt in the above table are based on interest rates in effect as of December 31, 2017.
We have recorded a tax liability for unrecognized benefits for uncertain tax positions of $5.9 million, which has not been included in the above table due to the uncertainties in the timing of settlement of the income tax positions.
We are a party to certain vendor contracts related to clinical services that if cancelled may require payments for services performed and potentially additional services required to protect safety of subjects. The value of these potential wind-down provisions is generally borne by our customers and is not practical to estimate.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements refer to any transaction, agreement or other contractual arrangement to which an entity not consolidated under our entity structure exists, where we have an obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such an entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. We have no off-balance sheet arrangements currently.
- 70 -
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.
Net Service
A majority ofcontract as those costs are incurred while performing our contracts provide for servicescontracted obligations.
Fixed-fee contractsterm.
For unit-of–service arrangements, we recognize revenue in the period in which the unit is delivered. Service unit elements largely consist of various project management, consulting and analytical testing services.
Many contractual arrangements combine multiple service elements. For these contracts, arrangement consideration is allocated to identified units of accounting based on the relative selling price of each unit of account. The best evidence of selling price of a unit of accounting is vendor specific objective evidence, or VSOE, which is the price charged when the deliverable is sold separately. When VSOE is not available to determine selling price, management uses relative third party evidence, if available. When neither VSOE nor third party evidence of selling price exists, we use the best estimate of selling price considering all relevant information that is available without undue cost and effort.
- 71 -
obligations are recordedconsidered as a reduction ofin revenue when it appears probable that the customerarrangement thresholds will earnbe met.
deemed probable. These estimates are based on anticipated performance, our best judgment at the time or ultimately, upon achievement of the threshold or milestone.
Allowance for Doubtful Accounts
We grant credit terms to our customers prior to signing a service contract and monitor creditworthiness on an ongoing basis. We assess ongoing collectability by customer through a variety of performance indicators including age of billed receivable, billing type, knowledge of available funding and other information available through internal research. A large percentage
Uncollectible accounts receivable are written off only after all reasonable collection efforts have been exhausted. Moreover, in many cases the Company requires advance payment from its customers for a portion of the study contract price upon the signingcontracts consist of a service contract. These advance paymentssingle performance obligation, as the promise to transfer the individual services described in the contracts are deferrednot separately identifiable from other promises in the contracts, and recognized as revenue as services are performed.
Goodwill and Indefinite Lived Intangible Assets
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. As a result of a prior year change in control, we recognized $670.3 million of goodwill that was allocated to and recorded at the reporting unit level. Our reporting units are Phase II-IV clinical research services, or Phase II-IV, Laboratories and Clinics.
The carrying value of goodwill is reviewed at least annually for impairment, or as indicators of potential impairment are identified, at the reporting unit level. We perform our annual goodwill impairment test during the fourth quarter each year, utilizing the quantitative two step model defined by accounting guidance which governs such assessments. The first step involves the comparison of each of our reporting unit carrying values, inclusive of assigned goodwill, to their respective estimated fair values. If a reporting unit carrying value exceeds estimated fair value, a second step requiring us to calculate the implied reporting unit goodwill fair value is performed. The implied fair value of goodwilltherefore not distinct. Revenue recognition is determined by performing a hypothetical purchase price allocationassessing the progress of reporting unit fair valueperformance completed or delivered to date compared to total services to be delivered under the terms of the arrangement. The measures utilized to assess progress on the satisfaction of performance are specific to the reporting unitsperformance obligation identified assets and liabilities. The resulting implied goodwill fair value isin the contract.
In conjunction with the 2015 fourth quarter annual assessment of goodwill, we determined that goodwill related to our Clinics reporting unit was impaired and we recognized an impairment charge of $9.3 million, which represents 100% of the goodwill that had been allocated to this reporting unit. This impairment was identified during the annual impairment assessment in the fourth quarter of 2015 when we updated our forecasted discounted cash flows relatedperiod in which the unit is delivered compared to the reporting unit to reflect operating results that lagged prior forecasted results. For our Phase II-IV and Laboratories reporting units, the reporting units’ fair values substantially exceeded their respective carrying values including allocated goodwill. There was no indication of impairment related to goodwill based on the fourth quarter 2017 assessment.
- 72 -
This process is inherently subjective and dependent upon estimates and assumptions we make. In determining our expected future cash flows, we assume that we will continue to acquire and convert new business to contract, execute on these contracts with reasonable profit, collect customer receivables and thus generate positive cash flows. However, future declines in the operating results of these reporting units could indicate a need to reevaluate the fair value of these components under accounting guidance governing goodwill and may ultimately result in future impairment. We continue to monitor for any potential indicators of impairment.
Intangible Assets
The Company has an indefinite lived intangible asset related to its trade name valued at $31.6 million. The carrying value of the trade name asset is reviewed at least annually for impairment, or as indicators of potential impairment are identified. The Company performs its annual impairment test in the fourth quarter each year in conjunction with its annual assessment of goodwill. The assessment consists of comparing the carrying value of the indefinite lived intangible asset to its estimated fair value, utilizing the relief from royalty method, an income approach valuation. The relief from royalty method requires management judgment with respect to projected net service revenue, profitability and growth and the selection and use of an appropriate discount rate. There was no indication of impairment related to the trade name asset based on the fourth quarter 2017 assessment.
Our assessment of impairment charges on any assets classified currently as having indefinite lives could change in future periods if certain events were to occur, including, but not limited to, the following: a significant change in business results, an increase in our discount rates due to a change in our weighted average cost of capital, a decrease in growth rates, economic deterioration that is more severe or longer in duration than anticipated or another significant economic event.
Finite-lived intangible assets consist mainly of the value assigned to customer relationships, backlog and developed technologies. Finite-lived intangible assets are amortized straight-line or using an accelerated method over their estimated useful lives, which range in term from 17 months to 15 years. Amortization expense recognized related to finite lived intangible assets was $37.9 million, $50.7 million and $63.1 million, respectively, for the years ended December 31, 2017, 2016 and 2015.
total contracted units.
- 73 -
assertion.
We have stock based
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Year Ended December 31, |
| Year Ended December 31, | |||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| 2022 | 2021 | 2020 | |||||||||||||||||
Expected holding period - years |
| 5.4 |
|
| 3.6 |
|
| 4.2 |
| Expected holding period - years | 4.7 | 5.0 | 3.1 | ||||||||||||||||
Expected volatility |
| 28.0% |
|
|
| 30.2% |
|
|
| 36.4% |
| Expected volatility | 36.5% | 34.3% | 31.0% | ||||||||||||||
Risk-free interest rate |
| 2.0% |
|
|
| 1.0% |
|
|
| 1.2% |
| Risk-free interest rate | 1.9% | 0.9% | 1.0% | ||||||||||||||
Expected dividend yield |
|
| 0.0% |
|
|
| 0.0% |
|
|
| 0.0% |
| Expected dividend yield | 0.0% | 0.0% | 0.0% | |||||||||||||
- 74 -
classified within equity. 2020, respectively. Medpace Holdings, Inc. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 14, 2023 (Amounts in thousands, except share amounts) As Of December 31, 2017 2016 ASSETS Current assets: Cash and cash equivalents $ 26,485 $ 37,099 Restricted cash 7 308 Accounts receivable and unbilled, net (includes $1.0 million and $2.3 million with related parties at December 31, 2017 and 2016, respectively) 83,079 79,767 Prepaid expenses and other current assets 20,400 16,074 Total current assets 129,971 133,248 Property and equipment, net 48,739 43,805 Goodwill 660,981 660,981 Intangible assets, net 98,740 136,071 Deferred income taxes 6,343 97 Other assets 5,943 4,903 Total assets $ 950,717 $ 979,105 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 16,674 $ 10,911 Accrued expenses 23,673 24,417 Pre-funded study costs (includes $1.0 million and $3.9 million with related parties at December 31, 2017 and 2016, respectively) 57,406 51,948 Advanced billings (includes $1.7 million and $7.6 million with related parties at December 31, 2017 and 2016, respectively) 73,756 65,668 Current portion of long-term debt 16,500 12,375 Other current liabilities 4,697 3,284 Total current liabilities 192,706 168,603 Long-term debt, net, less current portion 205,111 151,267 Deemed landlord liability, less current portion 26,602 28,527 Deferred income tax liability 560 12,030 Deferred credit 11,468 - Other long-term liabilities 10,740 7,968 Total liabilities 447,187 368,395 Commitments and contingencies (see Note 9) Shareholders’ equity: Preferred stock - $0.01 par-value; 5,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2017 and 2016, respectively - - Common stock - $0.01 par-value; 250,000,000 shares authorized at December 31, 2017 and 2016, respectively; 35,466,510 and 40,662,856 shares issued and outstanding at December 31, 2017 and 2016, respectively 355 407 Treasury stock - 200,000 shares at December 31, 2017 (6,030 ) - Additional paid-in capital 630,341 623,629 Accumulated deficit (120,402 ) (9,584 ) Accumulated other comprehensive loss (734 ) (3,742 ) Total shareholders’ equity 503,530 610,710 Total liabilities and shareholders’ equity $ 950,717 $ 979,105 20172022, all outstanding stock based awards were subject to equity classification through either modifications of the award terms and conditions that occurred during the year ended December 31, 2017, or based on terms and conditions applicable as of the grant date.$8.54, $6.91$47.57, $52.70 and $3.81$15.19 for the years ended December 31, 2017, 20162022, 2021 and 2015.32 of the Notes to Consolidated Financial Statements for management’s discussion of the effect of recent accounting pronouncements.interest rates, inflation rate and credit risk and we regularly evaluate our exposure to such changes.20172022 and 2016,2021, approximately 7.6%8.9% and 9.2%10.6%, respectively, of our revenue was derived from contracts denominated in currencies other than the U.S. dollar, whereas 28.6%approximately 22.9% and 25.3%25.9% of our operational costs, including, but not limited to, salaries, wages and other employee benefits, were derived in foreign currencies. Of these exposures, 89.0%approximately 74.2% and 91.7%78.5% of revenue denominated in foreign currencies and 49.6%approximately 45.9% and 46.6%47.1% of operational costs denominated in foreign currencies were Euro denominated.denominated for the years ended December 31, 2022 and 2021, respectively. Our financial statements are reported in U.S. dollars and, accordingly, fluctuations in exchange rates will affect the translation of our revenues and expenses denominated in foreign currencies into U.S. dollars for purposes of reporting our consolidated financial results. We recalculated our reported pre-tax income for the years ended December 31, 20172022 and 20162021 using foreign exchange rates that were 10% higher and 10% lower than actual exchange rates utilized during the year. When utilizing foreign exchange rates 10% higher than actual exchange rates, our pre-tax income for the years ended December 31, 20172022 and 20162021 is positivelynegatively impacted by approximately $5.2$13.0 million and $3.6$12.3 million, respectively. When utilizing foreign exchange rates 10% lower than actual exchange rates, our pre-tax income for the years ended December 31, 20172022 and 20162021 is negativelypositively impacted by approximately $5.2$13.0 million and $3.6$12.3 million, respectively.Interest RatesWe are primarily exposed to interest rate risk through our Senior Secured Credit Facilities. As of the year ended December 31, 2017, we had outstanding amounts related to the Senior Secured Credit Facilities of $221.6 million (net of an unamortized discount of $0.4 million and unamortized debt issuance costs of $0.6 million). As of the year ended December 31, 2016, we had outstanding amounts related to the Senior Secured Credit Facilities of $163.7 million (net of an unamortized discount of $0.5 million and unamortized debt issuance costs of $0.8 million). Both the Senior Secured Credit Facilities and the 2014 Senior Secured Credit Facilities are, or were, subject to variable interest rates. Each quarter-point increase or decrease in the applicable interest rate as of the year ended- 75 -December 31, 2017 and 2016 would change our interest expense by approximately $0.4 million and $0.8 million, respectively. The Senior Secured Credit Facilities are not subject to any interest rate caps or floors.20172022 and 2016,2021, 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. As of the years ended December 31, 20172022 and 2016,2021, there were no major customers accounting for more than 10% of our accounts receivable and unbilled, net.do not believecash flows in the near term that inflation will have a material adverse impact on us. However,future. Additionally, if actual rates are greater than our inflation assumptions, inflation could have a material adverse effect on our operations or financial condition.7640 -StatementsStatements and Supplementary Data.2017.2022. In making these assessments, management used the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on management’s assessment and the criteria in the COSO framework, management has concluded that the Company’s internal control over financial reporting as of December 31, 20172022 was effective.As emerging growth company, our independent registered public accounting firm, is not required to formally attest to the effectivenessas stated in their report included herein.REGISTEREDREGISTERED PUBLIC ACCOUNTING FIRMand Shareholders of and subsidiariesits subsidiaries (the “Company”"Company") as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive Income (loss), shareholders’income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2017,2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America.Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.27, 2018Company’sCompany's auditor since 2002.7844 -
