What changed in this filing

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Item 1. Financial Statements

2023-11-08 compared with 2023-08-09 · 153 added, 134 removed, 580 unchanged (33% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) JUNE 30,

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) SEPTEMBER 30,

2023 DECEMBER 31,

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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

Preferred shares, $ 0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Common shares, $ 0.01 par value, 600,000,000 shares authorized, 160,279,919 and 159,676,150 shares issued as of September 30, 2023 and December 31, 2022, respectively;

159,848,766 and 159,525,943 shares outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,170,960 1,150,168

1 unchanged sentence

Accumulated other comprehensive loss ( 7,714 ) ( 8,230 )

Treasury stock at cost, 394,209 and 150,207 shares at June 30, 2023 and December 31, 2022, respectively

Treasury stock at cost, 431,153 and 150,207 shares at September 30, 2023 and December 31, 2022, respectively

( 9,323 ) ( 3,000 )

2 unchanged sentences

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

Table of Content s

CERTARA, INC.

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AND COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) 2023 2022 2023 2022

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Depreciation and amortization expense 367 417 1,139 1,321

Goodwill impairment expense 46,984 — 46,984 —

Total operating expenses 102,484 41,029 191,678 127,075

Income from operations 13,039 4,149 20,477 10,282

Income (loss) from operations ( 52,784 ) 10,859 ( 32,307 ) 21,141

Other income (expenses):

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Total other expenses ( 825 ) ( 2,366 ) ( 10,452 ) ( 6,111 )

Income before income taxes 8,381 2,791 10,850 6,537

Provision for income taxes 3,675 3,380 4,786 4,916

Income (loss) before income taxes ( 53,609 ) 8,493 ( 42,759 ) 15,030

Provision (benefit) for income taxes ( 4,644 ) 4,557 142 9,473

Net income (loss) ( 48,965 ) 3,936 ( 42,901 ) 5,557

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Total other comprehensive income (loss) ( 4,541 ) ( 4,210 ) 516 ( 14,002 )

Comprehensive income (loss) $ 8,853 $ ( 7,261 ) $ 11,121 $ ( 8,171 )

Comprehensive loss $ ( 53,506 ) $ ( 274 ) $ ( 42,385 ) $ ( 8,445 )

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

5 unchanged sentences

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

Table of Content s

CERTARA, INC.

9 unchanged sentences

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

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

Equity-based compensation awards 6,804 — — 6,804

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 )

Common shares issued for share-based compensation awards and shares withheld for tax 94,091 — 1 ( 31,549 ) ( 515 ) ( 514 )

Restricted stock forfeiture ( 163,634 ) ( 1 ) 2 — — — — 1

Change in fair value from interest rate swap, net of tax 5,279 — — 5,279

1 unchanged sentence

Foreign currency translation adjustment ( 9,489 ) — — ( 9,489 )

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 September 30, 2022 159,921,814 $ 1,599 $ 1,143,638 $ ( 70,047 ) $ ( 17,928 ) ( 140,544 ) $ ( 2,864 ) $ 1,054,398

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 — — 23,818 — — — — 23,818

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 )

Common shares issued for share-based compensation awards and shares withheld for tax 425,400 4 ( 3 ) — — ( 139,444 ) ( 2,826 ) ( 2,825 )

Restricted stock forfeiture ( 163,634 ) ( 1 ) 2 1

Change in fair value from interest rate swap, net of tax — — — — 6,191 — — 6,191

1 unchanged sentence

Foreign currency translation adjustment — — — — ( 20,193 ) — — ( 20,193 )

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 September 30, 2022 159,921,814 $ 1,599 $ 1,143,638 $ ( 70,047 ) $ ( 17,928 ) ( 140,544 ) $ ( 2,864 ) $ 1,054,398

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

Table of Content s

CERTARA, INC.

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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

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

Equity-based compensation expense, net of forfeiture — — 8,645 — — — — 8,645

2 unchanged sentences

Change in fair value from interest rate swap, net of tax — — — — 117 — — 117

Net income — — — 4,706 — — — 4,706

Net loss — — — ( 48,965 ) — — — ( 48,965 )

Foreign currency translation adjustment, net of tax — — — — ( 4,658 ) — — ( 4,658 )

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 September 30, 2023 160,279,919 $ 1,602 $ 1,170,960 $ ( 103,774 ) $ ( 7,714 ) ( 431,153 ) $ ( 9,323 ) $ 1,051,751

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

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Change in fair value from interest rate swap, net of tax — — — — 758 — — 758

Net income — — — 6,064 — — — 6,064

Net loss — — — ( 42,901 ) — — — ( 42,901 )

Foreign currency translation adjustment, net of tax — — — — ( 242 ) — — ( 242 )

