10-Q 1 medp-20220930.htm 10-Q medp-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
___________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to          .
Commission file number: 001-37856
___________________________________________
Medpace Holdings, Inc.
(Exact name of registrant as specified in its charter)
___________________________________________
Delaware32-0434904
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5375 Medpace Way, Cincinnati, OH 45227
(Address of principal executive offices) (Zip Code)
(513) 579-9911
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $0.01 par valueMEDPNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.           o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
ClassNumber of Shares Outstanding
Common Stock $0.01 par value
31,099,897 shares outstanding as of October 21, 2022


MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
Item NumberPage
-2-

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share amounts)
As of
September 30,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$31,007 $461,304 
Accounts receivable and unbilled, net (includes $3.0 million and $2.7 million with related parties at September 30, 2022 and December 31, 2021, respectively)
249,086 186,432 
Prepaid expenses and other current assets57,648 43,176 
Total current assets337,741 690,912 
Property and equipment, net104,719 93,153 
Operating lease right-of-use assets139,071 129,558 
Goodwill662,396 662,396 
Intangible assets, net38,846 41,360 
Deferred income taxes27,023 25,134 
Other assets18,629 17,422 
Total assets$1,328,425 $1,659,935 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable (includes $0.3 million with related parties at September 30, 2022 and December 31, 2021, respectively)
$28,245 $25,678 
Accrued expenses204,117 159,286 
Advanced billings (includes $5.7 million and $8.3 million with related parties at September 30, 2022 and December 31, 2021, respectively)
417,927 344,641 
Short-term debt139,700  
Other current liabilities30,879 27,612 
Total current liabilities820,868 557,217 
Operating lease liabilities139,203 130,965 
Deferred income tax liability911 1,080 
Other long-term liabilities17,558 17,745 
Total liabilities978,540 707,007 
Commitments and contingencies (see Note 11)
Shareholders’ equity:
Preferred stock - $0.01 par-value; 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
  
Common stock - $0.01 par-value; 250,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 31,098,397 and 36,006,778 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
309 360 
Treasury stock - 81,573 and 180,000 shares at September 30, 2022 and December 31, 2021, respectively
(14,243)(5,427)
Additional paid-in capital759,986 727,857 
(Accumulated deficit) Retained earnings(380,115)234,984 
Accumulated other comprehensive loss(16,052)(4,846)
Total shareholders’ equity349,885 952,928 
Total liabilities and shareholders’ equity$1,328,425 $1,659,935 
See notes to condensed consolidated financial statements.
-3-

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share amounts)Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
Revenue, net (includes $9.8 million and $8.7 million with related parties for the three months ended September 30, 2022 and 2021, respectively, and $40.3 million and $23.9 million with related parties for the nine months ended September 30, 2022 and 2021, respectively)
$383,744 $295,567 $1,065,898 $833,825 
Operating expenses:
Direct service costs, excluding depreciation and amortization136,648 112,540 394,200 322,160 
Reimbursed out-of-pocket expenses128,062 95,934 354,991 271,494 
Total direct costs264,710 208,474 749,191 593,654 
Selling, general and administrative35,418 28,046 97,999 80,757 
Depreciation4,951 4,056 13,928 11,819 
Amortization838 1,278 2,514 3,835 
Total operating expenses305,917 241,854 863,632 690,065 
Income from operations77,827 53,713 202,266 143,760 
Other income, net:
Miscellaneous income, net5,649 1,064 9,027 2,253 
Interest expense, net(1,584)(41)(2,078)(82)
Total other income, net4,065 1,023 6,949 2,171 
Income before income taxes81,892 54,736 209,215 145,931 
Income tax provision15,865 6,162 32,517 14,117 
Net income$66,027 $48,574 $176,698 $131,814 
Net income per share attributable to common shareholders:
Basic$2.13 $1.35 $5.39 $3.67 
Diluted$2.05 $1.29 $5.18 $3.49 
Weighted average common shares outstanding:
Basic31,00935,81632,79135,822
Diluted32,25337,51934,09837,641
See notes to condensed consolidated financial statements.
-4-

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands)Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net income$66,027 $48,574 $176,698 $131,814 
Other comprehensive income
Foreign currency translation adjustments, net of taxes(6,080)(1,483)(11,206)(3,112)
Comprehensive income$59,947 $47,091 $165,492 $128,702 
See notes to condensed consolidated financial statements.
