What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 219 added, 103 removed, 253 unchanged (56% of the section changed)

36 unchanged sentences

The Company did not offer any common stock in this transaction and did not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

The Company incurred cost of $0.7 million in relation to the secondary public offering for the three months ended March 31, 2021.

The Company incurred cost of $1.1 million in relation to the secondary public offering.

Key Factors Affecting Our Performance

12 unchanged sentences

The table below summarizes our quarterly bookings and renewal rate trends:

THREE MONTHS ENDED MARCH 31,

Bookings (in millions)

19 unchanged sentences

In some standard biosimulation services, and in regulatory and market access, we also compete with contract research organizations.

Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D, and other resources.

Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D, and

other resources.

Some of our competitors offer products and services directed at more specific markets than those we target, enabling these competitors to focus a greater proportion of their efforts and resources on those specific markets.

7 unchanged sentences

In addition, a recession or a prolonged period of depressed economic activity related to COVID-19 and measures taken to mitigate its spread could have a material adverse effect on our business, financial condition and results of operations.

As of March 31, 2021, there have been no material adverse impacts on the Company’s financial condition, results of operations or cash flows.

As of June 30, 2021, there have been no material adverse impacts on the Company’s financial condition, results of operations or cash flows.

Non-GAAP Measures

6 unchanged sentences

Adjusted EBITDA has certain limitations in that it does not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business.

Other companies, including other companies in our industry, may not use this measure and may calculate it differently than as presented on this prospectus, limiting the usefulness as a comparative measure.

The following table reconciles Net income to Adjusted EBITDA :

THREE MONTHS ENDED MARCH 31,

Other companies, including other companies in our industry, may not use this measure and may calculate it differently than as presented on this report, limiting the usefulness as a comparative measure.

The following table reconciles Net income (loss) to Adjusted EBITDA:

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

(in thousands)

Net income (a)

(in thousands)

Net (loss) income (a)

Interest expense (a)

9 unchanged sentences

Reorganization expense (f)

First-year Sarbanes-Oxley implementation costs (g)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

Adjusted EBITDA

The following table reconciles Net income to Adjusted Net Income:

THREE MONTHS ENDED MARCH 31,

The following table reconciles Net income (loss) to Adjusted Net Income:

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

(in thousands)

Net income (a)

(in thousands)

Net (loss) income (a)

Currency gain (loss) (a)

4 unchanged sentences

Reorganization expense (f)

First-year Sarbanes-Oxley implementation costs (g)

Income tax expense impact of adjustments (h)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

Income tax expense impact of adjustments (j)

Adjusted Net Income

The following table reconciles Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share:

THREE MONTHS ENDED MARCH 31,

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

(in thousands)

Diluted earnings per share (a)

1 unchanged sentence

Equity-based compensation expense (b)

Acquisition-related expense (c)

Acquisition-related expenses (c)

Transaction-related expenses (d)

1 unchanged sentence

Reorganization expense (f)

First-year Sarbanes-Oxley implementation costs (g)

Income tax expense impact of adjustments (h)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

Income tax expense impact of adjustments (j)

Adjusted Diluted Earnings Per Share

Diluted weighted average common shares outstanding

Effect of potentially dilutive shares outstanding (k)

Diluted weighted average common shares outstanding

(a) Represents amounts as determined under GAAP.

2 unchanged sentences

(d) Represents costs associated with our secondary offering that are not capitalized.

(d) Represents costs associated with directly expensed costs from the secondary offerings and debt modification.

(e) Represents charges for severance provided to former executives and non-executives.

(f) Represents expense related to reorganization, including legal entity reorganization.

(g) Represents the first year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act in 2021.

(h) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(g) Represents the gain/loss related to disposal of fixed assets.

(h) Represents recruiting and relocation expenses related to hiring senior executives.

(i) Represents the first year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act in 2021.

(j) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(k) Represents potentially dilutive shares that were excluded from the Company's GAAP diluted weighted average common shares outstanding because the Company had a reported net loss and therefore including these shares would have been anti-dilutive.