See notes to consolidated financial statements.(Amounts in thousands, except share amounts) As Of December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 28,265 $ 461,304 Accounts receivable and unbilled, net (includes $7.7 million and $2.7 million with related parties at December 31, 2022 and 2021, respectively) 253,404 186,432 Prepaid expenses and other current assets 52,293 43,176 Total current assets 333,962 690,912 Property and equipment, net 109,849 93,153 Operating lease right-of-use assets 139,068 129,558 Goodwill 662,396 662,396 Intangible assets, net 38,008 41,360 Deferred income taxes 48,083 25,134 Other assets 21,129 17,422 Total assets $ 1,352,495 $ 1,659,935 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable (includes $0.3 million with related parties at December 31, 2022 and 2021, respectively) $ 33,069 $ 25,678 Accrued expenses 210,125 159,286 Advanced billings (includes $8.8 million and $8.3 million with related parties at December 31, 2022 and 2021, respectively) 462,729 344,641 Short-term debt 50,000 — Other current liabilities (includes $12.5 million with related parties at December 31, 2022, respectively) 47,547 27,612 Total current liabilities 803,470 557,217 Operating lease liabilities 138,867 130,965 Deferred income tax liability 1,070 1,080 Other long-term liabilities 22,701 17,745 Total liabilities 966,108 707,007 Commitments and contingencies (see Note 12) Shareholders’ equity: Preferred stock - $0.01 par-value; 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2022 and 2021, respectively — — Common stock - $0.01 par-value; 250,000,000 shares authorized at December 31, 2022 and 2021, respectively; 31,091,694 and 36,006,778 shares issued and outstanding at December 31, 2022 and 2021, respectively 309 360 Treasury stock - 71,573 and 180,000 shares at December 31, 2022 and 2021, respectively (12,497) (5,427) Additional paid-in capital 770,794 727,857 (Accumulated deficit) Retained earnings (359,827) 234,984 Accumulated other comprehensive loss (12,392) (4,846) Total shareholders’ equity 386,387 952,928 Total liabilities and shareholders’ equity $ 1,352,495 $ 1,659,935
|
|
|
|
|
|
|
| |||||
(Amounts in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue, net (includes $11.1 million, $24.1 million and $24.0 million with related parties for the years ended December 31, 2017, 2016 and 2015, respectively) |
| $ | 386,462 |
|
| $ | 370,621 |
|
| $ | 320,101 |
|
Reimbursed out-of-pocket revenue (includes $1.5 million, $5.4 million and $6.9 million with related parties for years ended December 31, 2017, 2016 and 2015, respectively) |
|
| 49,690 |
|
|
| 50,961 |
|
|
| 38,958 |
|
Total revenue |
|
| 436,152 |
|
|
| 421,582 |
|
|
| 359,059 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs, excluding depreciation and amortization |
|
| 211,773 |
|
|
| 198,510 |
|
|
| 163,707 |
|
Reimbursed out-of-pocket expenses (includes $1.5 million, $5.4 million and $6.9 million with related parties for years ended December 31, 2017, 2016 and 2015, respectively) |
|
| 49,690 |
|
|
| 50,961 |
|
|
| 38,958 |
|
Selling, general and administrative |
|
| 63,357 |
|
|
| 61,507 |
|
|
| 56,998 |
|
Impairment of goodwill |
|
| - |
|
|
| - |
|
|
| 9,313 |
|
Depreciation |
|
| 8,574 |
|
|
| 7,442 |
|
|
| 6,379 |
|
Amortization |
|
| 37,900 |
|
|
| 50,672 |
|
|
| 63,142 |
|
Total operating expenses |
|
| 371,294 |
|
|
| 369,092 |
|
|
| 338,497 |
|
Income from operations |
|
| 64,858 |
|
|
| 52,490 |
|
|
| 20,562 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
| - |
|
|
| (10,726 | ) |
|
| - |
|
Miscellaneous expense, net |
|
| (354 | ) |
|
| (423 | ) |
|
| (1,133 | ) |
Interest expense, net |
|
| (7,559 | ) |
|
| (19,384 | ) |
|
| (27,259 | ) |
Total other expense, net |
|
| (7,913 | ) |
|
| (30,533 | ) |
|
| (28,392 | ) |
Income (loss) before income taxes |
|
| 56,945 |
|
|
| 21,957 |
|
|
| (7,830 | ) |
Income tax provision |
|
| 17,823 |
|
|
| 8,532 |
|
|
| 843 |
|
Net income (loss) |
| $ | 39,122 |
|
| $ | 13,425 |
|
| $ | (8,673 | ) |
Net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.00 |
|
| $ | 0.38 |
|
| $ | (0.28 | ) |
Diluted |
| $ | 0.98 |
|
| $ | 0.37 |
|
| $ | (0.28 | ) |
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 39,056 |
|
|
| 35,690 |
|
|
| 31,346 |
|
Diluted |
|
| 39,839 |
|
|
| 36,329 |
|
|
| 31,346 |
|
| (Amounts in thousands, except per share amounts) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Revenue, net (includes $55.4 million, $34.5 million and $15.9 million with related parties for the years ended December 31, 2022, 2021 and 2020, respectively) | $ | 1,459,996 | $ | 1,142,377 | $ | 925,925 | |||||||||||
| Operating expenses: | |||||||||||||||||
| Direct service costs, excluding depreciation and amortization | 534,887 | 441,090 | 354,426 | ||||||||||||||
| Reimbursed out-of-pocket expenses | 492,671 | 373,132 | 292,773 | ||||||||||||||
| Total direct costs | 1,027,558 | 814,222 | 647,199 | ||||||||||||||
| Selling, general and administrative | 131,400 | 108,421 | 92,156 | ||||||||||||||
| Depreciation | 18,989 | 16,005 | 11,652 | ||||||||||||||
| Amortization | 3,352 | 5,114 | 7,876 | ||||||||||||||
| Total operating expenses | 1,181,299 | 943,762 | 758,883 | ||||||||||||||
| Income from operations | 278,697 | 198,615 | 167,042 | ||||||||||||||
| Other income, net: | |||||||||||||||||
| Miscellaneous income, net | 7,068 | 3,342 | 1,183 | ||||||||||||||
| Interest (expense) income, net | (2,905) | (105) | 307 | ||||||||||||||
| Total other income, net | 4,163 | 3,237 | 1,490 | ||||||||||||||
| Income before income taxes | 282,860 | 201,852 | 168,532 | ||||||||||||||
| Income tax provision | 37,492 | 20,004 | 23,148 | ||||||||||||||
| Net income | $ | 245,368 | $ | 181,848 | $ | 145,384 | |||||||||||
| Net income per share attributable to common shareholders: | |||||||||||||||||
| Basic | $ | 7.57 | $ | 5.06 | $ | 4.07 | |||||||||||
| Diluted | $ | 7.28 | $ | 4.81 | $ | 3.84 | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 32,388 | 35,862 | 35,635 | ||||||||||||||
| Diluted | 33,671 | 37,697 | 37,708 | ||||||||||||||
|
|
|
|
|
|
|
| |||||
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net income (loss) |
| $ | 39,122 |
|
| $ | 13,425 |
|
| $ | (8,673 | ) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of taxes |
|
| 3,008 |
|
|
| (1,183 | ) |
|
| (999 | ) |
Comprehensive income (loss) |
| $ | 42,130 |
|
| $ | 12,242 |
|
| $ | (9,672 | ) |
| (Amounts in thousands) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income | $ | 245,368 | $ | 181,848 | $ | 145,384 | |||||||||||
| Other comprehensive (loss) income | |||||||||||||||||
| Foreign currency translation adjustments, net of taxes | (7,546) | (4,715) | 2,610 | ||||||||||||||
| Comprehensive income | $ | 237,822 | $ | 177,133 | $ | 147,994 | |||||||||||
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| (Accumulated |
|
| Accumulated |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Additional |
|
| Deficit) |
|
| Other |
|
|
|
|
| |||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Retained |
|
| Comprehensive |
|
|
|
|
| |||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Total |
| ||||||
BALANCE — January 1, 2015 |
| $ | 313 |
|
| $ | - |
|
| $ | 417,553 |
|
| $ | (14,336 | ) |
| $ | (1,560 | ) |
| $ | 401,970 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,673 | ) |
|
|
|
|
|
| (8,673 | ) |
Stock issued |
|
| 1 |
|
|
|
|
|
|
| 607 |
|
|
|
|
|
|
|
|
|
|
| 608 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (999 | ) |
|
| (999 | ) |
Stock-based compensation expense |
|
| 12 |
|
|
|
|
|
|
| 21,115 |
|
|
|
|
|
|
|
|
|
|
| 21,127 |
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
| 250 |
|
|
|
|
|
|
|
|
|
|
| 250 |
|
Tax benefit deficiency from stock-based compensation |
|
|
|
|
|
|
|
|
|
| (809 | ) |
|
|
|
|
|
|
|
|
|
| (809 | ) |
BALANCE — December 31, 2015 |
| $ | 326 |
|
| $ | - |
|
| $ | 438,716 |
|
| $ | (23,009 | ) |
| $ | (2,559 | ) |
| $ | 413,474 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,425 |
|
|
|
|
|
|
| 13,425 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,183 | ) |
|
| (1,183 | ) |
Stock-based compensation expense |
|
| 1 |
|
|
|
|
|
|
| 2,776 |
|
|
|
|
|
|
|
|
|
|
| 2,777 |
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
| 678 |
|
|
|
|
|
|
|
|
|
|
| 678 |
|
Issuance of common stock |
|
| 80 |
|
|
|
|
|
|
| 173,498 |
|
|
|
|
|
|
|
|
|
|
| 173,578 |
|
Common stock issuance costs |
|
|
|
|
|
|
|
|
|
| (2,719 | ) |
|
|
|
|
|
|
|
|
|
| (2,719 | ) |
Reclassification of liability classified stock options upon IPO |
|
|
|
|
|
|
|
|
|
| 10,463 |
|
|
|
|
|
|
|
|
|
|
| 10,463 |
|
Tax effect of initial public offering related costs |
|
|
|
|
|
|
|
|
|
| 192 |
|
|
|
|
|
|
|
|
|
|
| 192 |
|
Tax benefit from stock-based compensation |
|
|
|
|
|
|
|
|
|
| 25 |
|
|
|
|
|
|
|
|
|
|
| 25 |
|
BALANCE — December 31, 2016 |
| $ | 407 |
|
| $ | - |
|
| $ | 623,629 |
|
| $ | (9,584 | ) |
| $ | (3,742 | ) |
| $ | 610,710 |
|
Impact to Retained Earnings from adoption of ASU 2016-09 |
|
|
|
|
|
|
|
|
|
| 440 |
|
|
| (440 | ) |
|
|
|
|
|
|
|
|
BALANCE — January 1, 2017 |
|
| 407 |
|
|
| - |
|
|
| 624,069 |
|
|
| (10,024 | ) |
|
| (3,742 | ) |
|
| 610,710 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,122 |
|
|
|
|
|
|
| 39,122 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,008 |
|
|
| 3,008 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
| 4,463 |
|
|
|
|
|
|
|
|
|
|
| 4,463 |
|
Stock options exercised |
|
| 1 |
|
|
|
|
|
|
| 1,811 |
|
|
|
|
|
|
|
|
|
|
| 1,812 |
|
Repurchases of common stock |
|
| (51 | ) |
|
|
|
|
|
|
|
|
|
| (149,500 | ) |
|
|
|
|
|
| (149,551 | ) |
Treasury stock purchases |
|
| (2 | ) |
|
| (6,030 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,032 | ) |
Tax effect of initial public offering related costs |
|
|
|
|
|
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
| (2 | ) |
BALANCE — December 31, 2017 |
| $ | 355 |
|
| $ | (6,030 | ) |
| $ | 630,341 |
|
| $ | (120,402 | ) |
| $ | (734 | ) |
| $ | 503,530 |
|
| (Amounts in thousands) | |||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-In Capital | (Accumulated Deficit) Retained Earnings | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||
| BALANCE — December 31, 2019 | $ | 360 | $ | (6,030) | $ | 666,585 | $ | 68,109 | $ | (2,741) | $ | 726,283 | |||||||||||||||||||||||
| Net income | 145,384 | 145,384 | |||||||||||||||||||||||||||||||||
| Foreign currency translation | 2,610 | 2,610 | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 13,784 | 13,784 | |||||||||||||||||||||||||||||||||
| Stock options exercised | 5 | 452 | 15,535 | 15,992 | |||||||||||||||||||||||||||||||
| Repurchases of common stock | (10) | $ | (98,264) | (98,274) | |||||||||||||||||||||||||||||||
| BALANCE — December 31, 2020 | $ | 355 | $ | (5,578) | $ | 695,904 | $ | 115,229 | $ | (131) | $ | 805,779 | |||||||||||||||||||||||
| Net income | 181,848 | 181,848 | |||||||||||||||||||||||||||||||||
| Foreign currency translation | (4,715) | (4,715) | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 14,469 | 14,469 | |||||||||||||||||||||||||||||||||
| Stock options exercised | 8 | 151 | 17,484 | 17,643 | |||||||||||||||||||||||||||||||
| Repurchases of common stock | (3) | $ | (62,093) | (62,096) | |||||||||||||||||||||||||||||||
| BALANCE — December 31, 2021 | $ | 360 | $ | (5,427) | $ | 727,857 | $ | 234,984 | $ | (4,846) | $ | 952,928 | |||||||||||||||||||||||
| Net income | 245,368 | 245,368 | |||||||||||||||||||||||||||||||||
| Foreign currency translation | (7,546) | (7,546) | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 21,412 | 21,412 | |||||||||||||||||||||||||||||||||
| Stock options exercised | 6 | 1,746 | 21,525 | (1,203) | 22,074 | ||||||||||||||||||||||||||||||
| Repurchases of common stock | (57) | (14,243) | (833,549) | (847,849) | |||||||||||||||||||||||||||||||
| Retirement of treasury stock | 5,427 | (5,427) | — | ||||||||||||||||||||||||||||||||
| BALANCE — December 31, 2022 | $ | 309 | $ | (12,497) | $ | 770,794 | $ | (359,827) | $ | (12,392) | $ | 386,387 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||||
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| (Amounts in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | ||||||||||||||||
|
| Year Ended December 31, |
| 2022 | 2021 | 2020 | |||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income (loss) |
| $ | 39,122 |
|
| $ | 13,425 |
|
| $ | (8,673 | ) | |||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Net income | Net income | $ | 245,368 | $ | 181,848 | $ | 145,384 | ||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation |
|
| 8,574 |
|
|
| 7,442 |
|
|
| 6,379 |
| Depreciation | 18,989 | 16,005 | 11,652 | |||||||||||||
Amortization |
|
| 37,900 |
|
|
| 50,672 |
|
|
| 63,142 |
| Amortization | 3,352 | 5,114 | 7,876 | |||||||||||||
Stock-based compensation expense |
|
| 4,463 |
|
|
| 9,815 |
|
|
| 22,324 |
| Stock-based compensation expense | 21,412 | 14,469 | 13,784 | |||||||||||||
Amortization of debt issuance costs and discount |
|
| 662 |
|
|
| 2,576 |
|
|
| 2,687 |
| |||||||||||||||||
Loss on extinguishment of debt |
|
| - |
|
|
| 10,726 |
|
|
| - |
| |||||||||||||||||
Deferred income tax provision (benefit) |
|
| 3,237 |
|
|
| (9,006 | ) |
|
| (12,690 | ) | |||||||||||||||||
Impairment of goodwill |
|
| - |
|
|
| - |
|
|
| 9,313 |
| |||||||||||||||||
| Noncash lease expense | Noncash lease expense | 18,015 | 16,288 | 13,924 | |||||||||||||||||||||||||
| Deferred income tax (benefit) provision | Deferred income tax (benefit) provision | (23,014) | (37,112) | 527 | |||||||||||||||||||||||||
Amortization and adjustment of deferred credit |
|
| (8,781 | ) |
|
| - |
|
|
| - |
| Amortization and adjustment of deferred credit | (620) | (668) | (706) | |||||||||||||
Other |
|
| (673 | ) |
|
| (1,019 | ) |
|
| (242 | ) | Other | (1,507) | 676 | (22) | |||||||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable and unbilled, net |
|
| (2,898 | ) |
|
| (13,727 | ) |
|
| 337 |
| Accounts receivable and unbilled, net | (66,920) | (24,982) | (5,530) | |||||||||||||
Prepaid expenses and other current assets |
|
| (3,533 | ) |
|
| (3,661 | ) |
|
| (181 | ) | Prepaid expenses and other current assets | (10,175) | (9,134) | (3,724) | |||||||||||||
Accounts payable |
|
| 4,816 |
|
|
| 691 |
|
|
| 2,481 |
| Accounts payable | 6,431 | 1,866 | (2,597) | |||||||||||||
Accrued expenses |
|
| (1,313 | ) |
|
| 4,516 |
|
|
| 320 |
| Accrued expenses | 52,476 | 26,156 | 24,231 | |||||||||||||
Pre-funded study costs |
|
| 5,292 |
|
|
| 5,400 |
|
|
| 9,981 |
| |||||||||||||||||
Advanced billings |
|
| 7,735 |
|
|
| 14,723 |
|
|
| (7,002 | ) | Advanced billings | 118,088 | 88,977 | 63,407 | |||||||||||||
| Lease liabilities | Lease liabilities | (15,899) | (15,632) | (11,506) | |||||||||||||||||||||||||
Other assets and liabilities, net |
|
| 2,782 |
|
|
| (841 | ) |
|
| (2,306 | ) | Other assets and liabilities, net | 22,054 | (544) | 1,976 | |||||||||||||
Net cash provided by operating activities |
|
| 97,385 |
|
|
| 91,732 |
| �� |
| 85,870 |
| Net cash provided by operating activities | 388,050 | 263,327 | 258,676 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Property and equipment expenditures |
|
| (11,724 | ) |
|
| (13,537 | ) |
|
| (6,465 | ) | Property and equipment expenditures | (36,879) | (28,271) | (31,340) | |||||||||||||
Acquisition of intangibles |
|
| (569 | ) |
|
| - |
|
|
| - |
| |||||||||||||||||
Other |
|
| 56 |
|
|
| 115 |
|
|
| 33 |
| Other | (1,863) | (3,093) | 126 | |||||||||||||
Net cash used in investing activities |
|
| (12,237 | ) |
|
| (13,422 | ) |
|
| (6,432 | ) | Net cash used in investing activities | (38,742) | (31,364) | (31,214) | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Payment for common stock issuance costs |
|
| - |
|
|
| (2,719 | ) |
|
| - |
| |||||||||||||||||
Proceeds from stock option exercises |
|
| 1,812 |
|
|
| 537 |
|
|
| 250 |
| Proceeds from stock option exercises | 22,074 | 17,643 | 15,992 | |||||||||||||
Repurchases of common stock |
|
| (155,583 | ) |
|
| - |
|
|
| - |
| Repurchases of common stock | (847,849) | (62,096) | (98,274) | |||||||||||||
Excess tax benefit from stock-based compensation |
|
| - |
|
|
| 25 |
|
|
| - |
| |||||||||||||||||
Proceeds from issuance of debt, net of original issue discount |
|
| - |
|
|
| 164,506 |
|
|
| - |
| |||||||||||||||||