-5-

MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in thousands)
Common Stock
Treasury Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
BALANCE — December 31, 2020$355 $(5,578)$695,904 $115,229 $(131)$805,779 
Net income43,306 43,306 
Foreign currency translation(2,135)(2,135)
Stock-based compensation expense2,871 2,871 
Stock options exercised4 9,102 9,106 
BALANCE — March 31, 2021$359 $(5,578)$707,877 $158,535 $(2,266)$858,927 
Net income39,934 39,934 
Foreign currency translation506 506 
Stock-based compensation expense3,570 3,570 
Stock options exercised2 5,100 5,102 
Repurchases of common stock(3)(56,154)(56,157)
BALANCE — June 30, 2021$358 $(5,578)$716,547 $142,315 $(1,760)$851,882 
Net income48,574 48,574 
Foreign currency translation(1,483)(1,483)
Stock-based compensation expense4,047 4,047 
Stock options exercised1 1,003 1,004 
Repurchases of common stock(5,939)(5,939)
BALANCE — September 30, 2021$359 $(5,578)$721,597 $184,950 $(3,243)$898,085 
Common Stock
Treasury Stock
Additional
Paid-In
Capital
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
BALANCE — December 31, 2021$360 $(5,427)$727,857 $234,984 $(4,846)$952,928 
Net income61,311 61,311 
Foreign currency translation(1,542)(1,542)
Stock-based compensation expense4,372 4,372 
Stock options exercised3 13,894 13,897 
Repurchases of common stock(27)(14,243)(411,680)(425,950)
Retirement of treasury stock5,427 (5,427) 
BALANCE — March 31, 2022$336 $(14,243)$746,123 $(120,812)$(6,388)$605,016 
Net income49,360 49,360 
Foreign currency translation(3,584)(3,584)
Stock-based compensation expense5,653 5,653 
Stock options exercised1,524 1,524 
Repurchases of common stock(27)(374,690)(374,717)
BALANCE — June 30, 2022$309 $(14,243)$753,300 $(446,142)$(9,972)$283,252 
Net income66,027 66,027 
Foreign currency translation(6,080)(6,080)
Stock-based compensation expense5,794 5,794 
Stock options exercised892 892 
BALANCE — September 30, 2022$309 $(14,243)$759,986 $(380,115)$(16,052)$349,885 
See notes to condensed consolidated financial statements.
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MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)Nine Months Ended
September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$176,698 $131,814 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation13,928 11,819 
Amortization2,514 3,835 
Stock-based compensation expense15,819 10,488 
Noncash lease expense13,460 11,878 
Deferred income tax (benefit) provision(2,126)3,299 
Amortization and adjustment of deferred credit(465)(501)
Other115 213 
Changes in assets and liabilities:
Accounts receivable and unbilled, net(62,438)(25,046)
Prepaid expenses and other current assets(17,397)(22,049)
Accounts payable770 2,150 
Accrued expenses47,848 24,691 
Advanced billings73,286 48,184 
Lease liabilities(11,134)(11,335)
Other assets and liabilities, net488 2,993 
Net cash provided by operating activities251,366 192,433 
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures(27,636)(19,155)
Other(1,886)(3,093)
Net cash used in investing activities(29,522)(22,248)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises16,313 15,212 
Repurchases of common stock(800,667)(62,096)
Proceeds from revolving loan299,200  
Payments on revolving loan(159,500) 
Net cash used in financing activities(644,654)(46,884)
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND
RESTRICTED CASH
(7,487)(2,680)
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(430,297)120,621 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period461,304 277,766 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period$31,007 $398,387 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION —
Acquisition of property and equipment—non-cash$9,094 $5,424 
See notes to condensed consolidated financial statements.
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MEDPACE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2022
(1) Basis of Presentation
Description of Business
Medpace Holdings, Inc. (together with its subsidiaries, “Medpace” or the “Company”), a Delaware corporation, is a global provider of clinical research-based drug and medical device development services. The Company partners with pharmaceutical, biotechnology, and medical device companies in the development and execution of clinical trials. The Company’s drug development services focus on full service Phase I-IV clinical development services and include development plan design, project management, regulatory affairs, clinical monitoring, data management and analysis, pharmacovigilance new drug application submissions, post-marketing clinical support, laboratory services, clinical human pharmacology, imaging services, and electrocardiography reading support for clinical trials.
The Company’s operations are principally based in North America, Europe, and Asia.
Unaudited Interim Financial Information
The interim condensed consolidated financial statements include the accounts of the Company, are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), and are unaudited. In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The preparation of the interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from management’s estimates and assumptions. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Share Repurchases
In the second quarter of 2021, the Board approved an increase of $150.0 million to the Company's stock repurchase program bringing the total repurchase authorization up to $300.0 million. In the first quarter of 2022, the Board approved additional increases totaling $500.0 million to the Company's stock repurchase program. In the second quarter of 2022, the Board approved further increases of $110.0 million to the Company's stock repurchase program. During the nine months ended September 30, 2022, the Company repurchased 5,463,244 shares for $800.5 million. During the three and nine months ended September 30, 2021, the Company repurchased 34,624 and 377,783 shares for $5.9 million and $62.1 million, respectively. As of September 30, 2022, the Company has completed all authorized share repurchases under the repurchase program.
Repurchases under the share repurchase program are executed in the open market or negotiated transactions under trading plans put in place pursuant to Rule 10b5-1. The Company constructively retired the repurchased shares associated with these approved share repurchases, except for a small portion which were retained as Treasury Shares on the condensed consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s condensed consolidated balance sheets.
