Certara, Inc. 10-Q

Item 1. Financial Statements CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) JUNE 30, 2023 DECEMBER 31, 2022 Assets Current assets: Cash and cash equivalents $ 245,190 $ 236,586 Accounts receivable, net of allowance for credit losses of $ 460 and $ 1,250 , respectively 83,952 82,584 Restricted cash 3,020 3,102 Prepaid expenses and other current assets 20,882 19,980 Total current assets 353,044 342,252 Other assets: Property and equipment, net 2,206 2,400 Operating lease right-of-use assets 12,326 14,427 Goodwill 721,853 717,743 Intangible assets, net of accumulated amortization of $ 244,974 and $ 217,705 , respectively 473,805 486,782 Deferred income taxes 3,703 3,703 Other long-term assets 5,283 5,615 Total assets $ 1,572,220 $ 1,572,922 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 3,789 $ 7,533 Accrued expenses 38,654 35,403 Current portion of deferred revenue 52,788 52,209 Current portion of long-term debt 3,020 3,020 Other current liabilities 4,645 4,993 Total current liabilities 102,896 103,158 Long-term liabilities: Deferred revenue, net of current portion 2,056 2,815 Deferred income taxes 54,677 65,046 Operating lease liabilities, net of current portion 8,285 10,133 Long-term debt, net of current portion and debt discount 289,104 289,988 Other long-term liabilities 18,028 22,121 Total liabilities 475,046 493,261 Commitments and contingencies Stockholders' equity: Preferred shares, $ 0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively — — Common shares, $ 0.01 par value, 600,000,000 shares authorized, 160,171,493 and 159,676,150 shares issued as of June 30, 2023 and December 31, 2022, respectively; 159,777,284 and 159,525,943 shares outstanding as of June 30, 2023 and December 31, 2022, respectively 1,601 1,596 Additional paid-in capital 1,162,317 1,150,168 Accumulated deficit ( 54,809 ) ( 60,873 ) Accumulated other comprehensive loss ( 3,173 ) ( 8,230 ) Treasury stock at cost, 394,209 and 150,207 shares at June 30, 2023 and December 31, 2022, respectively ( 8,762 ) ( 3,000 ) Total stockholders’ equity 1,097,174 1,079,661 Total liabilities and stockholders’ equity $ 1,572,220 $ 1,572,922 The accompanying notes are an integral part of the condensed consolidated financial statements 6 Table of Content s CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) 2023 2022 2023 2022 Revenues $ 90,450 $ 82,760 $ 180,751 $ 164,311 Cost of revenues 36,224 35,194 71,080 67,983 Operating expenses: Sales and marketing 8,111 7,121 16,113 13,232 Research and development 7,888 7,741 17,175 15,289 General and administrative 14,245 17,778 34,017 36,117 Intangible asset amortization 10,582 10,355 21,117 20,504 Depreciation and amortization expense 361 422 772 904 Total operating expenses 41,187 43,417 89,194 86,046 Income from operations 13,039 4,149 20,477 10,282 Other income (expenses): Interest expense ( 5,668 ) ( 3,879 ) ( 11,143 ) ( 7,107 ) Net other income 1,010 2,521 1,516 3,362 Total other expenses ( 4,658 ) ( 1,358 ) ( 9,627 ) ( 3,745 ) Income before income taxes 8,381 2,791 10,850 6,537 Provision for income taxes 3,675 3,380 4,786 4,916 Net income (loss) 4,706 ( 589 ) 6,064 1,621 Other comprehensive income (loss): Foreign currency translation adjustment 1,815 ( 7,520 ) 4,416 ( 10,704 ) Change in fair value from interest rate swap, net of tax of $ 762 , $ 362 , $ 174 , $ 422 , respectively 2,332 848 641 912 Total other comprehensive income (loss) 4,147 ( 6,672 ) 5,057 ( 9,792 ) Comprehensive income (loss) $ 8,853 $ ( 7,261 ) $ 11,121 $ ( 8,171 ) Net income (loss) per share attributable to common stockholders: Basic $ 0.03 $ 0.00 $ 0.04 $ 0.01 Diluted $ 0.03 $ 0.00 $ 0.04 $ 0.01 Weighted average common shares outstanding: Basic 158,955,822 156,478,724 158,568,575 156,209,335 Diluted 159,906,972 156,478,724 159,817,688 159,293,362 The accompanying notes are an integral part of the condensed consolidated financial statements 7 Table of Content s CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS TREASURY STOCK TOTAL STOCKHOLDERS' EQUITY SHARES AMOUNT SHARES AMOUNT Balance as of March 31, 2022 159,660,048 $ 1,596 $ 1,127,334 $ ( 73,394 ) $ ( 7,046 ) ( 2,874 ) $ ( 85 ) $ 1,048,405 Equity-based compensation awards 9,501 — — 9,501 Common shares issued for employee share-based compensation awards 331,309 4 ( 4 ) — — — Restricted stock withheld for tax liability ( 106,121 ) ( 2,264 ) ( 2,264 ) Change in fair value from interest rate swap, net of tax 848 — — 848 Net income ( 589 ) — — ( 589 ) Foreign currency translation