Payment of debt |
|
| (12,375 | ) |
|
| (390,060 | ) |
|
| (116,055 | ) | |||||||||||||||||
Proceeds from revolving loan |
|
| 100,000 |
|
|
| - |
|
|
| - |
| Proceeds from revolving loan | 324,200 | — | — | |||||||||||||
Payments on revolving loan |
|
| (30,000 | ) |
|
| - |
|
|
| - |
| Payments on revolving loan | (274,200) | — | — | |||||||||||||
Debt issuance costs |
|
| - |
|
|
| (1,802 | ) |
|
| - |
| |||||||||||||||||
Payment of deemed landlord liability |
|
| (1,682 | ) |
|
| (1,525 | ) |
|
| (1,292 | ) | |||||||||||||||||
Payment on debt extinguishment |
|
| - |
|
|
| (548 | ) |
|
| - |
| |||||||||||||||||
Proceeds from common stock issued, net |
|
| - |
|
|
| 173,578 |
|
|
| 608 |
| |||||||||||||||||
Net cash used in financing activities |
|
| (97,828 | ) |
|
| (58,008 | ) |
|
| (116,489 | ) | Net cash used in financing activities | (775,775) | (44,453) | (82,282) | |||||||||||||
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
|
| 1,765 |
|
|
| (632 | ) |
|
| (601 | ) | EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (6,572) | (3,972) | 666 | |||||||||||||
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
|
| (10,915 | ) |
|
| 19,670 |
|
|
| (37,652 | ) | (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (433,039) | 183,538 | 145,846 | |||||||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period |
|
| 37,407 |
|
|
| 17,737 |
|
|
| 55,389 |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period | 461,304 | 277,766 | 131,920 | |||||||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period |
| $ | 26,492 |
|
| $ | 37,407 |
|
| $ | 17,737 |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period | $ | 28,265 | $ | 461,304 | $ | 277,766 | ||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION— |
|
|
|
|
|
|
|
|
|
|
|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION— | ||||||||||||||||
Cash paid during the period for income taxes |
| $ | 17,180 |
|
| $ | 17,654 |
|
| $ | 10,552 |
| Cash paid during the period for income taxes | $ | 50,164 | $ | 56,243 | $ | 23,105 | ||||||||||
Cash paid during the period for interest |
| $ | 6,888 |
|
| $ | 16,895 |
|
| $ | 24,435 |
| Cash paid during the period for interest | $ | 2,935 | $ | 123 | $ | 104 | ||||||||||
Acquisition of property and equipment—non-cash |
| $ | 678 |
|
| $ | 1,687 |
|
| $ | 176 |
| Acquisition of property and equipment—non-cash | $ | 7,838 | $ | 6,352 | $ | 18,980 | ||||||||||
2020
In August 2017, the Disinterested Directors of the Company approved a stock repurchase agreement with Medpace Limited Partnership, a Guernsey limited partnership (the “Limited Partnership” acting through its general partner, Medpace GP Limited, a Guernsey company,program which has been amended several times to increase the “General Partner” and,aggregate amount of the Limited Partnership acting throughstock repurchase authorization. For the General Partner, “Cinven”), pursuant to whichyear ended December 31, 2022, the Company repurchased 2,000,0005,463,244 shares offor $800.5 million under this repurchase program. For the Company’s common stock from Cinven for aggregate consideration of approximately $60.5 million, representing a purchase price of $30.27 per share. The Company funded the repurchase with cash on hand and $40.0 million in borrowings under our Senior Secured Revolving Credit Facility.
In April 2017, the Board ofyear ended December 31, 2021, the Company repurchased 377,783 shares for $62.1 million. For the year ended December 31, 2020, the Company repurchased 1,183,095 shares for $98.3 million. As of June 30, 2022, the Company completed all authorized a share repurchases under this repurchase program with an authorized repurchase level of $50.0 million. The share repurchase program was cancelled inprogram.
The Company has elected to constructively retire all repurchased shares with allprograms, 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 Common stock par value are reflected within Accumulated deficitdeficit/Retained earnings in the Company’s consolidated balance sheets, except for 200,000 shares, which are reflected within treasury stock in the Company’s consolidated balance sheets.
Initial Public Offering
On August 11, 2016, the Company's common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the symbol "MEDP". On August 16, 2016, the Company completed its initial public offering (“IPO”) of its common stock The repurchase programs may be suspended or discontinued at a price to the public of $23.00 per share. The Company issued and sold 8,050,000 shares of common stock in the IPO, including 1,050,000 common shares issued pursuant to the full exercise of the underwriters' option to purchase additional shares. The IPO raised net proceeds of approximately $173.6 million after deducting underwriting discounts and commissions. As contemplated in the Company’s prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission on August 11, 2016, the net proceeds from the IPO, along with cash on hand, were used to
- 84 -
repay $175.0 million of outstanding borrowings under the 2014 Senior Secured Term Loan Facility (as defined below) and $2.7 million of offering expenses.
Secondary Offering
During 2017, Cinven sold a total of 4,600,000 shares of the Company’s common stock as part of a secondary offering. The Company incurred professional fees in connection with the secondary offering of $0.4 million during year ended December 31, 2017. The fees are included within operating expenses in the accompanying consolidated statement of operations. As of December 31, 2017, Cinven owned 46.2% of the Company’s outstanding common stock.
any time without notice.
In May 2017, the Company acquired out of bankruptcy NephroGenex, Inc. (“Nephrogenex” or the “Debtor”), a publicly-held pharmaceutical company that had previously filed for relief under Chapter 11 of the United States Bankruptcy Code. The Company, which was the largest unsecured creditor of Nephrogenex, entered into an agreement through the bankruptcy process, to exchange its unsecured claim for 100% of the common stock in the post-bankruptcy, debt-free Debtor. The assets of the acquired Debtor consist primarily of tax attributes as well as in-process research and development and other intangible assets. An analysis by the Company determined that substantially all the fair value of the assets on the date of acquisition is captured in the tax attributes, as the intangible assets account for a relatively immaterial portion of the fair market value of the total assets received. The acquisition of the Debtor was accounted for as an asset purchase.
The Company allocated its consideration paid of $1.2 million, consisting of accounts receivable and unbilled receivables and transaction related costs, on a pro rata basis to the assets acquired based on their respective fair values. Acquired assets include intangible assets of $0.5 million, deferred tax assets of $22.2 million, consisting of tax effected net operating losses in the amount of $13.5 million, tax effected capitalized research and development expenses of $8.5 million and tax effected federal tax credits of $0.2 million, and deferred tax liabilities of $0.1 million. The excess amount of fair value received over consideration paid of $21.4 million was recorded as a Deferred credit in the consolidated balance sheets and is recognized within income tax provision in proportion to the realization of the deferred tax assets and federal tax credits prospectively.
During the fourth quarter of the year ended December 31, 2017, the Deferred tax assets and related Deferred credit balances were revalued due primarily to the impact of tax reform. See Note 12 of the Notes to Consolidated Financial Statements for further discussion of the impact of tax reform on our consolidated financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company recognizes revenue for services provided on fixed fee arrangementscontract as those costs are incurred.
Fixed-fee contracts In the case of cost estimates related to activities legally contracted as reimbursable in nature, including but not limited to investigator fee activity, these estimates also influence the Company’s assumed contract value and assumed remaining performance obligations. Because of the uncertainties inherent in estimating the costs necessary to fulfill contractual obligations, it is possible that estimates may change in the near term, resulting in a material change in revenue reported.
For unit-of-service arrangements, the Company recognizes revenue in the period in which the unit is delivered. Service unit elements largely consist of various project management, consulting and analytical testing services.
- 86 -
Many contractual arrangements combine multiple service elements. For these contracts, arrangement consideration is allocated to identified units of account based on the relative selling price of each unit of account. The best evidence of selling price of a unit of account is vendor specific objective evidence (“VSOE”), which is the price charged when the deliverable is sold separately. When VSOE is not available to determine selling price, management uses relative third party evidence, if available. When neither VSOE nor third party evidence of selling price exists, management uses its best estimate of selling price considering all relevant information that is available.
Theprobable. In evaluating the probability of recognition, the Company occasionally enters intoconsiders the contractual basis for the settlement amount and the objective evidence available to support the amount.
Direct
- 87 -
Reimbursed Out-of-Pocket Expenses
The Company incurs on behalf of its customers various out-of-pocket expenditures including, but not limited to, travel, meetings, printing, and shipping and handling fees, which are reflected as a separate component of operating expenses and recorded in Reimbursed out-of-pocket expenses in the accompanying consolidated statements of operations. Reimbursements received are reflected in Reimbursed out-of-pocket revenue without mark-up or profit in the consolidated statements of operations.
Fees paid to investigators and other disbursements in which the Company acts as an agent on behalf of the customer are recorded net in the consolidated statements of operations with no impact on the Company’s revenue or expenses. Funds received in advance of study expenditures are recorded as Pre-funded study cost liabilities on the consolidated balance sheets. Any pre-funded amounts remaining at the conclusion of a study are returned to the client. Pre-funded study cost disbursements of $138.7 million, $150.3 million and $114.4 million were made during the years ended December 31, 2017, 2016 and 2015, respectively.
subsidiaries.
assertion.
- 88 -
Research and Development Credits
Research and development credits are available to the Company under tax laws in certain jurisdictions, based on qualifying research and development spend as defined under those tax laws. Certain tax jurisdictions provide refundable credits that are not wholly dependent on the Company’s income tax status or income tax position. In these circumstances the benefit of the credits is recorded as a reduction of operating expense. When they are wholly dependent upon the Company’s income tax position, research and development credits are recognized as a reduction of income tax expense.
All outstanding Awards under the 2014 Plan are equity classified awards in the periods presented. There were no outstanding awards under the 2014 Plan as of December 31, 2022.
For liability-classified awards under the 2014 Plan, the Company recorded fair value adjustments up to and including the settlement date. Changesdescribed in the fair value of the stock compensation liability that occurred during the requisite service period were recognized as compensation cost over the vesting period. Changes in the fair value of the stock compensation liability that occurred after the end of the requisite service period but before settlement, were compensation cost of the period in which the change occurred.
As a result of the Company’s IPO, a condition of all outstanding stock options issued before August 10, 2016 under the 2014 Plan that previously required the exchange of the shares issued for incentive units in the equity of a non-consolidated related party was dissolved. All future exercises of options issued pursuant to the 2014 Plan will settle in unregistered shares of the Company. As a result of the modification in the settlement condition, the options are equity-classified instruments and changes in the fair value of the stock compensation liability that occur during the requisite service period are no longer recognized.
award agreement. Stock-based compensation expense is allocated between DirectTotal direct costs, excluding depreciation and amortization, and Selling, general and administrative in the consolidated statements of operations based on the underlying classification and scope of work for the employees receiving the Awards.
- 89 -
declared and participation rights in undistributed earnings. The Company’s RSAs 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.
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Year Ended December 31, |
| Year Ended December 31, | |||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| 2022 | 2021 | 2020 | |||||||||||||||||
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
| Weighted-average shares: | ||||||||||||||||
Common shares outstanding |
|
| 39,056 |
|
|
| 35,690 |
|
|
| 31,346 |
| Common shares outstanding | 32,388 | 35,862 | 35,635 | |||||||||||||
RSAs |
|
| 90 |
|
|
| 88 |
|
|
| - |
| RSAs | 21 | 90 | 112 | |||||||||||||
Total weighted-average shares |
|
| 39,146 |
|
|
| 35,778 |
|
|
| 31,346 |
| Total weighted-average shares | 32,409 | 35,952 | 35,747 | |||||||||||||
Earnings per common share—Basic |
|
|
|
|
|
|
|
|
|
|
|
| Earnings per common share—Basic | ||||||||||||||||
Net income (loss) |
| $ | 39,122 |
|
| $ | 13,425 |
|
| $ | (8,673 | ) | |||||||||||||||||
| Net income | Net income | $ | 245,368 | $ | 181,848 | $ | 145,384 | ||||||||||||||||||||||
Less: Undistributed earnings allocated to RSAs |
|
| 90 |
|
|
| 33 |
|
|
| - |
| Less: Undistributed earnings allocated to RSAs | (157) | (458) | (459) | |||||||||||||
Net income (loss) available to common shareholders—Basic |
| $ | 39,032 |
|
| $ | 13,392 |
|
| $ | (8,673 | ) | |||||||||||||||||
| Net income available to common shareholders—Basic | Net income available to common shareholders—Basic | $ | 245,211 | $ | 181,390 | $ | 144,925 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net income (loss) per common share—Basic |
| $ | 1.00 |
|
| $ | 0.38 |
|
| $ | (0.28 | ) | |||||||||||||||||
| Net income per common share—Basic | Net income per common share—Basic | $ | 7.57 | $ | 5.06 | $ | 4.07 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Basic weighted-average common shares outstanding |
|
| 39,056 |
|
|
| 35,690 |
|
|
| 31,346 |
| Basic weighted-average common shares outstanding | 32,388 | 35,862 | 35,635 | |||||||||||||
Effect of diluted shares |
|
| 783 |
|
|
| 639 |
|
|
| - |
| Effect of diluted shares | 1,283 | 1,835 | 2,073 | |||||||||||||
Diluted weighted-average shares outstanding |
|
| 39,839 |
|
|
| 36,329 |
|
|
| 31,346 |
| Diluted weighted-average shares outstanding | 33,671 | 37,697 | 37,708 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net income (loss) per common share—Diluted |
| $ | 0.98 |
|
| $ | 0.37 |
|
| $ | (0.28 | ) | |||||||||||||||||
| Net income per common share—Diluted | Net income per common share—Diluted | $ | 7.28 | $ | 4.81 | $ | 3.84 | ||||||||||||||||||||||
- 90 -
2020.
- 91 -
classification of the lease as either operating or capitalfinance.
balance sheets within Property and equipment, net, Other current liabilities, and Other long-term liabilities. Finance lease assets are subsequently amortized on a straight line basis over the lease term within Depreciation expense, while the lease liability is accreted within Interest expense, net utilizing the discount rate determined at lease commencement and reduced by periodic lease payments over the lease term. Currently, the Company does not have any finance leases.
2022.