Recently Issued Accounting Standards
In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity's financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its condensed consolidated financial statements and related disclosures.
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(2) Net Income Per Share
Basic and diluted earnings or loss per share (“EPS”) are computed using the two-class method, which is an earnings allocation that determines EPS for each class of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. The Company’s Restricted Stock Awards (“RSA”) are considered participating securities because they are legally issued at the date of grant and holders are entitled to receive non-forfeitable dividends during the vesting term.
The computation of diluted EPS includes additional common shares, such as unvested Restricted Stock Units (“RSU”) and stock options with exercise prices less than the average market price of the Company’s common stock during the period (“in-the-money options”), which would be considered outstanding. This assumes that additional shares would have to be issued in cases where the exercise price of stock options is less than the value of the common stock being acquired because the cash proceeds received from the stock option holder would not be sufficient to acquire that same number of shares. The Company does not compute diluted EPS in cases where the inclusion of such additional shares would be anti-dilutive in effect.
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021 (in thousands, except for earnings per share):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Weighted-average shares:
Common shares outstanding31,00935,81632,79135,822
RSAs2111221114
Total weighted-average shares31,03035,92832,81235,936
Earnings per common share—Basic
Net income$66,027 $48,574 $176,698 $131,814 
Less: Undistributed earnings allocated to RSAs(44)(151)(112)(419)
Net income available to common shareholders—Basic$65,983 $48,423 $176,586 $131,395 
Net income per common share—Basic$2.13 $1.35 $5.39 $3.67 
Basic weighted-average common shares outstanding31,00935,81632,79135,822
Effect of diluted shares1,2441,7031,3071,819
Diluted weighted-average shares outstanding32,25337,51934,09837,641
Net income per common share—Diluted$2.05 $1.29 $5.18 $3.49 
During the three and nine months ended September 30, 2022, the Company had (in thousands) 274.4 stock options, respectively, that were excluded due to the exercise price exceeding the average fair value of the Company’s common stock during the period.
(3) Fair Value Measurements
The Company follows accounting guidance related to fair value measurements that defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy for inputs used in measuring fair value. This hierarchy maximizes the use of “observable” inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy specifies three levels based on the inputs, as follows:
Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities.
Level 2: Valuations based on directly observable inputs or unobservable inputs corroborated by market data.
Level 3: Valuations based on unobservable inputs supported by little or no market activity representing management’s determination of assumptions of how market participants would price the assets or liabilities.
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The fair value of financial instruments such as cash and cash equivalents, accounts receivable and unbilled, net, accounts payable, accrued expenses and advanced billings approximate their carrying amounts due to their short term maturities.
The Company does not have any recurring fair value measurements as of September 30, 2022. There were no transfers between Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2022 or September 30, 2021.
(4) Contract Assets and Contract Liabilities
Contract assets and liabilities are reflected in the Company’s condensed consolidated balance sheets within the accounts reflected below.
Contract Assets
Accounts receivable represent amounts due from the Company’s customers who are concentrated primarily in the pharmaceutical, biotechnology, and medical device industries. Unbilled represents revenue recognized to date that has not been billed or is not yet contractually billable to the customer. In general, amounts become billable upon the achievement of negotiated contractual events, in accordance with predetermined payment schedules or when a reimbursable expense has been incurred. Amounts classified to unbilled are those billable to customers within one year from the respective balance sheet date.
Accounts receivable and unbilled, net consisted of the following (in thousands):
As of
September 30,
2022
December 31,
2021
Accounts receivable$207,792 $150,496 
Unbilled receivables41,463 36,107 
Less: allowance for doubtful accounts(169)(171)
Total accounts receivable and unbilled, net$249,086 $186,432 
Contract Liabilities
Advanced billings represent cash received from customers, or billed amounts per an agreed upon payment schedule, in advance of services being performed or revenue being recognized.
Advanced billings consisted of the following (in thousands):
As of
September 30,
2022
December 31,
2021
Advanced billings$417,927 $344,641 
As of September 30, 2022, we had approximately $2.5 billion of performance obligations remaining to be performed for active projects.
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(5) Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
As of
September 30,
2022
December 31,
2021
Intangible assets:
Finite-lived intangible assets:
Carrying amount:
Customer relationships145,051 145,051 
Accumulated amortization:
Customer relationships(137,851)(135,337)
Total finite-lived intangible assets, net7,200 9,714 
Trade name (indefinite-lived)31,646 31,646 
Total intangible assets, net$38,846 $41,360 
As of September 30, 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
Remainder of 2022
$839 
20232,199 
20241,443 
2025946 
2026620 
Later years1,153 
$7,200 
(6) Accrued Expenses
Accrued expenses consisted of the following (in thousands):
As of
September 30,
2022
December 31,
2021
Employee compensation and benefits$63,517 $57,846 
Project related reimbursable expenses127,603 91,839 
Other12,997 9,601 
Total accrued expenses$204,117 $159,286 
(7) Debt
Debt consisted of the following (in thousands):
As of
September 30,
2022
December 31,
2021
Revolving credit facility$139,700 $ 
Short-term debt$139,700 $ 
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Principal payments on debt are due as follows (in thousands):
2022 (remaining)
 
2023139,700 
Total$139,700 
On September 30, 2019 (the “Closing Date”), the Company obtained an unsecured credit facility in an aggregate principal amount up to $50.0 million (as amended from time to time, the “Credit Facility”) through its wholly owned subsidiaries, Medpace, Inc., as borrower (the “Borrower”), and Medpace IntermediateCo, Inc., as guarantor (the “Guarantor”).
