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) SEPTEMBER 30, 2023 DECEMBER 31, 2022 Assets Current assets: Cash and cash equivalents $ 272,312 $ 236,586 Accounts receivable, net of allowance for credit losses of $ 678 and $ 1,250 , respectively 76,553 82,584 Restricted cash — 3,102 Prepaid expenses and other current assets 20,912 19,980 Total current assets 369,777 342,252 Other assets: Property and equipment, net 2,126 2,400 Operating lease right-of-use assets 9,727 14,427 Goodwill 673,159 717,743 Intangible assets, net of accumulated amortization of $ 257,714 and $ 217,705 , respectively 463,112 486,782 Deferred income taxes 3,703 3,703 Other long-term assets 5,217 5,615 Total assets $ 1,526,821 $ 1,572,922 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 5,256 $ 7,533 Accrued expenses 44,725 35,403 Current portion of deferred revenue 47,980 52,209 Current portion of long-term debt 3,020 3,020 Other current liabilities 4,446 4,993 Total current liabilities 105,427 103,158 Long-term liabilities: Deferred revenue, net of current portion 1,237 2,815 Deferred income taxes 46,400 65,046 Operating lease liabilities, net of current portion 7,234 10,133 Long-term debt, net of current portion and debt discount 288,661 289,988 Other long-term liabilities 26,111 22,121 Total liabilities 475,070 493,261 Commitments and contingencies Stockholders' equity: Preferred shares, $ 0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of 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 1,602 1,596 Additional paid-in capital 1,170,960 1,150,168 Accumulated deficit ( 103,774 ) ( 60,873 ) Accumulated other comprehensive loss ( 7,714 ) ( 8,230 ) Treasury stock at cost, 431,153 and 150,207 shares at September 30, 2023 and December 31, 2022, respectively ( 9,323 ) ( 3,000 ) Total stockholders’ equity 1,051,751 1,079,661 Total liabilities and stockholders’ equity $ 1,526,821 $ 1,572,922 The accompanying notes are an integral part of the condensed consolidated financial statements 6 Table of Contents CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) 2023 2022 2023 2022 Revenues $ 85,576 $ 84,700 $ 266,327 $ 249,011 Cost of revenues 35,876 32,812 106,956 100,795 Operating expenses: Sales and marketing 7,238 6,376 23,351 19,608 Research and development 8,980 6,318 26,155 21,607 General and administrative 27,760 17,327 61,777 53,444 Intangible asset amortization 11,155 10,591 32,272 31,095 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 (loss) from operations ( 52,784 ) 10,859 ( 32,307 ) 21,141 Other income (expenses): Interest expense ( 5,903 ) ( 5,221 ) ( 17,046 ) ( 12,328 ) Net other income 5,078 2,855 6,594 6,217 Total other expenses ( 825 ) ( 2,366 ) ( 10,452 ) ( 6,111 ) 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 Other comprehensive income (loss): Foreign currency translation adjustment ( 4,658 ) ( 9,489 ) ( 242 ) ( 20,193 ) Change in fair value from interest rate swap, net of tax of $ 37 , $ 1,716 , $ 211 , $ 2,137 , respectively 117 5,279 758 6,191 Total other comprehensive income (loss) ( 4,541 ) ( 4,210 ) 516 ( 14,002 ) Comprehensive loss $ ( 53,506 ) $ ( 274 ) $ ( 42,385 ) $ ( 8,445 ) Net income (loss) per share attributable to common stockholders: Basic $ ( 0.31 ) $ 0.03 $ ( 0.27 ) $ 0.04 Diluted $ ( 0.31 ) $ 0.02 $ ( 0.27 ) $ 0.03 Weighted average common shares outstanding: Basic 159,165,206 157,140,166 158,769,638 156,523,022 Diluted 159,165,206 159,587,645 158,769,638 159,392,534 The accompanying notes are an integral part of the condensed consolidated financial statements 7 Table of Contents 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 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 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 Net income 3,936 — — 3,936 Foreign currency translation adjustment ( 9,489 ) — — ( 9,489 ) 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 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 Net income — — — 5,557 — — 5,557 Foreign currency translation adjustment — — — — ( 20,193 ) — — ( 20,193 ) 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 8 Table of Contents 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 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 Common shares issued for share-based compensation awards and shares withheld for tax 119,101 1 ( 2 ) — — ( 36,944 ) ( 561 ) ( 562 ) Restricted stock forfeiture* ( 10,675 ) — — — — — — — Change in fair value from interest rate swap, net of tax — — — — 117 — — 117 Net loss — — — ( 48,965 ) — — — ( 48,965 ) Foreign currency translation adjustment, net of tax — — — — ( 4,658 ) — — ( 4,658 ) 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 Equity-based compensation expense, net of forfeiture — — 20,798 — — — — 20,798 Common shares issued for share-based compensation awards and shares withheld for tax 805,607 8 ( 8 ) — — ( 280,946 ) ( 6,323 ) ( 6,323 ) Restricted stock forfeiture* ( 201,838 ) ( 2 ) 2 — — — — — Change in fair value from interest rate swap, net of tax — — — — 