If the calculation in the first step results in any of the reporting units’ carrying values exceeding their respective estimated fair values, a second step is performed. The second step requires the Company to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets. Any fair value in excess of amounts allocated to such net assets represent the implied fair value of goodwill for that reporting unit. Any excess of reporting unit carrying value of goodwill over the implied fair value of goodwill results in an impairment. There was no indication of impairment related to goodwill based on the fourth quarter 20172022 assessment.
- 92 -
Deemed landlord liabilities are recorded at their net present value when the Company enters into qualifying leases and are reduced as the Company makes periodic lease payments on the properties.
Deferred Credit
Deferred credit represents tax credits recognized initially in conjunction with the Nephrogenex asset acquisition that will be recognized within Income tax provision in proportion to the realization of the deferred tax assets and federal tax credits prospectively.
Other Current Liabilities and Other Long-Term Liabilities
Deferred rent represents the cumulative additional portion of rent expense recognized on a straight line basis in conjunction with the Company’s current leases at the balance sheet date. The Company defers incentives received from landlords for the purpose of making leasehold improvements. These liabilities are amortized as a component of rent expense over the term of the respective lease.
Exit liabilities, if any exist, are recorded at their net present value to the extent the Company no longer receives any benefit from the related property and when the Company has ceased all use of the property.
Asset retirement obligations, to the extent they exist, are recorded at their net present value and accreted to the Company’s estimate of liability at the time the obligation would be required to be satisfied.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The new guidance is intended to simplify certain aspects of accounting for share based payments to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company elected to adopt this ASU in the first quarter of 2017 as required. The following summarizes the effects of the adoption on the Company's consolidated financial statements:
Income taxes - Upon adoption of this standard, all excess tax benefits and tax deficiencies (including tax benefits of dividends, if distributed, on share-based payment awards) are recognized as income tax expense or benefit in the statement of operations. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. As a result, the Company recognized discrete adjustments to income tax expense for the year ended December 31, 2017 of less than $0.1 million related to excess tax benefits. The Company also recognizes excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. The Company applied the prospective adoption approach for any unrecognized excess tax benefits beginning in 2017, which did not result in any cumulative-effect adjustment upon adoption. Prior periods have not been adjusted.
- 93 -
|
Statements of Cash Flows - The Company historically accounted for excess tax benefits on the consolidated statements of cash flows as a financing activity. Upon adoption of this standard, excess tax benefits are classified along with other income tax cash flows as an operating activity. The Company elected to adopt this portion of the standard on a prospective basis beginning in 2017. Prior periods have not been adjusted.
Earnings Per Share - The Company uses the treasury stock method to compute diluted earnings per share, unless the effect would be anti-dilutive. Under this method, the Company is no longer required to estimate the tax rate and apply it to the dilutive share calculation for determining the dilutive earnings per share. The Company utilized the prospective adoption approach and applied this methodology beginning in 2017. Prior periods have not been adjusted.
Upon adoption, no other aspects of ASU 2016-09 had an effect on the Company's consolidated financial statements or related footnote disclosures.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 will be applied on a modified retrospective basis to each prior reporting period presented and is effective for fiscal years beginning after December 15, 2018,2019 with early adoption permitted. The Company is currently evaluating the effectadopted this standard will have on itsin the first quarter of 2020 and it had no material impact to the consolidated financial statements.
2021, with early adoption permitted. The Company continues to evaluate the potential impact of adoptingadopted this standard on its business policies, processes and systems, internal control over financial reporting environment, and financial reporting disclosures.
- 94 -
anticipates that all revenue related to reimbursable expenses will prospectively be accounted for gross within a single revenue line item with related expenses presented gross within Direct Costs, excluding depreciation and amortization. Measurement of progress on contracts with customers will generally beyear ended December 31, 2022. Government assistance receivables are recorded in the consolidated balance sheets based on the input measurementexpected timing of cost incurred relativemonetizing the benefit. Government assistance receivables recorded on the December 31, 2022 consolidated balance sheets are expected to be recovered through 2026. The Company recorded receivables related to government assistance programs as of December 31, 2022 of $11.3 million in Prepaid expenses and other current assets and $7.1 million in Other assets.
The Company will adopt ASU 2014-09 as well as the clarified guidance in ASUs’ 2016-20, 2016-12, 2016-10, 2016-08, utilizing the modified retrospective approach, during the first quarter of 2018. The Company is finalizing its assessment and will record a cumulative-effect adjustment to retained earnings upon adoption.
4. ACCOUNTS RECEIVABLE AND UNBILLED, NET
Accounts receivable and unbilled, net includes service revenue and reimbursed out-of-pocket revenue. respective balance sheet date.
|
|
|
| ||||||||||||||||
|
| 2017 |
|
| 2016 |
| 2022 | 2021 | |||||||||||
Accounts receivable |
| $ | 55,599 |
|
| $ | 48,270 |
| Accounts receivable | $ | 213,169 | $ | 150,496 | ||||||
Unbilled |
| 28,153 |
|
|
| 34,719 |
| ||||||||||||
Less allowance for doubtful accounts |
| (673) |
|
| (3,222) |
| |||||||||||||
| Unbilled receivables | Unbilled receivables | 40,405 | 36,107 | ||||||||||||||||
| Less: allowance for doubtful accounts | Less: allowance for doubtful accounts | (170) | (171) | ||||||||||||||||
Total accounts receivable and unbilled, net |
| $ | 83,079 |
|
| $ | 79,767 |
| Total accounts receivable and unbilled, net | $ | 253,404 | $ | 186,432 | ||||||
| 2022 | 2021 | ||||||||||
| Advanced billings | $ | 462,729 | $ | 344,641 | |||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Year Ended December 31, |
| Year Ended December 31, | |||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| 2022 | 2021 | 2020 | |||||||||||||||||
Allowance for doubtful accounts - beginning balance |
| $ | (3,222 | ) |
| $ | (1,724 | ) |
| $ | (5,855 | ) | Allowance for doubtful accounts - beginning balance | $ | (171) | $ | (346) | $ | (583) | ||||||||||
Current year provision |
|
| (250 | ) |
|
| (2,166 | ) |
|
| (642 | ) | Current year provision | — | (11) | (167) | |||||||||||||
Write-offs, recoveries and the effects of foreign currency exchange |
|
| 2,799 |
|
|
| 668 |
|
|
| 4,773 |
| Write-offs, recoveries and the effects of foreign currency exchange | 1 | 186 | 404 | |||||||||||||
Allowance for doubtful accounts - ending balance |
| $ | (673 | ) |
| $ | (3,222 | ) |
| $ | (1,724 | ) | Allowance for doubtful accounts - ending balance | $ | (170) | $ | (171) | $ | (346) | ||||||||||
5.
|
|
|
| ||||||||||||||||
|
| 2017 |
|
| 2016 |
| 2022 | 2021 | |||||||||||
Land |
| $ | 972 |
|
| $ | 543 |
| Land | $ | 2,410 | $ | 2,446 | ||||||
Equipment |
|
| 12,171 |
|
|
| 10,094 |
| Equipment | 31,851 | 27,976 | ||||||||
Furniture, fixtures, and leasehold improvements |
|
| 21,280 |
|
|
| 15,415 |
| Furniture, fixtures, and leasehold improvements | 87,543 | 66,295 | ||||||||
Computer hardware, software, and phone equipment |
|
| 9,571 |
|
|
| 7,535 |
| Computer hardware, software, and phone equipment | 26,049 | 23,308 | ||||||||
Buildings |
|
| 2,559 |
|
|
| 2,253 |
| Buildings | 13,594 | 13,770 | ||||||||
Deemed assets from landlord building construction |
|
| 22,752 |
|
|
| 22,752 |
| |||||||||||
Construction-in-progress |
|
| 5,554 |
|
|
| 2,840 |
| Construction-in-progress | 10,518 | 10,459 | ||||||||
Property and equipment at cost |
|
| 74,859 |
|
|
| 61,432 |
| Property and equipment at cost | 171,965 | 144,254 | ||||||||
Less: Accumulated depreciation |
|
| (26,120 | ) |
|
| (17,627 | ) | Less: Accumulated depreciation | (62,116) | (51,101) | ||||||||
Property and equipment, net |
| $ | 48,739 |
|
| $ | 43,805 |
| Property and equipment, net | $ | 109,849 | $ | 93,153 | ||||||
- 95 -
Balance as of December 31, 2015 $ 660,981 Impairment of Goodwill - Balance as of December 31, 2017 and 2016 $ 660,981 Total assets Accumulated goodwill impairment losses to date amounts to $9.3 million, all of which was recognized in the year ended December 31, 2015. 2017 2016 Intangible assets: Finite-lived intangible assets: Carrying amount: Backlog $ 72,630 $ 72,630 Customer relationships 145,051 145,051 Developed technologies 54,475 54,475 Other 3,074 2,505 Total finite-lived intangible assets 275,230 274,661 Accumulated amortization: Backlog (72,630 ) (72,630 ) Customer relationships (92,661 ) (66,267 ) Developed technologies (40,856 ) (29,961 ) Other (1,989 ) (1,378 ) Total accumulated amortization (208,136 ) (170,236 ) Total finite-lived intangible assets, net 67,094 104,425 Trade name (indefinite-lived) 31,646 31,646 Total intangible assets, net $ 98,740 $ 136,071 2018 $ 29,561 2019 14,829 2020 7,876 2021 5,114 2022 3,353 Later years 6,361 $ 67,094 2017 2016 Employee compensation and benefits $ 19,707 $ 21,453 Other 3,966 2,964 Total accrued expenses $ 23,673 $ 24,417 2017 2016 Revolving credit facility $ 70,000 $ - Term loan 152,625 165,000 Less unamortized discount (399 ) (534 ) Less unamortized term loan debt issuance costs (615 ) (824 ) Less current portion of long-term debt (16,500 ) (12,375 ) Long-term debt, net, less current portion $ 205,111 $ 151,267 2018 16,500 2019 16,500 2020 20,625 2021 169,000 Total $ 222,625 Non-Related Total Related Party Parties Operating Operating Operating Lease Leases Leases 2018 $ 2,164 $ 4,841 $ 7,005 2019 2,164 3,052 5,216 2020 2,164 2,459 4,623 2021 2,164 1,979 4,143 2022 1,803 1,709 3,512 Thereafter - 3,264 3,264 Total minimum lease payments $ 10,459 $ 17,304 $ 27,763 Related Party Total Minimum Lease Less: Principal Payments Interest Amounts Due 2018 $ 3,852 $ 1,960 $ 1,892 2019 3,937 1,819 2,118 2020 3,988 1,662 2,326 2021 4,039 1,490 2,549 2022 4,092 1,301 2,791 Thereafter 19,842 3,024 16,818 Total $ 39,750 $ 11,256 $ 28,494 grant. Option prices are generally expected to be set at the market price of the Company’s common stock at the date of grant and option terms are not expected to exceed ten years. subject to the non-employee director continuing in service through the applicable vesting date. 2020, consisting of 20,724 RSA and 177,808 RSU vesting after four years, 4,800 stock option awards and 2,500 RSU vesting after three years and 199,405 fully-vested stock option awards. The Company granted an additional 23,148 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the year ended December 31, 2020. These awards will 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. 2021, respectively. 2022. Year Ended December 31, 2017 2016 2015 Expected holding period - years 5.4 3.6 4.2 Expected volatility 28.0% 30.2% 36.4% Risk-free interest rate 2.0% 1.0% 1.2% Expected dividend yield 0.0% 0.0% 0.0% our company. Year Ended December 31, 2017 2016 2015 Weighted average, grant date fair value Stock Options $ 8.54 $ 6.91 $ 3.81 Restricted shares (RSAs and RSUs) $ 31.90 $ 15.08 $ 12.53 Stock-based compensation expense allocated to: Direct costs, excluding depreciation and amortization $ 2,128 $ 5,555 $ 9,243 Selling, general, and administrative 2,335 4,260 13,081 Total stock-based compensation expense $ 4,463 $ 9,815 $ 22,324 Year Ended December 31, 2017 2016 2015 Weighted Average Weighted Average Weighted Average Options Exercise Price Options Exercise Price Shares Exercise Price Outstanding - beginning of Period 2,350,166 $ 17.57 1,794,709 $ 15.42 1,091,048 $ 14.40 Granted 853,896 $ 28.67 683,001 $ 22.80 889,849 $ 16.67 Exercised (116,787 ) $ 15.52 (36,980 ) $ 14.50 (17,404 ) $ 14.41 Forfeited/Expired (304,407 ) $ 20.55 (90,564 ) $ 15.85 (168,784 ) $ 15.53 Outstanding - end of period 2,782,868 $ 20.73 2,350,166 $ 17.57 1,794,709 $ 15.42 Exercisable - end of period 917,592 $ 15.40 647,343 $ 15.22 242,777 $ 14.40 Year Ended December 31, 2017 2016 2015 Shares Shares Shares Outstanding and unvested - beginning of period 59,258 90,697 407,171 Granted 156,000 11,111 1,253,924 Vested (29,629 ) (41,069 ) (1,530,547 ) Forfeited (2,000 ) (1,481 ) (39,851 ) Outstanding and unvested - end of period 183,629 59,258 90,697 Cumulative vested shares - end of period 1,884,287 1,854,658 1,813,589 Weighted Average Weighted Average Exercise Stock Restricted Remaining Price Options Shares Life (Years) December 31, 2017 Number of stock options expected to vest $ 20.73 2,782,868 - 4.9 Number of Restricted Shares expected to vest - 183,629 Total expected to vest - December 31, 2017 2,782,868 183,629 Total stock options exercisable - December 31, 2017 $ 15.40 917,592 3.8 Unrecognized compensation cost - December 31, 2017 (in thousands) $ 8,833 $ 4,745 Weighted average years over which unrecognized compensation cost will be recognized 1.9 3.3 Year Ended December 31, 2017 2016 2015 Total intrinsic value of stock options exercised $ 1,619 $ 403 $ (36 ) Total grant-date fair value of stock options vested $ 1,317 $ 1,384 $ 1,168 Total grant-date fair value of restricted shares vested $ 447 $ 614 $ 18,284 Total settlement date fair value of restricted shares vested $ 1,074 $ 1,236 $ 21,134 Total share-based liabilities settled $ - $ 76 $ 16,858 The Company files income tax returns for U.S. federal and various U.S. states, as well as various foreign jurisdictions. The liabilities for unrecognized tax benefits are carried in Other long-term liabilities on the consolidated balance sheets because the payment of cash is not anticipated within one year of the balance sheet date. Year Ended December 31, 2017 2016 2015 Domestic $ 52,986 $ 18,016 $ (12,294 ) Foreign jurisdictions $ 3,959 $ 3,941 $ 4,464 Income (loss) before income taxes $ 56,945 $ 21,957 $ (7,830 ) Current Deferred Total Year ended December 31, 2017 U.S. Federal $ 10,953 $ 3,466 $ 14,419 U.S. state and local 2,032 51 2,083 Foreign jurisdictions 1,576 (255 ) 1,321 $ 14,561 $ 3,262 $ 17,823 Year ended December 31, 2016 U.S. Federal $ 15,105 $ (8,784 ) $ 6,321 U.S. state and local 1,636 (524 ) 1,112 Foreign jurisdictions 710 389 1,099 $ 17,451 $ (8,919 ) $ 8,532 Year ended December 31, 2015 U.S. Federal $ 11,067 $ (11,995 ) $ (928 ) U.S. state and local 1,119 (761 ) 358 Foreign jurisdictions 1,372 41 1,413 $ 13,558 $ (12,715 ) $ 843 Year Ended December 31, 2017 2016 2015 Income tax expense calculated at the federal statutory rate $ 19,931 35.0 % $ 7,685 35.0 % $ (2,740 ) 35.0 % Effect of: State and local taxes, net of federal benefit 1,606 2.8 912 4.2 487 (6.2 ) Tax on foreign earnings, net of tax credits and deductions (69 ) (0.1 ) (26 ) (0.1 ) (330 ) 4.2 Tax reform adjustment (3,418 ) (6.0 ) Deferred credit (1,053 ) (1.9 ) Change in valuation allowance - - - - - - Permanent items: Goodwill impairment - - - - 2,106 (26.9 ) Stock-based awards (179 ) (0.3 ) (534 ) (2.4 ) 778 (9.9 ) Tax reform adjustment 574 1.0 - - - - Other 483 0.9 174 0.8 185 (2.4 ) State/Local tax credits (1,187 ) (2.1 ) (1,049 ) (4.8 ) (931 ) 11.9 Change in liability for uncertain tax positions 1,141 2.0 1,212 5.5 1,250 (16.0 ) Other (6 ) (0.0 ) 158 0.7 38 (0.5 ) $ 17,823 31.3 % $ 8,532 38.9 % $ 843 (10.8)% 2017 2016 Deferred tax assets: Accrued liabilities $ 17,563 $ 19,393 Depreciation and amortization 980 1,787 Foreign operating loss carryforward 246 246 U.S. federal tax credits and carryforward 8,152 - U.S. state and local tax credits and carryforward 1,799 385 Other 667 1,209 Valuation allowance (2,394 ) (987 ) Total deferred tax assets 27,013 22,033 Deferred tax liabilities: Depreciation and amortization (20,117 ) (33,436 ) Prepaid expenses (572 ) (310 ) Other (541 ) (220 ) Total deferred tax liabilities (21,230 ) (33,966 ) Net deferred tax asset (liability) $ 5,783 $ (11,933 ) Year Ended December 31, 2017 2016 2015 Beginning Balance $ 987 $ 1,021 $ 1,086 Additions charged to expense - - - Additions due to asset acquisition 2,033 - - Reductions from utilization, reassessments and expirations 3 (34 ) (65 ) Remeasurement due to effect of tax reform (629 ) - - Ending Balance $ 2,394 $ 987 $ 1,021 Year Ended December 31, 2017 2016 2015 Beginning Balance $ 5,698 $ 2,604 $ 1,353 Increases in tax positions for prior years 5 - - Decreases in tax positions for prior years - (196 ) (14 ) Increases in tax positions for current year 1,187 3,365 1,265 Lapse in statute of limitations - (75 ) - Ending Balance $ 6,890 $ 5,698 $ 2,604 2022. Year Ended December 31, 2017 2016 2015 Net loss on foreign-currency transactions $ (1,004 ) $ (660 ) $ (1,307 ) Other income 650 237 174 Miscellaneous expense, net $ (354 ) $ (423 ) $ (1,133 ) The Company had Other current liabilities with LIB of $12.5 million in the consolidated balance sheets at December 31, 2022. operations, respectively. As of December 31, 2022 and 2021, the Company had Advanced billings from CinRx of $1.4 million and $5.4 million in the consolidated balance sheets, respectively. As of December 31, 2022 and 2021 the Company had Accounts receivable and unbilled, net from CinRx of $2.2 million and $2.1 million in the consolidated balance sheets, respectively. Certain affiliates of CinRx included in previous reported quarters are no longer disclosed due to changes in the affiliate relationship. Summit, respectively. 