Components of Results of Operations

2 unchanged sentences

● Software licenses :

We recognize revenue for software license fees upfront, upon delivery of the software license.

We recognize revenue for software license fees up front, upon delivery of the software license.

● Software subscription :

1 unchanged sentence

We recognize subscription fees ratably over the term of the subscription, usually one to three years.

Any subscription revenue paid upfront that is not recognized in the current period is included in deferred revenue in our consolidated balance sheet until earned.

Any subscription revenue paid up front that is not recognized in the current period is included in deferred revenue in our consolidated balance sheet until earned.

● Software maintenance :

12 unchanged sentences

● Research and Development .

Research and development expense accounts for a significant portion of our operating expenses.

R&D expense accounts for a significant portion of our operating expenses.

We recognize expenses as incurred.

7 unchanged sentences

Those costs include additional director and officer liability insurance expense, as well as third-party and internal resources related to accounting, auditing, SOX compliance, legal, and investor and public relations expenses.

As a result, we expect the dollar amount of our general and administrative expense to increase for the foreseeable future.

As a result, we expect

the amount of our general and administrative expense to increase for the foreseeable future.

Excluding public company expenses, we expect general and administrative expense to grow at a rate lower than revenues.

16 unchanged sentences

Based on the Company’s preliminary purchase price allocation, approximately $1.2 million, $0.1 million and $1.1 million of the purchase price was assigned to customer relationships, non-compete agreements and goodwill, respectively.

On June 7, 2021, the Company completed a transaction which qualified as a business combination.

The business combination was not material to our condensed consolidated financial statements.

Based on the Company’s preliminary purchase price allocation, approximately $7.4 million and $4.7 million of the purchase price was assigned to customer relationships and goodwill, respectively.

Results of Operations

We have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three months ended March 31, 2021 to the three months ended March 31, 2020.

Three Months Ended March 31, 2021 Versus Three Months Ended March 31, 2020

The following table summarizes our unaudited statements of operations data for the three months ended March 31, 2021 and 2020:

THREE MONTHS ENDED MARCH 31,

We have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three and six months ended June 30, 2021 to the three and six months ended June 30, 2020.

Three Months Ended June 30, 2021 Versus Three Months Ended June 30, 2020

The following table summarizes our unaudited statements of operations data for the three months ended June 30, 2021 and 2020:

THREE MONTHS ENDED JUNE 30,

( in thousands)

Total revenues

Revenues increased $9.3 million, or 16%, to $66.7 million for the three months ended March 31, 2021 as compared to the same period in 2020.

The increase in revenues was due to growth in both our services and software product offerings, primarily related to client expansions in both our technology-enabled service product lines and software as well as strong renewal rates.

Software revenue increased by $1.6 million, or 8%, to $21.9 million for the three months ended March 31, 2021 as compared to the same period in 2020, driven primarily by growth in sales of our software licenses of 9%, or $1.1 million, as well as growth in our subscriptions products of 8%, or $0.6 million.

Services revenue increased by $7.6 million, or 21%, to $44.8 million for the three months ended March 31, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled services, primarily in biosimulation offerings.

Revenues increased $9.0 million, or 15%, to $70.1 million for the three months ended June 30, 2021 as compared to the same period in 2020.

Software revenue increased by $2.2 million, or 12%, to $20.1 million for the three months ended June 30, 2021 as compared to the same period in 2020, driven primarily by growth in renewal of software subscriptions of 10%, or $1.5 million.

The remaining increase was primarily due to growth in the subscription products from new clients.

Services revenue increased by $6.8 million, or 16%, to $50.0 million for the three months ended June 30, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled services, primarily in biosimulation offerings.

Cost of Revenues

THREE MONTHS ENDED MARCH 31,

THREE MONTHS ENDED JUNE 30,

(in thousands)

Cost of revenues

Cost of revenues increased by $3.8 million, or 17%, to $26.0 million for the three months ended March 31, 2021 as compared to the same period in 2020.

The increase was primarily due to a $2.3 million increase in employee-related costs and a $0.8 million increase in stock-based compensation costs.