adjustment ( 7,520 ) — — ( 7,520 ) Balance as of June 30, 2022 159,991,357 $ 1,600 $ 1,136,831 $ ( 73,983 ) $ ( 13,718 ) ( 108,995 ) $ ( 2,349 ) $ 1,048,381 Balance as of December 31, 2021 159,660,048 $ 1,596 $ 1,119,821 $ ( 75,604 ) $ ( 3,926 ) ( 1,100 ) $ ( 38 ) $ 1,041,849 Equity-based compensation awards — — 17,014 — — — — 17,014 Common shares issued for employee share-based compensation awards 331,309 4 ( 4 ) — — — — Restricted stock withheld for tax liability — — — — — ( 107,895 ) ( 2,311 ) ( 2,311 ) Change in fair value from interest rate swap, net of tax — — — — 912 — — 912 Net income — — — 1,621 — — 1,621 Foreign currency translation adjustment — — — — ( 10,704 ) — — ( 10,704 ) Balance as of June 30, 2022 159,991,357 $ 1,600 $ 1,136,831 $ ( 73,983 ) $ ( 13,718 ) ( 108,995 ) $ ( 2,349 ) $ 1,048,381 The accompanying notes are an integral part of the condensed consolidated financial statements 8 Table of Content s CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS TREASURY STOCK TOTAL STOCKHOLDERS' EQUITY SHARES AMOUNT SHARES AMOUNT Balance as of March 31, 2023 160,218,109 $ 1,601 $ 1,158,708 $ ( 59,515 ) $ ( 7,320 ) ( 378,366 ) $ ( 8,419 ) $ 1,085,055 Equity-based compensation expense, net of forfeiture — — 3,610 — — — — 3,610 Common shares issued for share-based compensation awards and shares withheld for tax 78,327 1 ( 2 ) — — ( 15,843 ) ( 343 ) ( 344 ) Restricted stock forfeiture* ( 124,943 ) ( 1 ) 1 — — — — — Change in fair value from interest rate swap, net of tax — — — — 2,332 — — 2,332 Net income — — — 4,706 — — — 4,706 Foreign currency translation adjustment, net of tax — — — — 1,815 — — 1,815 Balance as of June 30, 2023 160,171,493 $ 1,601 $ 1,162,317 $ ( 54,809 ) $ ( 3,173 ) ( 394,209 ) $ ( 8,762 ) $ 1,097,174 Balance as of December 31, 2022 159,676,150 $ 1,596 $ 1,150,168 $ ( 60,873 ) $ ( 8,230 ) $ ( 150,207 ) $ ( 3,000 ) $ 1,079,661 Equity-based compensation expense, net of forfeiture — — 12,153 — — — — 12,153 Common shares issued for share-based compensation awards and shares withheld for tax 686,506 7 ( 6 ) — — ( 244,002 ) ( 5,762 ) ( 5,761 ) Restricted stock forfeiture* ( 191,163 ) ( 2 ) 2 — — — — — Change in fair value from interest rate swap, net of tax — — — — 641 — — 641 Net income — — — 6,064 — — — 6,064 Foreign currency translation adjustment, net of tax — — — — 4,416 — — 4,416 Balance as of June 30, 2023 160,171,493 $ 1,601 $ 1,162,317 $ ( 54,809 ) $ ( 3,173 ) ( 394,209 ) $ ( 8,762 ) $ 1,097,174 • Legal forfeiture 66,220 shares 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 9 Table of Content s CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) 2023 2022 Cash flows from operating activities: Net income $ 6,064 $ 1,621 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 772 904 Amortization of intangible assets 26,286 25,161 Amortization of debt issuance costs 765 771 Provision for credit losses ( 172 ) 217 Loss on retirement of assets 29 7 Equity-based compensation expense 12,153 17,014 Change in fair value of contingent considerations 2,559 — Deferred income taxes ( 10,237 ) ( 5,607 ) Changes in assets and liabilities Accounts receivable ( 272 ) ( 5,706 ) Prepaid expenses and other assets 494 4,586 Accounts payable and accrued expenses ( 8,343 ) ( 7,934 ) Deferred revenue ( 2,083 ) 3,186 Change in other liabilities — ( 1,158 ) Net cash provided by operating activities 28,015 33,062 Cash flows from investing activities: Capital expenditures ( 588 ) ( 859 ) Capitalized development costs ( 6,270 ) ( 5,172 ) Investment in intangible assets ( 54 ) — Business acquisitions, net of cash acquired ( 7,550 ) ( 5,883 ) Net cash used in investing activities ( 14,462 ) ( 11,914 ) Cash flows from financing activities: Payments on long-term debt and finance lease obligations ( 1,535 ) ( 1,654 ) Payments on financing component of interest rate swap — ( 1,085 ) Payment of taxes on shares withheld for employee taxes ( 5,735 ) ( 2,312 ) Net cash used by financing activities ( 7,270 ) ( 5,051 ) Effect of foreign exchange rate changes on cash and cash equivalents, and restricted cash 2,239 ( 4,471 ) Net increase in cash and cash equivalents, and restricted cash 8,522 11,626 Cash and cash equivalents, and restricted cash, at beginning of period 239,688 186,624 Cash and cash equivalents, and restricted cash, at end of period $ 248,210 $ 198,250 Supplemental disclosures of cash flow information Cash paid for interest $ 8,255 $ 7,468 Cash paid for taxes $ 9,034 $ 5,558 Supplemental schedule of non-cash investing and financing activities Contingent liabilities established in connection with business acquisition $ 790 $ — The accompanying notes are an integral part of the condensed consolidated financial statements 10 Table of Content s CERTARA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) 1. Description of Business Certara, Inc. 