2021 were $18.2 million and $19.7 million in the consolidated balance sheets, respectively. 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 consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2021 were $1.5 million and $18.3 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the consolidated balance sheets. sheets. 2017 2016 Property and equipment, net: United States $ 37,535 $ 34,817 Europe 9,266 7,436 Other 1,938 1,552 Total property and equipment, net $ 48,739 $ 43,805 2017 First Quarter Second Quarter Third Quarter Fourth Quarter Service revenue, net $ 93,781 $ 94,552 $ 98,681 $ 99,448 Direct costs, excluding depreciation and amortization 51,105 51,955 53,144 55,569 Income from operations 15,944 16,279 17,198 15,437 Net income 8,447 9,553 9,831 11,291 Net income per share attributable to common shareholders - Basic $ 0.21 $ 0.24 $ 0.25 $ 0.30 Net income per share attributable to common shareholders - Diluted $ 0.20 $ 0.23 $ 0.25 $ 0.30 2016 First Quarter Second Quarter Third Quarter Fourth Quarter Service revenue, net $ 87,800 $ 92,633 $ 94,812 $ 95,376 Direct costs, excluding depreciation and amortization 46,981 49,234 51,221 51,074 Income (loss) from operations 12,869 14,114 12,617 12,890 Net income (loss) 3,448 4,962 5,036 (21 ) Net income (loss) per share attributable to common shareholders - Basic $ 0.11 $ 0.15 $ 0.14 $ (0.00 ) Net income (loss) per share attributable to common shareholders - Diluted $ 0.11 $ 0.15 $ 0.13 $ (0.00 ) 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. the end of the period covered by this report. Incorporated by Reference Exhibit Exhibit Description Form File No. Exhibit Filing Filed/ 3.1 Amended and Restated Certificate of Incorporation of Medpace Holdings, Inc. 8-K 001-37856 3.1 8/16/16 3.2 8-K 001-37856 3.2 8/16/16 4.1 Specimen Stock Certificate evidencing shares of common stock S-1/A 333-212236 4.1 7/26/16 4.2 10-Q 001-37856 4.2 11/3/16 #10.1 10-Q 001-37856 10.1 11/3/16 #10.2 Medpace Holdings, Inc. 2016 Senior Executive Incentive Bonus Plan 10-Q 001-37856 10.2 11/3/16 10.3 10-Q 001-37856 10.3 11/3/16 #10.4 Form of Medpace Holdings, Inc. 2016 Incentive Award Plan Restricted Stock Award Grant Notice S-1/A 333-212236 10.13 8/1/16 #10.5 S-1/A 333-212236 10.14 8/1/16 #10.6 Form of Medpace Holdings, Inc. 2016 Incentive Award Plan Restricted Stock Unit Award Grant Notice. S-1/A 333-212236 10.15 8/1/16 #10.7 Medpace Holdings, Inc. 2016 Incentive Award Plan Sub-Plan for UK Participants S-1/A 333-212236 10.16 8/1/16 #10.8 Medpace Holdings, Inc. Non-Employee Director Compensation Policy S-1 333-212236 10.17 6/24/16 #10.9 S-1/A 333-212236 10.18 7/26/16 #10.10 Medpace Holdings, Inc. 2016 Incentive Award Plan UK Company Share Option Plan (CSOP) Sub-Plan S-1/A 333-212236 10.19 8/1/16 10.11 8-K 001-37856 10.1 12/8/16 21.1 * /s/ Name: Title: Chief Financial Officer Date: February Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Chief Financial Officer /s/ BRIAN T. CARLEY Director Brian T. Carley /s/ ROBERT O. KRAFT Director Robert O. Kraft /s/ FRED B. DAVENPORT JR. Director Dr. which includes amortization from capital leases, was $8.6$19.0 million, $16.0 million and $7.4$11.7 million for the years ended December 31, 20172022, 2021 and 2016,2020, respectively.In 2011, Medpace, Inc. entered into two multi-year lease agreements governing the future occupancy of additional office space in Cincinnati, Ohio. The Company assumed occupancy of both spaces during 2012 and began making lease payments at that time. The leases expire in 2027 and the Company has one 10-year option to extend the term of the leases.In accordance with the accounting guidance related to leases, the Company was deemed in substance to be the owner of the property during the construction phase. The accounting guidance requires that a lessee be considered the owner of a real estate project during the construction period if a related party of the lessee is an owner of the real estate. Given that a related party of Medpace made an equity investment in the lessor, Medpace was considered the owner of the property for accounting purposes during the buildings’ construction. Accordingly, the Company reflected the building and related liabilities as Deemed assets from landlord building construction (“Deemed Assets”) and Deemed landlord liabilities, respectively in the consolidated balance sheets. The Deemed Assets are being fully depreciated, on a straight line basis, over the 15-year term of the lease.6.The changes in the carrying amount of goodwill are as follows (in thousands):The annual impairment test performed in the fourth quarter of 2015 resulted in an impairment charge of $9.3 million related to the Company’s Clinics reporting unit. The 2015 goodwill impairment charge represents the total accumulated goodwill impairment losses recognized to date on existing goodwill through December 31, 2017.carriedreflected on the balance sheet and not remeasured to fair value on a recurring basis, identified as Level 3 measurements, as of December 31, 20172022 are $692.6$694.0 million, comprised of $661.0$662.4 million of goodwill and $31.6$31.6 million of identified indefinite-lived intangible assets. 9660 -2022 2021 Intangible assets: Finite-lived intangible assets: Carrying amount: Customer relationships 145,051 145,051 Accumulated amortization: Customer relationships (138,689) (135,337) Total finite-lived intangible assets, net 6,362 9,714 Trade name (indefinite-lived) 31,646 31,646 Total intangible assets, net $ 38,008 $ 41,360 2017,2022, estimated amortization expense of the Company’s intangible assets for each of the next five years and thereafter is as follows (in thousands):Amortization 2023 $ 2,199 2024 1,443 2025 946 2026 620 2027 577 2028 577 $ 6,362 7.2022 2021 Employee compensation and benefits $ 71,197 $ 57,846 Project related reimbursable expenses Project related reimbursable expenses 128,416 91,839 Other 10,512 9,601 Total accrued expenses $ 210,125 $ 159,286 - 97 -8.2022 2021 Revolving credit facility $ 50,000 $ — Short-term debt $ 50,000 $ — 2023 50,000 Total $ 50,000 The estimated fair valueDecember 8, 2016September 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, IntermediateCo, Inc., as borrower (the “Borrower”), and Medpace Acquisition,IntermediateCo, Inc., a wholly-owned subsidiary of Medpace Holdings, Inc. (the “Company”), as parent guarantor (the “Parent Guarantor”“Guarantor”),.credit agreement (the “Senior Secured CreditLoan Agreement (as it may be amended from time to time, the “Loan Agreement”) consisting of a $165.0 million term loan (the “Senior Secured Term Loan Facility”) issued at 99.7% and a $150.0 million revolving credit facility (the “Senior Secured Revolving Credit Facility” and, together with the Senior Secured Term Loan Facility, the “Senior Secured Credit Facilities”). The Senior Secured Term Loan Facility and Senior Secured Revolving Credit Facility expire in December 2021.The Senior Secured Credit Facilities provide for, at the Company’s option, interest at the Eurocurrency rate or Base rateproviding for the Senior Secured Term LoanCredit Facility, and the Senior Secured RevolvingGuarantor executed a Guaranty Agreement providing for its guarantee of the payment and performance of the obligations under the Loan Agreement. On December 27, 2021, the Company entered into Amendment No. 3 to the Credit Facility, borrowings. The Company, at its discretion, may choose interest periods of one, two, three or six months, which determinesextends the interest rate to be applied. Interest on Eurocurrency loans continues to be payable at the endexpiration date of the selected Eurocurrency termrevolving credit note to March 31, 2023 and adds provisions for alternative rates of interest on Baseas a result of global reference rate loans are payable quarterlyinitiatives and removes the ability to obtain advances in conjunction with any required principal payments.Borrowings undercurrency other than U.S. Dollars. After the Senior SecuredLIBOR cessation date of December 31, 2021, the Credit Facilities bearFacility bears interest at a rate equal to, at our option, either (i)of the adjusted Eurocurrency rate based on LIBOR for U.S. dollar deposits for loans denominated in dollars, EURIBOR for Euro deposits for loans denominated in Eurossum of The Secured Overnight Financing Rate (SOFR) and the offer rate for any other currencies for loans denominated in such other currencies forbenchmark replacement adjustment plus 100 basis points (1.00%). On March 15, 2022, the relevant interest period plus an applicable margin from 1.25% to 2.25% based on the total net leverage ratio from less than 1.50:1.00 to greater than 3.75:1:00, or (ii) an alternative base rate (determined by referenceCompany entered into Amendment No. 4 to the highest of (a)Loan Agreement, which increased the prime commercial lending rate of the administrative agent, as established from time to time, (b) the Federal Funds Rate plus 0.50% and (c) the one-month adjusted Eurocurrency rate for loans in U.S. dollars plus 1.00%) plus an applicable margin from 0.25% to 1.25% based on the total net leverage ratio from less than 1.50:1.00 to greater than 3.75:1:00. The applicable margin as of December 31, 2017 was 1.25% for- 98 -eurocurrency loans and 0.25% for base rate loans. The Companyaggregate principal amount that may voluntarily prepay outstanding loansbe borrowed under the Senior Secured Credit Facilities without premium or penalty.facility’s line of credit to up to $250.0 million. As of December 31, 2017,2022, the Credit Facility interest rate applicable on the termwas 5.3%.was the Eurocurrencyterms, 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 rate of 2.82%.In addition, the Company is required to pay to the lenders a commitment fee on a quarterly basis at an annual rate of 0.375%and breach of the unused borrowings under the Senior Secured Revolving Credit Facility for the first full fiscal quarter after the closing date, and thereafter 0.50% if the total net leverage ratio is greater than or equal to 3.00:1.00, or 0.375% if the total net leverage ratio is less than 3.00:1.00. At December 31, 2017 and 2016, respectively, the Company had $70.0 million and no outstanding borrowings under the Senior Secured Revolving Credit Facility, resulting in $80.0 million and $150.0 million in undrawn capacity available under the Senior Secured Revolving Credit Facility. covenants.2017, the interest rate applicable on the Senior Secured Revolving Credit Facility was the Eurocurrency interest rate of 2.82%. In addition, the Company had $0.3 million2022 and $0.12021, respectively, there were $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Senior Secured Revolving Credit FacilityFacility.Year Ended December 31, 2022 2021 2020 Operating lease cost $ 25,874 $ 23,873 $ 19,842 Variable lease cost $ 8,569 $ 6,627 $ 5,335 Year Ended December 31, 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 17,002 $ 16,266 $ 13,956 Right-of-use assets obtained in exchange for lease obligations: Operating leases 30,882 33,133 73,905 2017 and 2016.The original issue discount of $0.5 million(in thousands):2022 2021 Operating lease right-of-use assets $ 139,068 $ 129,558 Other current liabilities $ 19,272 $ 16,276 Operating lease liabilities 138,867 130,965 Total operating lease liabilities $ 158,139 $ 147,241 Weighted Average Remaining Lease Term (years) Operating leases 11.1 12.0 Weighted Average Discount Rate Operating leases 5.2 % 5.5 % the issuance of the Senior Secured Term Loan Facility was recorded as a reduction of the underlying debt issuances within Long-term debt, net, less current portion and is being amortized over the life of the debt using the effective-interest method. The unamortized portion of the discount related to the Senior Secured Term Loan Facility was $0.4 million and $0.5 millionlease liabilities as of December 31, 2017 and 2016, respectively. Per the terms of the Senior Secured Credit Term Loan Facility, principal is scheduled to be paid quarterly on the last business day of March, June, September and December of each year, beginning March 2017.Origination fees of $0.8 million related to the Senior Secured Term Loan Facility2022 were recorded as a reduction of the underlying debt issuances in Long-term debt, net. These fees are being amortized over the life of the debt using the effective-interest method. The unamortized portion of the origination fees related to the Senior Secured Term Loan Facility was $0.6 million and $0.8 million at December 31, 2017 and 2016, respectively. Origination fees of $1.6 million related to the Senior Secured Revolving Credit Facility were originally capitalized as a component of Other assets. These fees are being amortized over the life of the debt using the effective-interest method. The unamortized portion of the origination fees related to the Senior Secured Revolving Credit Facility was $1.3 million and $1.6 million at December 31, 2017 and 2016, respectively.The Senior Secured Credit Facilities are guaranteed by the Parent 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 Senior Secured Credit Facilities are subject to customary covenants relating to financial ratios and restrictions on certain types of transactions, including restricting the Company's ability to incur additional indebtedness, acquire and dispose of assets, make investments, pay dividends, or engage in mergers and acquisitions. The Company is required to maintain a ratio of consolidated funded indebtedness minus unrestricted cash and cash equivalents (in the aggregate not to exceed $50 million and to include not more than $25 million of foreign unrestricted cash and cash equivalents) to consolidated EBITDA for the most recent four fiscal quarter period not to exceed 4.00:1.00; provided that the Company shall be permitted to increase the ratio to 4.50:1.00 in connection with any permitted acquisition or any other acquisition consented to by the Administrative Agent and the Required Lenders (as defined in the Senior Secured Credit Agreement) with total cash consideration in excess of $25 million. Such increase shall be applicable for the fiscal quarter in which such acquisition is consummated and the three consecutive test periods thereafter. The Company is also required to maintain a ratio of consolidated EBITDA to consolidated interest expense, in each case for the most recent four fiscal quarter period, of not less than 3.00:1.00. The Company was in compliance with all financial covenants as of December 31, 2017.Borrowings under the Senior Secured Credit Facilities were utilized to repay and extinguish our obligations under the 2014 Senior Secured Credit Facilities (as defined below). In accordance with accounting guidance governing such transactions, upon closing the 2014 Senior Secured Credit Facility (as defined below) and commencement of the Senior Secured Credit Facilities, the Company recognized a loss on extinguishment of debt totaling $10.7 million, of which $10.2 million related to unamortized loan origination fees from the credit agreement for our 2014 Senior Secured Credit Facilities (as defined below) and $0.5 million related to third party