The remaining increase is due to consulting costs, bonus and software amortization, partially offset by decreases in travel related costs and retention expenses.

Cost of revenues increased by $6.9 million, or 33%, to $27.5 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase was primarily due to a $3.9 million increase in employee-related costs resulting from head count growth and a $1.4 million increase in stock-based compensation costs.

The remaining increase is primarily due to consulting costs.

Sales and Marketing Expenses

THREE MONTHS ENDED MARCH 31,

THREE MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

Sales and marketing expenses increased by $0.8 million, or 28%, to $3.8 million for the three months ended March 31, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased primarily due to a $0.5 million increase in employee-related costs and a $0.4 million increase in stock-based compensation costs.

The remainder of the increase is due to bonus and sales commission, partially offset by decreases in travel related costs, trade shows and advertising costs and other marketing costs.

Sales and marketing expenses increased by $1.9 million, or 68%, to $4.6 million for the three months ended June 30, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased primarily due to a $1.1 million increase in employee-related costs resulting from head count growth and a $0.6 million increase in stock-based compensation costs.

Research and Development Expenses

THREE MONTHS ENDED MARCH 31,

THREE MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

Research and development expenses increased by $1.8 million, or 64%, to $4.7 million for the three months ended March 31, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $0.5 million increases in employee-related costs and a $0.4 million increase in stock-based compensation costs.

The remaining increases are due to consulting, lower software capitalization and bonus, partially offset by higher tax credits and decreases in travel related costs.

Research and development expenses increased by $1.7 million, or 56%, to $4.6 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $1.3 million net increases in employee-related costs resulting from head count growth and a $0.5 million increase in stock-based compensation costs.

The increase was partially offset by higher R&D credits and decrease in consulting costs.

General and Administrative Expenses

THREE MONTHS ENDED MARCH 31,

THREE MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

General and administrative expenses increased by $5.0 million, or 44%, to $16.6 million for the three months ended March 31, 2021 as compared to the same period in 2020.

General and administrative expenses increased by $6.9 million, or 61%, to $18.0 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in general and administrative expenses was primarily due to a $4.4 million increase in stock-based compensation costs, $0.7 million increase in insurance expenses, and $0.5 million increase in business acquisition cost.

The remaining increases are primarily due to increases in secondary offering costs.

and public company costs.

The increases were partially offset by decreases in consulting related costs.

Intangible Asset Amortization

THREE MONTHS ENDED JUNE 30,

(in thousands)

Intangible asset amortization

% of total revenues

Intangible asset amortization expense increased by $0.2 million, or 2%, to $9.5 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in intangible asset amortization expense is due to increased capitalized software development costs.

Depreciation and Amortization Expense

THREE MONTHS ENDED JUNE 30,

(in thousands)

Depreciation and amortization

% of total revenues

Depreciation and amortization expense decreased $0.1 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The decrease was primarily due to decrease in depreciation from computer equipment and lease improvement for the three months ended June 30, 2021 as compared to the same period in 2020.

Interest Expense

THREE MONTHS ENDED JUNE 30,

(in thousands)

Interest expense

% of total revenues

Interest expense decreased $0.7 million, or 10%, to $6.3 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in the second quarter of 2021 compared to the same period in 2020.

The decrease in interest

expense was partially offset by interest expense reclassed in from other comprehensive income due to hedge ineffectiveness.

Miscellaneous, net

THREE MONTHS ENDED JUNE 30,

(in thousands)

Miscellaneous, net

% of total revenues

Miscellaneous expense was $0.3 million for the three months ended June 30, 2021 as compared to miscellaneous expenses of $0.1 million for the same period in 2020.

The change was primarily due to $0.3 million loss on disposal of fixed assets.

Provision for Income Taxes

THREE MONTHS ENDED JUNE 30,

( in thousands)

Provision for income taxes

Effective income tax rate

Our income tax expense was $1.5 million, resulting in an effective income tax rate of (103) % for the three months ended June 30, 2021 as compared to income tax expense of $3.7 million, or an effective income tax rate of 57%, for the same period in 2020.