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, 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, Australia, Canada, China, France, Germany, India, Italy, Japan, Luxembourg, Netherlands, Philippines, Poland, Portugal, Spain, Switzerland, Egypt, and the United Kingdom. 2. 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 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. (a) Basis of Presentation and Use of Estimates 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 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, 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 condensed consolidated financial statements. (b) Unaudited Interim Financial Statements The accompanying condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statements of cash flows for the six months ended June 30, 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. GAAP. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Certain amounts reported in prior periods have been reclassified to conform with the current presentation. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s 2022 audited consolidated financial statements and notes thereto. The information as of December 31, 2022 in the 11 Table of Content s 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. (c) Accounting Pronouncements Not Yet Adopted 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 The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. (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. 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; and 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). 12 Table of Content s To estimate the fair value of the contingent consideration liability for Vyasa Analytics, LLC ( " Vyasa"), management utilized a Monte Carlo simulation model to value the earn-outs based on the likelihood of reaching certain eligible revenue thresholds. To measure the fair value of the contingent consideration liability for the Drug Interaction Database ("DIDB"), management utilized present value discounted based on a multiple of eligible revenue over two separate measurement periods. Significant inputs used in the fair value measurement of contingent consideration is the amount and timing of the acquired entity’s eligible revenue over certain periods subsequent to the acquisition date. At the acquisition date, the fair value of the contingent consideration liabilities was $ 19,813 and $ 790 for the Vyasa acquisition and DIDB, respectively. 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 June 30, 2023: LEVEL 1 LEVEL2 LEVEL 3 TOTAL (In thousands) Assets Money market funds $ 143,679 $ — $ — $ 143,679 Interest rate swap assets — 9,190 — 9,190 Total assets $ 143,679 $ 9,190 $ — $ 152,869 Liabilities Contingent liabilities $ — $ — $ 23,162 $ 23,162 Total liabilities $ — $ — $ 23,162 $ 23,162 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: LEVEL 1 LEVEL2 LEVEL 3 TOTAL (In thousands) Assets Money market funds $ 100,999 $ — $ — $ 100,999 Interest rate swap assets — 8,374 — 8,374 Total assets $ 100,999 $ 8,374 $ — $ 109,373 Liabilities Contingent liabilities $ — $ — $ 19,813 $ 19,813 Total liabilities $ — $ — $ 19,813 $ 19,813 For the period ended June 30, 2023, there were no transfers between the levels within the fair value hierarchy. The Company’s Level 3 liabilities are acquisition related contingent consideration liabilities. 13 Table of Content s The following table summarizes the Level 3 activity of the changes in the contingent consideration liability. JUNE 30, 2023 (In thousands) Beginning balance at December 31, 2022 $ 19,813 Additions 790 Payments — Change in fair value 2,559 Ending balance at June 30, 2023 $ 23,162 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. (f) Cash and Cash Equivalents, and Restricted Cash Cash equivalents include highly liquid investments with maturities of three months or less from the date purchased. Restricted cash represents cash that is reserved for unexpended restricted grant funds and for a Company's credit card program. The restricted cash balance was $ 3,020 and $ 3,102 at June 30, 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: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Cash and cash equivalents $ 245,190 $ 236,586 Restricted cash, current 3,020 3,102 Total cash and cash equivalents and restricted cash $ 248,210 $ 239,688 (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 $ 460 and $ 1,250 were provided in the accompanying condensed consolidated financial statements as of June 30, 2023 and December 31, 2022, respectively. 