fees incurred during the fourth quarter of 2016. - 99 -On April 1, 2014, the Company entered into a credit agreement, consisting of a $530 million term loan (“2014 Senior Secured Term Loan Facility”) and a $60 million revolving credit facility ("2014 Senior Secured Revolving Credit Facility" and together with the 2014 Senior Secured Term Loan Facility, the “2014 Senior Secured Credit Facilities”). The 2014 Senior Secured Term Loan Facility, which was terminated in 2016 in connection with the new borrowings under the Senior Secured Credit Facility, was guaranteed by the Company and its subsidiaries and was subject to customary covenants relating to financial ratios and restrictions on certain types of transactions, including restricting the Company's ability to incur additional indebtedness, acquire and dispose of assets, make investments, pay dividends, or engage in mergers and acquisitions.Borrowings under the 2014 Senior Secured Credit Facilities incurred interest at a rate equal to, at our option, either (a) a Eurocurrency rate based on LIBOR for U.S. dollar deposits for loans denominated in dollars, EURIBOR for Euro deposits for loans denominated in Euros and the offer rate for any other currencies for loans denominated in such other currencies for the relevant interest period, plus 4.00% per annum if our total net leverage ratio was greater than 4.75:1.00, or 3.75% if our total net leverage ratio was less than or equal to 4.75:1.00; provided that the relevant Eurocurrency rate was deemed to be no less than 1.00% per annum; (b) a base rate, which was defined as the highest of (i) the Federal Funds Rate on such day plus ½ of 1.00%, (ii) the Prime Lending Rate on such day, (iii) the Adjusted Eurocurrency Rate for loans denominated in U.S. dollars published on such day for an Interest Period of one month plus 1.00% and (iv) 2.00%, plus 3.00% per annum if our total net leverage ratio was greater than 4.75:1.00, or 2.75% if our total leverage ratio was less than or equal to 4.75:1.00; provided that the base rate was deemed to be no less than 2.00% per annum. In addition, the Company was required to pay to the lenders a commitment fee of 0.5% quarterly for unused commitments on the 2014 Senior Secured Revolving Credit Facility, subject to a step-down to 0.375% based upon achievement of a certain leverage ratio as defined within the 2014 Senior Secured Credit Facilities. The Company was able to voluntarily prepay outstanding loans under the 2014 Senior Secured Credit Facilities without premium or penalty.9. COMMITMENTS, CONTINGENCIES, AND GUARANTEESLease ObligationsThe Company has payment obligations under non-cancellable operating leases, primarily for office space and furniture and fixtures to support its global operations. These leases often contain customary scheduled rent increases or escalation clauses and renewal options. Rent expense is recorded on a straight line basis. As of December 31, 2017, minimum future lease payments required under these leases are as follows (in thousands):Related Party
Operating LeasesNon-Related Parties
Operating LeasesTotal
Operating Leases2023 $ 11,025 $ 15,079 $ 26,104 2024 11,154 12,439 23,593 2025 11,286 10,229 21,515 2026 11,422 8,904 20,326 2027 10,389 6,932 17,321 Later years 96,600 11,890 108,490 Total lease payments 151,876 65,473 217,349 Less: imputed interest (53,074) (6,136) (59,210) Total $ 98,802 $ 59,337 $ 158,139 The related party operating lease is for one of the Company’s three buildings within its corporate headquarters. The non-related party operating leases are for the Company’s remaining leases throughout the world consisting primarily of office space, fixtures and vehicles.Rental expense under operating leases totaled $7.9 million, $6.7 million and $5.8 million for the years ended December 31, 2017, 2016 and 2015, respectively, and is allocated between Direct costs, excluding depreciation and amortization, and Selling, general and administrative in the consolidated statements of operations.- 100 -As of December 31, 2017, minimum annual payments required in conjunction with the Deemed landlord liabilities are as follows (in thousands):Legal ProceedingsMedpace periodically becomes involved in various claims and lawsuits that are incidental to its business. Management believes, after consultation with counsel, that no matters currently pending would, in the event of an adverse outcome, have a material impact on the Company’s consolidated balance sheets, statements of operations, or cash flows.In March 2012, the Company filed a legal claim against one of its customers, citing as a basis for its claim the customer’s non-payment of more than $6.5 million in outstanding invoices. In response, the customer filed a counterclaim against the Company for compensatory damages, asserting that the Company had willfully and wrongly withheld clinical study data alleged to be owned by the customer. The Company objected to these allegations and believed it had meritorious defenses against these claims and also believed that it would ultimately prevail in this matter. During 2015, a Settlement and Mutual Release Agreement (the “Agreement”) was entered into whereas the Company agreed to settle all outstanding claims for payment of $2.0 million from the customer and both parties waived the right to file any future suits. The customer paid the $2.0 million settlement during 2015 and the Company recorded a bad debt recovery of $2.0 million in Selling, general and administrative in the consolidated statements of operations.10.Authorized SharesOn August 16, 2016 the Company amended its Certificate of Incorporation in connection with the closing of its IPO to increase the authorized number of shares of common stock to 250,000,000 and to authorize 5,000,000 shares of preferred stock that may be issued from time to time by the Company’s Board of Directors.(“SARs”)(SARs), restricted stock awards (“RSAs”)(RSAs), restricted stock units (“RSUs”)(RSUs), or other cash based or stock dividend equivalent awards, which are all equity-classified instruments under the 2016 Plan. The number of shares registered and available for grant under the 2016 Plan is 6,000,000. The vesting of such awards may be conditioned upon either a specified period of time or the attainment of specific performance goals as determined by the administrator of the 2016 Plan. The option price and term are also subject to determination by the administrator with respect to each- 101 -1,009,896405,550 awards to employees under the 2016 Incentive Award Plan during the year ended December 31, 2017,2022, consisting of 797,550164,478 RSU and 113,838 stock option awards 118,000 restrictedhaving four year vesting schedules and 127,234 stock option awards (“RSA”) and 38,000 restricted stock units (“RSU”), allhaving two year vesting after four years.schedules. The Company granted an additional 41,3461,117 RSU that vest in four approximately equal installments on March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, and 11,418 stock option awards vesting over one year, to non-employee directors under the 2016 Incentive Award Plan, during the year ended December 31, 2017. Additionally, the Company granted 15,0002022. These stock option awards vesting equallywill vest on the second, thirdearlier of (a) the day immediately preceding the date of thefourth(b) the first anniversary of the date of grant, date over four years.648,180 stock options374,235 awards to employees under the 2016 Incentive Award Plan during the year ended December 31, 2016,2021, consisting of 626,65074,725 RSU and 205,086 stock optionsoption awards vesting after four years and 21,530six months, 27,854 RSU and 9,000 stock options with variousoption awards vesting schedules, but allafter four years, and 57,570 stock option awards vesting after two years. The Company granted an additional 10,932 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the year ended December 31, 2021. These awards will vest on the earlier of which vest within a calendar year(a) the day immediately preceding the date of the respectivefirst 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.has reserved 6,000,000 shares for issuance of RSAs, RSUs or stock options, of which approximately 4.3 million awards were available for future grants as ofduring the year ended December 31, 2017.companyCompany satisfies stock option exercises and vested stock awards with treasury shares or newly issued shares. Shares available for future stock compensation grants under the 2016 Plan totaled 4.32.3 million and 5.42.6 million at December 31, 20172022 and 2016.plan (collectively, “the Participants”).plan. Under the 2014 Plan, options could be granted with an exercise price equal to or greater than the fair value of common stock at the grant date as determined by the Board of Directors. The stock options, if unexercised, expired seven years from the date of grant. The Company granted 45,932 Awardsawards under the 2014 Plan consisting of 34,821 stock options vesting equally over four years and 11,111 fully vested shares, during the year ended December 31, 2016.As a condition to exercising stock options and acceptance of certain restricted shares, employees must have executed a Contribution and Subscription Agreement (the “Subscription Agreement”) that providedwere equity classified instruments for the exchange of the shares issued for incentive units (the “Incentive Units”) in Medpace Investors upon the occurrence of certain events. The Incentive Unitsall periods presented. There were tied directly to common stock ownership in Medpace Holdings, Inc. and entitled the Incentive Unit holder to participate in the risks and rewards of owning the Company’s stock through ownership in Medpace Investors. Theno outstanding awards containing this condition were liability-classified instruments as they were inevitably settled in the equity of a non-consolidated related party. Restricted share awards excluding the requirement to execute a Contribution and Subscription Agreement and settlement in common shares of Medpace Holdings, Inc. were equity-classified instruments.At the grant date for RSAs that were liability-classified, restricted shares were legally issued and exchanged for MPI Incentive Units on behalf of the employee. If the RSAs were not yet vested and an employee left the Company’s employment, the restricted shares of Medpace Holdings, Inc. reverted back to the Company and were available for re-issuance under the 2014 Plan. Upon the vesting of RSAs and RSUs and upon the exercise of stock options, the stock-based compensation liability was settled by exchanging the Company’s stock for MPI Incentive Units. If an employee left the Company’s employment after they vested in the Awards and the exchange for Incentive Units was made, Medpace Investors may exercise a call option to repurchase an employee’s Incentive Units at a price determined by the manager and majority unit holder of Medpace Investors, who is also the chief executive officer of Medpace. If Medpace Investors exercised the call right, it could do so up to the later of twelve months following the- 102 -employee’s departure date or six months following the determination that the former employee was directly or indirectly engaged in competitive business activities. Restricted Awards ModificationOn December 17, 2015, the Board of Directors approved a resolution to accelerate the vesting period for all issued, outstanding and unvested RSAs and RSUs to vest on December 31, 2015, so long as the recipient of each restricted share or unit was in good standing, had not provided notice of resignation and continued to be employed by the CompanyPlan as of December 31, 2015. In total, 688,599 unvested restricted awards held by 158 current employees were modified resulting in settlement of 688,599 shares.According to the authoritative guidance for stock-based compensation, under these circumstances a company should recognize additional stock-based compensation expense in the amount of the incremental fair value of the modified award. Because the restricted awards that were modified were liability-classified, the awards were at fair value at the time of the modification and no incremental cost was recognized. While there was no incremental cost related to fair value of the awards, $5.7 million of stock-based compensation expense was recorded in 2015 related to previously unrecognized stock-based compensation cost for awards expected to vest in 2016, 2017 and 2018. Option Awards ModificationAs a result of the Company’s IPO, a condition of all outstanding stock options issued before August 10, 2016 under the 2014 Plan that previously required the exchange of the shares issued for incentive units in the equity of a non-consolidated related party was dissolved. All future exercises of options issued pursuant to the 2014 Plan will now settle in shares of the Company. As a result of the modification in the settlement condition, the options will now be equity-classified instruments and changes in the fair value of the stock compensation liability that occur during the requisite service period are no longer recognized. According to the authoritative guidance for stock-based compensation, at modification the Company should recognize additional stock-based compensation expense in the amount of the incremental fair value of the modified award. As a result, the Company recognized $3.1 million of incremental stock-based compensation expense during the year ended December 31, 2016. In addition, the $10.5 million stock-based compensation liability associated with the modified stock options was reclassified to additional paid-in capital as a result of the change to equity classification. There is no stock-based compensation liability for the years ended December 31, 2017 and 2016. Black-Scholes-MertenBlack-Scholes-Merton option pricing model (the “BSM Model”). The BSM Model is primarily affected by the fair value of the Company’s common stock (see restricted share valuation discussion below), the expected holding period for the option, expected stock price volatility over the term of the awards, the risk-free interest rate, and expected dividends.Year Ended December 31, 2022 2021 2020 Expected holding period - years 4.7 5.0 3.1 Expected volatility 36.5% 34.3% 31.0% Risk-free interest rate 1.9% 0.9% 1.0% Expected dividend yield 0.0% 0.0% 0.0% 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- 103 -options outstanding in the period subject to liability-classified stock compensation accounting. Subsequent to August 10, 2016,all outstanding stock based awards are subject to equity classification through either modifications of the award terms and conditions that occurred during the years ended December 31, 2016 and 2015, or based on terms and conditions applicable as of the grant date.2017, 20162022, 2021 and 2015,2020, respectively, the expected holding period is based on an average between the midpoint of the vesting date and the expiration date of the options.Theestimatesspecific historical and implied volatility data, our estimate of expected volatility primarily by usingis 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 publicly tradedgroup of peer groupcompanies that operates in the clinical research and development industry. The Company does not have adequate history to calculate its own historical or implied volatility and believes the Company’s expected volatility will approximate the historical experienceare most representative of the peer group.- 104 -DirectTotal direct costs, excluding depreciation and amortization, and Selling, general and administrative reported in the consolidated statements of operations:Year Ended December 31, 2022 2021 2020 Weighted average, grant date fair value Stock options Stock options $ 47.57 $ 52.70 $ 15.19 Restricted shares (RSAs and RSUs) $ 149.87 $ 174.94 $ 98.61 Stock-based compensation expense allocated to: Total direct costs Total direct costs $ 11,801 $ 9,345 $ 7,781 Selling, general, and administrative 9,611 5,124 6,003 Total stock-based compensation expense $ 21,412 $ 14,469 $ 13,784 Year Ended December 31, 2022 2021 2020 Options Weighted Average Exercise Price Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding - beginning of Period 1,992,915 $ 68.39 2,500,727 $ 43.26 3,030,071 $ 34.50 Granted 252,490 $ 138.91 282,588 $ 168.34 227,353 $ 105.77 Exercised (579,407) $ 38.10 (745,572) $ 23.67 (637,806) $ 25.07 Cancelled/Forfeited/Expired Cancelled/Forfeited/Expired (36,850) $ 85.40 (44,828) $ 40.50 (118,891) $ 37.16 Outstanding - end of period 1,629,148 $ 89.71 1,992,915 $ 68.39 2,500,727 $ 43.26 Exercisable - end of period 1,116,255 $ 60.52 1,290,627 $ 56.43 1,498,829 $ 48.99 Year Ended December 31, 2022 2021 2020 Shares/Units Shares/Units Shares/Units Outstanding and unvested - beginning of period 602,187 695,562 569,770 Granted 165,595 102,579 201,032 Vested (197,000) (119,000) — Forfeited (47,405) (76,954) (75,240) Outstanding and unvested - end of period 523,377 602,187 695,562 Cumulative vested shares - end of period 2,229,916 2,032,916 1,913,916 During the years ended December 31, 2017, 2016 and 2015, 0, 11,111 and 583,021 Restricted Shares were granted and immediately vested upon issuance (the “Vested Shares”), respectively. There was no stock-based compensation liability related to Restricted Shares as of the year ended December 31, 2017 and 2016. The stock-based- 105 -compensation liability related to 231,229 Vested Shares granted during the year ended December 31, 2015 was settled by exchanging the awards for Medpace Investors’ Incentive Units. The stock-based liability related to the residual 351,851 Vested Shares granted during the year ended December 31, 2015 was settled by exchanging the awards for the Company’s common stock.2017:2022:Weighted Average