Our income tax expense for the three months ended June 30, 2021 was primarily due to the discrete tax effect of certain prior period swap losses that are required to be excluded from the EAETR calculation, thereby resulting in the tax benefit from such losses being measured at the statutory tax rate, which is much lower than the EAETR applied to all other components of pre-tax book income.

Our income tax expense for the three months ended June 30, 2020 was primarily due to the tax effects of U.S.

pre-tax income, the impact of non-deductible items, the effects of tax elections made for U.K.

earnings, the relative mix of domestic and international earnings and discrete tax items.

Net Income (loss)

THREE MONTHS ENDED JUNE 30,

(in thousands)

Net income (loss)

Net loss was $2.9 million for the three months ended June 30, 2021 as compared to net income of $2.8 million for the same period in 2020.

The loss was primarily due to $7.0 million increase in stock based compensation expense for the three months ended June 30, 2021 compared to the same period last year.

Six Months Ended June 30, 2021 Versus Six Months Ended June 30, 2020

The following table summarizes our unaudited statements of operations data for the six months ended June 30, 2021 and 2020:

SIX MONTHS ENDED JUNE 30,

( in thousands)

Total revenues

Revenues increased $18.2 million, or 15%, to $136.8 million for the six months ended June 30, 2021 as compared to the same period in 2020.

Software revenue increased by $3.8 million, or 10%, to $42.0 million for the six months ended June 30, 2021 as compared to the same period in 2020, driven primarily by growth in our renewal subscriptions revenue of 10%, or $3.0 million.

The remaining increase is primarily due to growth in the subscriptions products from new clients.

Services revenue increased by $14.4 million, or 18%, to $94.8 million for the six months ended June 30, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled services, primarily in biosimulation offerings.

Cost of Revenues

SIX MONTHS ENDED JUNE 30,

(in thousands)

Cost of revenues

Cost of revenues increased by $10.7 million, or 25%, to $53.6 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase was primarily due to a $6.4 million increase in employee-related costs resulting from head count growth and a $2.2 million increase in stock-based compensation costs.

The remaining increase is primarily due to increase in consulting costs.

Sales and Marketing Expenses

SIX MONTHS ENDED JUNE 30,

(in thousands)

Sales and marketing

% of total revenues

Sales and marketing expenses increased by $2.7 million, or 47%, to $8.3 million for the six months ended June 30, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased primarily due to a $1.8 million increase in employee-related costs resulting from head count growth and a $1.0 million increase in stock-based compensation costs, partially offset by decreases in travel related costs, marketing costs.

Research and Development Expenses

SIX MONTHS ENDED JUNE 30,

(in thousands)

Research and development

% of total revenues

Research and development expenses increased by $3.5 million, or 60%, to $9.3 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $2.1 million net increases in employee-related costs resulting from head count growth and a $0.9 million increase in stock-based compensation costs.

The remaining increases are primarily due to lower software capitalization.

The increase was partially offset by higher R&D credits.

General and Administrative Expenses

SIX MONTHS ENDED JUNE 30,

(in thousands)

General and administrative

% of total revenues

General and administrative expenses increased by $11.9 million, or 52%, to $34.6 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in general and administrative expenses was primarily due to a $7.4 million increase in stock-based compensation costs.

The remaining increases are due to increases in secondary offering costs, acquisition related costs, employee related costs, D&O insurance and public company costs.

The increases were partially offset by decreases in severance, restructuring, reorganization, bonus, consulting travel related costs, office supplies and facilities costs.

The increases were partially offset by decreases in restructuring, reorganization, consulting travel related costs, office supplies and facilities costs.

Intangible Asset Amortization Expense

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

Intangible asset amortization expense increased by $0.1 million, or 1%, to $9.5 million for the three months ended March 31, 2021 as compared to the same period in 2020.

Intangible asset amortization expense increased by $0.3 million, or 1%, to $18.9 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in intangible asset amortization expense is due to increased capitalized software development costs.