14 Table of Content s Accounts receivable consists of the following: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Trade receivables $ 71,226 $ 72,238 Unbilled receivables 12,792 11,309 Other receivables 394 287 Allowances for credit losses ( 460 ) ( 1,250 ) Accounts receivable, net $ 83,952 $ 82,584 The following table presents the information regarding the allowance of accounts receivable: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Beginning balance $ 1,250 $ 262 Provision for credit losses ( 172 ) 1,009 Charge-offs, net of recoveries ( 618 ) ( 21 ) Ending balance $ 460 $ 1,250 (h) Derivative Instruments 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 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 June 30, 2023, the Company and the counter party was in the process to amend the floating rate of the swap agreement from term LIBOR to term SOFR due to LIBOR cessation. At June 30, 2023 and December 31, 2022, the interest swap had a fair value of $ 9,190 and $ 8,374 , respectively; The fair value recognized in accumulated other comprehensive income was $ 9,190 and $ 8,374 , respectively, at June 30, 2023 and December 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 expense in the same period during which the hedged transactions impact 15 Table of Content s earnings. The amount of derivative gains reclassified from accumulated other comprehensive income on derivative instruments recognized in the Company’s condensed consolidated statements of operations and comprehensive income (loss) was $ 1,276 and $ 2,262 for the three and six months ended June 30, 2023, respectively. The notional amounts, fair values, and classification of derivative instruments in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 were as follows: Interest rate swap derivative designated as cash flow hedging instrument: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Notional amounts $ 230,000 $ 230,000 Prepaid expenses and other current assets $ 5,667 $ 4,638 Other long-term assets $ 3,523 $ 3,736 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 month s is $ 5,699 . (i) Revenue Recognition In accordance with ASC Topic 606, “Revenue from Contracts with Customers”, the Company determines revenue recognition through the following steps: i. Identification of the contract, or contracts, with a customer ii. Identification of the performance obligations in the contract iii. Determination of the transaction price iv. Allocation of the transaction price to the performance obligations in the contract v. 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 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. 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. 16 Table of Content s 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 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. 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. 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 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 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. 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 The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (deferred revenue, contract liabilities) on the condensed consolidated balance sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., quarterly or monthly) or upon achievement of contractual milestones. Contract assets relate to the Company’s rights to consideration for performance obligations satisfied but not billed at the reporting date on contracts (i.e., unbilled revenue, a component of accounts receivable in the condensed consolidated balance sheets). Contract assets are billed and transferred to customer accounts receivable when the rights become unconditional. 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. 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 deferred revenue in the condensed consolidated balance sheets. Contract balances at June 30, 2023 and December 31, 2022 were as follows: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Contract assets $ 12,792 $ 11,309 Contract liabilities 54,844 55,024 17 Table of Content s During the six months ended at June 30, 2023, the Company recognized revenue of $ 38,087 related to contract liabilities at December 31, 2022. The unsatisfied performance obligations as of June 30, 2023, were approximately $ 119,407 . We expect to recognize approximately $ 102,781 or 86.1 % 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. 