On the Closing Date, the Borrower and lender entered into a Loan Agreement (as it may be amended from time to time, the “Loan Agreement”) providing for the Credit Facility, and the Guarantor executed a Guaranty Agreement providing for its guarantee of the payment and performance of the obligations under the Loan Agreement. On December 27, 2021, the Company entered into Amendment No. 3 to the Loan Agreement, which, among other things, extends the expiration date of the revolving credit note to March 31, 2023, adds provisions for alternative rates of interest as a result of global reference rate initiatives and removes the Borrower's ability to obtain advances in any currency other than U.S. Dollars. After the LIBOR cessation date of December 31, 2021, the Credit Facility bears interest at a rate of the sum of The Secured Overnight Financing Rate (SOFR) and the benchmark replacement adjustment plus 100 basis points (1.00%). On March 15, 2022, the Company entered into Amendment No. 4 to the Loan Agreement, which increased the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $250.0 million.
As of September 30, 2022, there were $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.
(8) Leases
The Company enters into leases for real estate and equipment. Real estate leases are for our corporate office space and laboratories around the world. Real estate leases have remaining lease terms of less than 1 year to 18 years. Many of the Company’s leases include options to extend the leases on a month to month basis or for set periods for up to 20 years. Many leases also include options to terminate the leases within 1 year or per other contractual terms.
The components of lease expense were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease cost$6,482 $5,941 $19,357 $17,488 
Variable lease cost2,240 1,749 6,353 4,565 
Supplemental cash flow information related to the leases was as follows (in thousands):
Nine Months Ended September 30,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$12,045 $11,847 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases29,915 24,251 
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Supplemental balance sheet information related to the leases was as follows (in thousands):
As of
September 30,
2022
December 31,
2021
Operating lease right-of-use assets$139,071 $129,558 
Other current liabilities$18,691 $16,276 
Operating lease liabilities139,203 130,965 
Total operating lease liabilities$157,894 $147,241 
Weighted Average Remaining Lease Term (years)
Operating leases11.412.0
Weighted Average Discount Rate
Operating leases5.2 %5.5 %
Lease payments due related to lease liabilities as of September 30, 2022 were as follows (in thousands):
Related Party
Operating Leases
Non-Related Parties
Operating Leases
Total
Operating Leases
Remainder of 2022
$2,746 $3,674 $6,420 
202311,025 13,894 24,919 
202411,154 11,394 22,548 
202511,286 9,302 20,588 
202611,422 8,108 19,530 
Later years106,988 17,570 124,558 
Total lease payments154,621 63,942 218,563 
Less: imputed interest(54,538)(6,131)(60,669)
Total$100,083 $57,811 $157,894 
As of September 30, 2022, we have several additional leases with contractual obligations, which have not yet commenced, with future payments of $0.1 million.
(9) Shareholder’s Equity and Stock-Based Compensation
The Company granted 392,231 awards to employees under the 2016 Incentive Award Plan during the nine months ended September 30, 2022, consisting of 151,159 RSU and 113,838 stock option awards having four year vesting schedules and 127,234 stock option awards having two year vesting schedules. The Company granted an additional 11,418 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the nine months ended September 30, 2022. These awards are scheduled to vest on the earlier of (a) the day immediately preceding the date of the first annual meeting following the date of grant and (b) the first anniversary of the date of grant, subject to the non-employee director continuing in service through the applicable vesting date.