Depreciation and Amortization Expense

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

Depreciation and amortization expense of $0.6 million was relatively flat for the three months ended March 31, 2021 as compared to the same period in 2020.

Depreciation and amortization expense of $1.2 million was relatively flat for the six months ended June 30, 2021 as compared to the same period in 2020.

Interest Expense

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

Interest expense decreased by $3.0 million, or 43%, to $3.9 million for the three months ended March 31, 2021 as compared to the same period in 2020.

The decrease in interest expense was due to lower outstanding principal amounts on our Credit Facilities.

Interest expense decreased by $3.6 million, or 26%, to $10.3 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in the first six months of 2021 compared to the same period in 2020.

The decrease in interest expense was partially offset by interest expense reclassed in from other comprehensive income due to hedge ineffectiveness.

Miscellaneous, net

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

(in thousands)

1 unchanged sentence

% of total revenues

Miscellaneous income was $0.1 million for the three months ended March 31, 2021 as compared to miscellaneous expenses of $0.5 million for the same period in 2020.

The change was primarily due to foreign currency exchange rate fluctuations.

Miscellaneous expense, net increased by $0.9 million for the six months ended June 30, 2021 as compared for the same period in 2020.

The increase was primarily due to loss from foreign currency exchange rate fluctuations and loss from disposal of fixed assets.

Provision for Income Taxes

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

( in thousands)

1 unchanged sentence

Effective income tax rate

Our income tax expense was $0.5 million, resulting in an effective income tax rate of 33% for the three months ended March 31, 2021 as compared to income tax expense of $0.6 million, or an effective income tax rate of 37%, for the same period in 2020.

Our income tax expense for the three months ended March 31, 2021 and 2020 was primarily due to the tax effects of U.S.

Our income tax expense was $2.0 million, resulting in an effective income tax rate of 1,131% for the six months ended June 30, 2021 as compared to income tax expense of $4.3 million, or an effective income tax rate of 53%, for the same period in 2020.

Our income tax expense for the six months ended June 30, 2021 was primarily due to the discrete tax effect of certain prior period swap losses that are required to be excluded from the EAETR calculation, thereby resulting in the tax benefit from such losses being measured at the statutory tax rate, which is much lower than the EAETR applied to all other components of pre-tax book income.

Our income tax expense for the six months ended June 30, 2020 was primarily due to the tax effects of U.S.

pre-tax income, the impact of non-deductible items, the effects of tax elections made for U.K.

earnings, and the relative mix of domestic and international earnings.

THREE MONTHS ENDED MARCH 31,

earnings, the relative mix of domestic and international earnings and discrete tax items.

Net Income (loss)

SIX MONTHS ENDED JUNE 30,

(in thousands)

Net income was $1.1 million for the three months ended March 31, 2021 as compared to net income of $1.0 million for the same period in 2020.

The change was primarily due to an increase in revenues as well as a decrease in provision for income taxes, partially offset by an increase in operating expenses, each as described above.

Net income (loss)

Net loss was $1.8 million for the six months ended June 30, 2021 as compared to net income of $3.8 million for the same period in 2020.

The loss was primarily due to $11.6 million increase in stock based compensation expense for the first six months of 2021 compared to the same period last year.

The expense increase was partially offset by increased gross profits.

Liquidity and Capital Resources

2 unchanged sentences

We have historically funded our operations primarily through cash generated from operations.

have historically used long-term debt and cash on hand to fund acquisitions.

We have historically used long-term debt and cash on hand to fund acquisitions.

We hold our cash balances in the United States and numerous locations in the rest of the world.

As of March 31, 2021, we had cash and cash equivalents $273.0 million, of which $23.9 million represents cash and cash equivalents held outside of the United States.

As of June 30, 2021, we had cash and cash equivalents $267.8 million, of which $30.6 million represents cash and cash equivalents held outside of the United States.