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 is included in sales and marketing expenses in our condensed consolidated statements of operations and comprehensive income (loss). Capitalized contract acquisition costs were $ 749 and $ 981 as of June 30, 2023 , and December 31, 2022, respectively, and were included in prepaid expenses and other current assets in the condensed 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. 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 The Company’s performance obligations are satisfied either over time or at a point in time. 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 JUNE 30, SIX MONTHS ENDED JUNE 30, 2023 2022 2023 2022 (In thousands) Software licenses transferred at a point in time $ 14,553 $ 12,131 $ 29,051 $ 25,583 Software licenses transferred over time 19,170 16,593 37,677 32,334 Service revenues earned over time 56,727 54,036 114,023 106,394 Total $ 90,450 $ 82,760 $ 180,751 $ 164,311 (j) Earnings per Share 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. 18 Table of Content s 3. 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, $ 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. 4. Concentrations of Credit Risk 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 June 30, 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 and distributors with which the Company does business.. As of June 30, 2023 and December 31, 2022, no single customer accounted for more than 10% of the Company’s accounts receivable. No single customer accounted for more than 10% of the Company’s revenues during the six months ended June 30, 2023 and 2022. 5. Acquisitions 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. Since its inception, and as of June 30, 2023, the Company has completed 18 acquisitions, of which 13 have included software or technology. Details of acquisitions that have closed since the beginning of fiscal year 2022 are provided below. 19 Table of Content s Integrated Nonclinical Development Solutions, Inc. On January 03, 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 a total consideration of $ 8,048 . 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 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 artificial intelligence (" 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 June 30, 2023, the contingent consideration was remeasured to $ 22,372 , resulting in a fair value adjustment of $ 2,559 and recorded in general and administrative (“G&A”) on the accompanying condensed consolidated statement of operations and comprehensive income (loss). Drug Interaction Solutions, University of Washington ("DIDB") On June 20, 2023, the Company entered into an asset purchase agreement with the University of Washington and completed the acquisition of Drug Interaction Solutions, including the Drug Interaction Database and related products, from The University of Washington for a total estimated consideration of $ 8,340 . The business combination was not significant to the Company’s condensed consolidated financial statements. The total estimated consideration includes a portion of contingent consideration that is payable over the next two years in cash, not to exceed $ 2,000 . Future payments of contingent consideration are based on eligible revenue for the period from July 1, 2023 through June 30, 2025. The fair value of the contingent consideration was estimated to be $ 790 as of the acquisition date. 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 date during the measurement period. 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. Based on the Company’s preliminary purchase price allocation, approximately $ 330 , $ 5,600 , $ 360 , and $ 2,316 of the purchase price were assigned to trademarks, database content/technology, customer relationships and goodwill, respectively. The condensed consolidated financial statements include the operating results of each acquisition from the date of acquisition. 