Exercise
PriceStock
OptionsRestricted
Shares/UnitsWeighted Average
Remaining
Life (Years)Number of stock options expected to vest $ 89.71 1,629,148 — 3.3 Number of restricted shares/units expected to vest 523,377 Total expected to vest 1,629,148 523,377 Total stock options exercisable $ 60.52 1,116,255 — 2.5 Unrecognized compensation cost (in thousands) $ 14,989 $ 33,310 Weighted average years over which unrecognized compensation cost will be recognized 2.4 2.9 Year Ended December 31, 2022 2021 2020 Total intrinsic value of stock options exercised $ 77,527 $ 104,695 $ 57,927 Total grant-date fair value of stock options vested $ 5,228 $ 5,185 $ 6,833 Total grant-date fair value of restricted shares vested $ 9,248 $ 3,796 $ — Total settlement date fair value of restricted shares vested $ 32,802 $ 22,321 $ — $0.5$23.2 million, $1.0$20.9 million and $4.6$11.7 millionfor the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.11.- 106 -$2.3$5.4 million, $2.0$4.3 million and $1.7$3.7 million during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively, and were allocated between DirectTotal direct costs, excluding depreciation and amortization, and Selling, general and administrative in the consolidated statements of operations.$0.9$2.5 million, $0.7$1.9 million and $0.7$1.5 million in the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively, and were allocated between DirectTotal direct costs, excluding depreciation and amortization, and Selling, general and administrative in the consolidated statements of operations.12.US Tax ReformThe “Tax Cuts and Jobs Act” (TCJA) was enacted on December 22, 2017 and it significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes a reduction in the U.S. federal tax rate from 35% to 21%, allows for the expensing of capital expenditures, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, creates new taxes on certain foreign sourced earnings and puts into effect the migration from a “worldwide” system of taxation to a territorial system. The Company has not completed its accounting for the income tax effects of the TCJA. Where the Company has been able to make reasonable estimates of the effects for which its analysis is not yet complete, the Company has recorded provisional amounts in accordance with SEC Staff Accounting Bulletin No. 118. Where the Company has not yet been able to make reasonable estimates of the impact of certain elements, the Company has not recorded any amounts related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect immediately prior to the enactment of the TCJA.The Company's accounting for the following elements of the TCJA is incomplete. However, the Company was able to make reasonable estimates of certain effects and, therefore, has recorded provisional amounts as follows:Revaluation of the Deferred Credit, deferred tax assets and liabilities and other miscellaneous tax attributes: The TCJA reduces the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. In addition, the TCJA makes certain changes to the depreciation rules and implements new limits on the deductibility of certain executive compensation. The Company has evaluated these changes and has recorded a provisional tax benefit of $3.4 million. The Company is still completing its calculation of the impact of these changes on its deferred tax balances.Transition tax on unrepatriated foreign earnings: The Transition Tax on unrepatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and has recorded a provisional Transition Tax expense of $0.6 million. The Company is continuing to gather additional information to more precisely compute the amount of the Transition Tax to complete its calculation of E&P as well as the final determination of non-U.S. income taxes paid.The Company's accounting for the following elements of the TCJA is incomplete, and it has not yet been able to make reasonable estimates of the effects of these items. Therefore, no provisional amounts were recorded.- 107 -Global intangible low taxed income (GILTI): The TCJA creates a new requirement that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Due to the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC 740. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has not yet completed its analysis of the GILTI tax rules and is not yet able to reasonably estimate the effect of this provision of the TCJA or make an accounting policy election for the ASC 740 treatment of the GILTI tax. Therefore, the Company has not recorded any amounts related to potential GILTI tax in its financial statements and has not yet made a policy decision regarding whether to record deferred taxes on GILTI. (loss) before income taxes consisted of the following (in thousands):Year Ended December 31, 2022 2021 2020 Domestic $ 260,564 $ 187,535 $ 158,432 Foreign jurisdictions 22,296 14,317 10,100 Income before income taxes Income before income taxes $ 282,860 $ 201,852 $ 168,532 10867 - (benefit) consisted of the following (in thousands):Current Deferred Total Year ended December 31, 2022 Year ended December 31, 2022 U.S. Federal $ 49,991 $ (19,705) $ 30,286 U.S. state and local 7,160 (3,297) 3,863 Foreign jurisdictions 3,330 13 3,343 $ 60,481 $ (22,989) $ 37,492 Year ended December 31, 2021 Year ended December 31, 2021 U.S. Federal $ 46,138 $ (32,677) $ 13,461 U.S. state and local 8,405 (3,622) 4,783 Foreign jurisdictions 2,580 (820) 1,760 $ 57,123 $ (37,119) $ 20,004 Year ended December 31, 2020 Year ended December 31, 2020 U.S. Federal $ 16,405 $ 436 $ 16,841 U.S. state and local 4,588 95 4,683 Foreign jurisdictions 1,586 38 1,624 $ 22,579 $ 569 $ 23,148 Year Ended December 31, 2022 2021 2020 Income tax expense calculated at the federal statutory rate $ 59,401 21.0 % $ 42,389 21.0 % $ 35,392 21.0 % Effect of: State and local taxes, net of federal benefit 4,235 1.5 3,698 1.8 2,639 1.6 Tax on foreign earnings, net of tax credits and deductions (3,277) (1.2) (3,113) (1.5) (1,773) (1.1) Deferred credit (621) (0.2) (667) (0.3) (700) (0.4) Permanent items: Stock-based awards (18,738) (6.6) (19,042) (9.5) (10,019) (5.9) Deduction for FDII (4,983) (1.8) (4,860) (2.4) (2,593) (1.5) Other 595 0.2 (364) (0.2) 144 0.1 State/Local tax credits (1,294) (0.5) (976) (0.5) (780) (0.5) Change in liability for uncertain tax positions 1,560 0.6 2,349 1.2 1,120 0.7 Other 614 0.3 590 0.3 (282) (0.3) $ 37,492 13.3 % $ 20,004 9.9 % $ 23,148 13.7 % 10969 -2022 2021 Deferred tax assets: Accrued liabilities $ 24,483 $ 21,028 Depreciation and amortization 1,269 989 Foreign operating loss carryforward 30 386 Advanced billings Advanced billings 67,789 37,226 Other 1,005 1,148 Valuation allowance (430) (850) Total deferred tax assets 94,146 59,927 Deferred tax liabilities: Depreciation and amortization (44,731) (34,065) Prepaid expenses (1,263) (1,292) Other (1,139) (516) Total deferred tax liabilities (47,133) (35,873) Net deferred tax asset (liability) $ 47,013 $ 24,054 The deferred tax asset attributable to U.S federal tax credits and carryforwards includes $8.0 million of U.S. federal operating loss carryforwards that will expire at various times from 2031 to 2037 if not utilized. U.S. state and local tax credits and carryforwards above includes $1.3 million for U.S. state and local operating loss carryforwards that will expire at various times from 2026 to 2032 if not utilized.$0.2less than $0.1 million has been established.established as of December 31, 2022. The Company hasdoes not have a valuation allowance of $0.2 million against this deferred tax asset as of December 31, 2022 based upon its assessment that it is more likely than not that this amount will not be realized. The ultimate realization of this tax benefit is dependent upon the generation of sufficient operating income in the respective tax jurisdictions. Approximately 74%57% of the foreign net operating loss carryforwards can be utilized over an indefinite period whereas the remainder will expire at various times from 2020 to 2025in 2026 if not utilized.In May 2017, the Company acquired Nephrogenex which included deferred tax assets of $22.2 million, consisting of tax effected net operating losses in the amount of $13.5 million, tax effected capitalized research and development expenses of $8.5 million and tax effected federal tax credits of $0.2 million, and deferred tax liabilities of $0.1 million. See Note 2 for further description of the asset acquisition that occurred in the second quarter of 2017.Year Ended December 31, 2022 2021 2020 Beginning Balance $ 850 $ 578 $ 755 Additions charged to expense 15 305 — Reductions from utilization, reassessments and expirations (493) (33) (177) Remeasurement due to effect of tax reform 58 — — Ending Balance $ 430 $ 850 $ 578 - 110 -Year Ended December 31, 2022 2021 2020 Beginning Balance $ 13,784 $ 10,691 $ 9,718 Increases in tax positions for prior years 171 1,253 — Decreases in tax positions for prior years (490) (223) (181) Increases in tax positions for current year 4,871 3,098 2,881 Lapse in statute of limitations (2,389) (1,035) (1,727) Ending Balance $ 15,947 $ 13,784 $ 10,691 2017, 20162022, 2021 and 2015.2020. As of December 31, 20172022 and 2016,2021, respectively, the Company has a liability for interest and penalties of $1.4$3.8 million and $1.0$2.8 million that is associated with related tax liabilities of $5.9$12.7 million and $4.3$11.0 million for uncertain tax positions.(2013(2018 through 2017)2022). For federal tax purposes, the Company’s open tax years are 20142019 through 2017.EXPENSE,INCOME, NETexpense,income, net consisted of the following (in thousands):Year Ended December 31, 2022 2021 2020 Net gain on foreign-currency transactions $ 3,859 $ 2,779 $ 514 Other income 3,209 563 669 Miscellaneous income, net $ 7,068 $ 3,342 $ 1,183 20172022 and 2016,2021, respectively, and are included in the Prepaid expenses and other current assets and Other assets line items of the consolidated balance sheets, respectively, depending on the contractual repayment date.Management FeesIn conjunction with the IPO, the Advisory Services Agreement with Cinven Capital Management (V) General Partner Limited (“Cinven”) expired. Subsequent to the IPO, the Company pays fees for director services provided by Cinven employees that are members of the Company’s Board of Directors and any related committees. The director fees are paid directly to Cinven in accordance with the Company’s non-employee director compensation policy. During the years ended December 31, 2016 and 2015, the Company incurred management fees to Cinven of $0.2 million and $0.3 million, respectively. During the years ended December 31, 2017 and 2016, the Company incurred director fees of $0.1 million, respectively. In connection with these fees, Cinven incurred related travel expenses of $0.1 million, respectively, during the years ended December 31, 2017, 2016 and 2015. As of- 111 -December 31, 2017 and 2016, the Company had outstanding accounts payable to Cinven of less than $0.1 million and $0.1 million, respectively.Symplmed Pharmaceuticals, LLC (“Symplmed”)Medpace Investors LLC, a noncontrolling shareholder of the Company that is owned by employees of the Company and managed by our chief executive officer, has a majority ownership interest in Symplmed Pharmaceuticals, LLC (“Symplmed”), a private pharmaceutical development company. In addition, the chief executive officer and other executives of the Company are board members of Symplmed. The Company has operated under a Master Services Agreement (“MSA”) with Symplmed since 2013 (amended in 2014) to perform clinical trial related services. Certain task orders governed by this arrangement were amended in the third quarter of 2016, changing the fee structure from unitized in nature to time and materials and revised pricing based on the Company’s leveraging of this work to develop and enhance certain new service capabilities. The Company has evaluated its relationship with Symplmed and concluded that Symplmed is not a variable interest entity because the Company has no direct ownership interest or relationship other than the MSA. During the years ended December 31, 2017, 2016 and 2015, the Company recognized related party transactions of less than $0.1 million, less than $(0.1) million and $1.2 million as service revenue in the consolidated statements of operations, respectively. Coherus BioSciences, Inc. (“Coherus”) and MX II Associates, LLC (“MXII”)The chief executive officer of the Company is a member of Coherus BioSciences, Inc.’s (“Coherus”) board of directors. During 2011 a related party of the Company in which the Company’s chief executive officer is the managing member, MXII, made an investment in Coherus. In early 2012 the Company made a $2.5 million investment in Coherus. Concurrent with the initial investment, MXII secured the exclusive rights for Medpace to perform Phase I through Phase III clinical trial work for certain Coherus’ “bio-similar” drug compounds executed through a MSA. In return, Medpace agreed to pay a 10% sales commission to MXII on cash received from Coherus. The commission agreement between the Company and MXII was terminated during 2015 but did not impact the MSA between the Company and Coherus. The agreement provides for a minimum fee commitment for clinical trial services and is cancelable without cause by either party upon 30 days prior notice. Medpace paid commissions of $1.1 million during the year ended December 31, 2015, which was recorded in Selling, general and administrative in the consolidated statements of operations. During the years ended December 31, 2017, 2016 and 2015, the Company recognized service revenue of $8.0 million, $22.3 million and $22.1 million from Coherus in the Company’s consolidated statements of operations, respectively. In addition, the company recognized Reimbursed out-of-pocket revenue and Reimbursed out-of-pocket expenses with Coherus in the consolidated statements of operations of $1.3 million, $5.1 million and $6.9 million during the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 and 2016, the Company had Accounts receivable and unbilled, net from Coherus of $0.3 million and $2.0 million recorded in the consolidated balance sheets, respectively. In addition, the Company had Advanced billings of $1.5 million and $6.3 million and Pre-funded study costs of $1.0 million and $3.8 million with Coherus recorded in the consolidated balance sheets at December 31, 2017 and 2016, respectively.Xenon Pharmaceuticals, Inc. (“Xenon”)Certain executives and employees of the Company, including the chief executive officer, have held equity investments in Xenon, a clinical-stage biopharmaceutical company. In addition, a Medpace employee was a director of Xenon until May 2015. During the second quarter of 2017, the chief executive officer sold his entire equity position held in Xenon. Xenon is no longer considered to be a related party subsequent to this sale. During July 2015 the Company and Xenon entered into an amended MSA agreement for the Company to provide clinical trial related services. The Company recognized service revenue from Xenon of $0.6 million, $1.3 million and $0.7 million during the six months ended June 30, 2017 and the years ended December 31, 2016 and 2015, respectively, in the Company’s consolidated statements of operations. In addition, the Company recognized Reimbursed out-of-pocket revenue and Reimbursed out-of-pocket expenses with Xenon in the consolidated statements of operations of $0.1 million, $0.2 million and less than $0.1 million during the six months ended June 30, 2017 and the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company had Accounts receivable and unbilled, net from Xenon of $0.3 million recorded in the consolidated balance