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 September 30, 2023 160,279,919 $ 1,602 $ 1,170,960 $ ( 103,774 ) $ ( 7,714 ) ( 431,153 ) $ ( 9,323 ) $ 1,051,751

• Legal forfeiture 66,220 shares occurred in Q1 2023;

1 unchanged sentence

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

Table of Content s

CERTARA, INC.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 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:

Net income (loss) $ ( 42,901 ) $ 5,557

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

Depreciation and amortization of property and equipment 1,139 1,321

5 unchanged sentences

Change in fair value of contingent considerations 11,316 —

Goodwill impairment 46,984 —

Lease abandonment expense 1,602 —

Deferred income taxes ( 18,532 ) ( 3,209 )

4 unchanged sentences

Deferred revenue ( 6,978 ) ( 1,727 )

Change in other liabilities — ( 1,158 )

Other liabilities ( 293 ) ( 1,299 )

Net cash provided by operating activities 59,429 57,058

9 unchanged sentences

Payment of taxes on shares withheld for employee taxes ( 5,905 ) ( 2,827 )

Net cash used by financing activities ( 7,270 ) ( 5,051 )

Net cash used in financing activities ( 8,195 ) ( 6,395 )

Effect of foreign exchange rate changes on cash and cash equivalents, and restricted cash ( 107 ) ( 8,266 )

8 unchanged sentences

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

Table of Content s

CERTARA, INC.

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(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 condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of cash flows for the nine months ended September 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.

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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

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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.

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.

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(e) Fair Value Measurements

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

The Company follows 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.

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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.

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.

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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).

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.

To measure the fair value of the contingent consideration liability for the Drug Interaction Database ("DIDB"), management initially 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:

The following table sets forth the assets and liabilities that were measured at fair value on a recurring basis by their levels in the fair value hierarchy at September 30, 2023:

LEVEL 1 LEVEL2 LEVEL 3 TOTAL

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Total liabilities $ — $ — $ 31,919 $ 31,919

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:

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

LEVEL 1 LEVEL2 LEVEL 3 TOTAL

5 unchanged sentences

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.

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For the period ended September 30, 2023, there were no transfers between the levels within the fair value hierarchy.

The Company’s Level 3 liabilities that were measured at fair value on a recurring basis are acquisition related contingent consideration liabilities.

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

SEPTEMBER 30,

(In thousands)

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Change in fair value 11,316

Ending balance at June 30, 2023

Ending balance at September 30, 2023

Non-Recurring Fair Value Measurements:

Certain assets are measured at fair value on a non-recurring basis.

These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments when events or circumstances indicate a significant adverse effect on the fair value of the asset.

During the third quarter of 2023, the Company performed an interim goodwill impairment test for its Regulatory and Writing business reporting unit.

It was determined that the fair value of the reporting unit was less than its carrying value, resulting in the recording of a $ 46,984 goodwill impairment charge and a corresponding reduction in the goodwill carrying amount for the reporting unit.

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

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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 restricted cash balance was $ 0 and $ 3,102 at September 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:

SEPTEMBER 30,

2023 DECEMBER 31,

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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.

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Allowances for credit losses of $ 678 and $ 1,250 were provided in the accompanying condensed consolidated financial statements as of September 30, 2023 and December 31, 2022, respectively.

Accounts receivable consists of the following:

SEPTEMBER 30,

2023 DECEMBER 31,

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

SEPTEMBER 30,

2023 DECEMBER 31,

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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.

During the quarter ended at September 30, 2023, the Company and the counter party amended the floating rate of the swap agreement from term LIBOR to term SOFR due to LIBOR cessation.

At September 30, 2023 and December 31, 2022, the interest swap had a fair value of $ 9,344 and $ 8,374 , respectively.

The fair value recognized in accumulated other comprehensive income was $ 9,344 and $ 8,374 , respectively, at September 30, 2023 and December 31, 2022.

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

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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

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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:

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

The amount of derivative gains reclassified from accumulated other comprehensive income on this derivative instrument recognized in the Company’s condensed consolidated statements of operations and comprehensive income (loss) was $ 1,489 , $( 355 ), $ 3,751 , and $( 700 ) for the three and nine months ended September 30, 2023 and 2022, respectively.

The notional amounts, fair values, and classification of derivative instruments in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 were as follows:

Interest rate swap derivative designated as cash flow hedging instrument:

SEPTEMBER 30,

2023 DECEMBER 31,

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Other long-term assets $ 3,464 $ 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

The goodwill impairment test is performed at least annually at the reporting unit level.

An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value.

During the third quarter of 2023, the Company performed interim goodwill impairment tests for Regulatory Writing reporting unit.

The fair value of Regulatory Writing reporting unit was determined to be less than its carrying value, resulting in a goodwill impairment charge of $ 46,984 for the reporting unit.

The fair value of that reporting unit was estimated using a combination of the discounted cash flow method and the guideline public company method.