758 — — 758 Net loss — — — ( 42,901 ) — — — ( 42,901 ) Foreign currency translation adjustment, net of tax — — — — ( 242 ) — — ( 242 ) 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; and the accounting forfeiture occurred in Q3 2022. The accompanying notes are an integral part of the condensed consolidated financial statements 9 Table of Contents CERTARA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS) 2023 2022 Cash flows from 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 Amortization of intangible assets 40,099 38,007 Amortization of debt issuance costs 1,146 1,156 Provision for credit losses 52 468 Loss on retirement of assets 29 56 Equity-based compensation expense 20,798 23,818 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 ) Changes in assets and liabilities: Accounts receivable 6,441 ( 7,895 ) Prepaid expenses and other assets 85 4,209 Accounts payable and accrued expenses ( 1,558 ) ( 3,404 ) Deferred revenue ( 6,978 ) ( 1,727 ) Other liabilities ( 293 ) ( 1,299 ) Net cash provided by operating activities 59,429 57,058 Cash flows from investing activities: Capital expenditures ( 899 ) ( 1,249 ) Capitalized development costs ( 10,000 ) ( 8,106 ) Investment in intangible assets ( 54 ) — Business acquisitions, net of cash acquired ( 7,550 ) ( 5,883 ) Net cash used in investing activities ( 18,503 ) ( 15,238 ) Cash flows from financing activities: Payments on long-term debt and finance lease obligations ( 2,290 ) ( 2,483 ) Payments on financing component of interest rate swap — ( 1,085 ) Payment of taxes on shares withheld for employee taxes ( 5,905 ) ( 2,827 ) 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 ) Net increase in cash and cash equivalents, and restricted cash 32,624 27,159 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 $ 272,312 $ 213,783 Supplemental disclosures of cash flow information Cash paid for interest $ 13,668 $ 12,310 Cash paid for taxes $ 12,365 $ 7,784 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 Contents 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 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. 11 Table of Contents 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 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 Accounting Standards Codification (“ASC”) 820 10, “Fair Value Measurements” (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and requires certain disclosures about fair value measurements. ASC 820 - 10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction. Fair value measurement is based on a hierarchy of observable or unobservable inputs. The standard describes three levels of inputs that may be used to measure fair value. Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical securities as of the reporting date; Level 2 — Inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk etc. as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies; 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 12 Table of Contents term, notional amount, discount rate and credit risk. Significant inputs to the derivative instrument valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy. Contingent liabilities related to acquisitions are measured at fair value using Level 3 unobservable inputs. The Company's estimates of fair value are based upon assumptions believed to be reasonable, but that are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent liabilities are included in the earnings in the condensed consolidated statements of operations and comprehensive income (loss). To estimate the fair value of the contingent consideration liability 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 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 basis by their levels in the fair value hierarchy at September 30, 2023: LEVEL 1 LEVEL2 LEVEL 3 TOTAL (In thousands) Assets Money market funds $ 145,552 $ — $ — $ 145,552 Interest rate swap assets — 9,344 — 9,344 Total assets $ 145,552 $ 9,344 $ — $ 154,896 Liabilities Contingent liabilities $ — $ — $ 31,919 $ 31,919 Total liabilities $ — $ — $ 31,919 $ 31,919 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 (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 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. 13 Table of Contents The following table summarizes the Level 3 activity of the changes in the contingent consideration liability. SEPTEMBER 30, 2023 (In thousands) Beginning balance at December 31, 2022 $ 19,813 Additions 790 Payments — Change in fair value 11,316 Ending balance at September 30, 2023 $ 31,919 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. “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 $ 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, 2022 (In thousands) Cash and cash equivalents $ 272,312 $ 236,586 Restricted cash, current — 3,102 Total cash and cash equivalents and restricted cash $ 272,312 $ 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. 