Medpace Holdings Inc

Previous wording

31 - generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. For a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 14, 2023. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties. 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.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 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 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 13, 2024. This item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties. 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.

Previous wording

We are one of the world’s leading 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.

Current wording

We are one of the world’s leading 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

Previous wording

We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic Disease, Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI. Our global platform includes approximately 5,900 employees across 42 countries, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.

Current wording

We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic Disease, Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI. Our global platform includes approximately 5,900 employees across 44 countries, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.

Previous wording

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 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,

Current wording

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 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.

Previous wording

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 $2,356.7 million and $1,829.5 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

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 $2,230.0 million and $2,356.7 million for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Backlog represents anticipated future net revenue from net new business awards that have commenced, but have not been completed. Reported backlog will fluctuate based on new business awards, changes in scope to existing contracts, cancellations, net revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of December 31, 2023, our backlog increased by $473.4 million, or 20.2% to $2,813.0 million compared to $2,339.6 million as of December 31, 2022. Included within backlog as of December 31, 2023 was approximately $1,520.0 million to $1,540.0 million that we expect to convert to net revenue in 2024, with the remainder expected to convert to net revenue in years after 2024.

Current wording

Backlog represents anticipated future net revenue from net new business awards that have commenced, but have not been completed. Reported backlog will fluctuate based on new business awards, changes in scope to existing contracts, cancellations, net revenue recognition on existing contracts and foreign exchange adjustments from non-U.S. dollar denominated backlog. As of December 31, 2024, our backlog increased by $89.2 million, or 3.2% to $2,902.2 million compared to $2,813.0 million as of December 31, 2023. Included within backlog as of December 31, 2024 was approximately $1,620.0 million to $1,640.0 million that we expect to convert to net revenue in 2025, with the remainder expected to convert to net revenue in years after 2025.

Previous wording

The effect of foreign currency adjustments on backlog was as follows: favorable foreign currency adjustments of $14.6 million for the year ended December 31, 2023 and unfavorable foreign currency adjustments of $19.1 million for the year ended December 31, 2022.

Current wording

The effect of foreign currency adjustments on backlog was as follows: unfavorable foreign currency adjustments of $16.7 million for the year ended December 31, 2024 and favorable foreign currency adjustments of $14.6 million for the year ended December 31, 2023.

Previous wording

Total revenue increased by $425.8 million to $1,885.8 million for the year ended December 31, 2023, from $1,460.0 million for the year ended December 31, 2022. The increase was broad based, but primarily driven by strong activity within the Metabolic, Oncology, AVAI and other uncategorized therapeutic areas.

Current wording

Total revenue increased by $223.2 million to $2,109.1 million for the year ended December 31, 2024, from $1,885.8 million for the year ended December 31, 2023. The increase was broad based, but primarily driven by strong activity within the Metabolic, Oncology, Cardiology and other uncategorized therapeutic areas, compared to the same period in the prior year.

Previous wording

Total direct costs increased by $333.8 million, to $1,361.3 million for the year ended December 31, 2023 from $1,027.6 million for the year ended December 31, 2022. The increase was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs to support the growth in service activities. Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, increased $230.4 million for the year ended December 31, 2023, compared to the same period in the prior year. The higher personnel costs portion increased by $88.4 million in the year ended December 31, 2023, compared to the same period in the prior year.

Current wording

Total direct costs increased by $91.4 million, to $1,452.7 million for the year ended December 31, 2024 from $1,361.3 million for the year ended December 31, 2023. The increase was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs to support the growth in service activities. Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, increased $47.6 million for the year ended December 31, 2024, compared to the same period in the prior year. The higher personnel costs portion increased by $45.9 million in the year ended December 31, 2024, compared to the same period in the prior year.

Previous wording

Selling, general and administrative expenses increased by $30.0 million, to $161.4 million for the year ended December 31, 2023 from $131.4 million for the year ended December 31, 2022. The increase was primarily attributed to higher personnel costs to support the growth in service activities. Personnel costs increased by $19.7 million in the year ended December 31, 2023, compared to the same period in the prior year.