The following table presents a summary of our cash flows for the periods shown:

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

(in thousands)

3 unchanged sentences

Effect due to foreign exchange rate changes on cash, cash equivalents, and restricted cash

Net increase in cash, cash equivalents, and restricted cash

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash paid for interest

1 unchanged sentence

Operating Activities

During the three months ended March 31, 2021, operating activities provided approximately $4.9 million of cash and cash equivalents, primarily resulting from net income of $1.1 million plus by $16.2 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, provision for doubtful accounts, loss on retirement of assets, equity-based compensation costs and deferred income taxes.

Changes in our operating assets and liabilities used cash and cash equivalents of approximately $12.4 million primarily due to payments of accrued bonuses.

During the three months ended March 31, 2020, operating activities provided approximately $8.8 million of cash and cash equivalents, primarily resulting from net income of $1.0 million, plus $12.5 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, loss on retirement of assets, equity-based compensation costs and deferred income taxes.

During the six months ended June 30, 2021, operating activities provided approximately $19.6 million of cash and cash equivalents, primarily resulting from net loss of $1.8 million adjusted by $35.4 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, provision for doubtful accounts, loss on retirement of assets, equity-based compensation costs, unrealized loss on hedge and deferred income taxes.

Changes in our operating assets and liabilities used cash and cash equivalents of approximately $14.1million primarily due to payments of interest, taxes, accrued bonuses and other operational payments related to business acquisition.

During the six months ended June 30, 2020, operating activities provided approximately $16.6 million of cash and cash equivalents, primarily resulting from net income of $3.8 million, adjusted by $24.8 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, equity-based compensation costs and deferred income taxes.

Changes in our operating assets and liabilities used cash and cash equivalents of approximately $12.0 million.

Investing Activities

During the three months ended March 31, 2021, investing activities used approximately $3.5 million of cash, primarily for investing in a business acquisition, capitalized software development, and capital expenditures to support our growth.

During the three months ended March 31, 2020, investing activities used approximately $3.0 million of cash, primarily for investing in capitalized software development and capital expenditures to support our growth.

During the six months ended June 30, 2021, investing activities used approximately $18.0 million of cash, primarily for investing in business acquisitions, capitalized software development, and capital expenditures to support our growth.

During the six months ended June 30, 2020, investing activities used approximately $5.2 million of cash, primarily for investing in capitalized software development, business acquisition, and capital expenditures to support our growth.

Financing Activities

During the three months ended March 31, 2021, financing activities used approximately $0.9 million of cash, primarily attributable to payments on long-term debt and capital lease obligations.

During the three months ended March 31, 2020, financing activities provided approximately $19.0 million of cash, primarily due to proceeds from borrowings on our line of credit, partially offset by payments on long-term debt and capital lease obligations.

During the six months ended June 30, 2021, financing activities used approximately $5.2 million of cash, primarily attributable to payments on long-term debt and capital lease obligations as well as payments related to the cost of debt modification.

During the six months ended June 30, 2020, financing activities provided approximately $17.2 million of cash, primarily due to proceeds from borrowings on our line of credit, partially offset by payments on long-term debt and capital lease obligations.

Funding Requirements

3 unchanged sentences

While we believe we have sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by factors described under “Risk Factors” elsewhere in this Quarterly Report.

Credit Facilities

Credit Agreement

Certain of our wholly owned indirect subsidiaries, Certara Holdco, Inc.

and Certara USA, Inc.

(collectively, the “Borrowers”), are party to a Credit Agreement that provides for a $250.0 million senior secured term loan and commitments under a revolving credit facility in an aggregate principal amount of $20.0 million, with a sub-commitment for issuance of letters of credit of $10.0 million.

The Credit Agreement matures on August 14, 2024, with respect to the term loan thereunder, and August 14, 2022, with respect to the revolving credit facility thereunder.

In January 2018, the Borrowers amended the Credit Agreement to borrow incremental term loans in the amount of $25.0 million to be used for general corporate purposes.

Additionally, in April 2018, the Borrowers amended the Credit Agreement to (i) borrow incremental term loans in the amount of $40.0 million to be used for general corporate purposes and (ii) provide a reduction of 50 basis points in the margin under the term loan.

The terms of such incremental term loans were the same as the terms of the Borrowers’ existing term loans, including in respect of maturity, and are considered an increase in the aggregate principal amount of the existing term loans outstanding under the Credit Agreement and are part of the existing term loan.