14 Table of Contents 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 $ 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, 2022 (In thousands) Trade receivables $ 64,163 $ 72,238 Unbilled receivables 12,761 11,309 Other receivables 307 287 Allowances for credit losses ( 678 ) ( 1,250 ) Accounts receivable, net $ 76,553 $ 82,584 The following table presents the information regarding the allowance of accounts receivable: SEPTEMBER 30, 2023 DECEMBER 31, 2022 (In thousands) Beginning balance $ 1,250 $ 262 Provision for credit losses 52 1,009 Charge-offs, net of recoveries ( 624 ) ( 21 ) Ending balance $ 678 $ 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. 15 Table of Contents 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. 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. 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 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, 2022 (In thousands) Notional amounts $ 230,000 $ 230,000 Prepaid expenses and other current assets $ 5,880 $ 4,638 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 months is $ 5,888 . (i) Goodwill 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. 16 Table of Contents 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: 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. Software Service Revenues 17 Table of Contents 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 September 30, 2023 and December 31, 2022 were as follows: SEPTEMBER 30, 2023 DECEMBER 31, 2022 (In thousands) Contract assets $ 12,761 $ 11,309 Contract liabilities 49,217 55,024 18 Table of Contents 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. 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 $ 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 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 2023 2022 (In thousands) Software licenses transferred at a point in time $ 9,916 $ 10,851 $ 38,967 $ 36,434 Software licenses transferred over time 21,414 17,541 59,092 49,875 Service revenues earned over time 54,246 56,308 168,268 162,702 Total $ 85,576 $ 84,700 $ 266,327 $ 249,011 (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 19 Table of Contents is computed by dividing the net earnings attributable to stockholders by the weighted-average number of shares and dilutive securities outstanding during the period. 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 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 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. 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 20 Table of Contents 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 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. Integrated Nonclinical Development Solutions, Inc. On January 3, 2022, the Company completed the acquisition of Integrated Nonclinical Development Solutions, Inc. (“INDS”), a company that provides the SEND Explorer software and drug development consulting for 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 (“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. 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-year 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 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 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. 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. 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. 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. 21 Table of Contents 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. 6. Prepaid Expenses and Other Current Assets and Other Long-Term Assets SEPTEMBER 30, 2023 DECEMBER 31, 2022 (In thousands) Prepaid expenses $ 7,561 $ 8,389 Income tax receivable 1,810 2,014 Research and development tax credit receivable 4,836 4,207 Current portion of interest rate swap asset 5,880 4,638 Other current assets 825 732 Prepaid expenses and other current assets $ 20,912 $ 19,980 Other long-term assets consisted of the following: SEPTEMBER 30, 2023 DECEMBER 31, 2022 (In thousands) Long-term deposits $ 1,233 $ 1,150 Interest rate swap asset - long-term 3,464 3,736 Deferred financing cost 520 729 Total other long-term assets $ 5,217 $ 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 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. 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 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. 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 22 Table of Contents lenders under the Credit Agreement, a Credit Spread Adjustment (“CSA”) is added to the SOFR. The CSA varied depending on the selected interest period. 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. 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, 2022 (In thousands) Term loans $ 295,205 $ 297,470 Revolving line of credit — — Less: debt issuance costs ( 3,524 ) ( 4,462 ) Total 291,681 293,008 Current portion of long-term debt ( 3,020 ) ( 3,020 ) 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 September 30, 2023 matures in the following years: Remainder of 2023 2024 2025 2026 TOTAL (In thousands) Maturities $ 755 $ 3,020 $ 3,020 $ 288,410 $ 295,205 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. 