20 Table of Content s 6. Prepaid Expenses and Other Current Assets and Other Long-Term Assets JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Prepaid expenses $ 8,983 $ 8,389 Income tax receivable 955 2,014 Research and development tax credit receivable 4,192 4,207 Current portion of interest rate swap asset 5,667 4,638 Other current assets 1,085 732 Prepaid expenses and other current assets $ 20,882 $ 19,980 Other long-term assets consisted of the following: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Long-term deposits $ 1,170 $ 1,150 Interest rate swap asset - long-term 3,523 3,736 Deferred financing cost 590 729 Total other long-term assets $ 5,283 $ 5,615 7. Long-Term Debt and Revolving Line of Credit 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 contains various financial and nonfinancial covenants. As of June 30, 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 June 30, 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 were subject to a variable interest rate at LIBOR plus a margin. The applicable margins were based on achieving certain levels of compliance with financial covenants. Due to the cessation of LIBOR, the Company signed a LIBOR transition amendment on June 26 2023, agreeing to replace LIBOR with the Secured Overnight Funding Rate (“SOFR”). In order to make SOFR similar to LIBOR in terms of the overall interest rate being earned by the lenders under the Credit Agreement, a Credit Spread Adjustment (“CSA”) is added to the SOFR. The CSA varied depending on the selected interest period. to adopt a new benchmark interest rate determined in accordance with the Credit Agreement dated June 17, 2021, in order to replace LIBOR, as LIBOR settings are no longer be provided. The effective interest rate was 8.38 % and 3.98 % for the six months ended June 30, 2023 and 2022 for the term loan debt. As discussed previously, the Company entered into interest rate swap agreements to mitigate the interest risk. 21 Table of Content s Interest incurred on the Credit Agreement with respect to the term loan amounted to $ 6,465 , $ 3,241 , $ 12,439 , and $ 5,978 for the three and six months ended June 30, 2023 and 2022, respectively. Accrued interest payable on the Credit Agreement with respect to the term loan amounted to $ 2,291 and $ 130 at June 30, 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 $ 64 and $ 128 for both the three and six months ended June 30, 2023 and 2022, respectively. There was $ 1 and $ 66 accrued interest payable on the revolving line of credit at June 30, 2023 and December 31, 2022, respectively. Long-term debt consists of the following: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Term loans $ 295,960 $ 297,470 Revolving line of credit — — Less: debt issuance costs ( 3,836 ) ( 4,462 ) Total 292,124 293,008 Current portion of long-term debt ( 3,020 ) ( 3,020 ) Long-term debt, net of current portion and debt issuance costs $ 289,104 $ 289,988 The principal amount of long-term debt outstanding as of June 30, 2023 matures in the following years: Remainder of 2023 2024 2025 2026 TOTAL (In thousands) Maturities $ 1,510 $ 3,020 $ 3,020 $ 288,410 $ 295,960 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, 2022, the Company was not required to make a mandatory prepayment on the term loan. For the Credit Agreement, the Company is required to make a quarterly principal payment of $ 755 on the term loan each quarter starting 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. 8. Leases 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 (“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 other 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 June 30, 2023, the weighted average remaining lease terms were 3.61 years for operating and finance leases, respectively; the weighted average discount rate was 3.41 % for operating leases. For additional information on the Company's leases, see Note 14 to the condensed consolidated financial statements included in the Company’s 2022 Annual Report. 22 Table of Content s The following table summarizes the lease-related assets and liabilities recorded in the condensed consolidated balance sheets at June 30, 2023 and December 31, 2022: Lease Position Balance Sheet Classification JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Assets Operating lease assets Operating lease right-of-use assets $ 12,326 $ 14,427 Finance lease assets Property and equipment, net — 24 Total lease assets $ 12,326 $ 14,451 Liabilities Current Operating Other current liabilities $ 4,645 $ 4,968 Finance Other current liabilities — 25 Noncurrent Operating Operating lease liabilities, net of current portion 8,285 10,133 Total lease liabilities $ 12,930 $ 15,126 The following table summarizes by year the