Borrowings under the Credit Agreement currently bear interest at a rate per annum equal to either (i) the Eurocurrency rate, with a floor of 0.00%, as adjusted for the reserve percentage required under regulations issued by the Federal Reserve Board for determining maximum reserve requirements with respect to Eurocurrency funding, plus an applicable margin rate of 3.50% for the term loan and between 4.00% and 3.50% for revolving credit loans, depending on the applicable first lien leverage ratio, (ii) an ABR, with a floor of 1.00%, plus an applicable margin rate of 2.50% for the term loan or between 3.00% and 2.50% for revolving credit loans, depending on the applicable first lien leverage ratio.

The ABR is determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.50% and (iii) the Eurocurrency rate plus 1.00%.

We are a party to a Credit Agreement that originally provided for a $250.0 million senior secured term loan and commitments under a revolving credit facility in an aggregate principal amount of $20.0 million, with a sub-commitment for issuance of letters of credit of $10.0 million.

The loans were originally scheduled to mature on August 14, 2024, with respect to the term loan thereunder, and August 14, 2022, with respect to the revolving credit facility thereunder.

In January 2018, we and the lenders amended the Credit Agreement to add incremental term loans in the amount of $25.0 million to be used for our general corporate purposes.

Additionally, in April 2018, we and the lender amended the Credit Agreement to (i) add incremental term loans in the amount of $40.0 million to be used for our general corporate purposes and (ii) provide a reduction of 50 basis points in the margin under the term loan.

The terms of such incremental term loans were the same as the terms of our existing term loans, including in respect of maturity, and are considered an increase in the aggregate principal amount of the existing term loans outstanding under the Credit Agreement and are part of the existing term loan.

We entered into a third restated and amended loan agreement on June 17, 2021 (“Third Amendment”), which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments under the Credit Agreement to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $80.0 million in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $100.0 million).

The term loan under the Third Amendment has substantially the same terms as the existing term loans and revolving credit commitments.

The Credit Agreement is collateralized by substantially all U.S.

assets and stock pledges for the non-U.S.

subsidiaries and contain various financial and nonfinancial covenants.

Borrowings under the Credit Agreement currently bear interest at a rate per annum equal to either (i) the Eurocurrency rate, with a floor of 0.00%, as adjusted for the reserve percentage required under regulations issued by the Federal Reserve Board for determining maximum reserve requirements with respect to Eurocurrency funding, plus an applicable margin rate of 3.50% for the term loan and between 4.00% and 3.50% for revolving credit loans, depending on the applicable first lien leverage ratio, (ii) an alternative base rate (“ABR”), with a floor of 1.00%, plus an applicable margin rate of 2.50% for the term loan or between 3.00% and 2.50% for revolving credit loans, depending on the applicable first lien leverage ratio (with the ABR determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.50%), and (iii) the Eurocurrency rate plus 1.00%.

Additionally, we are obligated to pay under the revolving credit facility (i) a commitment fee of between 0.50% and 0.25% per annum of the unused amount of the revolving credit facility, depending on the applicable first lien leverage ratio, (ii) customary letter of credit issuance and participation fees, and (iii) other customary fees and expenses of the letter of credit issuers.

All obligations under the Credit Agreement are unconditionally guaranteed by our wholly owned indirect subsidiary and the parent of the Borrowers, Certara Intermediate, Inc.

(“Holdings”), the Borrowers and certain of the Borrowers’ existing and future direct and indirect wholly owned domestic subsidiaries, subject to certain exceptions.

All obligations under the Credit Agreement, and the guarantees of those obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of Holdings’ and the Borrowers’ assets and the assets of the other guarantors.

As of March 31, 2021, we had $303.3 million of outstanding borrowings on the term loan, and $19.9 million of availability under the revolving credit facility, and outstanding letters of credit of $0.1 million under the Credit Agreement.

As of March 31, 2021, we and the Borrowers were in compliance with the covenants of each of the Credit Facilities.