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Award Activity
The following table sets forth the Company’s stock option activity:
Nine Months Ended September 30, 2022
Stock Options Weighted Average
Exercise Price
Outstanding - beginning of period1,992,915$68.39 
Granted252,490$138.91 
Exercised(395,863)$41.21 
Cancelled/Forfeited/Expired(28,747)$72.76 
Outstanding - end of period1,820,795$84.01 
Exercisable - end of period1,212,799$56.49 
The following table sets forth the Company’s RSA/RSU activity:
Nine Months Ended
September 30, 2022
Shares/Units
Outstanding and unvested - beginning of period602,187
Granted151,159
Vested(159,000)
Forfeited(40,248)
Outstanding and unvested - end of period554,098
 
Cumulative vested shares - end of period2,191,916
Stock-based compensation expense recognized in the condensed consolidated statements of operations related to all outstanding stock based compensation awards is summarized below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Total direct costs$3,179 $2,607 $8,744 $6,841 
Selling, general and administrative2,615 1,440 7,075 3,647 
Total stock-based compensation expense$5,794 $4,047 $15,819 $10,488 
(10) Income Taxes
The Company’s effective income tax rate was 19.4% and 11.3% for the three months ended September 30, 2022 and 2021, respectively. The Company's effective income tax rate was 15.5% and 9.7% for the nine months ended September 30, 2022 and 2021, respectively. The Company’s effective income tax rate for the three months ended September 30, 2022 varied from the U.S. statutory rate of 21% primarily due to the impact of state taxes, which was favorably offset by excess tax benefits recognized from share-based compensation. The Company's effective income tax rate for the nine months ended September 30, 2022 varied from the U.S. statutory rate of 21% due to the impact of the state taxes, which was favorably offset by excess tax benefits recognized from share-based compensation and benefits from uncertain tax positions.
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(11) Commitments and Contingencies
Legal Proceedings
The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions. The Company cannot predict with certainty the outcome of such proceedings, but it believes that adequate reserves have been recorded and losses already recognized with respect to such proceedings, which were immaterial as of September 30, 2022 and December 31, 2021. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, the Company believes that such potential losses were immaterial as of September 30, 2022.
Purchase Commitments
The Company has several minimum purchase commitments for project related supplies totaling $14.3 million as of September 30, 2022. In return for the commitment, Medpace receives preferential pricing. The commitments expire at various times through 2029.
(12) Related Party Transactions
Employee Loans
The Company periodically extends short term loans or advances to employees, typically upon commencement of employment. Total receivables as a result of these employee advances of $0.2 million existed at September 30, 2022 and December 31, 2021, respectively, and are included in the Prepaid expenses and other current assets and Other assets line items of the condensed consolidated balance sheets, respectively, depending on the contractual repayment date.
Service Agreement
LIB Therapeutics LLC and subsidiaries (“LIB”)
Certain executives and employees of the Company, including the chief executive officer, are members of LIB’s board of managers. The Company entered into a MSA dated November 24, 2015 with LIB, a company that engages in research, development, marketing and commercialization of pharmaceutical drugs. Subsequently, the Company and LIB have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from LIB of $9.5 million and $2.3 million during the three months ended September 30, 2022 and 2021, respectively, and $26.6 million and $5.6 million during the nine months ended September 30, 2022 and 2021, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, respectively, the Company had Advanced billings from LIB of $4.7 million and $2.9 million in the condensed consolidated balance sheets. In addition, as of September 30, 2022 and December 31, 2021, respectively, the Company had Accounts receivable and unbilled, net from LIB of $1.7 million and $0.5 million in the condensed consolidated balance sheets.
CinRX Pharma, subsidiaries and affiliates (“CinRx”)
Certain executives and employees of the Company, including the chief executive officer, are members of CinRx’s board of managers and/or have equity investments in CinRx, a biotech company. The Company and CinRx have entered into several task orders for the Company to perform clinical trial related services. The Company recognized total revenue from CinRx of $0.5 million and $6.4 million during the three months ended September 30, 2022 and 2021, respectively, and $13.8 million and $18.3 million during the nine months ended September 30, 2022 and 2021, respectively, in the Company’s condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, respectively, the Company had Advanced billings from CinRx of $1.0 million and $5.4 million in the condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021 the Company had Accounts receivable and unbilled, net from CinRx of $1.3 million and $2.1 million, respectively, in the condensed consolidated balance sheets. Certain affiliates of CinRx included in previous reported quarters are no longer disclosed due to changes in the affiliate relationship.
The Summit Hotel (“The Summit”)
The Summit Hotel, located on the Medpace campus, is owned by the chief executive officer, and managed by an unrelated hospitality management entity. Medpace incurs travel lodging and meeting expenses at The Summit. Medpace incurred expenses of $0.1 million and $0.2 million during the three months ended September 30, 2022 and 2021, respectively, and $0.2 million and $0.3 million during the nine months ended September 30, 2022 and 2021 at The Summit, respectively.
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Leased Real Estate
Headquarters Lease
The Company entered into an operating lease for its corporate headquarters with an entity that is wholly owned by the chief executive officer of the Company. The Company has evaluated its relationship with the related party and concluded that the related party is not a variable interest entity because the Company has no direct ownership interest or relationship other than the lease. The lease for headquarters is for an initial term of twelve years through November 2022 with a renewal option for one 10-year term at prevailing market rates. In Q3 2021, the Company accounted for the renewal option, as it became reasonably certain it would be exercised per the agreement, by extending the lease term through November 2032. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for its corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. Operating lease cost recognized for the three months ended September 30, 2022 and 2021 was $0.6 million and $1.7 million and $1.6 million for the nine months ended September 30, 2022 and 2021, respectively. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at September 30, 2022 and December 31, 2021 were $18.6 million and $19.7 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2022 were $1.5 million and $17.1 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2021 were $1.5 million and $18.3 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets.