Current wording

Selling, general and administrative expenses increased by $18.8 million, to $180.2 million for the year ended December 31, 2024 from $161.4 million for the year ended December 31, 2023. The increase was primarily attributed to higher personnel costs to support the growth in service activities. Personnel costs increased by $20.3 million in the year ended December 31, 2024, compared to the same period in the prior year.

Previous wording

Depreciation and amortization expense increased by $4.0 million, to $26.3 million for the year ended December 31, 2023 from $22.3 million for the year ended December 31, 2022. The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net.

Current wording

Depreciation and amortization expense increased by $2.9 million, to $29.3 million for the year ended December 31, 2024 from $26.3 million for the year ended December 31, 2023. The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net, compared to the same period in the prior year.

Previous wording

Miscellaneous (expense) income, net changed by $7.7 million of expense to $0.7 million of expense for the year ended December 31, 2023 from $7.1 million of income for the year ended December 31, 2022. The change was mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, gains or losses from foreign currency transactions, such as

Current wording

Miscellaneous income (expense), net changed by $4.7 million, to $4.1 million of income for the year ended December 31, 2024 from $0.7 million of expense for the year ended December 31, 2023. The change was mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment and proceeds from the recovery of a note receivable, compared to the same period in the prior year.

Previous wording

Income tax provision increased by $15.4 million, to $52.9 million for the year ended December 31, 2023 from $37.5 million for the year ended December 31, 2022. The overall effective tax rates for the years ended December 31, 2023 and 2022 were 15.8% and 13.3%, respectively. The increase in the income tax provision and overall effective rate was primarily attributable to the increase in pre-tax book income, an increase in uncertain tax positions, and a decrease in excess tax benefits recognized from share-based compensation, which was partially offset by an increase in tax benefits related to Foreign Derived Intangible Income ("FDII") compared to the same period in the prior year.

Current wording

Income tax provision increased by $18.7 million, to $71.5 million for the year ended December 31, 2024 from $52.9 million for the year ended December 31, 2023. The overall effective tax rates for the years ended December 31, 2024 and 2023 were 15.0% and 15.8%, respectively. The increase in the income tax provision was primarily attributable to the increase in pre-tax book income, which was partially offset by an increase in excess tax benefits recognized from share-based compensation and a decrease in uncertain tax positions, compared to the same period in the prior year. The decrease in the overall effective tax rate was primarily attributable to a decrease in uncertain tax positions, which was partially offset by tax benefits related to Foreign Derived Intangible Income ("FDII").

Previous wording

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal sources of liquidity are operating cash flows and from borrowings under our unsecured credit facility consisting of up to a $150.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended. As of December 31, 2023, we had cash and cash equivalents of $245.4 million, which increased from $28.3 million as of December 31, 2022. Approximately $29.5 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2023.

Current wording

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal sources of liquidity are operating cash flows and from borrowings under our unsecured credit facility consisting of up to a $10.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended. As of December 31, 2024, we had cash and cash equivalents of $669.4 million, which increased from $245.4 million as of December 31, 2023. Approximately $31.8 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2024.

Previous wording

As of December 31, 2023, we had $150.0 million available for borrowing under the Credit Facility.

Current wording

As of December 31, 2024, we had $10.0 million available for borrowing under the Credit Facility.

Previous wording

Our expected primary cash needs on both a short and long-term basis are for investment in operational growth, including additional lease commitments, capital expenditures, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs. We have historically funded our operations and growth with cash flow from operations and borrowings under our credit facilities. We expect to continue expanding our operations through organic growth and potentially highly selective bolt-on acquisitions and investments. As of December 31, 2023, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Consolidated Financial Statements, purchase commitments discussed in Note 12 of the Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology. Capital spending as a percentage of revenue decreased 59 basis points to 1.94% in the year ended December 31, 2023. We expect these activities will be funded from existing cash, cash flow from operations and, if necessary, borrowings under our existing or future credit facilities or other debt.

