Medpace Holdings, Inc.

Previous 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.

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 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. For a comparison of our results of operations for the fiscal years ended December 31, 2024 and December 31, 2023, 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, 2024, filed with the SEC on February 11, 2025. This item and the related

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

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 companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.

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 44 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 6,200 employees across 46 countries, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.

Previous wording

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.

Current wording

32 - 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.

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 $2,230.0 million and $2,356.7 million for the years ended December 31, 2024 and 2023, 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 $2,646.8 million and $2,230.0 million for the years ended December 31, 2025 and 2024, 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, 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.

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, 2025, our backlog increased by $125.0 million, or 4.3% to $3,027.2 million compared to $2,902.2 million as of December 31, 2024. Included within backlog as of December 31, 2025 was approximately $1,890.0 million to $1,910.0 million that we expect to convert to net revenue in 2026, with the remainder expected to convert to net revenue in years after 2026.

Previous 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.

Current wording

The effect of foreign currency adjustments on backlog was as follows: favorable foreign currency adjustments of $25.1 million for the year ended December 31, 2025 and unfavorable foreign currency adjustments of $16.7 million for the year ended December 31, 2024.

Previous 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.

Current wording

Total revenue increased by $421.2 million, to $2,530.2 million for the year ended December 31, 2025, from $2,109.1 million for the year ended December 31, 2024. The increase was primarily driven by strong activity within the Metabolic, Oncology and Central Nervous System therapeutic areas, compared to the same period in the prior year.

Previous 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.

Current wording

Total direct costs increased by $316.9 million, to $1,769.6 million for the year ended December 31, 2025, from $1,452.7 million for the year ended December 31, 2024. 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 $266.8 million for the year ended December 31, 2025, compared to the same period in the prior year. The higher personnel costs portion increased by $43.4 million in the year ended December 31, 2025, compared to the same period in the prior year.

Previous 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.

Current wording

Selling, general and administrative expenses increased by $17.4 million, to $197.6 million for the year ended December 31, 2025, from $180.2 million for the year ended December 31, 2024. The increase was primarily attributed to higher personnel costs to support the growth in service activities. Personnel costs increased by $17.1 million in the year ended December 31, 2025, compared to the same period in the prior year.

Previous 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.

Current wording

Miscellaneous (expense) income, net changed by $9.4 million of expense, to $5.3 million of expense for the year ended December 31, 2025, from $4.1 million of income for the year ended December 31, 2024. This change was mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term intercompany balances between our domestic and international subsidiaries and from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment, third-party

Previous wording

Interest income (expense), net changed by $25.5 million, to $25.0 million of income for the year ended December 31, 2024 from $0.5 million of expense for the year ended December 31, 2023. This change was mainly attributable to increased interest income on Cash and cash equivalents and a reduction in short-term debt, compared to the same period in the prior year.

Current wording

Interest income, net decreased by $12.2 million, to $12.8 million for the year ended December 31, 2025, from $25.0 million for the year ended December 31, 2024. This change was mainly attributable to decreased interest income on Cash and cash equivalents, compared to the same period in the prior year.

Previous 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").

Current wording

Income tax provision increased by $19.7 million, to $91.3 million for the year ended December 31, 2025, from $71.5 million for the year ended December 31, 2024. The overall effective tax rates for the years ended December 31, 2025 and 2024 were 16.8% and 15.0%, respectively. The increase in the income tax provision was primarily attributable to the increase in pre-tax book income, increase in uncertain tax positions, increase in Global Intangible Low-Taxed Income ("GILTI") (net of foreign tax credits), and decrease in tax benefits related to Foreign Derived Intangible Income ("FDII") which was partially offset by an increase in excess tax benefits recognized from share-based compensation, compared to the same period in the prior year. The increase in the overall effective tax rate was primarily attributable to a decrease in tax benefits related to FDII, increase in uncertain tax positions and an increase in GILTI (net of foreign tax credits) which was partially offset by an increase in excess tax benefits recognized from share-based compensation compared to the same period in the prior year.

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 $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.