The decline in the fair value of the Regulatory Writing reporting unit was driven by revised revenue growth and profitability forecasts resulting from certain reductions in our financial planning assumptions.

These reductions were primarily attributable to a decrease in demand from certain customer groups for the legacy reporting unit.

The changes in the carrying amount of goodwill for the period ended September 30, 2023 are as follows.

Balance as of December 31, 2022 $ 717,743

Goodwill acquired in connection with acquisition 2,306

Foreign currency translation 94

Impairment expense ( 46,984 )

Balance as of September 30, 2023 $ 673,159

(j) Revenue Recognition

In accordance with ASC Topic 606, “Revenue from Contracts with Customers”, the Company determines revenue recognition through the following steps:

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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.

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Software Service Revenues

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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:

Contract balances at September 30, 2023 and December 31, 2022 were as follows:

SEPTEMBER 30,

2023 DECEMBER 31,

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Contract liabilities 49,217 55,024

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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 .

During the nine months ended at September 30, 2023, the Company recognized revenue of $ 47,230 related to contract liabilities at December 31, 2022.

The unsatisfied performance obligations as of September 30, 2023, were approximately $ 118,704 .

We expect to recognize approximately $ 105,409 or 88.8 % of this revenue over the next 12 months and the remainder thereafter.

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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.

Capitalized contract acquisition costs were $ 654 and $ 981 as of September 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

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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,

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

2023 2022 2023 2022

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Total $ 85,576 $ 84,700 $ 266,327 $ 249,011

(j) Earnings per Share

(k) 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.

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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

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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.

At September 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.

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.

As of September 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 nine months ended September 30, 2023 and 2022.

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.

Since its inception, and as of September 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.

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Integrated Nonclinical Development Solutions, Inc.

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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 .

Vyasa Analytics, LLC (“Vyasa”)

On December 28, 2022, the Company completed the acquisition of 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 consideration of $ 29,276 .

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

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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.

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

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

1 unchanged sentence

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).

At September 30, 2023, the contingent consideration was remeasured to $ 31,512 , resulting in a fair value adjustment of $ 11,699 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 .

On June 20, 2023, the Company entered into an asset purchase agreement with the University of Washington and completed the acquisition of DIDB, 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.

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The fair value of the contingent consideration was estimated to be $ 790 as of the acquisition date.

At September 30, 2023, the contingent consideration was remeasured to $ 407 , resulting in a negative fair value adjustment of $ 383 and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

The current purchase price allocation is preliminary.

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

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Prepaid Expenses and Other Current Assets and Other Long-Term Assets

SEPTEMBER 30,

2023 DECEMBER 31,

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Other long-term assets consisted of the following:

SEPTEMBER 30,

2023 DECEMBER 31,

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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 Company and the lenders most recently 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.

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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.

As of September 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 September 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.

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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.

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.

The effective interest rate was 8.67 % and 4.60 % for the nine months ended September 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.

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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.

Interest incurred on the Credit Agreement with respect to the term loan amounted to $ 6,844 , $ 4,366 , $ 19,283 , and $ 10,344 for the three and nine months ended September 30, 2023 and 2022, respectively.

Accrued interest payable on the Credit Agreement with respect to the term loan amounted to $ 2,340 and $ 130 at September 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 $ 65 , $ 65 , $ 193 , and $ 193 for both the three and nine months ended September 30, 2023 and 2022, respectively.

There was $ 1 and $ 66 accrued interest payable on the revolving line of credit at September 30, 2023 and December 31, 2022, respectively.

Long-term debt consists of the following:

SEPTEMBER 30,

2023 DECEMBER 31,

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Long-term debt, net of current portion and debt issuance costs $ 288,661 $ 289,988

The principal amount of long-term debt outstanding as of June 30, 2023 matures in the following years:

The principal amount of long-term debt outstanding as of September 30, 2023 matures in the following years:

Remainder of 2023 2024 2025 2026 TOTAL

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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.

For the Credit Agreement, the Company is required to make a quarterly principal payment of $ 755 on the term loan each quarter.

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.

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

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

The Company also had finance leases until the first quarter of this year.

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.

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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;

At September 30, 2023, the weighted average remaining lease terms were 3.44 years for operating leases;

the weighted average discount rate was 3.38 % 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.

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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

The following table summarizes the lease-related assets and liabilities recorded in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022:

Lease Position Balance Sheet Classification SEPTEMBER 30, 2023 DECEMBER 31, 2022

(In thousands)

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Total lease liabilities $ 11,680 $ 15,126

The following table summarizes by year the maturities of our minimum lease payments as of June 30, 2023.

The following table summarizes by year the maturities of our minimum lease payments as of September 30, 2023.

(In thousands)

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Total $ 11,680

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Lease abandonment

In the third quarter of 2023, the Company recorded a lease abandonment expense of $ 1,602 and reduced its lease ROU assets for the same amount in connection with the evaluation of the Company's office space footprint.

This expense is included within the general and administrative expenses in the Company's condensed consolidated statements of operations and comprehensive loss.

Accrued Expenses and Other Liabilities

Accrued expenses consist of the following:

SEPTEMBER 30,

2023 DECEMBER 31,

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Other long-term liabilities consist of the following:

SEPTEMBER 30,

2023 DECEMBER 31,

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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.

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

Restricted Stock

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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 .

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SHARES WEIGHTED-

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Forfeited ( 135,618 ) 23.00

Non-vested restricted stock as of June 30, 2023 865,326 $ 23.31

Non-vested restricted stock as of September 30, 2023 667,179 $ 23.32

___________________________________

• The number of the restricted stock vested includes 5,430 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.

Equity-based compensation expenses (income) related to the restricted stock exchanged for performance-based Class B Units were $ 333 , $( 319 ), $ 497 , and $ 3,758 for the three and nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the accelerated attribution approach was $ 1,237 , which is expected to be recognized over a weighted-average period of 16.2 months.

Equity-based compensation expenses related to the restricted stock exchanged for time-based Class B Units were $ 252 , $ 1,174 , $ 1,062 , and $ 2,705 for the three and nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the total unrecognized equity-based compensation expense related to outstanding restricted stock recognized using the straight-line attribution approach was $ 1,421 , which is expected to be recognized over a weighted-average period of 19.7 months.

Equity-based employee compensation expense related to the time-based restricted stock for the Pinnacle acquisition was $ 292 , $ 292 , $ 877 , and $ 877 for the three and nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach was $ 425 , which is expected to be recognized over a weighted-average period of 12 months.

2020 Incentive Plan

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The fair value of the RSUs is based on the fair value of the underlying shares on the date of grant.

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

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Forfeited ( 304,923 ) 23.52

Non-vested RSUs as of June 30, 2023 2,707,120 $ 24.63

Non-vested RSUs as of September 30, 2023 2,529,780 $ 24.18

___________________________________

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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.

Equity-based compensation expenses related to the RSUs were $ 7,260 , $ 5,312 , $ 19,397 , and $ 14,538 for three and nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the total unrecognized equity-based compensation expense related to outstanding RSUs was $ 47,479 , which is expected to be recognized over a weighted-average period of 23.9 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.

The PSUs granted in 2023 also contain 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:

A summary of the Company’s PSU activity for the period ended September 30, 2023 is as follows:

UNITS WEIGHTED-

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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.

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Non-vested PSUs as of September 30, 2023 1,026,702 $ 25.24

Equity-based compensation expenses (income) related to the PSUs were $ 506 , $ 345 , $( 1,035 ), and $ 1,940 for the three and nine months ended at September 30, 2023 and 2022, respectively.

At September 30, 2023, the total unrecognized equity-based compensation expense related to outstanding PSUs was $ 780 , which is expected to be recognized over a weighted-average period of 9.8 months.

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,

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

2023 2022 2023 2022

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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.

The fair value of the contingent consideration was $ 31,919 and $ 19,813 at September 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

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

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The following table summarizes revenue by geographic area for the three and six months ended June 30, 2023 and 2022:

The following table summarizes revenue by geographic area for the three and nine months ended September 30, 2023 and 2022:

THREE MONTHS ENDED

JUNE 30, SIX MONTHS ENDED

SEPTEMBER 30, NINE MONTHS ENDED

SEPTEMBER 30,

2023 2022 2023 2022

(In thousands)

Revenue (1) :

Americas $ 64,634 $ 64,367 $ 199,824 $ 186,784

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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.

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The effective tax rate ("ETR") each period is impacted by a number of factors, including the relative mix of domestic and international earnings, permanent differences adjustments to the valuation allowances, and 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 and nine months ended September 30, 2023 and 2022 were 9 %, 54 %, ( 0.3 )%, and 63 %, respectively, including discrete tax items.

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

Earnings per Share

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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,

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

2023 2022 2023 2022

(In Thousands, Except Per Share and Share Data)

Basic earnings per share

8 unchanged sentences

Diluted earnings per common share $ ( 0.31 ) $ 0.02 $ ( 0.27 ) $ 0.03

Table of Content s

Subsequent Event

On October 10, 2023, the Company completed the acquisition of Formedix Limited ("Formedix"), a company that provides clinical metadata repository and clinical trial automation software.

The total consideration for this acquisition is up to $ 39,000 , comprising of $ 30,000 in cash, subject to customary post-closing adjustments, and a deferred purchase price of up to $ 9,000 , contingent upon the acquired business achieving certain eligible revenue thresholds for specific periods.

The Company will finalize the initial accounting for the acquisition of Formedix, including the allocation of the purchase consideration, in the fourth quarter of 2023.

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