sheets. As of December 31, 2016, the- 112 -Company had, from Xenon, $1.3 million of Advanced billings and $0.1 million of Pre-funded study costs, in the consolidated balance sheets.Cymabay Therapeutics, Inc. (“Cymabay”)Cymabay is a clinical-stage biopharmaceutical company developing therapies to treat metabolic diseases with high unmet medical need, including serious rare and orphan disorders. During the first quarter of 2016, it was announced that a Medpace employee would join Cymabay’s board of directors. The Company and Cymabay entered into a MSA dated October 21, 2016. Subsequently, the Company and Cymabay have entered into several task orders for the Company to perform clinical trial related services. The Company recognized service revenue from Cymabay of $0.6 million, $0.3 million and $0.1 million during the years ended December 31, 2017, 2016 and 2015, respectively, in the Company’s consolidated statements of operations. As of December 31, 2017 and 2016, the Company had Accounts receivable and unbilled, net from Cymabay of $0.1 million and less than $0.1 million recorded in the consolidated balance sheets, respectively.servicetotal revenue from LIB of $1.4$40.5 million, $11.8 million and $0.2$2.6 million during the years ended December 31, 20172022, 2021 and 20162020, respectively, in the Company’s consolidated statementsstatement of operations, respectively.operations. As of December 31, 20172022 and 2016,2021, the Company had, from LIB, Advanced billings of $0.2$7.4 million and less than $0.1$2.9 million in the consolidated balance sheets, respectively. In addition, the Company had Accounts receivable and unbilled, net from LIB of $0.5less than $0.1$0.5 million in the consolidated balance sheets at December 31, 20172022 and 2016,2021, respectively.yearyears ended December 31, 2017,2022, 2021 and 2020, the Company recognized servicetotal revenue from CinRx of $0.4$15.0 million, $22.7 million and $13.2 million in the Company’s consolidated statements of operations.Investors, LLCMedpace Investors is a noncontrolling shareholder and related party of Medpace Holdings, Inc. Medpace Investorscampus, is owned and managed by employees of the Company. The Company’s chief executive officer is also the managerofficer. Medpace incurs travel lodging and majority unit holder of Medpace Investors.meeting expenses at The Company acts as a paying agent for Medpace Investors with taxing authorities principally in instances when employee tax payments or remittance of withholdings related to equity compensation are required.Summit. During the years ended December 31, 20162022, 2021 and 2015, the Company paid $0.82020, Medpace incurred expenses of $0.3 million, $0.3 million and $0.9 million to various taxing authorities on behalf of Medpace Investors. During the year ended December 31, 2016, the Company received $0.3 million from Medpace Investors for receivables owed to the Company from Symplmed. Additionally, the Company paid approximately $0.3 million to Medpace Investors due to the settlement of certain liabilities related to the Merger Agreement between the sellers (led by CCMP) and the buyers (led by Cinven).- 113 -Purchase of Real Estate PropertiesIn December 2016, the Company entered into a purchase agreement for four parcels of real estate property that are closely situated to the Medpace campus in Cincinnati, Ohio, from AT Redevelopment Company, LLC, which is wholly-owned by the Company’s chief executive officer. The purchase price of the real estate property was $0.4 million as determined by an independent third party broker's opinion of value.at The transaction closed on January 11, 2017.iswas for an initial term of twelve years through November 2022 with a renewal option for one 10-year term at prevailing market rates. The Company entered into short-term extensions through January 2023. In the third quarter of fiscal year 2021, the Company accounted for the renewal option, as it became reasonably certain it would be exercised per the agreement, by extending the lease for storage space wasterm through June 2016 and was leased on a month to month basis, thereafter.November 2032. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the properties. Annual base rent for the corporate headquarters is $2.1 million and allows for adjustments to the rental rate annually for increases in the consumer price index. Lease expenseOperating lease cost recognized for the years ended December 31, 2017, 20162022, 2021 and 20152020 was $2.3 million, $2.1 million respectively. The lease expenseand 2.0 million, respectively, and was allocated between DirectTotal direct costs, excluding depreciation and amortization, and Selling, general and administrative in the consolidated statements of operations.Deemed Assets The Operating lease right-of-use assets at December 31, 2022 and Deemed Landlord LiabilitiesIn accordance with the accounting guidance related to leases, the Company was deemed in substance to be the owner of the property during the construction phase and at completion. Accordingly, the Company reflected the buildings and related liabilities as deemed assets from landlord building construction in Property and equipment, net, Other current liabilities, and Deemed landlord liabilities, respectively, on the consolidated balance sheets. 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 deemed assets are being fully depreciated, on a straight line basis, overCompany pays rent, taxes, insurance, and maintenance expenses that arise from the 15-year termuse of the lease. Deemed landlord liabilities are recorded at their net present value whenproperty. Annual base rent for the Company enters into qualifying leases and are reduced ascorporate headquarters allows for adjustments to the Company makes periodic lease payments on the properties. Accretion expense is being recorded over the term of the lease as a component of Interest expense, netrental rate annually for increases in the Company’sconsumer price index. The Company has determined that the leases are operating leases. Operating lease cost recognized for the years ended December 31, 2022, 2021 and 2020 was $3.6 million, respectively. The lease cost was allocated between Total direct costs and Selling, general and administrative in the consolidated statements of operations. The Company paid $3.8 million, $3.7Operating lease right-of-use assets at December 31, 2022 and 2021 were $14.6 million and $3.4$17.2 million, duringrespectively, in the years ended December 31, 2017, 2016 and 2015, respectively.consolidated balance sheets. The current and long-term portions of the Deemed landlord liabilitylease liabilities at December 31, 20172022 were $1.9$2.8 million and $26.6$11.9 million, respectively.respectively, and were recognized in Other current liabilities and Operating lease liabilities in the consolidated balance sheets. The current and long-term portions of the Deemed landlord liabilitylease liabilities at December 31, 20162021 were $1.7$2.6 million and $28.5 million, respectively. The Company has recognized $16.3 million and $18.1$14.6 million, respectively, of deemed assets, net at December 31, 2017 and 2016were recognized in Other current liabilities and Operating lease liabilities in the consolidated balance sheets.- 114 -Reynolds Jet Managementa private aviation charter companies which in 2020 was a company that is owned by the chief executive officer and the seniorexecutive vice president of operations of the Company (“privateand commencing in 2021 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. The Aircraft Management Company also makes the private aviation charter aircraft available to third parties. The Company incurred travel expenses of $1.1$2.3 million, $1.0$1.3 million and $0.9$0.7 million during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. These travel expenses are recorded in Selling, general and administrative in the Company’s consolidated statements of operations.Common Stock PurchasesDuring 2015, an employee As of December 31, 2022 and 2021, the Company entered into a stock purchase agreement (“SPA”) with the Company that permitted the purchase of 37,037 shares of the Company’s common stock at the then-current value for those shares. There was no stock-based compensation expense recognized in relationhad Accounts payable to the SPA due to no required services to be rendered in exchange for shares. The proceeds from this SPA are reflected as Proceeds from saleAircraft Management Company of common stock$0.3 million and $0.2 million, respectively, in the consolidated statement of cash flows for the year ended December 31, 2015.Assets and Obligations Related to Former OwnersPursuant to the Medpace, Inc. Stock Purchase Agreement dated June 17, 2011 (the “Predecessor Purchase Agreement”), certain tax indemnifications between the sellers (a group led by the former majority shareholder who is the current chief executive officer, the “Former Owners”) and the buyers (led by CCMP) were entered into regarding contingencies that could arise after the June 17, 2011 transaction, as well as tax payments or refunds that were finalized after June 17, 2011 but which relate to periods prior to the Predecessor Purchase Agreement date. In February 2015, a settlement was reached with a local taxing authority regarding the refund of income tax payments made by the Company prior to June 17, 2011. The transactions were all fully settled in 2017. On the consolidated balance sheets at December 31, 2016, the Company had $0.1 million in Prepaid expenses and other current assets and Other assets related to the tax refund due from the local taxing authority and $0.1 million in Other current liabilities and Other long-term liabilities representing the obligation to the Former Owners. The Company had less than $0.1 million in Prepaid expenses and other current assets and $0.0 million in Other current liabilities on the consolidated balance sheets at December 31, 2016, associated with refunds from various other taxing authorities that were generated prior to June 17, 2011. CASH FLOW STATEMENT – SUPPLEMENTAL INFORMATIONDuring the year ended December 31, 2017, the Company engaged in the following significant non-cash investing and financing activities:Acquired net assets totaling $0.7 million consisting of net Deferred tax assets of $21.1 million, offset by net Deferred tax liabilities of $0.1 million and Deferred credits of $20.3 million in exchange for Accounts receivable and unbilled, net of $0.6 million and Other assets of $0.1 million.16. ENTITY WIDE DISCLOSURESAsia-Pacific and Latin AmericaAustralia through wholly-owned subsidiaries and representative sales offices. The Company attributes service revenue to geographical locations based upon the location of the contracting entity. For the years ended December 31, 20172022, 2021 and 2016, service2020, total revenue attributable to the U.S. represented approximately 98%, 97% and 96%, respectively, of total consolidated service revenue, net. - 115 -2022 2021 Property and equipment, net: United States $ 81,217 $ 64,828 Europe Belgium Belgium 11,778 12,339 Other Other 9,294 8,413 Total Europe Total Europe 21,072 20,752 Other 7,560 7,573 Total property and equipment, net $ 109,849 $ 93,153 17. QUARTERLY FINANCIAL DATA (unaudited)summarizesdisaggregates the Company's unaudited quarterly resultsCompany’s revenue by major source (in thousands):Years Ended December 31, 2022 2021 2020 Therapeutic Area Oncology $ 467,796 $ 362,846 $ 297,675 Other 296,914 267,415 215,370 Metabolic 244,682 159,900 126,075 Cardiology 174,634 119,692 95,153 Central Nervous System 157,939 121,548 88,393 AVAI 118,031 110,976 103,259 Total revenue $ 1,459,996 $ 1,142,377 $ 925,925 - 116 -at the reasonable assurance level as of December 31, 2017.isare incorporated herein by reference.waswere no changechanges in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performedthat occurred during the fiscal quarteryear ended December 31, 2017,2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.11774 -will be includedwith respect to the Company’s Directors is contained in our definitive proxy statement (or(the “Proxy Statement”) for our 2023 Annual Meeting of Stockholders under the “2018 Proxy Statement”) to be filed with the SEC within 120 daysheading “Proposal 1: Election of the end of our fiscal year covered by this Annual ReportDirectors” and is incorporated herein by reference.will be includedwith respect to executive compensation and director compensation is contained in ourthe Proxy Statement for our 2018 Annual Meeting of Stockholders,under the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.will be includedwith respect to securities authorized for issuance under the Company’s equity compensation plans is contained in ourthe Proxy Statement for our 2018 Annual Meeting of Stockholders,under the heading “Equity Compensation Plan Information” and is incorporated herein by reference.will be includedwith respect to certain relationships and transactions with related parties is contained in ourthe Proxy Statement for our 2018 Annual Meeting of Stockholders,under the heading “Certain Relationships” and is incorporated herein by reference.will be includedwith respect to audit fees, tax fees, and the audit committee’s pre-approval policies and procedures are contained in ourthe Proxy Statement for our 2018 Annual Meeting of Stockholders,under the heading “Independent Registered Public Accounting Firm Fees and Other Matters” and is incorporated herein by reference.11876 -PagePage 7879808182838411977 -Incorporated by Reference
Number
Date
Furnished
HerewithExhibit
NumberExhibit Description Form File No. Exhibit Filing
DateFiled/
Furnished
Herewith3.1 8-K 001-37856 3.1 8/16/16 3.2 8-K 001-37856 3.2 8/16/16 4.1 S-1/A 333-212236 4.1 7/26/16 4.2 10-K 001-37856 4.3 2/25/20 #10.1 10-Q 001-37856 10.1 11/3/16 #10.2 10-Q 001-37856 10.2 11/3/16 10.3 10-Q 001-37856 10.3 11/3/16 #10.4 S-1/A 333-212236 10.13 8/1/16 #10.5 S-1/A 333-212236 10.14 8/1/16 #10.6 S-1/A 333-212236 10.15 8/1/16 #10.7 S-1/A 333-212236 10.16 8/1/16 #10.8 S-1/A 333-212236 10.18 7/26/16 #10.9 S-1/A 333-212236 10.19 8/1/16 #10.10 10-K 001-37856 10.10 2/14/23 * 10.11 8-K 001-37856 10.1 10/1/19 10.12 10.12 8-K 001-37856 10.1 4/1/20 10.13 10.13 10-K 001-37856 10.13 2/16/21 10.14 10.14 8-K 001-37856 10.1 3/30/21 12078 -Incorporated by ReferenceExhibit
NumberExhibit DescriptionFormFile No.ExhibitFiling
DateFiled/
Furnished
HerewithConsent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm* 31.1Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer* 31.2Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer* 32.1** 32.2**101.INSXBRL Instance Document*101.SCHXBRL Taxonomy Extension Schema Document*101.CALXBRL Taxonomy Calculation Linkbase Document*101.DEFXBRL Taxonomy Extension Definition Linkbase Document*101.LABXBRL Taxonomy Extension Label Linkbase Document*101.PREXBRL Taxonomy Extension Presentation**Filed herewith.**Furnished herewith.Incorporated by Reference Exhibit
NumberExhibit Description Form File No. Exhibit Filing
DateFiled/
Furnished
Herewith10.15 8-K 001-37856 10.1 12/29/21 10.16 8-K 001-37856 10.1 3/16/22 21.1 * 23.1 * 31.1 * 31.2 * 32.1 ** 32.2 ** 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.#Indicates management contract or compensatory plan.12179 -SIGNATURESMEDPACE HOLDINGS, INC. By:By: JESSE J. GEIGERJesse J. Geiger and Chief Operating Officer, Laboratory Operations27, 2018We, severally constitute and appoint Dr. August J. Troendle and Jesse J. Geiger,Kevin M. Brady, and each of them, singly, ouras his or her true and lawful attorneysattorneys-in-fact and agents, with full power to themof substitution and each of themresubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign for us, in our names and capacities below, any and all amendments to this Annual Report on Form 10-K, filedand to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission.SignatureCapacityDateSignature Capacity Date /s/ AUGUST J. TROENDLE President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)Dr. August J. TroendleFebruary 27, 201814, 2023JESSE J. GEIGER and Chief Operating Officer, Laboratory Operations (Principal Financial and Accounting Officer)Jesse J. GeigerFebruary 27, 201814, 2023/s/ BRUCE BROWNDirectorBruce BrownFebruary 27, 2018February 27, 201814, 2023February 27, 201814, 2023Director Fred B. Davenport Jr. February 14, 2023 /s/ CORNELIUS P. MCCARTHY III Director Cornelius P. McCarthy III February 14, 2023 /s/ ASHLEY M. KEATING Director Ashley M. Keating February 14, 2023 /s/ DR. SUPRAJ R. RAJAGOPALANFEMIDA H. GWADRY-SRIDHARSupraj R. RajagopalanFebruary 27, 2018/s/ ANASTASYA MOLODYKHDirectorAnastasya MolodykhFebruary 27, 2018/s/ JOHN R. RICHARDSONDirectorJohn R. RichardsonFebruary 27, 201812281 -