maturities of our minimum lease payments as of June 30, 2023. OPERATING LEASES (In thousands) Remainder of 2023 $ 2,820 2024 4,118 2025 3,338 2026 2,133 2027 920 Thereafter 706 Total future lease payments 14,035 Less: imputed interest ( 1,105 ) Total $ 12,930 23 Table of Content s 9. Accrued Expenses and Other Liabilities Accrued expenses consist of the following: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Accrued compensation $ 19,239 $ 29,518 Legal and professional accruals 1,150 1,297 Interest payable 2,276 176 Income taxes payable 6,537 2,223 Short-term contingent liabilities 7,479 — Accrued business acquisition liabilities 700 700 Other 1,273 1,489 Total accrued expenses $ 38,654 $ 35,403 Other long-term liabilities consist of the following: JUNE 30, 2023 DECEMBER 31, 2022 (In thousands) Uncertain tax position liability $ 2,345 $ 2,308 Contingent consideration 15,683 19,813 Total other long-term liabilities $ 18,028 $ 22,121 10. 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 on December 10, 2020 in exchange for the Class B Profits Interest Unit (the “Class B Units”) of EQT, 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 . Share-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 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 vest equally on a monthly basis for two years . 24 Table of Content s SHARES WEIGHTED- AVERAGE GRANT DATE FAIR VALUE Non-vested restricted stock as of December 31, 2022 1,402,813 $ 23.27 Granted — — Vested* ( 412,544 ) 23.27 Forfeited ( 124,943 ) 23.00 Non-vested restricted stock as of June 30, 2023 865,326 $ 23.31 ___________________________________ • The number of the restricted stock vested includes 3,726 shares 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 $( 491 ) , $ 1,957 , $ 164 , and $ 4,077 for the three and six months ended June 30, 2023 and 2022, respectively. At June 30, 2023, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the accelerated attribution approach was $ 1,694 , which is expected to be recognized over a weighted-average period of 17.4 months. Equity-based compensation expenses related to the restricted stock exchanged for time-based Class B Units were $ 312 and $ 766 , $ 810 , and $ 1,531 for the three and six months ended June 30, 2023 and 2022, respectively. At June 30, 2023, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the straight-line attribution approach was $ 1,694 , which is expected to be recognized over a weighted-average period of 22.3 months. Equity-based employee compensation expense related to the time-based restricted stock for the Pinnacle acquisition was $ 292 , $ 292 , $ 584 , and $ 584 for the three and six months ended June 30, 2023 and 2022, respectively. At June 30, 2023, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach was $ 717 , which is expected to be recognized over a weighted-average period of 11.9 months. 2020 Incentive Plan 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. No more than the number of shares of common stock equal to the plan share reserve may be issued in the aggregate pursuant to the exercise of incentive stock options. 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 ("RSU") RSUs represent the right to receive shares of the Company’s common stock at a specified date in the future. The fair value of the RSUs is based on the fair value of the underlying shares on the date of grant. 25 Table of Content s A summary of the Company’s RSU activity is as follows: UNITS WEIGHTED- AVERAGE GRANT DATE FAIR VALUE Non-vested RSUs as of December 31, 2022 2,005,095 $ 24.71 Granted* 1,602,648 24.02 Vested** ( 677,393 ) 23.80 Forfeited ( 223,230 ) 23.40 Non-vested RSUs as of June 30, 2023 2,707,120 $ 24.63 ___________________________________ * The majority shares granted during 2023 were issued on April 1, 2023 under the 2020 Incentive Plan. ** The number of the RSUs vested includes 240,276 shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements. The vested shares included 9,324 shares vested but deferred in connection with our director deferral plan. Equity-based compensation expenses related to the RSUs were $ 7,325 , $ 5,838 , $ 12,137 , and $ 9,226 for three and six months ended June 30, 2023 and 2022, respectively. At June 30, 2023, the total unrecognized equity-based compensation expense related to outstanding RSUs was $ 56,259 , which is expected to be recognized over a weighted-average period of 26.3 months. Performance Stock Units ("PSU") PSUs granted in April 2021, 2022, and 2023 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, unlevered free cash flow growth, annual revenue, and annual EBITDA. The PSUs granted in 2023 also contains a market condition. Share-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. A summary of the Company’s PSU activity for the period ended June 30, 2023 is as follows: UNITS WEIGHTED- AVERAGE GRANT DATE FAIR VALUE Non-vested PSUs as of December 31, 2022 654,308 $ 23.99 Granted 467,264 27.31 Vested ( 18,437 ) 24.83 Forfeited ( 94,054 ) 25.71 Non-vested PSUs as of June 30, 2023 1,009,081 $ 25.35 Equity-based compensation expenses related to the PSUs were $( 3,828 ) , $ 648 , $( 1,542 ) , and $ 1,595 for the three and six months ended at June 30, 2023 and 2022, respectively. At June 30, 2023, the total unrecognized equity-based compensation expense related to outstanding PSUs was $ 1,692 , which is expected to be recognized over a weighted-average period of 12.2 months. 26 Table of Content s The following table summarizes the components of total equity-based compensation expense included in the condensed consolidated statements of operations and comprehensive income (loss) for each period presented: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2023 2022 2023 2022 (In thousands) Cost of revenues $ 3,088 $ 2,657 $ 5,130 $ 4,380 Sales and marketing 548 850 929 1,510 Research and development 1,220 1,785 2,870 3,158 General and administrative ( 1,246 ) 4,209 3,224 7,966 Total $ 3,610 $ 9,501 $ 12,153 $ 17,014 11. Commitments and Contingencies Contingent consideration In connection with the Vyasa and DIDB acquisitions, the Company is required to pay additional consideration if the acquired businesses achieve certain eligible revenue thresholds for certain periods. The maximum contingent considerations for Vyasa and DIDB to be earned are $ 60,000 and $ 2,000 , respectively. The fair value of the contingent consideration was $ 23,162 and $ 19,813 at June 30, 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 its condensed consolidated financial statements as of June 30, 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 application 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. 12. Segment Data 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. The Company has determined that its chief executive officer is its CODM. The Company manages its operations as a single segment for the purposes of assessing and making operating decisions. The Company’s CODM allocates resources and assesses performance based upon financial information at the consolidated level. Since the Company operates in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements. 27 Table of Content s The following table summarizes revenue by geographic area for the three and six months ended June 30, 2023 and 2022: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2023 2022 2023 2022 (In thousands) Revenue (1) : Americas $ 68,167 $ 62,633 $ 135,190 $ 122,417 EMEA 15,110 13,623 32,025 29,557 Asia Pacific 7,173 6,504 13,536 12,337 Total $ 90,450 $ 82,760 $ 180,751 $ 164,311 ___________________________________ (1) Revenue is attributable to the countries based on the location of the customer. 13. Income Taxes 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. 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 currently forecasted ETR may vary from the actual year-end due to changes in these factor. The Company's global ETR for the three and six months ended June 30, 2023 and 2022 were 44 %, 121 %, 44 %, and 75 %, respectively, including discrete tax items. The current year decrease in the ETR was principally due to the relative mix of domestic and international earnings. 28 Table of Content s 14. Earnings per Share 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 JUNE 30, SIX MONTHS ENDED JUNE 30, 2023 2022 2023 2022 Basic earnings per share Net income (loss) available to common shareholders $ 4,706 $ ( 589 ) $ 6,064 $ 1,621 Basic weighted-average common shares outstanding 158,955,822 156,478,724 158,568,575 156,209,335 Basic earnings per common share $ 0.03 $ 0.00 $ 0.04 $ 0.01 Diluted earnings per share Net income (loss) available to common shares $ 4,706 $ ( 589 ) $ 6,064 $ 1,621 Basic weighted-average common shares outstanding 158,955,822 156,478,724 158,568,575 156,209,335 Dilutive potential common shares 951,150 — 1,249,113 3,084,027 Diluted weighted-average common shares outstanding 159,906,972 156,478,724 159,817,688 159,293,362 Diluted earnings per common share $ 0.03 $ 0.00 $ 0.04 $ 0.01 29 Table of Content s