What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-01 · 418 added, 416 removed, 766 unchanged (52% of the section changed)

3 unchanged sentences

Reports of Independent Registered Public Accounting Firm (PCAOB ID 0 49 )

Management's Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm (PCAOB ID 596 )

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive Income (Loss )

Consolidated Statements of Stockholders’ Equity

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Certara, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Certara, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 1, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As disclosed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2021 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases.

To the Stockholders and the Board of Directors of Certara, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Certara, Inc.

and Subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the year ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 1, 2023 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of intangible assets related to the acquisition of Pinnacle 21, LLC - developed technology, customer relationships and trademarks

As described in Note 5 to the consolidated financial statements, on October 1, 2021, the Company completed the acquisition of Pinnacle 21, LLC (“Pinnacle”) which resulted in $143.4 million of intangible assets being recorded.

Those intangible assets were comprised of developed technology of $103 million, customer relationships of $24.6 million and trademarks of $15.8 million.

Fair values of the developed technology were estimated by management using the multi-period excess earnings method, fair values of the customer relationship intangible assets were estimated using the distributor method and the trademarks intangible assets were estimated using the relief from royalty method.

Management’s determination of the fair value of the developed technology included significant assumptions related to future expected cash flows from the developed technology, obsolescence factors, contributory asset charges and discount rates.

Management’s determination of the fair value of the customer relationships acquired included significant assumptions related to revenue growth rates, estimated earnings, customer attrition and discount rates.

Significant judgment is exercised by management when determining the valuation of intangible assets related to the valuation of developed technology, customer relationships and trademark assets, which in turn led to a high degree of auditor judgment, in performing procedures relating to management’s significant assumptions related to the revenue growth rates, estimated earnings, contributory asset charges, customer attrition, royalty rates, obsolescence factors, and discount rates.

Also, the audit effort involved the use of professionals with valuation skill and knowledge.

Given these factors, the related audit effort in evaluating management’s judgments in determining the valuation of intangible assets acquired in the Pinnacle acquisition was challenging, subjective, and complex and required a high degree of auditor judgment.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the developed technology, customer relationships, and trademarks intangible assets.

These procedures also included, among others (i) reading the purchase agreement;

(ii) evaluating the appropriateness of the multi-period excess earnings, distributor and relief from royalty methods;

(iii) evaluating the reasonableness of management’s assumptions relating to the revenue growth rates, estimated earnings, contributory asset charges, customer attrition, royalty rates, obsolescence factors, and discount rates used in the methods;

and (iv) testing the completeness and accuracy of underlying data used in the methods.

Evaluating the assumptions related to the revenue growth rates and estimated earnings involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of the reporting unit;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with valuation skill and knowledge were used to assist in the evaluation of the Company’s multi-period excess earnings, distributor and relief from royalty methods as well as assumptions related to customer attrition, contributory asset charges, royalty rates, obsolescence factors, and discount rates.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue recognition on the Company’s fixed price contract revenue

As described further in Note 2 to the consolidated financial statements, the Company performs professional services under fixed price contracts with the associated revenue recognized over time.

For fixed price revenue contracts recognized over time, management utilizes the input method to measure progress toward the complete satisfaction of the performance obligations based upon the hours incurred to date as a percentage of the total estimated hours.

As described in Note 2 (r) to the consolidated financial statements, the Company performs professional services under fixed price contracts with the associated revenue recognized over time.

For fixed price revenue contracts recognized over time, management utilizes the input method to measure estimated progress to completion.

We identified revenue recognition for fixed price contracts as a critical audit matter.

The principal consideration for our determination that revenue recognition for fixed price contracts was a critical audit matter is that the measure of progress towards completion utilizes assumptions for future hours to complete the performance obligations, and those assumptions have significant estimation uncertainty.

The principal consideration for our determination that revenue recognition for fixed price contracts was a critical audit matter is that the measure of progress towards completion is based upon the hours incurred to date as a percentage of the total estimated hours and utilizes assumptions for future hours to complete the performance obligations, and those assumptions have significant estimation

A significant change in the assumptions could affect both the profitability of the contract and the amount of revenue and profit recognized in an accounting period.

Also, there is a high volume of contracts and a high degree of judgment when evaluating the contracts.

Given these factors, the related audit effort in evaluating management’s judgments in determining the revenue recognition for fixed price contracts was challenging, subjective, and complex and required a high degree of auditor judgment.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to revenue recognition for fixed price contracts, including controls over management’s process for recognizing revenue over time.

In response to management’s assessment of its internal control over financial reporting, a change in our audit plan was required with an increase in audit effort.

Our procedures included, among others (i) for a sample of contracts, inquiring regarding the status of the project and obtaining an understanding for significant changes in budgeted to actual hours;

(ii) inspecting a sample of contracts to evaluate the existence of an enforceable right to payment for performance completed to date, and evaluating the progress towards completion of contracts based on hours incurred, and testing the appropriateness of the timing and amount of revenue recognized;

and (iii) evaluating management’s ability to estimate progress towards completion, we selected a sample of fixed price contracts completed during the year, and obtained the internal budget at inception and compared the budgeted hours at inception to the actual hours upon completion.

We also selected an additional sample of fixed price contracts completed during the year and compared the hours incurred during the current year to the hours that were estimated to be incurred at completion as of the prior year end.

In addition, we confirmed hours incurred per the contract management system directly with a sample of consultants working on the Company’s fixed price contracts.

/s/ CohnReznick LLP

Our audit procedures related to testing the existence, accuracy and completeness of the Company’s fixed price contract revenue included the following, among others:

● We obtained an understanding of the relevant controls related to the existence, accuracy and completeness of fixed price contract revenue and tested such controls for design and operating effectiveness, including management review controls.

● We evaluated the reasonableness of management estimates of cost recognition by comparing costs incurred under completed contracts to the costs estimated by management at the inception of the customer agreement.

● We selected a sample of customer contracts and performed the following procedures:

o We reviewed the terms in the customer contract and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, to determine the revenue recognition conclusions are reasonable.

o We evaluated management’s estimated cost budget for each selection and compared the actual costs incurred to the amount recognized in accordance with management’s accounting policies.

Valuation of Regulatory Writing Reporting Unit for Goodwill Impairment Testing

As described in Notes 2 (l) and 8 to the financial statements, as of December 31, 2022, the Company’s consolidated goodwill balance was $717.8 million.

The Company tests for impairment of goodwill at the reporting unit level annually as of the first day of the fourth quarter, or more frequently if events or circumstances indicate a potential impairment.

During the year ended December 31, 2022, the impairment test was performed at the annual test date.

The Company determines the fair value of the Regulatory Writing reporting unit using a combination of the income approach using the discounted cash flow method, which discounts forecasted future cash flows expected to be generated, and the market approach, using the guideline public company method, which utilizes information of comparable entities with similar operations and economic characteristics.

To quantitatively measure goodwill impairment, the Company compares the fair value of the Regulatory Writing reporting unit to its carrying value.

When determining the fair value of the Regulatory Writing reporting unit management makes significant estimates and assumptions, including revenue growth rates, projected operating margins, and discount rates for the income approach and comparable market data for the market approach.

We identified the valuation of the Regulatory Writing reporting unit for goodwill impairment testing as a critical audit matter given the significant estimates and assumptions management makes to determine the fair value of the Regulatory Writing reporting unit, we identified management’s assumptions related to revenue growth rates, projected operating margins, discount rates and comparable market data utilized in the valuation of the Regulatory Writing reporting unit’s quantitative test for goodwill impairment as a critical audit matter.

Auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

Our audit procedures related to revenue growth rates, projected operating margins, discount rates and comparable market data utilized in the valuation of the Company’s Regulatory Writing reporting unit included the following, among others:

● We obtained an understanding of the relevant controls related to the valuation of the Company’s Regulatory Writing reporting unit and tested such controls for design and operating effectiveness, including management review controls.

● We evaluated the reasonableness of management’s forecasted sales and expense growth rates by comparing actual results to management’s historical forecasts.

● We evaluated the reasonableness of management’s forecasts of sales growth rates by comparing the forecasts to (1) the historical results (2) internal communications to management and the Board of Directors, (3) external communications from analysts and investors, as applicable and (4) external market and industry data.

● We evaluated the reasonableness of management’s selection of comparable entities with similar operations and economic characteristics.

● With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by:

o Evaluating the reasonableness of the discount rate and multiples of earnings of comparable companies by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

o Evaluating the appropriateness of the valuation methods used by management and testing their mathematical accuracy.

Valuation of developed technology and contingent consideration related to the acquisition of Vyasa Analytics, LLC

As described in Note 5 to the consolidated financial statements, on December 28, 2022, the Company completed the acquisition of Vyasa Analytics, LLC (“Vyasa”) which resulted in $13.1 million of intangible assets being recorded.

Those intangible assets were comprised of developed technology of $11.4 million and other intangibles of $1.7 million.

Fair values of the developed technology were estimated by management using an income approach that estimates discounted cash flows which are specifically attributable to an intangible asset..

Management’s determination of the fair value of the developed technology included significant assumptions related to future expected cash flows from the developed technology and discount rates.

As a result of the acquisition, the Company also recognized a contingent consideration liability of $19.8 million.

Future payments of contingent consideration are based on achieving certain eligible revenue thresholds for each of the twelve-month periods ended December 31, 2023, 2024, and 2025, respectively.

Potential payments range from $0 to $60.0 million over the three year period.

The liability was valued using a valuation model that reflects the use of multiple probabilities.

We identified the valuation of developed technology and contingent consideration related to the acquisition of Vyasa Analytics, LLC as a critical audit matter given the significant judgment exercised by management when determining the valuation of developed technology, which in turn led to a high degree of auditor judgment, in performing procedures relating to management’s significant assumptions related to the revenue growth rates and discount rates.

Also, the audit effort involved the use of professionals with valuation skill and knowledge.

The determination of the proper accounting treatment of the contingent consideration by management required judgment and the valuation is based, in part, on unobservable inputs that are sensitive to changes in the probability of achieving the thresholds and volatility assumptions.

Given these factors, the related audit effort in evaluating management’s judgments in determining the valuation of developed technology acquired and the contingent consideration due in the Vyasa acquisition was challenging, subjective, and complex and required a high degree of auditor judgment.

Our audit procedures related to the Company’s valuation of the contingent consideration and developed technology in connection with the aforementioned acquisition included the following, among others:

● We obtained an understanding of the relevant controls related to the valuation of the contingent consideration liability and developed technology asset and tested such controls for design and operating effectiveness, including management review controls related to the development of significant assumptions.

● We evaluated the reasonableness of management’s forecasts of sales by comparing the forecasts to (1) the historical results (2) internal communications to management and the Board of Directors, and (3) external market and industry data.

● With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by:

o Evaluating the reasonableness of the discount rates, volatility assumptions and the probability of certain financial forecast scenarios.

o Testing the relevance and reliability of source information underlying the determination of the discount rates and volatility assumptions.

/s/ RSM US LLP

We have served as the Company's auditor since 2022.

Tysons, Virginia

Blue Bell, Pennsylvania

March 1, 2023

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Stockholders and the Board of Directors

Certara, Inc.

Opinion on Internal Control Over Financial Reporting

and Subsidiaries

Opinion on the Internal Control Over Financial Reporting

We have audited Certara, Inc.

and Subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment.

Information technology general controls (“ITGCs”) were not designed and implemented over a cloud-based software system that supports the Company’s project set-up and time submissions for services provided to the Company’s customers.

As a result, certain business process automated and manual controls were also considered ineffective because they relied on data and reports accumulated in such software system.

These control deficiencies were a result of:

information technology processes lacking adequate reviews and documentation to maintain effective controls related to access management, change management and complementary user-organization controls to those implemented at the Service Organization that hosts the software system.

The material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired Pinnacle 21, LLC (“Pinnacle”) on October 1, 2021.

Management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Pinnacles’ internal control over financial reporting associated with 23% of total assets and 2% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021.

Our audit of internal control over financial reporting also excluded an evaluation of the internal control over financial reporting of Pinnacle.

and Subsidiaries (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements) and our report dated March 1, 2023, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the company;

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Blue Bell, Pennsylvania

March 1, 2023

Report Of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Certara, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Certara, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ CohnReznick LLP

We served as the Company's auditor from 2019 to 2021.

Tysons, Virginia

March 1, 2022

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is defined in the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Our management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this evaluation, our management concluded that our internal control over financial reporting was not effective at December 31, 2021 because of the material weakness described below.

Based on the COSO criteria, management identified control deficiencies that constitute a material weakness.

A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is more than a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness was identified:

Material weakness related to Information Technology General Controls

We concluded that we did not have effective information technology general controls over a cloud-based software system that supports our project set-up and time submissions for services provided to our customers.

As a result, certain business process automated and manual controls were also considered ineffective because they relied on data and reports accumulated in such software system.

We believe these control deficiencies were a result of our information technology processes lacking adequate reviews and documentation to maintain effective controls related to access management, change management and complementary user-organization controls to those implemented at the Service Organization that hosts the software system.

The material weakness did not result in any identified misstatements.

and there were no changes to previously released financial results.

The Company’s independent registered public accounting firm, CohnReznick LLP, has issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, which appears in Item 8.

of this Annual Report on Form 10-K.

Management’s Plan to Remediate the Material Weakness

Management has outlined a remediation plan and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.

Management remediation actions include:

(i) Implement a controlled process for the onboarding, offboarding, and access rights modifications in the application environment to ensure appropriate provisioning of rights on a least privileged basis;

(ii) Document the levels of privileged access roles with specific “allowed” capabilities warranting levels of access for specific roles;

(iii) Implement a quarterly log review by business owners to ensure that no privileged account access was provided and removed outside of documented service requests;

(iv) Implement a controlled process for application and system level changes in the application environment to ensure appropriate understanding of the changes on financial reporting;

and (v) Strengthen ownership and reporting through the IT Governance Process currently in place which will serve as the mechanism to monitor the remediation update.

We believe that these actions will remediate the material weakness.

The weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management concludes, through testing, that these controls operate effectively.

We expect that the remediation of this material weakness will be completed by or before September 30, 2022.

/s/ WILLIAM F.

ANDREW SCHEMICK

Andrew Schemick

Chief Executive Officer

Chief Financial Officer

March 1, 2022

CERTARA, INC.

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Cash and cash equivalents

Accounts receivable, net of allowance for credit losses of $ 262 and $ 132 , respectively

Accounts receivable, net of allowances for credit losses of $ 1,250 and $ 262 , respectively

Restricted cash

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Operating lease right-of-use assets

Intangible assets, net of accumulated amortization of $ 169,329 and $ 127,172 , respectively

Intangible assets, net of $ 217,705 and $ 169,329 , respectively

Deferred income taxes

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Current portion of long-term debt

Current operating lease liabilities

Other current liabilities

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Total liabilities

Commitments and contingencies (Note 12)

Commitments and contingencies

Stockholder’s equity

Preferred shares, $ 0.01 par value, 50,000,000 and no shares authorized as of December 31, 2022 and 2021, respectively, no shares issued and outstanding as of December 31, 2022 and 2021, respectively

Common shares, 0.01 par value, 600,000,000 shares authorized, 159,658,948 and 152,979,479 shares outstanding at December 31, 2021 and 2020, respectively

Common shares, $ 0.01 par value, 600,000,000 shares authorized, 159,676,150 and 159,660,048 shares issued as of December 31, 2022 and 2021, respectively;

159,525,943 and 159,658,948 shares outstanding as of December 31, 2022 and 2021, respectively

Additional paid-in capital

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Accumulated other comprehensive loss

Treasury stock at cost, 1,100 and no shares at December 31, 2021 and 2020, respectively

Treasury stock at cost, 150,207 and 1,100 shares at December 31, 2022 and 2021, respectively

Total stockholder’s equity

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

YEAR ENDED DECEMBER 31,

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Interest expense

Miscellaneous, net

Net other income (expense)

Total other expenses

Loss before income taxes

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Other comprehensive income (loss)

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Total other comprehensive income (loss)

Comprehensive loss

Net loss per common shares — basic and diluted

Basic and diluted weighted average common shares outstanding

Comprehensive income (loss)

Net income (loss) per share attributable to common stockholders:

Weighted average common shares outstanding:

The accompanying notes are an integral part of the consolidated financial statements.

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COMPREHENSIVE

TREASURY STOCK

STOCKHOLDER’S

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PAID-IN CAPITAL

Treasury Stock

Balance as of December 31, 2019

Cumulative effect adjustment upon adoption of Topic 606

Equity compensation

Repurchase of Parent Class B units

Capital contribution

Change in fair value of interest rate swap, net of tax

Foreign currency translation adjustment, net of tax

Balance as of December 31, 2019

Equity-based compensation awards

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Common shares issued in connection with Pinnacle acquisition

Restricted stock withheld for tax liability and in treasury

Restricted stock withheld for tax liability

Change in fair value from interest rate swap, net of tax

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Balance as of December 31, 2021

Equity-based compensation expense, net of forfeiture

Restricted stock units withheld for tax liability

Common shares issued for employee share-based compensation

Restricted stock withheld for tax liability

Change in fair value from interest rate swap, net of tax

Foreign currency translation adjustment, net of tax

Balance as of December 31, 2022

The accompanying notes are an integral part of the consolidated financial statements.

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Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net loss to net cash provided by operating activities:

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Deferred income taxes

Changes in assets and liabilities, net of acquisitions:

Changes in assets and liabilities

Accounts receivable

Prepaid expenses and other assets

Prepaid and other assets

Accounts payable and accrued expenses

Deferred revenue

Change in other liabilities

Net cash provided by operating activities

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Capital expenditures

Capitalized development costs

Capitalized software development costs

Business acquisitions, net of cash acquired

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Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash

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

Cash, cash equivalents, and restricted cash, at beginning of period

Cash, cash equivalents, and restricted cash, at end of period

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

Cash, cash equivalents, and restricted cash, at beginning of year

Cash, cash equivalents, and restricted cash, at end of year

Supplemental disclosures of cash flow information

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Supplemental schedule of noncash investing and financing activities

Contingent liabilities established in connection with business acquisition

Property and equipment controlled through capital lease obligations

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to change the name of the Company to Certara, Inc.

The Company has operations in the United States, Canada, Spain, Luxembourg, Portugal, United Kingdom, Germany, France, Netherlands, Denmark, Switzerland, Italy, Poland, Japan, Philippines, India, Australia and China.

The Company has operations in the United States, Australia, Canada, China, France, Germany, India, Italy, Japan, Luxembourg, Netherlands, Philippines, Poland, Portugal, Spain, Switzerland and the United Kingdom.

Summary of Significant Accounting Policies

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generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of progress of completion on fixed-price service contracts, the determination of fair values and useful lives of long-lived assets as well as intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, value of interest rate swaps, determination of fair value of equity-based awards and assumptions used in testing for impairment of long-lived assets.

Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of progress of completion on fixed-price service contracts, the determination of fair values and useful lives of long-lived assets as well as intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, valuation of interest rate swaps, determination of fair value of equity-based awards and assumptions used in testing for impairment of long-lived assets.

Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

(b) Recently Adopted Accounting Pronouncements

(b) Recently Issued Accounting Pronouncements

There have been no recent accounting pronouncements, changes in accounting pronouncements during 2022 that are significant to us.

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires that at the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”), as if it had originated the contracts.

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Early adoption of the ASU is permitted.

The Company early adopted ASU 2021-08 early and has carried over the contract assets and liabilities from the 2021 business acquisitions into the Company’s 2021 consolidated financial statements.

The Company early adopted ASU 2021-08 and has carried over the contract assets and liabilities from the 2021 business acquisitions into the Company’s 2021 consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes"

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As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application was not updated.

An adjustment to opening accumulated deficit was not required in conjunction with the Company’s adoption.

An adjustment to opening accumulated deficits was not required in conjunction with the Company’s adoption.

The Company has elected not to reassess whether expired or existing contracts contain leases, nor did the Company reassess the classification of existing leases as of the adoption date.

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For additional information, see Note 14 - Leases.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance”.

The ASU requires that entities increase disclosures about government assistance received relating to accounting policy, nature of the assistance, and the effect of the assistance on the financial statements.

The ASU is effective for annual periods beginning after December 15, 2021.

Early application of the ASU is permitted.

The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

(d) Principles of Consolidation

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( e) Fair Value Measurements

The Company follows FASB ASC 820-10, “Fair Value Measurements” (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in U.S.

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) 820-10, “Fair Value Measurements” (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in U.S.

GAAP, and requires certain disclosures about fair value measurements.

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Significant inputs to the derivative instrument valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy.

Contingent liabilities related to acquisitions are measured at fair value using Level 3 unobservable inputs.

The Company's estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management.

Any changes in the fair value of these contingent liabilities are included in the earnings in the consolidated statements of operations and comprehensive income (loss).

The following table sets forth the assets and liabilities that were measured at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2022:

(In thousands)

Money market funds

Interest rate swap assets

Contingent liabilities

Total liabilities

The following table sets forth the assets that were measured at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2021:

(In thousands)

Interest rate swap assets

(f) Cash and Cash Equivalents and Restricted Cash

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The Company has never experienced losses related to these balances and believes it is not exposed to any significant credit risk on cash.

Restricted cash represents cash that is reserved to support a financing program and unexpended restricted grant funds.

Restricted cash represents cash that is reserved to provide for a Company credit card program and unexpended restricted grant funds.

The restricted cash balance was $ 3,102 and $ 827 at December 31, 2022 and 2021, respectively.

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The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the amounts presented in the consolidated statements of cash flows:

(In thousands)

Cash and cash equivalents

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The carrying amount of accounts receivable is reduced by a valuation allowance.

The Company estimates the expected credit losses for trade receivables using historical loss data adjusted for current economic conditions, including reasonable and supportable forecasts to estimate relative size of credit losses to be expected under the CECL model.

The Company estimates the expected credit losses for accounts receivables using historical loss data adjusted for current economic conditions, including reasonable and supportable forecasts to estimate the relative size of credit losses to be expected.

The Company generally writes off a receivable or records a specific allowance for credit losses if the Company determines that the receivable is not collectible.

Allowances for credit losses of $ 1,250 and $ 262 were provided in the accompanying consolidated financial statements as of December 31, 2022 and 2021, respectively.

(In thousands)

Trade receivables

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The following is the allowance rollforward of credit losses for the Company’s accounts receivable as of December 31, 2022 and 2021.

(In thousands)

Beginning balance

Provision for credit losses

Charge-offs, net of recoveries

Ending balance

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Property and equipment are stated at cost, less accumulated depreciation and amortization.

Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets, which range from three to ten years for equipment and furniture, the shorter of the useful lives of the improvement or the life of the related lease term for leasehold improvements, and one to three years for purchased software.

Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets, which range from three to ten years for computer and office equipment, the shorter of the useful lives of the improvement or the life of the related lease term for leasehold improvements, and one to three years for purchased software.

The Company seeks to match the book useful life of assets to the expected productive lives.

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Software development costs are accounted for in accordance with FASB ASC Subtopic 985-20 if the software is to be sold, leased or otherwise marketed, or by FASB ASC Subtopic 350-40 if the software is for internal use.

After the technological feasibility of the software has been established (for software to be marketed), or at the beginning of application development (for internal-use software), software development costs, which include primarily salaries and related payroll costs and costs of independent contractors incurred during development, are capitalized.

technological feasibility of the software has been established (for software to be marketed), or at the beginning of application development (for internal-use software), software development costs, which include primarily salaries and related payroll costs and costs of independent contractors incurred during development, are capitalized.

Research and development (“R&D”) costs incurred prior to the establishment of technological feasibility (for software to be marketed), or prior to application development (for internal-use software), are expensed as incurred.

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Debt issuance costs are capitalized and amortized over the term of the related debt using the effective interest rate method.

Amortization of debt issuance costs is included in interest expense within the Consolidated Statements of Operations and Comprehensive Loss.

Amortization of debt issuance costs is included in interest expense within the consolidated statements of operations and comprehensive income (loss).

The unamortized amount is included as an offset against long-term debt on the consolidated balance sheets.

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The capitalized costs are amortized ratably over the term of the line-of-credit arrangement.

The amortization costs are included in interest expense within the Consolidated Statements of Operations and Comprehensive Loss, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

The amortization costs are included in interest expense within the consolidated statements of operations and comprehensive income (loss), regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

(l) Goodwill and Other Intangible Assets

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If the Company determines that it is not more-likely-than-not that the fair values of the reporting units are less than their carrying values, no further assessment is performed.

If the Company determines that it is more-likely-than-not that the fair values of the report units are less than carrying value, the Company proceed to perform a quantitative goodwill impairment test.

If the result of the quantitative test show that carrying amount of reporting unit exceeds its fair values, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

If the Company determines that it is more-likely-than-not that the fair values of the report units are less than carrying value, the Company proceeds to perform a quantitative goodwill impairment test.

If the result of the quantitative test shows that the carrying amount of reporting units exceeds its fair values, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

For the years ended December 31, 2022, 2021, and 2020, the Company performed quantitative assessments of goodwill.

The most recent assessment was performed on October 1, 2022.

The quantitative assessments resulted in no impairment as the estimated fair value of each reporting unit significantly exceeded its carrying value.

The quantitative assessments resulted in no impairment as the estimated fair value of each reporting unit exceeded its carrying value.

Accordingly, no impairment loss was recorded for the years ended December 31, 2022, 2021, and 2020.

Other identifiable intangible assets with finite lives, such as software products acquired in acquisitions, non-compete agreements, tradenames and customer relationship assets, are amortized over their estimated lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows:

Other identifiable intangible assets with finite lives, such as software products acquired in acquisitions, non-compete agreements, tradenames and customer relationship assets, are amortized over their estimated useful lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows:

acquired software — 3 to 14 years ;

non-compete agreements — 2 to 5 years ;

tradenames — 20 years ;

customer relationships — 11 to 16 years ;

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Revenue and expenses for these subsidiaries are translated using average exchange rates prevailing during the period.

Gains and losses from these translations are recognized as a cumulative translation adjustment and included as a separate component in accumulated other comprehensive loss within stockholders’ equity.

For transactions that are not denominated in the local functional currency, the Company remeasures monetary assets and liabilities at exchange rates in effect at the end of each reporting period.

Foreign currency transaction gains and losses are included net within comprehensive gain or loss in the Consolidated Statements of Operations and Comprehensive Loss and resulted in foreign currency gain (losses) of $ 175 , $( 715 ), and $( 431 ) for the years ended December 31, 2021, 2020, and 2019, respectively.

Foreign currency transaction gains and losses are included net within comprehensive gain or loss in the consolidated statements of operations and comprehensive income (loss) and resulted in foreign currency gains (losses) of $ 3,166 , $ 175 , and $( 715 ) for the years ended December 31, 2022, 2021, and 2020, respectively.

(n) Derivative Instruments

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To qualify for hedge accounting, the interest rate swaps must effectively reduce the risk exposure that they are designed to hedge.

addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must be, and be expected to remain, probable of occurring in accordance with the related assertions.

In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must be, and be expected to remain, probable of occurring in accordance with the related assertions.

FASB ASC 815, “Derivatives and Hedging,” requires the Company to recognize all derivatives on the balance sheet at fair value.

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Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company has an interest rate swap agreement that was designated as a cash flow hedge of interest rate risk for a notional amount of $ 230,000 that fixed the interest rate at 2.1284 %, non-inclusive of the fixed credit spread through May 31, 2022.

In the second quarter of 2021, the Company determined that the hedge had not been highly effective from April 2018 and did not qualify for hedge accounting.

As a result, the Company performed an analysis of the materiality of the out of period error correction in accordance with ASC 250, “Accounting Changes and Error Corrections”, both quantitively and qualitatively, and concluded that the error correction was immaterial to all periods.

The Company reclassified $ 3,033 of accumulated comprehensive loss to interest expense in the Consolidated Statements of Operations and Comprehensive Loss in the second quarter of 2021.

Changes in the fair value of the interest rate swap recognized in interest expense excluding the reclassification discussed previously for the year ended December 31, 2021 amounted to $ 638 .

On August 31, 2021, the Company entered an amendment to the interest rate swap agreement.

The Company had entered into an interest rate swap agreement in May 2022 that pays fixed, receives variable to modify the interest rate characteristics of term loan debt from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes.

The swap agreement has a notional amount of $ 230,000 , a fixed rate of 2.8 % and a termination date of August 31, 2025.

At December 31, 2022, the interest swap had a fair value of $ 8,374 and the fair value recognized in accumulated other comprehensive income was $ 8,374 .

The Company also had an interest rate swap agreement for a notional amount of $ 230,000 that fixed the interest rate at 2.1 %, non-inclusive of the fixed credit spread through May 31, 2022.

On August 31, 2021, the Company entered into an amendment to the interest rate swap agreement.

The amended interest rate swap agreement does not in its entirety meet the definition of a derivative instrument because of its off market fixed rate at inception and is deemed to be a hybrid instrument with a financing component and an embedded at-the-market derivative.

Such embedded derivative is bifurcated and accounted for separately.

At inception, the financing component of $ 1,966 was recorded as the amortized cost.

The embedded at-the-market derivative was designated and qualified as a cash flow hedge of interest rate risk for a notional amount of $ 230,000 that fixed the interest rate at 1.2757 %, non-inclusive of the fixed credit spread through May 31, 2022.

The fair value of the embedded at-the-market derivative is recognized in the Consolidated Balance Sheets and the changes in the fair value of the embedded at-the-market derivative is recognized in other comprehensive income(loss).

At December 31, 2021, the financing component is recorded as current portion of interest rate swap liability in the amount of $ 1,088 and is included in other current liabilities on the Consolidated Balance Sheet.

Due to an other-than-insignificant financing element on a portion of such hybrid instrument, the cash flows associated with this hybrid instrument are classified as financing activities in the Consolidated Statements of Cash Flows.

At December 31, 2021, the Company recorded the fair value of the embedded at-the-market derivative as current portion of interest rate swap assets in the amount of $ 57 in prepaid expenses and other current assets on the Consolidated Balance Sheet.

The following table sets forth the liabilities that were measured at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2021:

Interest rate swap asset

The following table sets forth the liabilities that were measured at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2020:

Interest rate swap liability

The net amount of deferred gains (losses) related to derivative instruments designated as cash flow hedges that is expected to be reclassified from accumulated other comprehensive loss into interest expense over the next 12 months is insignificant.

At inception, the financing component of $ 1,966 was recorded at amortized cost.

Due to an other-than-insignificant financing element on a portion of such hybrid instrument, the cash flows associated with this hybrid instrument were classified as financing activities in the condensed consolidated statements of cash flows.

The interest rate swap matured on May 31, 2022.

At December 31, 2022, the Company did not record any amounts for the financing component and fair value of the interest rate swap in the consolidated balance sheets.

The Company reclassified $ 3,033 of

accumulated comprehensive loss to interest expense in the consolidated statements of operation and comprehensive loss in the second quarter of 2021 due to hedge ineffectiveness.

Excluding the amount reclassified, interest expense on derivative instruments recognized in the Company’s consolidated statements of operations and comprehensive income (loss) were $ 25 , $ 726 , and $ 1,573 for the years ended December 31, 2022, 2021, and 2020, respectively.

The Company uses derivatives to manage certain interest exposures and designated all the derivatives as cash flow hedges.

The Company records derivatives at fair value on its consolidated balance sheets.

Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss).

Those amounts are reclassified into interest expenses in the same period during which the hedged transactions impact earnings.

The notional amounts and fair values, locations of derivative instruments in the consolidated balance sheets as of December 31 were as follows:

Interest rate swap derivative designated as cash flow hedging instruments:

(In thousands)

Notional amounts

Prepaid expenses and other current assets

Other long-term assets

The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from accumulated other comprehensive gains into earnings over the next twelve months is $ 4,670 .

(o) Warranty ‌

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The Company's policy is to recognize interest and penalties related to income tax positions taken as a component of the provision for income taxes.

The Company has recorded unrecognized tax benefits of $ 1,059 and $ 897 as of December 31, 2021 and 2020, respectively.

As of and for the years ended December 31, 2021 and 2020, there were no interest or penalties recorded.

The Company does not anticipate any significant changes to its uncertain tax positions during the next 12 months.

The Company assessed its uncertain tax positions and determined that a liability of $ 2,818 and $ 1,059 was required to be recorded for uncertain tax positions as of December 31, 2022 and 2021, respectively.

Uncertain tax positions relate primarily to federal and state R&D credits.

The Company's policy is to recognize interest and penalties as a component of the provision for income taxes.

For December 31, 2022 and 2021, the Company recognized interest of $ 0.1 million of interest and no penalties.

For December 31, 2021 the Company recognized neither interest or penalties .

The Company does not anticipate any significant changes to its uncertain tax positions during the next twelve months.

federal income tax returns are generally subject to examination for a period of three years after the filing of the return.

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(r) Revenue Recognition

The Company’s revenue consists of fees for perpetual and term licenses for the Company’s software products, post-contract customer support (referred to as maintenance), software as a service (“SaaS”) and professional services including training and other revenue.

In accordance with Accounting Standards Codification Topic 606 ("ASC Topic 606"), “Revenue from Contracts with Customers”, the Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer

Identification of the performance obligations in the contract

Determination of the transaction price

Allocation of the transaction price to the performance obligations in the contract

Recognition of revenue when, or as, the Company satisfies a performance obligation

The Company’s revenue consists of fees for perpetual and term licenses for its software products, post- contract customer support (referred to as maintenance), software as a service (“SaaS”), and professional services including training and other revenue.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services.

The Company typically recognizes license revenue at a point in time upon delivering the applicable license.

The revenue related to the support and maintenance performance obligation will be recognized on an over-time basis using time elapsed methodology.

The revenue related to software training and software implementation performance will be recognized at the completion of the service.

The following describes the accounting policies for multiple performance obligations and the nature of the Company’s primary types of revenues and the revenue recognition policies as they pertain to the types of transactions the Company enters into with its customers.

Arrangements with Multiple Performance Obligations

For contracts with multiple performance obligations, the Company determines if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis.

When products and services are not distinct, the Company determines an appropriate measure of progress based on the nature of its overall promise for the single performance obligation.

The delivery of a particular type of software and each of the user licenses would be one performance obligation.

However, any training, implementation, or support and maintenance promises as part of the software license agreement would be considered separate performance obligations, as those promises are distinct and separately identifiable from the software licenses.

The payment terms in these arrangements are sufficiently short such that there is no significant financing component to the transaction.

Software Licenses and Support

License revenue includes perpetual license fees and term license fees, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the use of software.

Both revenues from perpetual license and term license performance obligations are generally recognized upfront at the point in time when the software license has been delivered.

A source of software license revenue is from term and bundled licenses that are time-based arrangements for one or multiple software products sold together with maintenance and support for the term of the license arrangement.

The Company has determined that post customer support and the right to unspecified enhancements and upgrades on a “when-and-if-available” basis included with term licenses is an immaterial component of the transaction price and, therefore, recognized these performance obligation components up front with the license when delivered.

Software License contracts do not provide for any non-cash consideration nor is there consideration payable to a customer.

Software Services

For contracts that include multiple performance obligations, such as a software license plus software training, implementation, and/or maintenance/support, or in contracts where there are multiple software licenses, the transaction price is allocated to each of the performance obligations on a pro-rata basis based on the relative standalone selling price (“SSP”) of each performance obligation.

Maintenance services agreements consist of fees for providing software updates and for providing technical support for software products for a specified term.

Revenue allocated to maintenance services is recognized ratably over the contract term beginning on the delivery date of each offering.

Maintenance contracts generally have a term of one year .

Expenses related to maintenance and subscription are recognized as incurred.

While transfer of control of the software training and implementation performance obligations are over time, the services are typically started and completed within a few days.

Due to the quick nature of the performance obligation from start to finish and the immaterial amounts, the Company recognizes any software training or implementation revenue at the completion of the service.

Any unrecognized portion of amounts paid in advance for licenses and services is recorded as

deferred revenue.

Certara’s software contracts do not typically include discounts, variable consideration, or options for future purchases that would not be similar to the original goods.

Consortium revenues consist of contractual agreements with customers where the customer receives multiple benefits as part of their contract with the Company, as follows:

access to the latest version simulator software, which has at least one new release per year, free access to a preset number of training workshops, a block of consulting hours to be used at the customer’s discretion, as well as voting rights at the annual consortium meeting where development priorities for the upcoming year are set.

The Company’s consortium contracts are generally for three years with annual termination clauses and with annual upfront billings.

Consortium revenues are recognized over time as the benefits of the consortium arrangement are realized over the course of the contract.

Both the training and consulting services performance obligations will utilize an output method to measure the progress at the end of each reporting period.

Revenue from the Company’s performance obligation under the simulation license, which provides customers with access to the latest version of the simulation software, is recognized evenly over the contract period.

License revenue and post contract services are combined and reported as software revenue on the Consolidated Statements of Operations and Comprehensive Loss.

Subscription Revenues

Subscription revenues consists of subscription fees for access to, and related support for, our cloud-based solutions.

The Company typically invoices subscription fees in advance in annual installments and recognizes subscription revenue ratably over the term of the applicable agreement, usually one to three years which is initially deferred and recognized ratably over the life of the contract.

The output method that accurately depicts the transfer of control was determined to be the delivery of accessibility to the customer.

Unearned maintenance and subscription revenue are recorded as deferred revenue.

The Company’s subscription services arrangements are generally non-cancelable and do not contain refund-type provisions.

In rare instances that subscription services arrangements are deemed cancelable, the Company will adjust the transaction price and period for revenue recognition accordingly to be reflective of the contract term.

The contract transaction price is based on the fixed fee for each subscription.

Services and Other Revenues

The Company’s primary services offering includes consulting services, which may be either strategic consulting services, reporting and analysis services, regulatory writing services, or any combination of the three.

Strategic consulting services consists of consulting, training, and process redesign that enables customers to identify which uncertainties are greatest and matter most and then to design development programs, trial sequences, and individual trials in such a way that those trials systematically reduce the identified uncertainties in the most rapid and cost-effective manner possible.

The Company’s professional services contracts are either time-and-materials, fixed fee or prepaid.

The following describes the nature of the Company’s primary types of revenues and the revenue recognition policies as they pertain to the types of transactions the Company enters into with its customers.

Consulting Service Revenues

The Company’s primary professional services offering includes consulting services, which may be either strategic consulting services, reporting and analysis services, regulatory writing services, or any combination of the three.

The Company’s professional services contracts are either time-and-materials or fixed fee.

Services revenues are generally recognized over time as the services are performed.

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Revenue from time-and-material contracts is recognized on an output basis as labor hours are delivered and/or direct expenses are incurred.

Revenues for fixed price services and prepaid are generally recognized over time applying input methods to estimate progress to completion.

Revenues for fixed price services are generally recognized over time applying input methods to estimate progress to completion.

Accordingly, the number of resources being paid for and varying lengths of time they are being paid for, determine the measure of progress.

Training revenues are recognized as the services are performed over time.

However, due to short period over which the transfer of control occurs for a classroom or on-site training course, the revenue related to these performance obligations is recognized at the completion of the course for administrative feasibility purposes.

The training services generally do not provide for any non-cash consideration nor is there consideration payable to a customer.

At contract inception, the Company assesses the products and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product or service (or bundle of products or services) that is distinct — i.e., if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

The Company has contracts with customers that may have

multiple performance obligations, including some or all of the following:

software licenses, maintenance, subscriptions, professional services and/or training.

For these contracts, the Company accounts for individual performance obligations separately if they are distinct within the context of the contract by allocating the contract’s total transaction price to each performance obligation in an amount based on the relative SSP, of each distinct good or service in the contract.

In order to determine the SSP of its promised goods or services, the Company conducts an annual analysis to determine whether its goods or services have an observable SSP.

In determining SSP, the Company requires that a substantial majority of the standalone selling prices for goods or services fall within a reasonably narrow pricing range.

If the Company does not have a directly observable SSP for a particular good or service, then the Company estimates a SSP by the Company’s overall pricing objectives, taking into consideration market factors, pricing practices including historical discounting, historical standalone sales of similar products, customer demographics, geographic locations, and the number and types of users within the Company’s contracts.

The determination of SSP is made by the Company’s management.

Selling prices are analyzed at least on an annual basis to identify if the Company has experienced significant changes in its selling prices.

The Company allocates the transaction price to each performance obligation identified in the contract on a relative SSP basis and recognizes revenue when or as it satisfies a performance obligation by transferring control of a product or service to a customer.

Taxes collected from customers and remitted to governmental authorities are not included in revenue.

The Company does not incur shipping and handling for its goods as they are generally delivered to a customer electronically.

The Company does not believe that it currently has any rights to return that would result in a material impact to revenues.

Software Licenses

Software license revenue consists primarily of sales of software licenses downloaded and installed by our customers on their own hardware.

The license period is generally 1 year or less and includes an insignificant amount of customer support to assist the customer with the software.

Software license performance obligations are generally recognized upfront at the point in time when the software license has been delivered.

Software as a Service (SaaS) Revenues

SaaS revenues consists of subscription fees for access to, and related support for, the Company’s cloud-based solutions.

The Company typically invoices subscription fees in advance in annual installments.

The invoice is initially deferred and revenue is recognized ratably over the life of the contract.

The Company’s software contracts do not typically include, variable consideration, or options for future purchases that would not be similar to the original goods.

Software Services

Maintenance services agreements on perpetual software consist of fees for providing software updates and for providing technical support for software products for a specified term.

Revenue allocated to maintenance services is recognized ratably over the contract term beginning on the delivery date of each offering .

Maintenance contracts generally have a term of one year .

While transfer of control of the software training and implementation performance obligations are over time, the services are typically started and completed within a few days.

Due to the quick nature of the performance obligation from start to finish and the insignificant amounts, the Company recognizes any software training or implementation revenue at the completion of the service.

Any unrecognized portion of amounts paid in advance for licenses and services is recorded as deferred revenue.

Arrangements with Multiple Performance Obligations

For contracts with multiple performance obligations, such as a software license plus software training, implementation, and/or maintenance/support, or in contracts where there are multiple software licenses, the Company determines if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis (“SSP”).

The delivery of a particular type of software and each of the user licenses would be one performance obligation.

Additionally, any training, implementation, or support and maintenance promises as part of the software license agreement would be considered separate performance obligations, as those promises are distinct and separately identifiable from the software licenses.

The payment terms in these arrangements are less than one year such that there is no significant financing component to the transaction.

Contract Balances

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The Company typically invoices customers for term licenses, subscriptions, maintenance and support fees in advance with payment due before the start of the subscription term, ranging from one to three years .

The Company records the amounts collected in advance of the satisfaction of performance obligations, usually over time, as a contract liability or deferred revenue.

The Company records the amounts collected in advance of the satisfaction of performance obligations, usually over time, as a contract liability or deferred

Invoiced amounts for non-cancelable services starting in future periods are included in contract assets and deferred revenue.

The portion of deferred revenue that will be recognized within 12 months is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue in the Consolidated Balance Sheets.

The portion of deferred revenue that will be recognized within 12 months is recorded as current deferred revenue, and the remaining portion is recorded as deferred revenue in the consolidated balance sheets.

Contract balances at December 31, 2022 and 2021 were as follows:

YEAR ENDED DECEMBER 31,

(In thousands)

Contract assets

Contract liabilities

During 2022, the Company recognized revenue of $ 45,496 related to contract liabilities at December 31, 2021.

The unsatisfied performance obligation as of December 31, 2022 was approximately $ 120,794 .

We expect to recognize approximately $ 80,208 or 66.4 % of this revenue over the next 12 months and the remainder thereafter.

Deferred Contract Acquisition Costs

Under ASC 606, sales commissions paid to the sales force and the related employer payroll taxes, collectively deferred contract acquisition costs, are considered incremental and recoverable costs of obtaining a contract with a customer.

The Company has determined that sales commissions paid are an immaterial component of obtaining a customer’s contract and has elected to expense sales commissions when paid.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year.

The Company has determined that certain sales incentive programs meet the requirements to be capitalized.

The costs capitalized are primarily sales commissions for our sales force personnel.

Capitalized costs to obtain a contract are amortized on a straight line basis over the expected period of benefit.

Amortization of capitalized costs are included in sales and marketing expense in our consolidated statements of operations and comprehensive income (loss).

Capitalized contract acquisition costs were $ 981 and $ 0 as of December 31, 2022 and 2021, respectively, and were included in prepaid expenses and other current assets in the consolidated balance sheets.

Grant Revenue

The Company receives grant funding for certain specific projects from time to time.

These grants specify the funds provided are to be used exclusively to satisfy the deliverables outlined in the grant agreements.

In these agreements, both involved parties receive and sacrifice approximately commensurate value so these are accounted for as exchange transactions and revenue is recognized according to ASC Topic 606.

The grant funding is generally provided near contract inception so a contract liability is initially recorded and revenue is recognized as the performance obligations are satisfied over time.

Sources and Timing of Revenue

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YEAR ENDED DECEMBER 31,

(In thousands)

Software licenses transferred at a point in time

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The Company measures equity-based compensation at fair value and recognizes the expense over the vesting period.

Compensation costs for our legacy Class B Units, issued by EQT, that vested based on continued service requirements and the restricted stock into which they were exchanged are recognized on a straight-line basis over the requisite service period.

Compensation costs for our restricted stock units are recognized on a straight-line basis over the requisite service period.

Compensation costs for our restricted stock exchanged for our legacy Class B Units with performance vesting conditions are recognized using the accelerated attribution approach.

Forfeitures are recognized as they occur for all awards.

The fair value of restricted stock, restricted stock units, performance stock units are determined by market price of our common stock on the date of grant.

Compensation costs for our restricted stock, restricted stock units are recognized on a straight-line basis over the requisite service period.

Performance stock units with graded vesting schedule are recognized using graded vesting attribution approach.

Performance stock unit represents a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period.

At each reporting period, we reassess the probability of the achievement of such corporate performance goals and any increase or decrease in equity-based compensation expense resulting from an adjustment in the estimated shares to be released is treated as a cumulative catch-up in the period of adjustment.

Compensation costs for our legacy Class B Units, issued by former parent company, that vested based on continued service requirements and the restricted stock into which they were exchanged are recognized on a straight-line basis over the requisite service period.

Compensation costs for our restricted stock exchanged for our legacy Class B Units with performance vesting conditions are recognized using the accelerated attribution approach.

Compensation costs for our restricted stock units are recognized on a straight-line basis over the requisite service period.

(t) Comprehensive Income (Loss)

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Comprehensive income (loss) is displayed in the consolidated statements of operations and comprehensive income (loss).

The components of other comprehensive income (loss) consisted of foreign currency translation adjustments totaling $( 5,154 ), $ 5,045 and $ 433 , respectively, and the changes in fair value of interest rate swap (excluding $ 2,268 reclassification, net of tax), totaling $ 547 , $( 1,135 ), and $( 4,283 ) for the years ended December 31, 2021, 2020, and 2019, respectively.

The components of other comprehensive income (loss) consisted of the foreign currency translation adjustments totaling $( 10,490 ), $( 5,154 ) and $ 5,045 , respectively, and the changes in fair value of interest rate swap (excluding $ 2,268 reclassification, net of tax in 2021), totaling $ 6,186 , $ 547 , and $( 1,135 ) for the years ended December 31, 2022, 2021, and 2020, respectively.

(u) Reclassification

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Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the global and US economy and our business.

Public Offerings

On December 15, 2020, the Company completed its initial public offering (“IPO”), pursuant to which the Company issued and sold 14,630,000 shares of common stock and certain selling stockholders, including former controlling shareholder, EQT, sold 18,783,250 shares of our common stock (representing the full exercise of the underwriters’ option to purchase additional shares), at a public offering price of $ 23.00 per share.

Public Offerings and Other significant Shareholder Transactions

On December 11, 2020, the Company completed our initial public offering (“IPO”), pursuant to which the Company issued and sold 14,630,000 shares of common stock and certain selling stockholders, including former controlling shareholder,

EQT, sold 18,783,250 shares of our common stock (representing the full exercise of the underwriters’ option to purchase additional shares), at a public offering price of $ 23.00 per share.

The Company received net proceeds of $ 316,301 , after deducting underwriters' discounts and commissions.

In addition, $ 4,408 of legal, accounting and other offering costs, net of the tax effect of $ 259 , incurred in connection with the sale of the Company's common stock in the IPO, were capitalized and offset against the proceeds received in the IPO.

The Company is party to a registration rights agreement with EQT AB and its affiliates (“EQT AB”), Arsenal, EQT, and certain other stockholders (“Institutional Investors”).

The registration rights agreement was amended and restated in connection with the IPO.

It contains provisions that entitle EQT AB, Arsenal, EQT, and the other stockholder parties thereto to certain rights to have their securities registered by the Company under the Securities Act.

EQT AB will be entitled to an unlimited number of “demand” registrations, subject to certain limitations.

Every stockholder that holds registration rights will also be entitled to customary “piggyback” registration rights.

In addition, the amended and restated registration rights agreement provides that the Company will pay certain expenses of the stockholder parties relating to such registrations and indemnify them against certain liabilities which may arise under the Securities Act of 1933 (“Securities Act”).

The registration rights agreement will terminate (i) with the prior written consent of the Institutional Investors in connection with a change of control;

(ii) for those holders (other than the Institutional Investors) that beneficially own less than 5 % of the Company’s outstanding shares, if all of the Registrable Securities then owned by such holder could be sold in any 90-day period pursuant to Rule 144;

(iii) as to any holder, if all of the Registrable Securities held by such holder have been sold or otherwise transferred in a Registration pursuant to the Securities Act or pursuant to an exemption therefrom;

or (iv) with respect to any holder that is an officer, director, employee or consultant of the Company on the date that is 90 days after the date on which such holder ceases to be an employee, director or consultant (as applicable) of the Company.

The rights and obligations do not transfer without the written consent of the Company and the Institutional Investors.

The Company was party to a registration rights agreement with EQT AB and its affiliates (“EQT”), Arsenal Capital Partners, and certain other stockholders, dated December 10, 2020.

That agreement was terminated following the sale of all of EQT’s common shares in the Company to Arsenal on December 8, 2022.

Arsenal and the Company entered into a new registration rights agreement, dated November 3, 2022 (the “Registration Rights Agreement”), which contains provisions that entitle Arsenal to certain rights to have their securities registered by the Company under the Securities Act.

While the Registration Rights Agreement is in effect, Arsenal is entitled to (i) four “demand” registrations, (ii) one underwritten offering in any consecutive 90-day period and (iii) two underwritten offerings in any consecutive 360-day period, subject in each case to certain limitations.

In addition, the Registration Rights Agreement provides that the Company will share certain expenses of Arsenal relating to such registrations and indemnify Arsenal against certain liabilities which may arise under the Securities Act.

On March 29, 2021, the Company completed an underwritten secondary public offering in which certain selling stockholders, including EQT, sold 11,500,000 shares of the Company’s common stock, including 1,500,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares.

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The Company incurred costs of $ 1,100 , recorded in general and administrative expenses, in relation to the secondary public offering.

On September 13, 2021, the Company completed another public offering, at a price of $ 31.00 per share, pursuant to which the Company sold 4,500,000 shares of its common stock, and certain selling stockholders sold 18,500,000 shares of the Company’s common stock, including 3,000,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares.

On September 13, 2021, the Company completed another public offering, at a public offering price of $ 31.00 per share, pursuant to which the Company sold 4,500,000 shares of its common stock, and certain selling stockholders sold 18,500,000 shares of the Company’s common stock, including 3,000,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares.

The Company received net proceeds of $ 134,096 , after deducting underwriters' discounts and commissions.

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The Company incurred costs of $ 644 , recorded in general and administrative expenses, in relation to the secondary public offering.

On August 11, 2022, the Company completed a secondary public offering in which certain selling stockholders, including EQT, sold 7,000,000 shares of the Company’s common stock.

The Company did no t offer any common stock in this transaction and did no t receive any proceeds from the sale of the shares of common stock by the selling stockholders.

The Company incurred costs of $ 596 , recorded in general and administrative expenses, in relation to the secondary public offering.

On December 8, 2022, Arsenal acquired an aggregate of 29,954,521 shares of the Company’s common stock from EQT at a price of $ 15.00 per share.

In connection with this transaction, the Company entered into a letter agreement, effective December 8, 2022, with Arsenal providing that, subject to certain exceptions, Arsenal is prohibited from transferring the acquired shares until December 8, 2024.

Also, in connection with the transaction, the Company entered into a stockholders agreement with Arsenal, effective December 8, 2022, which, among other things, grants certain conditional rights to Arsenal to nominate up to two directors to our Board.

Concentrations of Credit Risk

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Business Combinations

Acquisitions have been accounted for using the acquisition method of accounting pursuant to FASB ASC 805, “Business Combinations.” Amounts allocated to the purchased assets and liabilities are based upon the total purchase price and the estimated fair values of such assets and liabilities on the effective date of the purchase as determined by an independent third party.

Acquisitions have been accounted for using the acquisition method of accounting pursuant to FASB ASC 805, “Business Combinations.” Amounts allocated to the purchased assets and liabilities assumed are based upon the total purchase price and the estimated fair values of such assets and liabilities on the effective date of the purchase as determined by an independent third party.

The results of operations have been included in the Company’s results of operations prospectively from the date of acquisition.

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The acquisition executes on the Company’s strategy to invest in innovation to increase the use cases of biosimulation and grow adoption of Certara’s end-to-end platform.

The acquisition of Pinnacle was treated as a purchase in accordance with ASC 805, “Business Combinations”, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction.

The acquisition of Pinnacle was accounted for as a purchase in accordance with ASC 805, “Business Combinations”, which requires allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed in the transaction.

The following table summarizes the fair value of the consideration paid as well as the fair values of the assets acquired and liabilities assumed as of the date of the acquisition:

(In thousands)

Fair value of consideration:

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Net assets acquired

The fair value of the unregistered shares given as part of the purchase consideration was determined based on the market price of Certara stock on the closing date less a 7 % discount for lack of marketability.

The fair value of the unregistered shares given as part of the purchase consideration was determined based on the market price of Certara’s common stock on the closing date less a 7 % discount for lack of marketability.

The acquisition was structured as an asset acquisition for income tax purposes;

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The excess of the purchase prices over the fair values of the acquired business's net assets represent cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill.

The current purchase price allocation is preliminary.

The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, and residual goodwill.

The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods.

Any adjustments to the preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively.

The Company incurred $ 7,615 of transaction costs related to this acquisition, which are included in general and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2021.

The Company incurred $ 7,615 of transaction costs related to this acquisition, which are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.

The results of operations of the acquired business and the fair value of the acquired assets and liabilities assumed are included in the Company’s consolidated financial statements with effect from the date of the acquisition.

The Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2021 includes revenues of $ 6,129 and a net income of $ 380 which includes the effects of purchase accounting adjustments, primarily changes in amortization of intangible assets.

Supplemental Pro Forma Information (unaudited)

The following unaudited pro forma combined financial information assumes that the acquisition of Pinnacle occurred on January 1, 2020.

For the year ended December 31

The unaudited pro forma combined results for the years ended December 31, 2021 and 2020 primarily include the following pro forma adjustments:

● Incremental amortization expense, net of tax, related to Pinnacle purchased intangible assets in an amount of $ 5,246 and $ 7,001 for the years ended December 31, 2021 and 2020, respectively.

● Incremental equity-based compensation expense, net of tax, related to replacement awards in an amount of $ 641 and $ 856 for the years ended December 31, 2021 and 2020, respectively.

Integrated Nonclinical Development Solutions, Inc.

On January 3, 2022, the Company completed the acquisition of Integrated Nonclinical Development Solutions, Inc.

(“INDS”), a company that provides the SEND Explorer® software and drug development consulting, for total consideration of $ 7,078 .

The Company will complete the initial accounting for the acquisition of INDS, including the allocation of purchase consideration, in the first quarter of 2022.

Prepaid Expenses and Other Current Assets and Other Supplemental Assets Information

On January 3, 2022, the Company completed the acquisition for a total consideration of $ 8,048 , which qualified as a business combination.

The business combination was not significant to the Company’s consolidated financial statements.

Based on the Company’s purchase price allocation, approximately $ 2,380 , $ 1,040 , $ 100 , and $ 2,910 of the purchase price was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively.

Vyasa Analytics, LLC

On December 28, 2022, the Company completed the acquisition of Vyasa Analytics, LLC (“Vyasa”), a company that provides an AI powered, scalable deep learning software and analytics platform for organizations within healthcare and life sciences, higher education and state and local governments for total estimated consideration of $ 29,276 .

The business combination was not significant to the Company’s consolidated financial statements.

The total estimated consideration includes a portion of contingent consideration that is payable over the next three years in a combination of 70 % cash and 30 % Certara common stock.

Future payments of contingent consideration are based on achieving certain eligible revenue thresholds for each of the twelve-month periods ended December 31, 2023, 2024, and 2025, respectively.

Potential payments range from $ 0 to $ 60,000 over the three years period.

The fair value of the contingent consideration was estimated to be $ 19,813 as of the acquisition date.

Based on the Company’s purchase price allocation, approximately $ 11,400 , $ 1,500 , $ 120 , $ 80 and $ 16,589 of the purchase price was assigned to developed technology, customer relationships, trademarks, non-compete agreements and goodwill, respectively.

The consolidated financial statements include the operating results of each acquisition from the date of acquisition.

Prepaid expenses and other current assets and Other long-term assets

Prepaid and other current assets consisted of the following:

(In thousands)

Prepaid expenses

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Other long-term assets consisted of the following:

(In thousands)

Long-term deposits

Interest rate swap asset - long term

Deferred financing cost

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Property and equipment consisted of the following:

(In thousands)

Computer and office equipment

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DECEMBER 31, 2021

(In thousands)

Acquired software

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RELATIONSHIPS

(In thousands)

The Company has no t recognized any impairment charges for the years ended December 31, 2022, 2021, and 2020.

A reconciliation of the change in the carrying value of goodwill is as follows:

(In thousands)

Balance, December 31, 2020

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Balance, December 31, 2022

Accrued Expenses and Other Supplemental Liabilities Information

Accrued Expenses and Other Long-Term Liabilities

Accrued expenses consist of the following:

(In thousands)

Accrued compensation

Accrued severance

Product distributor fees

Legal and professional accruals

Local sales and VAT taxes

Interest payable

Income taxes payable

Deferred rent

Contingent earn out

Accrued business acquisition liabilities

Total accrued expenses

Other current liabilities consist of the following:

Current portion of interest rate swap liability

Current operating lease liabilities

Current finance lease liabilities

Total other current liabilities

Other long-term liabilities consist of the following:

Non-current portion of interest rate swap liability

(In thousands)

Non-current finance lease liabilities

Uncertain tax position liability

Contingent consideration

Total other long-term liabilities

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subsidiaries and contain various financial and nonfinancial covenants.

As of December 31, 2021 and 2020, available borrowings under the revolving lines of credits were $ 100,000 and $ 20,000 , respectively.

Available borrowings under the revolving lines of credits of $ 100,000 and $ 20,000 as of December 31, 2021 and 2020, respectively, were reduced by $ 239 and $ 120 standby letter of credit issued to a landlord in lieu of a security deposit.

The Company was in compliance with all covenants as of December 31, 2021 and 2020.

As of December 31, 2022 and 2021, available borrowings under the revolving lines of credits were $ 100,000 , respectively.

Available borrowings under the revolving lines of credits of $ 100,000 as of December 31, 2022 and 2021, respectively, were reduced by $ 120 and $ 239 standby letter of credit issued to a landlord in lieu of a security deposit.

Borrowings under the Credit Agreement are subject to a variable interest rate at LIBOR plus a margin.

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As discussed previously, the Company entered into interest rate swap agreements that fixed the interest rate.

Interest paid on the Credit Agreement with respect to the term loan amounted to $ 11,211 , $ 13,960 , and $ 18,520 for the years ended December 31, 2021, 2020, and 2019, respectively.

Interest incurred on the Credit Agreement with respect to the term loan amounted to $ 15,803 , $ 11,206 , and $ 13,946 for the years ended December 31, 2022, 2021, and 2020, respectively.

Accrued interest payable on the Credit Agreement with respect to the term loan amounted to $ 130 and $ 30 at December 31, 2022 and 2021, respectively, and is included in accrued expenses.

Interest paid on the Credit Agreement with respect to the revolving line of credit amounted to $ 93 , $ 457 , and $ 174 for the years ended December 31, 2021, 2020, and 2019, respectively.

There was $ 66 accrued interest payable and no accrued interest payable on the revolving line of credit at December 31, 2021 and 2020, respectively.

Interest incurred on the Credit Agreement with respect to the revolving line of credit was $ 257 , $ 163 , and $ 483 for the years ended December 31, 2022, 2021, and 2020, respectively.

There was $ 66 accrued interest payable on the revolving line of credit at December 31, 2022 and 2021.

Effective August 14, 2017, the Company entered into an unsecured credit agreement with another lender for a $ 100,000 term loan (“Loan Agreement”).

The loan bears interest at 8.25 % which is payable in semi-annual installments on January and July 15 through August 14, 2025, at which time all outstanding principal and interest are due.

The loan carried interest at 8.25 % which was payable in semi-annual installments on January and July 15 through August 14, 2025, at which time all outstanding principal and interest were due.

Under the Loan Agreement, the Company could voluntarily repay outstanding loans without premium or penalty.

On July 15, 2020, the Company made a $ 20,000 prepayment on the loan, which reduced the amount outstanding to $ 80,000 .

On December 28, 2020, the Company repaid the remaining $ 80,000 aggregate principal amount owed under the Loan Agreement, including $ 3,000 of accrued interest using a portion of the proceeds from the IPO.

On December 28, 2020, the Company repaid the remaining $ 80,000 aggregate principal amount owed under the Loan Agreement, including $ 3,000 of accrued interest.

The Company's obligations under the Loan Agreement were discharged on that date.

Interest paid on the loan amounted to $ 0 , $ 11,449 , and $ 8,365 for the years ended December 31, 2021, 2020, and 2019, respectively.

Interest incurred on the loan amounted to $ 0 , $ 0 , and $ 7,608 for the years ended December 31, 2022, 2021, and 2020, respectively.

Long-term debt consists of the following:

(In thousands)

Revolving line of credit

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The principal amount of long-term debt outstanding as of December 31, 2022, matures in the following years:

(In thousands)

The Credit Agreement requires the Company to make an annual mandatory prepayment as it relates to the Company’s Excess Cash Flow calculation.

For the year ended December 31, 2021, and 2020, the Company was required to make a mandatory prepayment on the term loan of $ 0 , and $ 1,527 , respectively.

For the third credit agreement, the Company is required to make a quarterly principal payment of $ 755 on the term loan each quarter starting from the end of September 2021.

For the year ended December 31, 2022, the Company was not required to make a mandatory prepayment on the term loan.

The Company is required to make a quarterly principal payment of $ 755 on the term loan each quarter starting from September 30, 2021.

The fair values of the Company’s variable interest term loan and revolving line of credit are not significantly different than their carrying value because the interest rates on these instruments are subject to change with market interest rates.

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The Company established a defined contribution 401(k) plan covering all U.S.

employees who are at least 21 years of age.

employees who are at least 21 years of age and who meet IRS requirements for plan eligibility.

Employees may contribute to the plan up to 50 % of their compensation, which may be further limited by law.

In addition, employees who reached the age of 50 during the calendar years 2021, 2020, and 2019 are eligible to make an additional catch up contribution of 6.0 %, subject to income limitations.

In addition, employees who reached the age of 50 during the calendar years 2021, 2020, and 2019 are eligible to make an additional catch-up contribution as set annually by IRS guidelines.

The Company matches employee contributions for a percentage of the employee’s deferral, not to exceed the first 6 % of each employee’s compensation.

The Company also operates a Group Personal defined contribution plan covering all U.K.

The Company also operates a Group Personal defined contribution plan (“Plan”) covering all U.K.

Employees are auto enrolled in the plan who are at least 22 years of age and paid more than £ 10 a year, up to the State Pension Age.

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auto enrolment legislation.

Total 401(k) contributions made by the Company were $ 4,138 , $ 3,342 , and $ 2,864 for the years ended December 31, 2021, 2020, and 2019 respectively.

Total 401(k) and Plan contributions made by the Company were $ 4,746 , $ 4,138 , and $ 3,342 for the years ended December 31, 2022, 2021, and 2020 respectively.

Commitments and Contingencies

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Equity-Based Compensation

The Company’s management, through the Company’s affiliation with its shareholder and former parent, EQT, participated in a 2017 Class B Profits Interest Unit Incentive Plan (the “Class B Plan”), whereby EQT was authorized to issue a total of 6,366,891 Profit Interest Units (“Class B Units”), representing the right to share a portion of the value appreciation in EQT.

The Company’s equity-based compensation programs are intended to attract, retain and provide incentives for employees, officers and directors.

The Company has the following stock-based compensation plans and programs.

Restricted Stock and related Class B Plan

The majority of the Company’s restricted stock awarded to its employees was originally issued in December 10, 2020 in exchange for the Class B Profits Interest Unit (the “Class B Units”) of EQT Avatar Parent, L.P, which was former parent of the Company.

Prior to the Company’s IPO, the Company’s management participated in a 2017 Class B Profits Interest Unit Incentive Plan (the “Class B Plan”).

The majority of the employee grant agreements for the Class B Units were comprised of 50 % time-based vesting units (“Time-based Units”) and 50 % performance-based vesting units (“Performance-based Units”).

The Time-based Units generally vested over a five-year period;

The Performance-based Units would vest if EQT achieved specified levels of return on investment at the time of i) a change in control, ii) a reduction in holdings of the Company by EQT to 10 % or less following an IPO or iii) certain distributions to EQT.

There were also certain grant agreements for the Class B Units that were entirely comprised of Time-based Units.

Upon vesting, the holder of Class B Units received a right to a fractional portion of the profits and distributions of the parent in excess of a “participation threshold” determined in accordance with the EQT limited partnership agreement.

In addition to the performance conditions above, the Chief Executive Officer’s (“CEO”) performance-based Class B Units also vested if the aggregate value attributable to an IPO equaled or exceeded an amount equivalent to the return on investment performance targets.

The Class B Units were in a secondary position to the Class A units in EQT, in that in any event in which the EQT equity was valued and paid out, holders of the Class B Units would only be paid if an amount at least equal to the applicable participation threshold was first allocated to all of the outstanding classes of units under EQT’s limited partnership agreement.

In addition, EQT had the right, but not the obligation, to repurchase units at fair value upon certain events, such as a termination of employment.

During the years ended December 31, 2020 and 2019, EQT repurchased 87,930 and 241,601 Class B Units at their intrinsic value of $ 1,079 and $ 703 respectively.

These repurchases were funded through

dividends paid by the Company to EQT.

These Class B Units do not have a maximum contractual life, and as such, these Class B Units do not expire.

The fair value of the Time-based Units that vested solely upon continued employment was measured at the grant date and was recognized as cost over the employee’s requisite service period, which was generally five years .

The expense related to the vesting of the Time-based Units was recorded on the Company’s books because the Company directly benefited from the services provided by Class B Unit holders.

The grant date fair values were determined based on the pricing models and valuation assumptions noted in the following table, shown at their weighted-average values:

The grant date fair values of Class B Unit were determined based on the pricing models and valuation assumptions noted in the following table, shown at their weighted-average values:

YEAR ENDED DECEMBER 31,

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(3) The Company estimates the expected life of incentive units based upon the timing of a potential liquidity event.

A summary of the Class B Units activity for the period is presented below (dollar amounts are not in thousands):

WEIGHTED AVERAGE

Weighted-Average

Exercise Price

Outstanding, as of December 31, 2019

( 6,328,151 )

Outstanding, December 31, 2020

Outstanding units represent the total of vested Class B Units and those expected to vest, including Time-based Units for which the requisite service period has not yet been rendered.

Of those Class B Units that were vested and exercisable at December 31, 2019, the weighted-average distribution threshold was $ 10.16 .

The weighted-average grant date fair value per unit was $ 3.53 as of December 31, 2019.

The aggregate intrinsic value of Class B Units outstanding, vested and exercisable at December 31, 2019 was $ 38,440 .

There were no Class B Units outstanding as of December 31, 2020.

The total fair value of Class B Units vested and exercisable during 2019 was $ 1,872 .

Equity-based compensation expense related to the Time-based Units was $ 2,776 and $ 1,691 for the years ended December 31, 2020 and 2019.

The Performance-based Units were not probable of vesting prior to the exchange of Class B Units for common shares, as described below;

as such, no expense was recorded for these Units prior to the IPO.

As of December 31, 2020, there were no unrecognized compensation costs related to the Units as they had been exchanged for restricted stock as discussed below.

Effective as of December 10, 2020 (the “Exchange Date”), all vested Class B Units were exchanged by EQT for shares of common stock of the Company held by EQT, and unvested Class B Units were exchanged for shares of restricted common

stock of the Company.

On the Exchange Date, holders of unvested Time-based and Performance-based Units elected to either (1) exchange their unvested Class B Units with shares of restricted common stock of the Company that maintained the same vesting conditions (both time-based and performance-based) of such unvested Class B Units or (2) exchange their unvested Class B Units (both Time-based and Performance-based Units) with shares of restricted common stock of the Company that would be subject only to the same time-vesting conditions of such unvested Time-based Units, based on the original grant date.

53 holders of Class B Units elected the latter option.

The CEO elected for the former option, based on the fact that his Performance-based Units vested upon the consummation of the offering.

The number of shares of common stock exchanged by EQT for vested Class B Units and number of shares of restricted common stock exchanged by EQT for unvested Class B Units were based on their deemed value as of the date of the offering divided by the estimated per share offering price.

The deemed value of Class B Units considered the overall implied value of the Company based on the offering price and considering their economic rights pursuant to the contractual waterfall and related distribution thresholds.

Based on the IPO price of $ 23.00 per share, the Company issued 5,941,693 shares of restricted common stock to holders of unvested Class B Units in exchange for such unvested Class B Units and holders of vested Class B Units received an aggregate of 4,211,598 shares of common stock in exchange for vested Class B Units.

Modification accounting was not required for the time-based vesting Class B Units for which the vesting conditions, classification and fair market value did not change as a result of the shares of restricted common stock that replaced them.

The original grant date fair value will continue to be recognized on a straight-line basis.

Modification accounting was required for the performance-based vesting Class B Units that were exchanged for time-based vesting restricted common stock, given the vesting conditions were changed.

Such performance-vesting Class B Units that were improbable of vesting were remeasured based on the modification date fair value of the shares of restricted common stock replacing such Class B Units.

Equity-based compensation expense related to the Time-based Units was $ 2,776 for the years ended December 31, 2020.

The Performance-based Units were not probable of vesting prior to the exchange of Class B Units for common shares, as such, no expense was recorded for these Units prior to the exchange date.

As of December 31, 2020, there were no unrecognized compensation costs related to the Units as they had been exchanged for restricted stock.

Based on the stock price of $ 23.00 per share, on December 10, 2020, the Company issued 5,941,693 shares of restricted common stock to holders of unvested Class B Units in exchange for such unvested Class B Units.

The total fair value of the restricted stock was $ 83,260 .

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Separately, upon completion of the offering, $ 3,912 of compensation cost was recognized related to our Chief Executive Officer’s 853,001 performance-based Class B Units that automatically vested upon the IPO of the Company and were exchanged for 1,561,950 common shares of the Company.

The original grant date fair value will continue to be recognized on a straight-line basis.

Modification accounting was required for the performance-based vesting Class B Units that were exchanged for time-based vesting restricted common stock, given the vesting conditions were changed.

Such performance-vesting Class B Units that were improbable of vesting were remeasured based on the modification date fair value of the shares of restricted common stock replacing such Class B Units.

Restricted Stock

As detailed above, unvested Class B Units were exchanged for restricted stock of the Company.

Unvested Class B Units were exchanged for restricted stock of the Company.

Share based compensation for the restricted stock exchanged for the time-based Class B Units is recognized on a straight-line basis over the requisite service period of the award, which is generally five years .

Share-based compensation for the restricted stock exchanged for the performance-based Class B Units is recognized using the accelerated attribution approach.

Equity-based compensation for the restricted stock exchanged for the performance-based Class B Units is recognized using the accelerated attribution approach.

In 2021, the Company granted 87,127 replacement shares of restricted stock in connection with the Pinnacle acquisition under which equity-based awards are outstanding.

The fair value of the restricted stock awarded was initially determined based on the fair value of our common stock on the date of grant, then adjusted for time restrictions due to unregistered shares and lack of marketability.

Total grant date fair value was $ 2,762 .

The restricted stock issued in 2021 generally has a three-year vesting period except for one holder whose shares vests equally on a monthly basis for two years .

The Company exchanged 5,941,693 shares in 2020 and did not legally authorize or issue any restricted stock during the year ended December 31, 2022.

The weighted average grant date or exchange date fair values per share of restricted stock granted or exchanged during 2022, 2021 and 2020 were $ 17.07 , $ 31.7 , and $ 23.0 , respectively.

The total fair value of restricted stock vested during 2022, 2021 and 2020 was $ 46,401 , $ 45,051 and $ 0 , respectively.

A summary of the restricted stock in 2022 is shown below:

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Non-vested restricted stock as of December 31, 2022

The Company granted 87,127 replacement shares of restricted stock in 2021 in connection with the Pinnacle business acquisition under which equity-based awards are outstanding.

The fair value of the per share of restricted stock issued in 2021 was measured using grant date fair market value adjusted lack of marketability for these shares.

Total grant date fair value was $ 2,762 .

The restricted stock issued in 2021 generally have a three year vesting period except for one holder whose shares vests equally on a monthly basis for 2 years .

The Company exchanged 5,941,693 shares discussed in previous section in 2020 and was no t authorized and did no t issue any restricted stock in 2019.

The Company did not legally authorize or issue any restricted stock during the year ended December 31, 2022.

During 2022, the Company modified an award for a recipient that resulted in 66,220 shares each assumed cancelled, granted, and forfeited.

Net compensation expense reversed was $ 146 .

The shares of restricted stock vested includes 11,069 shares of common stock that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

Equity-based compensation expenses related to the restricted stock exchanged for performance-based Class B units were $ 2,537 , $ 12,349 and $ 57,421 for the years ended December 31,2022, 2021 and 2020, respectively.

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The unrecognized compensation expense for the category at December 31, 2022 is expected to be recognized over a weighted-average period of 25.7 months.

Equity-based employee compensation expense related to the time-based restricted stock for the Pinnacle acquisition was $ 292 for the year ended December 31, 2021.

Equity-based employee compensation expenses related to the time-based restricted stock for the Pinnacle acquisition were $ 1,169 and $ 292 for the years ended December 31, 2022 and 2021, respectively.

At December 31, 2022, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach was $ 1,301 .

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2020 Incentive Plan

In order to align our equity compensation program with public company practices, the Company’s Board of Directors adopted and stockholders approved the 2020 Incentive Plan.

The 2020 Incentive Plan allows for grants of non-qualified stock options, incentive stock options, restricted stock, and restricted stock units (RSUs) to employees, directors and officers, and consultants or advisors of the Company.

In order to align the Company’s equity compensation program with public company practices, the Company’s Board of Directors adopted and stockholders approved the 2020 Incentive Plan.

The 2020 Incentive Plan allows for grants of non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), and performance stock units (“PSUs”) to employees, directors, officers, and consultants or advisors of the Company.

The 2020 Incentive Plan allows for 20,000,000 shares (the “plan share reserve”) of common stock to be issued.

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Non-vested RSUs as of December 31, 2022

The weighted average grant date fair values per share of restricted stock units granted during 2022 and 2021 were $ 21.98 and $ 29.19 , respectively.

The total fair value of restricted stock units vested during 2022 and 2021 were $ 12,395 and $ 569 , respectively.