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”). All $10.0 million of the line of credit is available for borrowing as of December 31, 2025. As of December 31, 2025, we had cash and cash equivalents of $497.0 million, which decreased from $669.4 million as of December 31, 2024 primarily due to repurchases of common stock. Approximately $21.2 million of our cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of December 31, 2025.

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, 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.

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, 2025, 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 49 basis points to 1.24% in the year ended December 31, 2025. 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

We have deemed that foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings. While we do not anticipate the need to repatriate these foreign earnings for liquidity purposes given our cash flows from operations and available borrowings under existing and future credit facilities, we would incur taxes on these earnings if the need for repatriation due to liquidity purposes arises. We believe that our sources of liquidity and capital will be sufficient to finance our cash needs for the next 12 months and on a longer-term basis. However, we cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Credit Facility or otherwise, in an amount sufficient to fund our liquidity needs.

Current wording

We have deemed that foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings. While we do not anticipate the need to repatriate these foreign earnings for liquidity purposes given our cash flows from operations and available borrowings under existing and future credit facilities, we would incur taxes on these earnings if the need for repatriation due to liquidity purposes arises. We believe that our sources of liquidity and capital will be sufficient to finance our cash needs for the next 12 months and on a longer-term basis. However, we cannot assure

Previous 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.

Current wording

Cash flows from operations are driven mainly by net income, deferred income tax provision (benefit), stock-based compensation expense, depreciation, noncash lease expense and net movement in advanced billings, accounts receivable and unbilled, net and accrued expenses. Advanced billings and accounts receivable and unbilled, net 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 $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.

Current wording

Net cash flows provided by operating activities were $713.2 million for the year ended December 31, 2025 beginning with net income of $451.1 million. Adjustments to reconcile net income to net cash provided by operating activities were $165.8 million, primarily related to deferred income tax provision of $80.8 million, stock-based compensation expense of $34.8 million, depreciation of $27.2 million and noncash lease expense of $23.0 million. Changes in operating assets and liabilities provided $96.3 million in operating cash flows and was primarily driven by increased advanced billings of $143.8 million, increased accrued expenses of $97.1 million and changes in Other assets and liabilities, net of $11.2 million, partially offset by increased accounts receivable and unbilled, net of $106.2 million, increased prepaid expenses and other current assets of $27.1 million and decreased lease liabilities of $25.2 million.

Previous wording

Net cash used in investing activities was $34.6 million for the year ended December 31, 2023, primarily consisting of property and equipment expenditures.

Current wording

Net cash used in investing activities was $31.1 million for the year ended December 31, 2025, primarily consisting of property and equipment expenditures.

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 option exercises of $11.4 million.

Current wording

Net cash used in financing activities was $860.4 million for the year ended December 31, 2025 primarily related to $917.4 million in repurchases of common stock, partially offset by proceeds from stock option exercises of $57.0 million.

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, 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.

Current wording

In 2022, the Company's Board of Directors (the "Board") approved a share repurchase program which has been amended several times to increase the aggregate amount of the share repurchase authorization. For the year ended December 31, 2025, the Company repurchased 2,961,924 shares for $912.9 million under the repurchase program. For the year ended December 31, 2024, the Company repurchased 527,160 shares for $174.2 million under the repurchase program. For the year ended December 31, 2023, the Company repurchased 781,068 shares for $144.0 million under the repurchase program. As of December 31, 2025, the Company has remaining authorization of $821.7 million under the repurchase program.

Previous wording

Contracts generally provide for pricing modifications upon scope of work changes. We recognize revenue, at an amount to which we expect to be entitled, related to work performed in connection with scope changes when the underlying services are performed and a binding contractual commitment has been established with the customer. If our customers do not agree to pricing changes upon changes in our scope of work, we could be exposed to cost overruns and reduced contract profitability. Costs are not deferred in anticipation of contracts being awarded or amendments being finalized, but are expensed as incurred.

Current wording

38 - are performed and a binding contractual commitment has been established with the customer. If our customers do not agree to pricing changes upon changes in our scope of work, we could be exposed to cost overruns and reduced contract profitability. Costs are not deferred in anticipation of contracts being awarded or amendments being finalized, but are expensed as incurred.

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 $1.6 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.

Current wording

39 - the above factors, we determined that a valuation allowance in the amount of $1.8 million relating to certain foreign and federal deferred tax assets should be recorded as of December 31, 2025 and $1.6 million should be recorded as of December 31, 2024 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 $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

Current wording

We have recognized certain liabilities, including penalties and interest in the amount of $8.3 million as of December 31, 2025, 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.

Previous wording

As of December 31, 2024 and 2023, as a result of an updated analysis of future cash needs in the United States and opportunities for investment outside the United States, we assert that all foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings. These undistributed earnings of foreign subsidiaries will support future growth in foreign markets and maintain current operating needs of foreign locations. We will continue to monitor our assertion related to investment of foreign earnings. See Note 11 of the Notes to Consolidated Financial Statements for further information regarding this assertion.

Current wording

As of December 31, 2025 and 2024, as a result of an updated analysis of future cash needs in the United States and opportunities for investment outside the United States, we assert that all foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings. These undistributed earnings of foreign subsidiaries will support future growth in foreign markets and maintain current operating needs of foreign locations. We will continue to monitor our assertion related to investment of foreign earnings and how this assertion may be impacted by the OBBBA. See Note 11 of the Notes to Consolidated Financial Statements for further information regarding this assertion.

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. 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.

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). On January 5, 2026, the OECD/G20 announced the Side-by-Side ("SbS") package, implemented as administrative guidance and modifying the operation of Pillar 2 rules. The package introduces new safe harbors for multinational companies where domestic and international tax systems meet robust requirements to coexist with Pillar 2, which would fully exempt U.S.-parented groups from the application of two of the three Pillar 2 top-up taxes. 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

In connection with the Company's initial public offering (IPO), the Board approved the 2016 Incentive Award Plan (the “2016 Plan”). The 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors. A variety of discretionary awards (collectively, the “Awards”) for employees and non-employee directors are authorized under the 2016 Plan, including vested common shares, stock options, stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), or other cash based or stock dividend equivalent awards. All of our currently outstanding awards are subject to equity classification pursuant to the terms of the award grants and based on accounting guidance which governs such transactions. Accounting guidance applicable to equity classified awards require all stock based compensation, including vested shares, grants of employee stock options and restricted stock to be recognized in the consolidated statements of operations based on their grant date fair values.

Current wording

On February 6, 2025 and May 16, 2025, respectively, the Board adopted and the Company's stockholders approved the 2016 Amended and Restated Incentive Award Plan (the "Amended 2016 Plan"). The Amended 2016 Plan extended the term to expire in 2035, but did not change the number of shares authorized for issuance. The Amended 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors. A variety of discretionary awards (collectively, the “Awards”) for employees and non-employee directors are authorized under the Amended 2016 Plan, including vested common shares, stock options, stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), or other cash based or stock dividend equivalent awards. All of our currently outstanding awards are subject to equity classification pursuant to the terms of the award grants and based on accounting guidance which governs such transactions. Accounting guidance applicable to equity classified awards require all stock based compensation, including vested shares, grants of employee stock options and restricted stock to be recognized in the consolidated statements of operations based on their grant date fair values.

Previous 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.

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

Previous wording

The assumptions used in the table above reflect both grant date inputs to arrive at the grant date fair values for stock options subject to equity-classified stock compensation accounting and reflect a fair value calculation for stock options outstanding in the period subject to liability-classified stock compensation accounting. As of December 31, 2024, all outstanding stock based awards were classified within equity.

Current wording

The assumptions used in the table above reflect grant date inputs to arrive at the grant date fair values for stock options subject to equity-classified stock compensation accounting. As of December 31, 2025, all outstanding stock based awards were classified within equity.

Previous 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.

Current wording

The weighted average grant date fair value of employee stock options granted was $140.34, $148.85 and $85.30 for the years ended December 31, 2025, 2024 and 2023, respectively.