All obligations under the Credit Agreement are unconditionally guaranteed by our wholly owned direct and indirect subsidiaries, subject to certain exceptions.

All obligations under the Credit Agreement, and the guarantees of those

obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors.

As of June 30, 2021, we had $302.0 million of outstanding borrowings on the term loan, and $99.9 million of availability under the revolving credit facility, and outstanding letters of credit of $0.1 million under the Credit Agreement.

As of June 30, 2021, we were in compliance with the covenants of each of the Credit Agreement.

Contractual Obligations and Commercial Commitments

There have been no material changes to our contractual obligations during the three months ended March 31, 2021 from those disclosed in our Annual Report on Form 10-K, except for payment made in the ordinary course of business.

We recorded income tax expense of $0.5 million for the three months ended March 31, 2021 and income tax expense of $0.6 million for the three months ended March 31, 2020.

As of March 31, 2021, we had federal and state NOLs of approximately $3.3 million and $3.0 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2038, respectively.

There have been no material changes to our contractual obligations during the six months ended June 30, 2021 from those disclosed in our Annual Report on Form 10-K, except for payment made in the ordinary course of business.

We recorded income tax expense of $1.5 million and $2.0 million for the three and six months ended June 30, 2021, respectively, and income tax expense of $3.7 million and $4.3 million for the three and six months ended June 30, 2020, respectively.

As of June 30, 2021, we had federal and state NOLs of approximately $3.3 million and $3.0 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2038, respectively.

We had federal and state R&D tax credit carryforwards of approximately $2.3 million and $0.6 million, respectively, to offset future income taxes, which expire between 2024 and 2040.

We also had foreign tax credits of approximately $12.5 million, which will start to expire in 2025.

These carryforwards that may be utilized in a future period and may be subject to limitations based upon changes in the ownership of our stock in a future period.

These carryforwards that may be utilized in a future period may be subject to limitations based upon changes in the ownership of our stock in a future period.

Additionally, we carried forward foreign NOLs of approximately $16.1 million which expire starting in 2022, foreign research and development credits of $2.5 million which expire between 2029 and 2030, and Canadian investment tax credits of approximately $2.7 million which expire between 2030 and 2039.

Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

As required by ASC Topic 740, “Income Taxes”, our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are composed principally of NOL carryforwards, R&D credit carryforwards, investment tax credit carryforward, and foreign tax credit carryforwards.

As required by Accounting Standards Codification (‘‘ASC’’) Topic 740, “Income Taxes”, our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are composed principally of NOL carryforwards, R&D credit carryforwards, investment tax credit carryforward, and foreign tax credit carryforwards.

Management has determined that it is more likely than not that we will not realize the benefits of foreign tax credit carryforwards.

1 unchanged sentence

As a result, a valuation allowance of $16.7 million was recorded at December 31, 2020.

As of March 31, 2021, the valuation allowance remained unchanged from December 31, 2020.

As of June 30, 2021, the valuation allowance remained unchanged from December 31, 2020.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, and currently we do not have, any off-balance sheet arrangements, as defined under the rules and regulations of the SEC.

During the periods presented, we did not have, and currently we do not have, any material off-balance sheet arrangements, as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Our accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in our audited consolidated financial statements included in our Annual Report on Form Form 10-K for the year ended December 31, 2020.

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period.

We monitor estimates and assumptions on a continuous basis and update these estimates and assumptions as facts and circumstances change and new information is obtained.

Actual results could differ materially from those estimates and assumptions.

We discussed the accounting policies that we believe are most critical to the portrayal of our results of operations and financial condition and require management’s most difficult, subjective and complex judgments in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 2020 Form 10-K for the year ended December 31, 2020.

There were no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2021.

Actual results could differ materially

from those estimates and assumptions.

We discussed the accounting policies that we believe are most critical to the portrayal of our results of operations and financial condition and require management’s most difficult, subjective and complex judgments in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on 2020 Form 10-K for the year ended December 31, 2020.

There were no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2021.

Recently Adopted and Issued Accounting Standards

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis