What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-07 · 301 added, 311 removed, 291 unchanged (68% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30,

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

1 unchanged sentence

Cash and cash equivalents

Accounts receivable, net of allowance for credit losses of $ 692 and $ 262 , respectively

Accounts receivable, net of allowances for credit losses of $ 736 and $ 1,250 , respectively

Restricted cash

4 unchanged sentences

Operating lease right-of-use assets

Intangible assets, net of accumulated amortization of $ 202,901 and $ 169,329 , respectively

Intangible assets, net of $ 231,384 and $ 217,705 , respectively

Deferred income taxes

18 unchanged sentences

Stockholders' equity:

Preferred shares, $ 0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Common shares, $ 0.01 par value, 600,000,000 shares authorized, 159,921,814 and 159,660,048 shares issued as of September 30, 2022 and December 31, 2021, respectively;

159,781,270 and 159,658,948 shares outstanding as of September 30, 2022 and December 31, 2021, respectively

Preferred shares, $ 0.01 par value, 50,000,000 authorized as of March 31, 2023 and December 31, 2022, respectively, no shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Common shares, $ 0.01 par value, 600,000,000 shares authorized, 160,218,109 and 159,676,150 shares issued as of March 31 ,2023 and December 31, 2022, respectively;

159,839,743 and 159,525,943 shares outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

Treasury stock at cost, 140,544 and 1,100 shares at September 30, 2022 and December 31, 2021, respectively

Treasury stock at cost, 378,366 and 150,207 shares at March 31, 2023 and December 31, 2022, respectively

Total stockholders’ equity

3 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ICOME(LOSS )

THREE MONTHS ENDED MARCH 31,

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

7 unchanged sentences

Total operating expenses

Income (loss) from operations

Other income (expenses):

Income from operations

Other expenses:

Interest expense

Net other income

Total other expenses

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Other comprehensive loss:

Income before income taxes

Provision for income taxes

Other comprehensive income (loss):

Foreign currency translation adjustment

Change in fair value from interest rate swap, net of tax of $ 1,716 , $( 16 ), $ 2,137 , $ 145 , respectively

Reclassification of fair value of interest rate swap, net of tax of $ 0 ,$ 0 , 0 ,$( 765 )

Total other comprehensive loss

Comprehensive loss

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

Change in fair value from interest rate swap, net of tax of $( 588 ) and $ 60 , respectively

Total other comprehensive income (loss)

Comprehensive income (loss)

Net income per share attributable to common stockholders:

Weighted average common shares outstanding:

8 unchanged sentences

EXCEPT SHARE DATA)

Balance as of June 30, 2021

Equity-based compensation expense

Common stock offerings

Restricted stock forfeiture

Restricted stock withheld for tax liability

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

Foreign currency translation adjustment

Balance as of September 30, 2021

Balance as of December 31, 2021

Equity-based compensation expense

Common stock offerings

Common shares issued for employee share-based compensation

Restricted stock forfeiture

Equity-based compensation awards

Restricted stock withheld for tax liability

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

Reclassification of fair value of interest rate swap, net of tax

Foreign currency translation adjustment

Balance as of September 30, 2021

Balance as of March 31, 2022

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

7 unchanged sentences

EXCEPT SHARE DATA)

Balance as of June 30, 2022

Equity-based compensation expense

Restricted stock units withheld for tax liability

Common shares issued for employee share-based compensation

Restricted stock withheld for tax liability

Restricted stock forfeiture

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

Foreign currency translation adjustment, net of tax

Balance as of September 30, 2022

Balance as of December 31, 2022

Equity-based compensation expense

Restricted stock units withheld for tax liability

Common shares issued for employee share-based compensation

Restricted stock withheld for tax liability

Equity-based compensation expense, net of forfeiture

Common shares issued for share-based compensation awards and shares withheld for tax

Restricted stock forfeiture*

1 unchanged sentence

Foreign currency translation adjustment, net of tax

Balance as of September 30, 2022

Balance as of March 31, 2023

* Legal forfeiture occurred in Q1 2023;

and the accounting forfeiture occurred in Q3 2022.

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30,

THREE MONTHS ENDED MARCH 31,

(IN THOUSANDS)

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

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

Depreciation and amortization of property and equipment

1 unchanged sentence

Amortization of debt issuance costs

Provision for credit losses

(Recovery of) provision for credit losses

Loss on retirement of assets

Change in fair value of contingent consideration

Equity-based compensation expense

Unrealized loss on interest rate swap

Deferred income taxes

1 unchanged sentence

Accounts receivable

Prepaid expenses and other assets

Accounts payable and other liabilities

Prepaid and other assets

Accounts payable and accrued expenses

Deferred revenue

Other current liabilities

Changes in operating lease assets and liabilities, net

Change in other liabilities

Net cash provided by operating activities

2 unchanged sentences

Capitalized development costs

Investment in intangible assets

Business acquisitions, net of cash acquired

1 unchanged sentence

Cash flows from financing activities:

Net proceeds from public offering of common stock

Proceeds from borrowings on long-term debt

Payments on long-term debt and finance lease obligations

Payment of debt issuance costs

Payments on financing component of interest rate swap

Payment of taxes on shares withheld for employee taxes

Net cash (used) provided by financing activities

Payment of taxes on shares and units withheld for employee taxes

Net cash used by financing activities

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

Net increase in cash and cash equivalents, and restricted cash

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

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

3 unchanged sentences

Cash paid for taxes

Supplemental schedule of non-cash investing and financing activities

Liabilities assumed in connection with business acquisition

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

6 unchanged sentences

and its wholly-owned subsidiaries (together, the “Company”) deliver software products and technology-driven services to customers to efficiently carry out and realize the full benefits of biosimulation in drug discovery, preclinical and clinical research, regulatory submissions and market access.

The Company is a global leader in biosimulation.

The Company’s biosimulation software and technology-driven services help optimize, streamline, or even waive certain clinical trials to accelerate programs, reduce costs, and increase the probability of success.

The Company is a global leader in biosimulation, and the Company’s biosimulation software and technology-driven services help optimize, streamline, or even waive certain clinical trials to accelerate programs, reduce costs, and increase the probability of success.

The Company’s regulatory science and market access software and services are underpinned by technologies such as regulatory submissions software, natural language processing, and Bayesian analytics.

When combined, these solutions allow the Company to offer customers end-to-end support across the entire product life cycle.

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

There have been no changes other than what is discussed herein to the Company’s significant accounting policies as compared to the significant accounting policies described in Note 2 to the Company’s audited consolidated financial statements included in our 2022 Annual Report.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes as of and for the year ended December 31, 2021.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes as of and for the year ended December 31, 2022.

Basis of Presentation and Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S.

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 condensed 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.

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

The preparation of consolidated financial statements in conformity with U.S.

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, valuation of interest rate swaps, determination of fair value of equity-based awards, measurement of fair value of contingent consideration, 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) Unaudited Interim Financial Statements

The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, and the related interim disclosures are unaudited.

The accompanying condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022, and the related interim disclosures are unaudited.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

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The information as of December 31, 2022 in the Company’s condensed consolidated balance sheet included herein is derived from the Company’s audited consolidated financial statements included in the Company’s 2022 Annual Report.

Accounting Pronouncements Not Yet Adopted

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, “Common Control Arrangements (Topic 842),” which provide private companies and not-for-profit organizations that are not conduit bond obligors with a practical expedient to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease.

In addition, the ASU requires all entities including public companies to amortize leasehold improvements associated with common control leases over the useful life to the common control group.

This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

The Company is currently evaluating the impact of adopting this guidance on its condensed consolidated financial statements.

(d) Principles of Consolidation

1 unchanged sentence

All intercompany balances and transactions have been eliminated in consolidation.

Fair Value Measurements

The Company follows FASB Accounting Standards Codification (“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.

ASC 820 10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction.

Fair value measurement is based on a hierarchy of observable or unobservable inputs.

The standard describes three levels of inputs that may be used to measure fair value.

Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical securities as of the reporting date;

Level 2 — Inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk etc.

as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies;

Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is little, or no market activity of the securities and the reporting entity makes estimates and assumptions relating to the pricing of the securities including assumptions regarding risk.

If the inputs used to measure fair value fall at different levels of the fair value hierarchy, the hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For the acquisitions noted in Note 5, the fair value measurement methods used to estimate the fair value of the assets acquired and liabilities assumed at the acquisition dates utilized a number of significant unobservable inputs of Level 3 assumptions.

These assumptions included, among other

things, projections of future operating results, implied fair value of assets using an income approach by preparing a discounted cash flow analysis, and other subjective assumptions.

Interest rate swaps are valued in the market using discounted cash flows techniques.

These techniques incorporate Level 1 and Level 2 inputs.

The market inputs are utilized in the discounted cash flows’ calculation considering the instrument’s term, notional amount, discount rate and credit risk.

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 that 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 condensed consolidated statements of operations and comprehensive income (loss).

To estimate the fair value of the contingent consideration liability, management utilized a Monte Carlo simulation model to value the earn-out based on the likelihood of reaching certain eligible revenue thresholds.

Significant inputs used in the fair value measurement of contingent consideration are the amount and timing of the acquired entity’s eligible revenue over a three-year period subsequent to the acquisition date.

At the acquisition date, the fair value of the contingent consideration liabilities was $ 19.8 million.

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 March 31, 2023:

(In thousands)

Money market funds

Interest rate swap assets

Contingent liabilities

Total liabilities

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

For the period ended March 31, 2023, there were no transfers between the levels within the fair value hierarchy.

The Company’s Level 3 liability is the acquisition related contingent consideration liability.

The following table summarizes the Level 3 activity of the changes in the contingent consideration liability.

(In thousands)

Beginning balance at December 31, 2022

Change in fair value

Ending balance at March 31, 2023

For more information regarding fair value measurements and the fair value hierarchy, see Note 2.

“Summary of Significant Accounting Policies” in the notes to the consolidated financial statements in the Company’s 2022 Annual Report.

Cash and Cash Equivalents, and Restricted Cash

1 unchanged sentence

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 $ 3,274 and $ 827 at September 30, 2022 and December 31, 2021, respectively.

The restricted cash balance was $ 3,103 and $ 3,102 at March 31, 2023 and December 31, 2022, respectively.

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

SEPTEMBER 30,

(In thousands)

Cash and cash equivalents

1 unchanged sentence

Total cash and cash equivalents and restricted cash

(g) Accounts Receivable

Accounts receivable includes current outstanding invoices billed to customers.

Invoices are typically issued with net 30 days to net 90 days terms upon delivery of the product or upon achievement of billable events for service-based contracts.

Unbilled receivables relate to the Company’s rights to consideration for performance obligations satisfied but not billed at the reporting date on contracts.

Unbilled receivables are billed and transferred to customer accounts receivable when the rights become unconditional.

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

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 $ 736 and $ 1,250 were provided in the accompanying condensed consolidated financial statements as of March 31, 2023 and December 31, 2022, respectively.

Accounts receivable consists of the following:

(In thousands)

Trade receivables

Unbilled receivables

Other receivables

Allowances for credit losses

Accounts receivable, net

The following table presents the information regarding the allowance of accounts receivable:

(In thousands)

Beginning balance

Provision for credit losses

Charge-offs, net of recoveries

Ending balance

Derivative Instruments

Effective May 31, 2022, the Company has a pay-fixed, receive-variable interest rate swap agreement 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.

In the normal course of business, the Company is subject to risk from adverse fluctuations in interest rates.

The Company has chosen to manage this risk through the use of derivative financial instruments that consist of interest rate swap contracts.

Counterparties to these contracts are major financial institutions.

The Company is exposed to credit loss in the event of nonperformance by these counterparties.

The Company does not use derivative instruments for trading or speculative purposes.

The objective in managing exposure to market risk is to limit the impact on cash flows.

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

In addition, at the 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.

The Company may enter into derivative contracts such as interest rate swap contracts that effectively convert portions of the Company’s floating rate debt to a fixed rate, which serves to mitigate interest rate risk.

The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements.

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 had entered into an interest rate swap agreement in May 2022 that pays a fixed interest rate and receives a variable interest rate 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 September 30, 2022, the interest swap had a fair value of $ 8,385 and the fair value recognized in accumulated other comprehensive income was $ 8,385 .

During the three and nine months ended September 30, 2022, the amounts recognized as interest expense on the condensed consolidated statements of operations and comprehensive loss on the derivative were $ 355 and $ 700 .

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 at 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.

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 September 30, 2022, the Company did not record any amounts for the financing component and fair value of the interest rate swap in the condensed consolidated balance sheets.

The Company reclassified $ 3,033 of accumulated comprehensive loss to interest expense in the condensed consolidated statements of comprehensive loss in the second quarter of 2021 due to hedge ineffectiveness.

Excluding the amount reclassified, the interest expense recognized on the derivative was $ 0 , $ 29 , $( 179 ), $ 690 for the three and nine months ended September 30, 2022 and 2021, respectively.

At March 31, 2023 and December 31, 2022, the interest swap had a fair value of $ 6,096 and $ 8,374 , respectively;

The fair value recognized in accumulated other comprehensive income was $ 6,096 and $ 8,374 , respectively, at March 31, 2023 and December 31, 2022.

The interest income on derivative instruments recognized in the Company’s condensed consolidated statements of operations and comprehensive income (loss) was $ 986 for the three months ended March 31, 2023 and there was no changes in the fair value of the interest rate swap in interest expense for the three month ended March 31 2022.

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 condensed 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 following table sets forth the assets that are measured at fair value on a recurring basis by the levels in the fair value hierarchy at September 30, 2022:

Interest rate swap asset

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:

Interest rate swap asset

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

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

The notional amounts and fair values, locations of derivative instruments in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 were as follows:

Interest rate swap derivative designated as cash flow hedging instruments:

March 31, 2023

December 31, 2022

(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 $ 4,272 .

For more information regarding fair value measurement and fair value hierarchy, see Note 2.

“Summary of Significant Accounting Policies” in the notes to the condensed consolidated Financial Statements in the Company’s 2021 Annual Report.

Revenue Recognition

8 unchanged sentences

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.

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”).

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 less than one year such that there is no significant financing component to the transaction.

Software Licenses

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.

Software Services

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

Software Licenses Revenues

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 one 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 consist 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 Service Revenues

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.

While the 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.

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

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 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.

Services and Other Revenues

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.

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 or fixed fee.

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

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

Generally, these services are delivered to customers electronically.

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 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 the 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.

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

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

Arrangements with Multiple Performance Obligations

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 sold 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.

Contract Balances

6 unchanged sentences

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 condensed consolidated balance sheets.

The unsatisfied performance obligations as of September 30, 2022 were approximately $ 119,255 .

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 condensed consolidated balance sheets.

Contract balances at March 31, 2023 and December 31, 2022 were as follows:

(In thousands)

Contract assets

Contract liabilities

During the first quarter of 2023, the Company recognized revenue of $ 24,488 related to contract liabilities at December 31, 2022.

The unsatisfied performance obligations as of March 31, 2023, were approximately $ 130,237 .

We expect to recognize approximately $ 114,658 or 88.0 % of this revenue over the next 12 months and the remainder thereafter.

Deferred Contract Acquisition Costs

Under ASC Topic 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 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.

2 unchanged sentences

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 condensed consolidated statements of operations and comprehensive loss.

Capitalized contract acquisition cost was $ 631 as of September 30, 2022 and was included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Amortization of capitalized costs is included in sales and marketing expenses in our condensed consolidated statements of operations and comprehensive income (loss).

Capitalized contract acquisition costs were $ 814 and $ 981 as of March 31, 2023, and December 31, 2022, respectively, and were included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Grant Revenue

2 unchanged sentences

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.

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

1 unchanged sentence

The following table presents the Company’s revenue by timing of revenue recognition to understand the risks of timing of transfer of control and cash flows:

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

THREE MONTHS ENDED MARCH 31,

(In thousands)

Software licenses transferred at a point in time

2 unchanged sentences

Earnings per Share

Basic earnings per common share is computed by dividing the net income that is attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period, without consideration for potentially dilutive securities.

The dilutive effect of potentially dilutive securities is excluded from basic earnings per share and is included in the calculation of diluted earnings per share.

Restricted stock and restricted stock units granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share.

Diluted earnings per share is computed by dividing the earnings attributable to stockholders by the weighted-average number of shares and potentially dilutive securities outstanding during the period.

Since the first quarter of 2020, the COVID-19 pandemic has posed a significant threat to public health as well as the global and U.S.

The continued spread of variants of COVID-19 may adversely impact our business, financial condition or results of operations as a result of increased costs, negative impacts to the Company’s workforce, delay or cancellation of projects due to disruption of clinical trials, or a sustained economic downturn.

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 the Company’s business.

Public Offerings

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

It contains provisions that entitle EQT and the other Institutional Investors thereto to certain rights to have their securities registered by the Company under the Securities Act.

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

Every Institutional Investor that holds registration rights is also 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 Institutional Investors relating to such registrations and indemnify them against certain liabilities that may arise under the Securities Act of 1933.

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.

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.

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 $ 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 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.

Basic earnings per common share is computed by dividing the net earnings by the weighted-average number of shares outstanding during the reporting period, without consideration for potentially dilutive securities.

Diluted earnings per share is computed by dividing the net earnings attributable to stockholders by the weighted-average number of shares and dilutive securities outstanding during the period.

Public Offerings and Other significant Shareholder Transactions

On December 11, 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 AB (“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, $ 745 of legal, accounting and other offering costs incurred in connection with the sale of the Company's common stock in the public offering, were capitalized and offset against the proceeds received.

On November 22, 2021, the Company completed another secondary public offering in which certain selling stockholders, including EQT, sold 10,000,000 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 $ 644 , recorded in general and administrative expenses, in relation to the secondary public offering.

On August 11, 2022, the Company completed another 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 form the sale of the shares of common stock by the selling stockholders.

In addition, $ 4,408 of legal, accounting and other offering costs, net of the tax effect of $ 259 , were 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 was party to a registration rights agreement with EQT and its affiliates, Arsenal Capital Partners (“Arsenal”), and certain other stockholders, dated December 8, 2020.

That agreement was terminated following the sale of all of EQT’s 29,954,521 common shares in the Company to Arsenal on December 8, 2022 (the “Arsenal Transaction”).

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 that may arise under the Securities Act.

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

Also in connection with the Arsenal 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.

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

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

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Financial instruments that potentially subject the Company to concentrations of credit risk have consisted principally of cash and cash equivalent investments and trade receivables.

The Company invests available cash in bank deposits, investment-grade securities, and short-term interest-producing investments, including government obligations and other

money market instruments.

At September 30, 2022 and December 31, 2021, the investments were bank deposits and overnight sweep accounts.

The Company invests available cash in bank deposits, investment-grade securities, and short-term interest-producing investments, including government obligations and other money market instruments.

At March 31, 2023 and December 31, 2022, the investments were bank deposits, overnight sweep accounts, and money market funds.

The Company has adopted credit policies and standards to evaluate the risk associated with sales that require collateral, such as letters of credit or bank guarantees, whenever deemed necessary.

Management believes that any risk of loss is significantly reduced due to the nature of the customers with which the Company does business.

As of September 30, 2022 and December 31, 2021, no single customer accounted for more than 10% of the Company’s accounts receivable.

No single customers accounted for more than 10% of the Company’s revenues during the nine months ended September 30, 2022 and 2021.

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.

Management believes that any risk of loss is significantly reduced due to the nature of the customers and distributors with which the Company does business.

As of March 31, 2023 and December 31, 2022, no single customer accounted for more than 10% of the Company’s accounts receivable.

No single customers accounted for more than 10% of the Company’s revenues during the three months ended March 31, 2023 and 2022.

Business Combinations

Acquisitions have been accounted for by 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.

On March 2, 2021, the Company completed a transaction that qualified as a business combination for a total consideration of $ 2,667 .

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

Based on the Company’s purchase price allocation, approximately $ 1,200 , $ 100 and $ 1,200 of the purchase price was assigned to customer relationships, non-compete agreements and goodwill, respectively.

Insight Medical Writing Limited

On June 7, 2021, the Company completed a transaction that qualified as a business combination for a total consideration of $ 15,197 .

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

Based on the Company’s purchase price allocation, approximately $ 7,400 and $ 4,700 of the purchase price was assigned to customer relationships and goodwill, respectively.

Pinnacle 21, LLC

On October 1, 2021, the Company acquired 100 % of the equity of Pinnacle 21, LLC (“Pinnacle”).

Pinnacle provides software and services for preparing clinical trial data for regulatory submission.

The acquisition executed 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 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:

Fair value of consideration:

Cash paid to sellers

Cash paid to others and escrow

Unregistered shares of Certara, Inc.

( 2,239,717 shares)

Total consideration

Assets acquired and liabilities assumed:

Cash and cash equivalents

Accounts receivable

Other current assets

Property and equipment

Deferred tax assets

Identifiable intangible assets:

Acquired software

Customer relationships

Long-term deposits

Current liabilities

Current portion of deferred revenue

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 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;

therefore, the Company’s tax basis in Pinnacle’s identifiable assets reflects the fair value of consideration paid.

However, the Company did not recognize tax basis in certain liabilities assumed on the acquisition date;

resulting in deferred income taxes being recorded in purchase accounting.

The fair value of the intangible assets is based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements within the fair value measurement hierarchy.

The fair value of the customer relationships (Distributor method), trademarks (Relief from Royalty method) and developed technology (Multi-Period Excess Earnings Method) was determined under the income approach.

Goodwill of $ 180,947 was recorded to reflect the excess of the purchase price over the estimated fair value of the net identifiable assets acquired, which is generally deductible for income tax purposes.

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.

Since its inception, and as of March 31, 2023, the Company has completed 17 acquisitions, of which 12 have included software or technology.

Details of acquisitions that have closed since the beginning of fiscal year 2022 are provided below.

Integrated Nonclinical Development Solutions, Inc.

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The business combination was not significant to the Company’s condensed 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.

Based on the Company’s purchase price allocation, approximately $ 2,380 , $ 1,040 , $ 100 , and $ 2,910 of the purchase price were 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 for a total estimated consideration of $ 29,276 .

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

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

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 % common stock of the Company.

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

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.

The contingent consideration was classified as a liability and included in other long term liabilities on the Company’s condensed consolidated balance sheet, which is remeasured on a recurring basis at fair value for each reporting period.

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

At March 31, 2023, contingent consideration was remeasured to $ 21,074 , resulting in a fair value adjustment of $ 1,261 and recorded in general and administrative (“G&A”) on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

The condensed 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

SEPTEMBER 30,

(In thousands)

Prepaid expenses

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Other long-term assets consisted of the following:

SEPTEMBER 30,

(In thousands)

Long-term deposits

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Long-Term Debt and Revolving Line of Credit

Effective August 14, 2017, the Company entered into a credit agreement with lenders for a $ 250,000 term loan (“Credit Agreement”).

The Credit Agreement is a syndicated arrangement with various lenders providing the financing.

The $ 250,000 term loan is due to mature on August 14, 2024.

The Company also entered into a $ 20,000 revolving line of credit with lenders with a sub-commitment for issuance of letters of credit of $ 10,000 .

The Company and lenders entered into Amendment No.

1 to the Credit Agreement on January 25, 2018, where an additional tranche of $ 25,000 was added to the term loan.

The amortization schedule of the new tranche was made coterminous with the rest of the term loan.

There were no other changes to the terms of the Credit Agreement.

The Company and lenders entered into Amendment No.

2 to the Credit Agreement on April 3, 2018, where an additional tranche of $ 40,000 was added to the term loan.

The amortization schedule of the new tranche was made coterminous with the rest of the term loan.

There were no other changes to the terms of the Credit Agreement.

The Company and lenders entered into a third amended and restated loan agreement on June 17, 2021 (“Third Amendment”), which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments under the Credit Agreement to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $ 80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $ 100,000 ).

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

The Credit Agreement (as amended) is collateralized by substantially all U.S.

The Company has been a party to a Credit Agreement since August 2017 that provides for a senior secured term loan and commitments under a revolving credit facility.

The agreement was modified several times.

The Company and the lenders modified the Credit Agreement on June 17, 2021, which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $ 80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $ 100,000 ).

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

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

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

subsidiaries and contain various financial and nonfinancial covenants.

As of September 30, 2022 and December 31, 2021, available borrowings under the revolving lines of credits were $ 100,000 .

Available borrowings under the revolving lines of credits as of September 30, 2022 and December 31, 2021 were reduced by $ 120 and $ 239 standby letters of credit issued to a landlord in lieu of a security deposit in addition to any outstanding borrowings.

As of March 31, 2023 and December 31, 2022, available borrowings under the revolving lines of credit were $ 100,000 .

Available borrowings under the revolving lines of credit as of March 31, 2023 and December 31, 2022 were reduced by $ 120 and $ 120 , respectively, of standby letters of credit issued to a landlord in lieu of a security deposit in addition to any outstanding borrowings.

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

The applicable margins are based on achieving certain levels of compliance with financial covenants.

The effective interest rate was 4.60 % and 3.68 % for the nine months ended September 30, 2022 and 2021 for the term loan debt, respectively.

As discussed previously, the Company entered into interest rate swap agreements to mitigate the interest risk.

Interest incurred on the Credit Agreement with respect to the term loan amounted to $ 4,366 , $ 2,773 , $ 10,344 , and $ 8,444 for the three and nine months ended September 30, 2022 and 2021, respectively.

Accrued interest payable on the Credit Agreement with respect to the term loan amounted to $ 55 and $ 30 at September 30, 2022 and December 31, 2021, respectively, and is included in accrued expenses.

Interest incurred on the Credit Agreement with respect to the revolving line of credit was $ 65 , $ 65 , $ 193 and $ 98 for the three and nine months ended September 30, 2022 and 2021, respectively.

There was $ 2 and $ 66 accrued interest payable on the revolving line of credit at September 30, 2022 and December 31, 2021, respectively.

The effective interest rate was 8.03 % and 3.64 % for the three months ended March 31, 2023 and 2022 for the term loan debt, respectively.

As discussed previously, the Company has interest rate swap agreements to mitigate the interest rate risk.

Interest incurred on the Credit Agreement with respect to the term loan amounted to $ 5,974 and $ 2,737 for the three months ended March 31, 2023 and 2022, respectively.

Accrued interest payable on the Credit Agreement with respect to the term loan amounted to $ 69 and $ 130 at March 31, 2023 and December 31, 2022, respectively, and is included in accrued expenses.

Interest incurred on the Credit Agreement with respect to the revolving line of credit was $ 63 and $ 63 for the three months ended March 31, 2023 and 2022, respectively.

There was $ 1 and $ 66 of accrued interest payable on the revolving line of credit at March 31, 2023 and December 31, 2022, respectively.

Long-term debt consists of the following:

SEPTEMBER 30,

(In thousands)

Revolving line of credit

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Long-term debt, net of current portion and debt issuance costs

The principal amount of long-term debt outstanding as of September 30, 2022 matures in the following years:

The principal amount of long-term debt outstanding as of March 31, 2023 matures in the following years:

Remainder of 2023

(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.

3 unchanged sentences

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

Operating lease right of use assets are included in the “other assets” section while finance lease right of use assets are included in "property and equipment, net"

in the condensed consolidated balance sheets.

With respect to operating lease liabilities, current lease liabilities and non-current operating lease liabilities are included in “current operating lease liabilities” and "operating lease liabilities, net of current portion”.

Current finance lease liabilities and non-current finance lease liabilities are included in "other current liabilities"

and "non-current finance lease liabilities"

in the condensed consolidated balance sheets.

At September 30, 2022, the weighted average remaining lease terms were 3.33 years and 0.33 year for operating and finance leases, respectively;

the weighted average discount rate was 4.11 % and 6.19 % for operating and finance leases, respectively.

Operating lease right-of-use (“ROU”) assets are included in other assets while finance lease ROU assets are included in property and equipment, net in the condensed 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 condensed consolidated balance sheets.

Current finance lease liabilities are included in other current liabilities in the condensed consolidated balance sheets.

At March 31, 2023, the weighted average remaining lease terms were 3.77 years for operating leases, respectively;

the weighted average discount rate was 3.43 % for operating leases, respectively.

For additional information on the Company's leases, see Note 14 to the condensed consolidated financial statements included the Company’s 2022 Annual Report.

The following table summarizes the lease-related assets and liabilities recorded in the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021:

The following table summarizes the lease-related assets and liabilities recorded in the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022:

Lease Position

Balance Sheet Classification

SEPTEMBER 30, 2022

DECEMBER 31, 2021

(In thousands)

Operating lease assets

Operating lease right-of-use assets

Operating lease ROU assets

Finance lease assets

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Total lease liabilities

The following table summarizes by year the maturities of our minimum lease payments as of September 30, 2022.

The following table summarizes by year the maturities of our minimum lease payments as of March 31, 2023.

(In thousands)

Remainder of 2023

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Accrued expenses consist of the following:

SEPTEMBER 30,

(In thousands)

Accrued compensation

Legal and professional accruals

Local sales and VAT taxes

Interest payable

2 unchanged sentences

Total accrued expenses

Other long-term liabilities consist of the following:

(In thousands)

Uncertain tax position liability

Contingent consideration

Total other long-term liabilities

Equity-Based Compensation

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

The majority of the Company’s restricted stock awarded to its employees was originally issued in December 2020 to exchange the Class B Profits Interest Unit (the “Class B Units”) of EQT.

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.

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 the former parent 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 .

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Non-vested restricted stock as of December 31, 2022

( 1,772,239 )

Non-vested restricted stock as of September 30, 2022

The Company did not legally authorize or issue any restricted stock during the nine-month period ended September 30, 2022.

During the third quarter of 2022, the Company modified an award for a recipient that resulted in 66,220 shares each

assumed cancelled, granted, and forfeited.

The shares of restricted stock vested includes 5,182 shares of common stock that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

Equity-based compensation expenses (income) related to the restricted stock exchanged for performance-based Class B Units were $( 319 ) and $ 3,758 for the three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the accelerated attribution approach was $ 5,039 , which is expected to be recognized over a weighted-average period of 22.5 months.

Equity-based compensation expenses related to the restricted stock exchanged for time-based Class B Units were $ 1,174 and $ 2,705 for the three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the straight-line attribution approach was $ 3,821 , which is expected to be recognized over a weighted-average period of 28.0 months.

Equity-based employee compensation expense related to the time-based restricted stock for the Pinnacle acquisition was $ 292 and $ 877 for the three and nine months ended September 30, 2022.

At September 30, 2022, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach was $ 1,593 , which is expected to be recognized over a weighted-average period of 18.4 months.

Non-vested restricted stock as of March 31, 2023

The Company did no t legally authorize or issue any restricted stock during the three-month period ended March 31, 2023.

The shares of restricted stock that vested include 2,022 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 $ 655 and $ 2,120 for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the accelerated attribution approach was $ 2,640 , which is expected to be recognized over a weighted-average period of 19.4 months.

Equity-based compensation expenses related to the restricted stock exchanged for time-based Class B Units were $ 498 and $ 766 for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total unrecognized

equity-based compensation expense related to outstanding restricted stock recognized using the straight-line attribution approach was $ 2,389 , which is expected to be recognized over a weighted-average period of 24.3 months.

Equity-based employee compensation expense related to the time-based restricted stock for the Pinnacle acquisition was $ 292 for both three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach was $ 1,009 , which is expected to be recognized over a weighted-average period of 13.6 months.

2020 Incentive Plan

4 unchanged sentences

The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $ 1,000,000 in total value, except for certain awards made to a non-executive chair of our Board of Directors.

Restricted Stock Units

Restricted Stock Units (“RSU”)

RSUs represent the right to receive shares of the Company’s common stock at a specified date in the future.

2 unchanged sentences

Non-vested RSUs as of December 31, 2022

Non-vested RSUs as of September 30, 2022

* The shares granted during 2022 were primarily issued on April 1, 2022 under the 2020 Incentive Plan.

Non-vested RSUs as of March 31, 2023

* The number of the RSUs vested includes 226,137 shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

The vested shares included 7,059 shares vested but deferred in connection with our director deferral plan.

Equity-based compensation expenses related to the RSUs were $ 5,312 and $ 14,538 for three and nine months ended September 30, 2022, respectively.

At September 30, 2022, the total unrecognized equity-based compensation expense related to outstanding RSUs was $ 42,927 , which is expected to be recognized over a weighted-average period of 25.5 months.

Performance Stock Units

Equity-based compensation expenses related to the RSUs were $ 4,798 and $ 3,388 for three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total unrecognized equity-based compensation expense related to outstanding RSUs was $ 29,925 , which is expected to be recognized over a weighted-average period of 20.4 months.

Performance Stock Units (“PSU”)

PSUs granted in April 2021 and 2022 were issued under the 2020 Incentive Plan and represent the right to receive shares of the Company’s common stock at a specified date in the future based on the satisfaction of various service conditions and the achievement of certain performance thresholds for individual PSU plans including year over year revenue growth and unlevered free cash flow growth.

1 unchanged sentence

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 September 30, 2022.

A summary of the Company’s PSU activity is as follows:

Non-vested PSUs as of December 31, 2022

Non-vested PSUs as of September 30, 2022

Equity-based compensation expenses related to the PSUs were $ 345 and $ 1,940 for the three and nine months ended September 30, 2022.

At September 30, 2022, the total unrecognized equity-based compensation expense related to outstanding PSUs was $ 3,467 , which is expected to be recognized over a weighted-average period of 15.6 months.

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

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

Non-vested PSUs as of March 31, 2023

Equity-based compensation expenses related to the PSUs were $ 2,287 and $ 947 for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total unrecognized equity-based compensation expense related to outstanding PSUs was $ 4,499 , which is expected to be recognized over a weighted-average period of 14.3 months.

THREE MONTHS ENDED MARCH 31,

(In thousands)

Cost of revenues

2 unchanged sentences

General and administrative

2020 Employee Stock Purchase Plan

On December 10, 2020, stockholders approved the 2020 Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”).

Under the Employee Stock Purchase Plan, employees, and those of the Company’s subsidiaries, may purchase shares of common stock, during pre-specified offering periods.

Named executive officers will be eligible to participate in

the Employee Stock Purchase Plan on the same terms and conditions as all other participating employees.

The maximum number of shares authorized for sale under the Employee Stock Purchase Plan is 1,700,000 shares.

As of September 30, 2022, no shares of common stock have been purchased under the Employee Stock Purchase Plan and no offering has been made to eligible employees under the Plan.

Commitments and Contingencies

Contingent consideration

In connection with the 2022 Vyasa acquisition, the Company is required to pay additional consideration if the acquired business achieves certain eligible revenue thresholds for each of the twelve-month periods ended December 31, 2023, 2024, and 2025, respectively.

The maximum contingent consideration to be earned is $ 60,000 .

The fair value of the contingent consideration was $ 21,074 and $ 19,813 at March 31, 2023 and December 31, 2022, respectively.

Legal proceedings

The Company does not have any pending or threatened litigation which, individually or in the aggregate, would have a material adverse effect on the condensed consolidated financial statements as of March 31, 2023.

Assurance-type warranty

The Company includes an assurance commitment warranting that the application software products will perform in accordance with written user documentation and the agreements negotiated with customers.

Since the Company does not customize its applications software, warranty costs have historically been insignificant and expensed as incurred.

For information related to commitments for future minimum lease payments, please see Note 8 – Leases.

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.

3 unchanged sentences

Since the Company operates in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.

The following table summarizes revenue by geographic area for the three and nine months ended September 30, 2022 and 2021:

The following table summarizes revenue by geographic area for the three months ended March 31, 2023 and 2022:

THREE MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30,

(In thousands)

Revenue (1) :

1 unchanged sentence

The Company generally records its interim tax provision based upon a projection of the Company's estimated annual effective tax rate ("EAETR").

This EAETR is applied to the year-to-date consolidated pre-tax income to determine the interim provisions for income taxes before discrete items.

This EAETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items.

The effective tax rate ("ETR") each period is impacted by a number of factors, including the relative mix of domestic and international earnings, adjustments to the valuation allowances, and discrete items.

The forecasted ETR may vary from the actual year-end due to the changes in these factors.

The Company's global ETR for the three months ended September 30, 2022 and 2021 was 54 % and 48 %, respectively, including discrete tax items.

The period-over-period increase in the ETR was principally due to the combined effect of the overall increase in pre-tax book income and the tax effect of certain discrete items.

The Company's global ETR for the nine months ended September 30, 2022 and 2021 was 63 %, and ( 11 )%, respectively, including discrete tax items.

The current year increase in the ETR was principally due to the combined effect of the overall increase in pre-tax book income and the tax effect of certain discrete items.

The currently forecasted ETR may vary from the actual year-end due to the changes in these factors.

The Company's global ETR for the three months ended March 31, 2023 and 2022 were 45 % and 41 %, respectively, including discrete tax items.

The current year increase in the ETR was principally due to the combined effect of the increase in certain foreign income tax rates and adjustments to the valuation allowance.

Earnings per Share

Earnings per share is computed by dividing net income (loss) by the weighted-average common shares outstanding.

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period.

Diluted earnings per common share considers potentially dilutive securities outstanding during the period.

Basic and diluted earnings per share is computed by dividing net income (loss) by the weighted-average common shares outstanding:

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

Net income (loss) available to common shareholders

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.

THREE MONTHS ENDED MARCH 31,

(In thousands, except per share and share data)

Basic earnings per share

Net income available to common shareholders

Basic weighted-average common shares outstanding

Effects of dilutive securities

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

Earnings per share:

Diluted earnings per common share

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

What changed 10-Q

Item 1. Financial Statements