Current wording

Our expected primary cash needs on both a short and long-term basis are for investment in operational growth, including additional lease commitments, capital expenditures, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs. We have historically funded our operations and growth with cash flow from operations and borrowings under our credit facilities. We expect to continue expanding our operations through organic growth and potentially highly selective bolt-on acquisitions and investments. As of December 31, 2024, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Consolidated Financial Statements, purchase commitments discussed in Note 12 of the Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology. Capital spending as a percentage of revenue decreased 21 basis points to 1.73% in the year ended December 31, 2024. We expect these activities will be funded from existing cash, cash flow from operations and, if necessary, borrowings under our existing or future credit facilities or other debt.

Previous wording

Cash flows from operations are driven mainly by net income, deferred income tax benefit, depreciation, stock-based compensation expense, noncash lease expense and net movement in advanced billings, accrued expenses, and accounts receivable and unbilled, net. Accounts receivable and unbilled, net, and advanced billings fluctuate on a regular basis as we perform our services, bill our customers and ultimately collect on those receivables. We attempt to negotiate payment terms

Current wording

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

Previous wording

Net cash flows provided by operating activities were $388.1 million for the year ended December 31, 2022 consisting of net income of $245.4 million. Adjustments to reconcile net income to net cash provided by operating activities were $36.6 million, primarily related to stock-based compensation expense of $21.4 million, depreciation of $19.0 million and noncash lease expense of $18.0 million, partially offset by a deferred income tax benefit of $23.0 million. Changes in operating assets and liabilities provided $106.1 million in operating cash flows and were primarily driven by increased advanced billings of $118.1 million and increased accrued expenses of $52.5 million, offset by increased accounts receivable and unbilled, net of $66.9 million.

Current wording

Net cash flows provided by operating activities were $608.8 million for the year ended December 31, 2024 consisting of net income of $404.4 million. Adjustments to reconcile net income to net cash provided by operating activities were $47.2 million, primarily related to depreciation of $27.8 million, stock-based compensation expense of $25.5 million, and noncash lease expense of $23.1 million, partially offset by a deferred income tax benefit of $26.6 million. Changes in operating assets and liabilities provided $157.2 million in operating cash flows and were primarily driven by increased advanced billings of $150.7 million, changes in Other assets and liabilities, net of $23.8 million, and increased accrued expenses of $16.9 million, partially offset by decreased lease liabilities of $21.4 million and increased prepaid expenses and other current assets of $12.1 million.

Previous wording

Net cash flows provided by operating activities were $433.4 million for the year ended December 31, 2023 consisting of net income of $282.8 million. Adjustments to reconcile net income to net cash provided by operating activities were $44.1 million, primarily related to depreciation of $24.1 million, stock-based compensation expense of $20.5 million, and noncash lease expense of $19.6 million, partially offset by a deferred income tax benefit of $25.1 million. Changes in operating assets and liabilities provided $106.5 million in operating cash flows and were primarily driven by by increased advanced billings of $97.1 million and increased accrued expenses of $82.1 million, partially offset by increased accounts receivable and unbilled, net of $48.3 million.

Current wording

Net cash flows provided by operating activities were $433.4 million for the year ended December 31, 2023 consisting of net income of $282.8 million. Adjustments to reconcile net income to net cash provided by operating activities were $44.1 million, primarily related to depreciation of $24.1 million, stock-based compensation expense of $20.5 million, and noncash lease expense of $19.6 million, partially offset by a deferred income tax benefit of $25.1 million. Changes in operating assets and liabilities provided $106.5 million in operating cash flows and were primarily driven by increased advanced billings of $97.1 million and increased accrued expenses of $82.1 million, partially offset by increased accounts receivable and unbilled, net of $48.3 million.

Previous wording

Net cash used in investing activities was $38.7 million for the year ended December 31, 2022, primarily consisting of property and equipment expenditures.

Current wording

Net cash used in investing activities was $28.3 million for the year ended December 31, 2024, primarily consisting of property and equipment expenditures of $36.5 million, partially offset by $8.2 million in other investing activity.