Equity-based compensation expense related to the RSUs was $ 19,012 , $ 8,257 and $ 81 for the years ended December 31,2022, 2021, and 2020, respectively.

At December 31, 2022, the total unrecognized equity-based compensation expense related to outstanding RSUs was $ 35,121 , which is expected to be recognized over a weighted-average period of 23.1 months.

The number of RSUs vested in 2022 includes 138,038 shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

Performance Restricted Stock Units

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Equity-based compensation for the PSUs is only recognized to the extent a threshold is probable of being achieved and is recognized using the accelerated attribution approach.

The Company will continue to assess the probability of each

condition being achieved at each reporting period to determine whether and when to recognize compensation cost.

The Company will continue to assess the probability of each condition being achieved at each reporting period to determine whether and when to recognize compensation cost.

The following table presents a summary of activity on the PSUs for the period ended December 31, 2022.

1 unchanged sentence

Non-vested PSUs as of December 31, 2022

Equity-based compensation expense related to the PSUs was $ 5,481 for the year ended December 31, 2021.

The weighted average grant date fair values per share of performance stock units granted during 2022 and 2021 were $ 22.25 and $ 27.36 , respectively.

The total fair value of performance stock units vested during 2022 was $ 305 .

There were no PSU shares vested during 2021.

The total fair value of performance stock units vested were $ 305 and $ 0 for the year ended December 31, 2022, 2021.

Equity-based compensation expense related to the PSUs was $ 4,462 and $ 5,481 for the year ended December 31, 2022 and 2021.

At December 31, 2022, the total unrecognized equity-based compensation expense related to outstanding PSUs was $ 2,458 , which is expected to be recognized over a weighted-average period of 15.5 months.

The number of restricted stock awards and RSUs vested in 2021 includes 11,103 shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

2020 Employee Stock Purchase Plan

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Equity-based compensation expense

The following table summarizes the components of total equity-based compensation expense included in the Consolidated Statements of Operations and Comprehensive Loss for each period presented:

The following table summarizes the components of total equity-based compensation expense included in the consolidated statements of operations and comprehensive income (loss) for each period presented:

YEAR ENDED DECEMBER 31,

(In thousands)

Cost of revenues

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General and administrative expenses

The tax benefit related to compensation expense was $ 117 for the year ended December 31, 2021.

There were no tax benefits related to compensation expense for the year ended December 31, 2020 and 2019.

The tax benefit related to compensation expense was $ 1,933 and $ 117 for the year ended December 31, 2022, and 2021.

There were no tax benefits related to compensation expense for the year ended December 31, 2020.

The Company leases certain office facilities and equipment under non-cancelable operating and finance leases with remaining terms from one to seven years .

Operating lease ROU assets are included in other asset section while finance lease ROU assets are included in "Property and equipment, net"

in the consolidated balance sheets.

With respect to operating lease liabilities, current and non-current operating lease liabilities are included in "Other current liabilities"

and "Operating lease liabilities, net of current portion.” Current and non-current finance lease liabilities are included in "Other current liabilities"

and "Other long-term liabilities"

in the Consolidated Balance Sheets.

Operating lease ROU assets are included in other asset while finance lease ROU assets are included in Property and equipment, net in the consolidated balance sheets.

With respect to operating lease liabilities, current operating lease

liabilities are included in current liabilities and non-current operating lease liabilities are included in long-term liabilities in the consolidated balance sheets.

Current and non-current finance lease liabilities are included in other current liabilities and other long-term liabilities in the consolidated balance sheets.

The following table presents information about the operating and finance lease right-of-use assets and lease liabilities as well as lease term and discount rates:

1 unchanged sentence

December 31, 2022

December 31, 2021

(In thousands)

Lease right of use assets

7 unchanged sentences

For the year ended

Weighted-average remaining lease term (years):

December 31, 2022

December 31, 2021

Operating leases

5 unchanged sentences

December 31, 2022

December 31, 2021

(In thousands)

Operating lease cost

8 unchanged sentences

December 31, 2022

December 31, 2021

(In thousands)

Cash paid for amounts included in the measurement of lease liabilities

5 unchanged sentences

The following table summarizes by year the maturities of our minimum lease payments as of December 31, 2022.

(In thousands)

Year ending December 31,

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imputed interest

The gross amounts of assets under capital leases, in accordance with the superseded leasing standard (ASC 840), was $ 1,501 at December 31, 2020.

The total accumulated amortization associated with equipment under capital leases was approximately $ 946 at December 31, 2020.

The related amortization expense is included in depreciation expense.

Rent expense under the operating leases was $ 6,534 and $ 6,377 for the years ended December 31, 2020 and 2019, respectively.

Non-cancelable future minimum lease commitments as of December 31, 2020, in accordance with the superseded leasing standard, were:

Year ending December 31,

Operating Leases

Capital Leases

Non-cancelable future minimum lease payments

Less amount representing interest

Net non-cancelable future minimum lease payments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.

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The following table summarizes revenue by geographic area:

(In thousands)

Revenue (1) :

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The following table summarizes property, plant and equipment, net by geographic area as of December 31, 2022 and 2021:

(In thousands)

Property, plant and equipment, net:

The components of loss before income taxes were as follows:

The components of income (loss) before income taxes were as follows:

YEAR ENDED DECEMBER 31,

(In thousands)

The components of provision for (benefit from) income taxes were as follows:

(In thousands)

Current tax provision

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The primary reconciling items between the statutory income tax rate of 21 % and the effective income tax rate were as a result of the following:

(In thousands, except for percentage)

federal statutory rate

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Effective tax rate

A portion of the Company’s income was attributable to Madeira, Portugal, which qualified for special tax programs authorized by the European Union.

For the period of 2008 through 2011, the Company was subject to Madeira's income tax rate of 0 %, for 2012 an income tax rate of 4 % applied, and for the period of 2013 through 2020 an income tax rate of 5 % applied, and for the period 2021 through 2027 an income tax rate of 5 % will apply.

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities are summarized as follows:

A portion of the Company's income was attributable to Madeira, Portugal which qualified for special tax programs authorized by the European Union (“EU”) and administered by the Portuguese Tax Authority (“PTA”).

For the period of 2008 through 2011, the Company was subject to Madeira's income tax rate of 0 %, for 2012 an income tax rate of 4 % applied, for the period of 2013 through 2020 an income tax rate of 5 % applied, for 2021 an income tax rate of 5% applied.

During the current year, the EU disallowed the PTA’s interpretation of certain provisions of the Madeira Free Zone (“MFZ”) Regime III, with a lookback period of 10 years, which resulted in an increase to the tax rate applied to the Company’s income for the aforementioned years and for 2022.

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:

(In thousands)

Deferred tax assets

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Interest expense

Right-of-use (ROU) Liability

Lease liability

Total gross deferred tax asset

7 unchanged sentences

Deferred revenue

Interest rate hedge

Right-of-use (ROU) Asset

1 unchanged sentence

Net deferred tax liability

The net change in the total valuation allowance resulted in an increase of $ 1,520 in 2021 compared to a decrease of $ 3,831 in 2020.

The net change in the total valuation allowance resulted in an increase of $ 7,497 in 2022 compared to an increase of $ 1,520 in 2021.

The valuation allowance is determined separately for each jurisdiction.

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Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the existing valuation allowance, at December 31, 2022.

At December 31, 2021, the Company has net operating loss carryforwards for federal income tax purposes of approximately $ 2,416 , the majority of which will expire if unused in years 2024 through 2040.

At December 31, 2022, the Company has net operating loss carryforwards for federal income tax purposes of approximately $ 1,805 majority of which will expire if unused in years 2024 through 2036.

The Company has net operating loss carryforwards for state income tax purposes of approximately $ 50 , which will expire if unused in years 2029 through 2040.

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The Company has $ 395 of federal research and development credits that will expire if unused in years 2025 through 2042, $ 143 of California research and development credits with indefinite carryover period, and $ 363 of foreign research and development credits that will expire if unused starting in 2029.

The Company has foreign tax credits of $ 15,054 that will expire if unused in years 2025 through 2031, and also Canadian investment tax credits of $ 3,809 which will expire if unused in years 2030 through 2039.

The Company has foreign tax credits of $ 10,607 that will

expire if unused in years 2027 through 2031, and also Canadian investment tax credits of $ 3,552 which will expire if unused in years 2030 through 2040.

The Company has net operating losses and tax credits that are subject to limitation under Internal Revenue Code Section 382 and Section 383 due to changes in ownership.

5 unchanged sentences

The Company's policy is to recognize interest and penalties as a component of the provision for income taxes.

For December 31, 2021 and 2020, there were no interest or penalties recorded.

The Company does not anticipate any significant changes to its uncertain tax positions during the next 12 months.

For December 31, 2022 and 2021, the Company recognized interest of $ 0.1 million of interest and no penalties.

For December 31, 2021 the Company recognized neither interest or penalties .

The Company does not anticipate any significant changes to its uncertain tax positions during the next twelve months.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

(In thousands)

Balance at December 31, 2020

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Earnings per Share

Basic and diluted earnings per share is computed by dividing net earnings by the weighted-average shares outstanding:

Weighted average common shares outstanding, basic and diluted

Net loss per common share, basic and diluted

The Company excluded the restricted stock and restricted stock units from the calculation of diluted earnings per share during the years ended December 31, 2021 and 2020 that could potentially dilute earnings per share in the future due to being in a net loss position.

For the year ended December 31, 2021, the Company did not include 3,910,722 restricted shares and 1,288,724 shares of time-based restricted stock units, and 61,456 shares of performance based restricted stock units in the calculation.

For the year ended December 31, 2020, the Company did not include 5,941,693 restricted shares and 30,052 shares of restricted time-based stock units in the calculation.

During the year ended December 31, 2019, there was no potentially dilutive securities outstanding .

Subsequent Events

On January 3, 2022, the Company completed the acquisition of Integrated Nonclinical Development Solutions, Inc.

(“INDS”), a company that provides the SEND Explorer® software and drug development consulting, for total consideration of $ 7,078 .

The Company will complete the initial accounting for the acquisition of INDS, including the allocation of purchase consideration, in the first quarter of 2022.

Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average common shares outstanding for the period.

Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to stockholders by the weighted-average number of shares and dilutive potential common shares during the period.

(In thousands, except per share and share data)

Basic earnings per share

Net income (loss) available to common shareholders

Basic weighted-average common shares outstanding

Basic earnings per common share

Diluted earnings per share

Net income available to common shares

Basic weighted-average common shares outstanding

Dilutive potential common shares

Diluted weighted-average common shares outstanding

Diluted earnings per common share

(1) For the year ended December 31, 2022, the Company excluded certain potentially dilutive securities attributable to outstanding RSUs and RSAs from the computation of diluted EPS because the securities would have had an antidilutive effect.

(2) For the year ended December 31, 2021, and 2020, the Company excluded the restricted stock and restricted stock units from the calculation of diluted earnings per share that could potentially dilute earnings per share in the future because of the anti-dilutive effect of the reported net loss.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data