In 2018, Medpace, Inc. entered into a multi-year lease agreement governing future occupancy of additional office space in Cincinnati, Ohio with an entity that is wholly owned by the Company’s chief executive officer and certain members of his immediate family. The Company began to occupy the premises in the second quarter of fiscal year 2020. The lease expires in 2040 and the Company has two 10-year options to extend the term of the lease. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for the corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. The Company has determined that the lease is an operating lease. Operating lease cost recognized for the three months ended September 30, 2022 and 2021 was $1.5 million and $4.3 million for the nine months ended September 30, 2022 and 2021. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at September 30, 2022 and December 31, 2021 were $53.9 million and $55.1 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2022 were $1.1 million and $65.1 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2021 were $0.9 million and $65.9 million, respectively and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets.
The Company entered into two multi-year lease agreements governing the occupancy of space of two buildings in Cincinnati, Ohio with an entity that is wholly owned by the Company’s chief executive officer and certain members of his immediate family. The Company assumed occupancy in 2012 and the leases expire in 2027 with the Company having one 10-year option to extend the lease term. The Company pays rent, taxes, insurance, and maintenance expenses that arise from the use of the property. Annual base rent for the corporate headquarters allows for adjustments to the rental rate annually for increases in the consumer price index. The Company has determined that the leases are operating leases. Operating lease cost recognized for the three months ended September 30, 2022 and 2021 was $0.9 million and $2.7 million for the nine months ended September 30, 2022 and 2021. The operating lease cost was allocated between Total direct costs and Selling, general and administrative in the condensed consolidated statements of operations. The Operating lease right-of-use assets at September 30, 2022 and December 31, 2021 were $15.3 million and $17.2 million, respectively, in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at September 30, 2022 were $2.7 million and $12.6 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets. The current and long-term portions of the lease liabilities at December 31, 2021 were $2.6 million and $14.6 million, respectively, and were recognized in Other current liabilities and Operating lease liabilities in the condensed consolidated balance sheets.
Travel Services
The Company incurs expenses for travel services for company executives provided by private aviation charter companies which is a company controlled by the chief executive officer of the Company (each a “private aviation charter”). The Company may contract directly with the private aviation charter for the use of its aircraft or indirectly through a third party
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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 $0.6 million and $0.4 million during the three months ended September 30, 2022 and 2021, respectively, and $1.6 million and $0.9 million during the nine months ended September 30, 2022 and 2021, respectively, related to these travel services. These travel expenses are recorded in Selling, general and administrative in the Company’s condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, the Company had Accounts payable to the Aircraft Management Company of $0.2 million, respectively, in the condensed consolidated balance sheets.
(13) Entity Wide Disclosures
Revenue by Category
The following table disaggregates our revenue by major source (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Therapeutic Area
Oncology$122,834 $94,724 $343,589 $267,110 
Other72,767 64,088 216,739 197,146 
Metabolic63,478 42,133 167,194 112,771 
Cardiology49,802 34,736 129,225 86,538 
Central Nervous System43,418 32,854 120,811 86,217 
AVAI31,445 27,032 88,340 84,043 
Total revenue$383,744 $295,567 $1,065,898 $833,825 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and with the information under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those indicated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to, those discussed under the “Forward-Looking Statements” below and “Risk Factors” in “Item 1A Risk Factors” of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained herein, are forward looking statements. Forward looking statements include, without limitation, statements regarding our results of operations; financial position and performance; the anticipated impact of the coronavirus COVID-19 pandemic on our business; international risks including the conflict involving Russia, Ukraine and surrounding countries, respectively, on our business; liquidity and our ability to fund our business operations and initiatives; capital expenditure and debt service obligations; business strategies, plans and goals, including those related to operations, marketing, acquisitions and expansion of our business; product approvals and plans; industry trends; general economic conditions, including inflation and other pricing pressures that could decrease our operating margins; expectations regarding consumer behaviors and trends; our culture and operating philosophy; human resource management; arrangements with and delivery of our services to the customers; conversion of backlog; dividend policy; legal proceedings; and our objectives for future operations. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” “likely,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to inherent uncertainties, risks, changes in circumstances and other important factors that are difficult to predict. Moreover, we operate in a very competitive and rapidly changing environment in which new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all important factors on our business or the extent to which any factor, or combination of such factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed may not occur and our financial condition and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We caution you therefore against relying on these forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. For a further discussion of the risks relating to our business, see “Item 1A Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and “Part II – Other Information, Item 1A Risk Factors” herein.
Business Overview
We are one of the world’s leading clinical contract research organizations, or CROs, by revenue, solely focused on providing scientifically-driven outsourced clinical development services to the biotechnology, pharmaceutical and medical device industries. Our mission is to accelerate the global development of safe and effective medical therapeutics. We differentiate ourselves from our competitors by our disciplined operating model centered on providing full-service Phase I-IV clinical development services and our therapeutic expertise. We believe this combination results in timely and cost-effective delivery of clinical development services for our customers. We believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.
We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic Disease, Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI. Our global platform
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includes approximately 5,000 employees across 40 countries as of September 30, 2022, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.
How We Generate Revenue
We earn fees through the performance of services detailed in our customer contracts. Contract scope and pricing is typically based on either a fixed-fee or unit-of-service model, with consideration of activities performed by third parties, as well as ancillary costs necessary to deliver on the contract scope that are reimbursable by our customers. Our contracts can range in duration from a few months to several years. These contracts are individually priced and negotiated based on the anticipated project scope, including the complexity of the project and the performance risks inherent in the project. The majority of our contracts are structured with an upfront fee that is collected at the time of contract signing, and the balance of the fee is collected over the duration of the contract either through an arranged billing schedule or upon completion of certain performance targets or defined milestones.
Revenue, which is distinct from billing and cash receipt, is recognized based on the satisfaction of the individual performance obligations identified in each contract. Substantially all of our customer contracts consist of a single performance obligation, as the promise to transfer the individual services defined in the contracts are not separately identifiable from other promises in the contract, and therefore not distinct. Our performance obligations are generally satisfied over time and recognized as services are performed. The progression of our contract performance obligations are measured primarily utilizing the input method of cost to cost. Cancellation provisions in our contracts allow our customers to terminate a contract either immediately or according to advance notice terms specified within the applicable contract, which is typically 30 days. Contract cancellation may occur for various reasons, including, but not limited to, adverse patient reactions, lack of efficacy, or inadequate patient enrollment. Upon cancellation, we are entitled to fees for services rendered through the date of termination, including payment for subsequent services necessary to conclude the study or close out the contract. These fees are typically discussed and agreed upon with the customer and are realized as revenue when we believe the amount can be estimated reliably and its realization is probable. Changes in revenue from period to period are driven primarily by new business volume and task order execution activity, project cancellations, and the mix of active studies during a given period that can vary based on therapeutic area and or study life cycle stage.
Costs and Expenses
Our costs and expenses are comprised primarily of our total direct costs, selling, general and administrative costs, depreciation and amortization and income taxes.
Total Direct Costs
Total direct costs are primarily driven by labor and related employee benefits, but also include contracted third party service related expenses, fees paid to site investigators, reimbursed out of pocket expenses, laboratory supplies and other expenses contributing to service delivery. The other costs of service delivery can include office rent, utilities, supplies and software licenses which are allocated between Total direct costs and selling, general and administrative expenses based on the estimated contribution among service delivery and support function efforts on a percentage basis. Total direct costs are expensed as incurred and are not deferred in anticipation of contracts being awarded or finalization of changes in scope. Total direct costs, as a percentage of net revenue, can vary from period to period due to project labor efficiencies, changes in workforce, compensation/bonus programs and service mix.
Selling, General and Administrative
Selling, general and administrative expenses are primarily driven by compensation and related employee benefits, as well as rent, utilities, supplies, software licenses, professional fees (e.g., legal and accounting expenses), bad debt expense, travel, marketing and other operating expenses.
Depreciation
Depreciation is provided on our property and equipment on the straight-line method at rates adequate to allocate the cost of the applicable assets over their estimated useful lives, which is three to five years for computer hardware, software, phone, and medical imaging equipment, five to seven years for furniture and fixtures and other equipment, and thirty to forty years for buildings. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the improvement or the associated remaining lease term.
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Amortization
Amortization relates to finite-lived intangible assets recognized as expense using the straight-line method or using an accelerated method over their estimated useful lives of 15 years.
Income Tax Provision
Income tax provision consists of federal, state and local taxes on income in multiple jurisdictions. Our income tax is impacted by the pre-tax earnings in jurisdictions with varying tax rates and any related tax credits that may be available to us. Our current and future provision for income taxes will vary from statutory rates due to the impact of valuation allowances in certain countries, income tax incentives, certain non-deductible expenses, and other discrete items.
Key Performance Metrics
To evaluate the performance of our business, we utilize a variety of financial and performance metrics. These key measures include new business awards, cancellations and backlog.
New Business Awards, Cancellations and Backlog
New business awards represent the value of anticipated future net revenue that has been awarded during the period that is recognized in backlog. This value is recognized upon the signing of a contract or receipt of a written pre-contract confirmation from a customer that confirms an agreement in principle on budget and scope. New business awards also include contract amendments, or changes in scope, where the customer has provided written authorization for changes in budget and scope or has approved us to perform additional work as of the measurement date. Awards may not be recognized as backlog after consideration of a number of factors, including whether (i) the relevant net revenue is expected only after a pending regulatory hurdle, which might result in cancellation of the study, (ii) the customer funding needed for commencement of the study is not believed to have been secured or (iii) study timelines are uncertain or not well defined. In addition, study amounts that extend beyond a three-year timeline are not included in backlog. The number and amount of new business awards can vary significantly from period to period, and an award’s contractual duration can range from several months to several years based on customer and project specifications.
Cancellations arise in the normal course of business and are reflected when we receive written confirmation from the customer to cease work on a contractual agreement. The majority of our customers can terminate our contracts without cause upon 30 days’ notice. Similar to new business awards, the number and amount of cancellations can vary significantly period over period due to timing of customer correspondence and study-specific circumstances.
Net new business awards represent gross new business awards received in a period offset by total cancellations in that period. Net new business awards were $470.9 million and $1,344.4 million for the three and nine months ended September 30, 2022, respectively. Net new business awards were $408.0 million and $1,151.7 million for the three and nine months ended September 30, 2021, respectively.
Backlog represents anticipated future net revenue from net new business awards that have not commenced or are currently in process but not complete. Reported backlog will fluctuate based on new business awards, changes in the scope of existing contracts, cancellations, revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of September 30, 2022, our backlog increased by $386.4 million, or 20.9%, to $2,236.2 million compared to $1,849.8 million as of September 30, 2021. Included within backlog as of September 30, 2022 was approximately $1,165.0 million to $1,175.0 million that we expect to convert to net revenue over the next twelve months, with the remainder expected to convert to net revenue thereafter.
The effect of foreign currency adjustments on backlog was as follows: unfavorable foreign currency adjustments of $17.4 million for the three months ended September 30, 2022; unfavorable foreign currency adjustments of $33.2 million for the nine months ended September 30, 2022; unfavorable foreign currency adjustments of $3.5 million for the three months ended September 30, 2021; and unfavorable foreign currency adjustments of $3.9 million for the nine months ended September 30, 2021.
Backlog and net new business award metrics may not be reliable indicators of our future period revenue as they are subject to a variety of factors that may cause material fluctuations from period to period. These factors include, but are not limited to, changes in the scope of projects, cancellations, and duration and timing of services provided.
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Coronavirus (COVID-19)
The COVID-19 pandemic increased travel restrictions and caused the shutdown of many businesses in countries in which we operate. While we continue to operate globally, the pandemic continues to impact our business and the level of activity at each of our locations varies depending on the local governmental requirements and guidelines which continue to evolve and change.
Our office staff are either working remotely or in the office, and our labs are fully operational with modifications made to ensure the safety of our employees. The diversion of resources to treat COVID-19 patients continues to impact the operations at most of the investigative sites where patients in our clinical trials are recruited and treated.
Depending on the duration of the disruption, ongoing studies may be cancelled and some of our clients may lack the funding to complete trials which are extended due to slowed recruitment of patients. We work with many smaller clients with limited financial resources and market disruptions may make raising additional funds difficult for them.
Travel restrictions and business closures continue to impact study participants and clinical sites which affects our ability to efficiently provide clinical trial services. We continue to work with our customers to develop solutions to limit disruption to clinical trials while following required regulatory guidelines and maintaining quality to ensure the health and well-being of study participants. We are continuing along with the rest of the industry with a blend of on-site monitoring and remote based monitoring and we are using technology tools like e-PRO for patient reported outcomes, e-COA, for clinical outcome assessment, remote data capture and remote data review. We are also leveraging internal service capabilities like patient concierge service to help facilitate patient travel to sites and master service agreements in place with strategic vendors for other patient services like home health.
While certain governments eased restrictions during 2021 and into the three and nine months ended September 30, 2022, the pandemic remains disruptive to our business operations. As we look ahead, we continue to expect impacts to our business to be temporary and primarily relate to limitations on our ability to physically access investigative sites, delays in patient enrollment and trial start-up activities.
The COVID-19 outbreak had a significant adverse effect on our results of operations and we believe that the outbreak may have a continued adverse impact on our results of operations in the future. As we cannot predict the duration or scope of the pandemic, the future financial impact on our results of operations and financial condition cannot be reasonably estimated.
Exchange Rate Fluctuations
The majority of our contracts and operational transactions are U.S. dollar denominated. The Euro represents the largest foreign currency denomination of our contractual and operational exposure. As a result, a portion of our revenue and expenses are subject to exchange rate fluctuations. We have translated the Euro into U.S. dollars using the following average exchange rates based on data obtained from www.xe.com:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
U.S. Dollars per Euro:1.01 1.18 1.07 1.20 
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Results of Operations
Three Months Ended September 30, 2022 compared to Three Months Ended September 30, 2021
Three Months Ended September 30,
(Amounts in thousands, except percentages)20222021
Change
% Change
Revenue, net$383,744 $295,567 $88,177 29.8 %
Direct service costs, excluding depreciation and amortization136,648 112,540 24,108 21.4 %
Reimbursed out-of-pocket expenses128,062 95,934 32,128 33.5 %
Total direct costs264,710 208,474 56,236 27.0 %
Selling, general and administrative35,418 28,046 7,372 26.3 %
Depreciation4,951 4,056 895 22.1 %
Amortization