Previous wording

Net cash used in financing activities was $775.8 million for the year ended December 31, 2022, primarily related to $847.8 million in repurchases of common stock and $274.2 million in repayments of the Credit Facility, partially offset by $324.2 million in proceeds from the Credit Facility and proceeds from stock options exercises of $22.1 million.

Current wording

Net cash used in financing activities was $154.0 million for the year ended December 31, 2024 primarily related to $169.9 million in repurchases of common stock, partially offset by proceeds from stock option exercises of $15.9 million.

Previous wording

Net cash used in financing activities was $182.6 million for the year ended December 31, 2023, primarily related to $155.0 million in repayments of the Credit Facility and $144.0 million in repurchases of common stock, partially offset by $105.0 million in proceeds from the Credit Facility and proceeds from stock options exercises of $11.4 million.

Current wording

Net cash used in financing activities was $182.6 million for the year ended December 31, 2023, primarily related to $155.0 million in repayments of the Credit Facility and $144.0 million in repurchases of common stock, partially offset by $105.0 million in proceeds from the Credit Facility and proceeds from stock option exercises of $11.4 million.

Previous wording

In 2018, the Board of Directors approved a stock repurchase program which has been amended several times to increase the aggregate amount of the stock repurchase authorization. For the year ended December 31, 2022, the Company repurchased 5,463,244 shares for $800.5 million under this repurchase program. For the year ended December 31, 2021, the Company repurchased 377,783 shares for $62.1 million. As of June 30, 2022, the Company completed all authorized share repurchases under this repurchase program.

Current wording

In 2018, the Board of Directors approved a stock repurchase program which has been amended several times to increase the aggregate amount of the stock repurchase authorization. For the year ended December 31, 2022, the Company repurchased 5,463,244 shares for $800.5 million under this repurchase program. As of June 30, 2022, the Company completed all authorized share repurchases under this repurchase program.

Previous wording

In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million. For the year ended December 31, 2023, the Company repurchased 781,068 shares for $144.0 million under the new repurchase program. For the year ended December 31, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program. As of December 31, 2023, we have remaining authorization of $308.8 million under the new repurchase program.

Current wording

In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million. For the year ended December 31, 2024, the Company repurchased 527,160 shares for $174.2 million under the new repurchase program. For the year ended December 31, 2023, the Company repurchased 781,068 shares for $144.0 million under the new repurchase program. For the year ended December 31, 2022, the Company repurchased 228,247 shares for $47.2 million under the new repurchase program. As of December 31, 2024, we have remaining authorization of $134.6 million under the new repurchase program.

Previous wording

Repurchases under the share repurchase programs are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1. The Company constructively retires the repurchased shares associated with these approved share repurchase programs, except for a small portion which were retained as Treasury Shares on the consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s consolidated balance sheets. The repurchase programs may be suspended or discontinued at any time without notice.

Current wording

Repurchases under the share repurchase programs are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1. The Company constructively retires the repurchased shares associated with these approved share repurchase programs, except for a small portion which were retained as Treasury Shares on the consolidated statements of shareholders' equity. Retired share repurchase amounts paid in excess of par value are reflected within Retained earnings/Accumulated deficit in the Company’s consolidated balance sheets. The repurchase programs may be suspended or discontinued at any time without notice.

Previous wording

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”).

Current wording

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

Previous wording

On the Closing Date, the Borrower and lender entered into a Loan Agreement (as it may be amended from time to time, the “Loan Agreement”) providing for the Credit Facility, and the Guarantor executed a Guaranty Agreement providing for its guarantee of the payment and performance of the obligations under the Loan Agreement. On March 15, 2022, the Company entered into Amendment No. 4 to the Loan Agreement, which increased the aggregate principal amount that may be borrowed under the facility’s line of credit to up to $250.0 million. On March 31, 2023, the Company entered into Amendment No. 5 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility's line of credit to up to $150.0 million, adjusted the interest rate and fee charged on the credit facility and extended the expiration date of resolving credit note to March 29, 2024.

Current wording

On the Closing Date, the Borrower and lender entered into a Loan Agreement (as it may be amended from time to time, the “Loan Agreement”) providing for the Credit Facility, and the Guarantor executed a Guaranty Agreement providing for its guarantee of the payment and performance of the obligations under the Loan Agreement. On March 31, 2023, the Company entered into Amendment No. 5 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility's line of credit to up to $150.0 million, adjusted the interest rate and fee charged on the credit facility and extended the expiration date of resolving credit note to March 29, 2024. On March 28, 2024, the Company entered into Amendment No. 6 to the Loan Agreement, which changed the aggregate principal amount that may be borrowed under the facility's line of credit to up to $10.0 million, and extended the expiration date of revolving credit note to March 31, 2025.

Previous wording

As of December 31, 2023, we have no indebtedness and less than $0.1 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.

Current wording

As of December 31, 2024, we have no indebtedness.

Previous wording

38 - assumptions. The reviews include an assessment of costs incurred to date compared to expectations based on budget assumptions and other circumstances specific to the project. The total estimated costs necessary to complete is updated and any revisions to the existing cost estimate results in cumulative adjustments to the amount of revenue recognized in the period in which the revisions are identified. 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.

Current wording

Cost estimates are based on a detailed project budget and are developed based on many variables, including, but not limited to, the scope of the work, labor productivity, the complexity of the study, the participating geographic locations and the Company’s historical experience. To assist with the estimation of costs expected at completion over the life of a project, regular contract reviews are performed in which performance to date is compared to the most current estimate to complete assumptions. The reviews include an assessment of costs incurred to date compared to expectations based on budget assumptions and other circumstances specific to the project. The total estimated costs necessary to complete is updated and any revisions to the existing cost estimate results in cumulative adjustments to the amount of revenue recognized in the period in which the revisions are identified. 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.

Previous wording

39 - in effect in the year in which temporary differences are expected to reverse. If it does not appear more likely than not that the full value of a deferred tax asset will be realized, the Company records a valuation allowance against the deferred tax asset, with an offsetting charge to the Company’s income tax provision or benefit.

Current wording

We record deferred tax assets and liabilities based on temporary differences between the financial statement bases and tax bases of assets and liabilities. Deferred tax assets are recorded for tax benefit carryforwards using tax rates anticipated to be in effect in the year in which temporary differences are expected to reverse. If it does not appear more likely than not that the full value of a deferred tax asset will be realized, the Company records a valuation allowance against the deferred tax asset, with an offsetting charge to the Company’s income tax provision or benefit.

Previous wording

The recoverability of our deferred tax assets is estimated based on consideration of all available positive and negative evidence, including, but not limited to, our ability to generate a sufficient level of future taxable income, reversals of deferred tax liabilities (other than those with an indefinite reversal period), tax planning strategies and recent financial performance. The assessment of recoverability is performed on a jurisdiction by jurisdiction basis. Based on the analysis of the above factors, we determined that a valuation allowance in the amount of $1.8 million relating to certain tax credits and other deferred tax assets should be recorded as of December 31, 2023 and $0.4 million should be recorded as of December 31, 2022 relating to certain foreign deferred tax assets that are currently not expected to be realized. Differences in actual results compared to our estimates and changes in our assumptions could result in an adjustment to the valuation allowance in the future and would generally impact earnings or other comprehensive income depending on the nature of the respective deferred asset for which the valuation allowance exists.

Current wording

The recoverability of our deferred tax assets is estimated based on consideration of all available positive and negative evidence, including, but not limited to, our ability to generate a sufficient level of future taxable income, reversals of deferred tax liabilities (other than those with an indefinite reversal period), tax planning strategies and recent financial performance. The assessment of recoverability is performed on a jurisdiction by jurisdiction basis. Based on the analysis of the above factors, we determined that a valuation allowance in the amount of $1.6 million should be recorded as of December 31, 2024 and $1.8 million should be recorded as of December 31, 2023 relating to certain tax credits and other deferred tax assets that are currently not expected to be realized. Differences in actual results compared to our estimates and changes in our assumptions could result in an adjustment to the valuation allowance in the future and would generally impact earnings or other comprehensive income depending on the nature of the respective deferred asset for which the valuation allowance exists.