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 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. 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 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. 23 Table of Contents 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) Assets Operating lease assets Operating lease right-of-use assets $ 9,727 $ 14,427 Finance lease assets Property and equipment, net — 24 Total lease assets $ 9,727 $ 14,451 Liabilities Current Operating Other current liabilities $ 4,446 $ 4,968 Finance Other current liabilities — 25 Noncurrent Operating Operating lease liabilities, net of current portion 7,234 10,133 Total lease liabilities $ 11,680 $ 15,126 The following table summarizes by year the maturities of our minimum lease payments as of September 30, 2023. OPERATING LEASES (In thousands) Remainder of 2023 $ 1,561 2024 4,075 2025 3,306 2026 2,115 2027 905 Thereafter 690 Total future lease payments 12,652 Less: imputed interest ( 972 ) Total $ 11,680 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. 24 Table of Contents 9. Accrued Expenses and Other Liabilities Accrued expenses consist of the following: SEPTEMBER 30, 2023 DECEMBER 31, 2022 (In thousands) Accrued compensation $ 23,703 $ 29,518 Legal and professional accruals 1,657 1,297 Interest payable 2,308 176 Income taxes payable 7,669 2,223 Short-term contingent liabilities 8,169 — Accrued business acquisition liabilities — 700 Other 1,219 1,489 Total accrued expenses $ 44,725 $ 35,403 Other long-term liabilities consist of the following: SEPTEMBER 30, 2023 DECEMBER 31, 2022 (In thousands) Uncertain tax position liability $ 2,361 $ 2,308 Contingent consideration 23,750 19,813 Total other long-term liabilities $ 26,111 $ 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 equity-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 . 25 Table of Contents SHARES WEIGHTED- AVERAGE GRANT DATE FAIR VALUE Non-vested restricted stock as of December 31, 2022 1,402,813 $ 23.27 Granted — — Vested* ( 600,016 ) 23.28 Forfeited ( 135,618 ) 23.00 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 $ 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 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. 26 Table of Contents 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* 1,626,102 23.93 Vested** ( 796,494 ) 25.24 Forfeited ( 304,923 ) 23.52 Non-vested RSUs as of September 30, 2023 2,529,780 $ 24.18 ___________________________________ * The majority shares granted during 2023 were issued on April 1, 2023 under the 2020 Incentive Plan. ** The number of the RSUs vested includes 275,516 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 $ 7,260 , $ 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 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 September 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 484,885 27.00 Vested ( 18,437 ) 24.83 Forfeited ( 94,054 ) 25.71 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. 27 Table of Contents 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 2023 2022 (In thousands) Cost of revenues $ 3,198 $ 2,454 $ 8,328 $ 6,834 Sales and marketing 343 160 1,272 1,670 Research and development 1,919 957 4,789 4,115 General and administrative 3,185 3,233 6,409 11,199 Total $ 8,645 $ 6,804 $ 20,798 $ 23,818 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 $ 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 September 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. 28 Table of Contents The following table summarizes revenue by geographic area for the three and nine months ended September 30, 2023 and 2022: THREE 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 EMEA 14,721 13,276 46,746 42,833 Asia Pacific 6,221 7,057 19,757 19,394 Total $ 85,576 $ 84,700 $ 266,327 $ 249,011 ___________________________________ (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, 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. 29 Table of Contents 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 2023 2022 (In Thousands, Except Per Share and Share Data) Basic earnings per share Net income (loss) available to common shareholders $ ( 48,965 ) $ 3,936 $ ( 42,901 ) $ 5,557 Basic weighted-average common shares outstanding 159,165,206 157,140,166 158,769,638 156,523,022 Basic earnings per common share $ ( 0.31 ) $ 0.03 $ ( 0.27 ) $ 0.04 Diluted earnings per share Net income (loss) available to common shares $ ( 48,965 ) $ 3,936 $ ( 42,901 ) $ 5,557 Basic weighted-average common shares outstanding 159,165,206 157,140,166 158,769,638 156,523,022 Dilutive potential common shares — 2,447,479 — 2,869,512 Diluted weighted-average common shares outstanding 159,165,206 159,587,645 158,769,638 159,392,534 Diluted earnings per common share $ ( 0.31 ) $ 0.02 $ ( 0.27 ) $ 0.03 15. 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. 30 Table of Contents