Previous wording

We have recognized certain liabilities, including penalties and interest in the amount of $5.2 million as of December 31, 2023, within other long-term liabilities on the consolidated balance sheets. These relate to uncertain tax positions that are subject to various assumptions and judgment. Liabilities for these uncertain tax positions are assessed on a position by position basis. The calculation of these liabilities involves dealing with uncertainties in the application of complex tax regulations in both domestic and foreign jurisdictions. These positions may be subject to audit and review by tax authorities, and may result in future taxes, interest and penalties if we are unsuccessful in defending our positions. If the calculation of liability related to uncertain tax positions proves to be more or less than the ultimate assessment, a tax expense or benefit to expense, respectively would result.

Current wording

We have recognized certain liabilities, including penalties and interest in the amount of $6.7 million as of December 31, 2024, within other long-term liabilities on the consolidated balance sheets. These relate to uncertain tax positions that are subject to various assumptions and judgment. Liabilities for these uncertain tax positions are assessed on a position by position basis. The calculation of these liabilities involves dealing with uncertainties in the application of complex tax regulations in both domestic and foreign jurisdictions. These positions may be subject to audit and review by tax

Previous wording

The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two), with certain aspects of Pillar Two effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two. As currently designed, Pillar Two will ultimately apply to our worldwide operations. There remains uncertainty as to the final Pillar Two model rules. We will continue to monitor US and global legislative action related to Pillar Two for potential impacts. At this time, we do not expect Pillar Two to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.

Current wording

The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two), with certain aspects of Pillar Two effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two. As currently designed, Pillar Two will ultimately apply to our worldwide operations. While we do not anticipate that this will have a material impact on our tax provision or effective tax rate, we continue to monitor evolving tax legislation in the jurisdictions in which we operate.

Previous wording

40 - sufficient information and the historical volatility of a group of peer companies that are most representative of our company. The historical volatility is calculated based on a period of time commensurate with the expected holding period assumption. The holding period represents the period that our option awards are expected to be outstanding. We use the simplified method as prescribed by accounting guidance governing such awards, to calculate the expected term for options granted to employees as we do not have sufficient historical evidence data to provide a reasonable basis upon which to estimate the expected holding period. This simplified method utilizes the mid-point between the vesting date and the date of the contractual term. The risk free rate is based on extrapolated rates of U.S. Treasury bonds whose terms are consistent with the expected holding period of the stock options. We have assumed a dividend yield of zero as we have not historically paid any dividends on our common stock.

Current wording

We estimate the fair value of our stock options utilizing the Black-Scholes-Merton option pricing model, which requires the input of highly subjective assumptions including: the expected stock price volatility, the calculation of the expected holding period of the award, the risk free interest rate and expected dividends on the underlying common stock. Due to the lack of Company specific historical and implied volatility data, our estimate of expected volatility is based upon a blended approach that utilizes the historical volatility of the Company's common stock for periods in which the Company has sufficient information and the historical volatility of a group of peer companies that are most representative of our company. The historical volatility is calculated based on a period of time commensurate with the expected holding period assumption. The holding period represents the period that our option awards are expected to be outstanding. We use the simplified method as prescribed by accounting guidance governing such awards, to calculate the expected term for options granted to employees as we do not have sufficient historical evidence data to provide a reasonable basis upon which to estimate the expected holding period. This simplified method utilizes the mid-point between the vesting date and the date of the contractual term. The risk free rate is based on extrapolated rates of U.S. Treasury bonds whose terms are consistent with the expected holding period of the stock options. We have assumed a dividend yield of zero as we have not historically paid any dividends on our common stock.

Previous wording

The weighted average grant date fair value of employee stock options granted was $85.30, $47.57 and $52.70 for the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

The weighted average grant date fair value of employee stock options granted was $148.85, $85.30 and $47.57 for the years ended December 31, 2024, 2023 and 2022, respectively.