Certara, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report and our 2022 Annual Report. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly in the sections “Special Note Regarding Forward-Looking Statements” and “Risk Factors” of this Quarterly Report. We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our condensed consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our condensed consolidated financial statements. Executive Overview We accelerate medicines to patients using biosimulation software, technology, and services to transform traditional drug discovery and development. Biosimulation is a powerful technology used to conduct virtual trials using virtual patients to predict how drugs behave in different individuals. Biopharmaceutical companies use our proprietary biosimulation software throughout drug discovery and development to inform critical decisions that not only save significant time and money but also advance drug safety and efficacy, improving millions of lives each year. As a global leader in biosimulation based on 2022 revenue, we provide an integrated, end-to-end platform used by more than 2,300 clients including biopharmaceutical companies, regulatory agencies and academic institutions across 70 countries, including 39 of the top 40 biopharmaceutical companies by research and development spend in 2021. Since 2014, customers who use our biosimulation software and technology-driven services have received 90% of all new drug approvals by the FDA. Moreover, 20 global regulatory authorities license our biosimulation software to independently analyze, verify, and review regulatory submissions, including the FDA, Health Canada, Japan’s Pharmaceuticals and Medical Devices Agency, and UK’s Medicines and Healthcare Products Regulatory Agency. We build our biosimulation technology on first principles of biology, chemistry, and pharmacology with proprietary mathematical algorithms that model how medicines and diseases behave in the body. For over two decades, we have honed and validated our biosimulation technology with an abundance of data from scientific literature, lab research, and preclinical and clinical studies. Many of our solutions are underpinned by artificial intelligence (machine learning) and SaaS-based value communication tools. In turn, our customers use biosimulation to conduct virtual trials to answer critical questions, such as: What will be the human response to a drug based on preclinical data? How will other drugs interfere with this new drug? What is a safe and efficacious dose for children, the elderly, or patients with pre-existing conditions? Virtual trials may be used to optimize dosing on populations that are otherwise difficult to study for ethical or logistical reasons, such as infants, pregnant women, the elderly, and cancer patients. Biosimulation results need to be incorporated into regulatory documents for compelling submissions. Accordingly, we provide regulatory science and market access solutions and integrate them with biosimulation so that our customers can navigate the complex and evolving regulatory landscape and maximize their chances of approval. Our differentiated regulatory services are powered by submissions management software and natural language processing for scalability and speed, allowing us to deliver more than 300 regulatory submissions over the past five years. Our team of regulatory professionals has extensive experience applying industry guidelines and global regulatory requirements. With continued innovation in and adoption of our biosimulation software, technology, and services, we believe more biopharmaceutical companies worldwide will leverage more of our end-to-end platform to reduce cost, accelerate speed to market, and ensure the safety and efficacy of medicines for all patients. 31 Table of Contents Public Offerings and Other Key Shareholders Transactions 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 $0.6 million, recorded in general and administrative expenses, in relation to the secondary public offering. On December 8, 2022, Arsenal acquired an aggregate of 29,954,521 shares of our common stock from EQT at a price of $15.00 per share. In connection with this transaction, we entered into (i) a letter agreement, effective December 8, 2022, with Arsenal providing that, subject to certain exceptions, Arsenal is prohibited from transferring the acquired shares until December 8, 2024; (ii) 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; and (iii) a Registration Rights Agreement, which contains provisions that entitle Arsenal to certain rights to have their securities registered by the Company under the Securities Act. Key Factors Affecting Our Performance We believe that the growth of and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address to sustain our growth and improve results of operations. Customer Retention and Expansion Our future operating results depend, in part, on our ability to successfully enter new markets, increase our customer base, and retain and expand our relationships with existing customers. We monitor two key performance indicators to evaluate retention and expansion: new bookings and renewal rates. • Bookings: Our new bookings represent the estimated annual contract value of a signed contract or purchase order where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the software and/or services. Bookings vary from period to period depending on numerous factors, including the overall health of the biopharmaceutical industry, regulatory developments, industry consolidation, and sales performance. Bookings have varied and will continue to vary significantly from quarter to quarter and from year to year. • Renewal Rates: Our renewal rates measure the percentage of software customers who renew their licenses or subscriptions at the end of the license or subscription periods. The renewal rate is based on revenues and excludes the effect of price increases or expansions. The table below summarizes our quarterly bookings and renewal rate trends: 2023 2022 Q1 Q2 Q3 Q1 Q2 Q3 (in millions) Bookings $ 112.7 $ 85.9 $ 84.8 $ 108.5 $ 100.3 $ 79.8 Renewal Rate 90 % 93 % 86 % 92 % 92 % 93 % 32 Table of Contents Investments in Growth We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and international expansion. We expect to continue to invest in (i) scientific talent to expand our ability to deliver solutions across the drug development spectrum; (ii) sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies; (iii) research and development to support existing solutions and innovate new technology; (iv) other operational and administrative functions to support our expected growth; and (v) complementary business. We expect that our headcount and our total operating expenses will continue to increase over time. Our Operating Environment The acceptance of model-informed biopharmaceutical discovery and development by regulatory authorities affects the demand for our products and services. Support for the use of biosimulation in discovery and development from regulatory bodies, such as the FDA and EMA, has been critical to its rapid adoption by the biopharmaceutical industry. There has been a steady increase in the recognition by regulatory and academic institutions of the role that modeling and simulation can play in the biopharmaceutical development and approval process, as demonstrated by new regulations and guidance documents describing and encouraging the use of modeling and simulation in the biopharmaceutical discovery, development, testing, and approval process, which has directly led to an increase in the demand for our services. Changes in government or regulatory policy, or a reversal in the trend toward increasing the acceptance of and reliance upon in silico data in the drug approval process, could decrease the demand for our products and services or lead regulatory authorities to cease use of, or recommend against the use of, our products and services. Governmental agencies throughout the world, but particularly in the United States where the majority of our customers are based, strictly regulate the biopharmaceutical development process. Our business involves helping biopharmaceutical companies strategically and tactically navigate the regulatory approval process. New or amended regulations are expected to result in higher regulatory standards and often additional revenues for companies that service these industries. However, some changes in regulations, such as a relaxation in regulatory requirements or the introduction of streamlined or expedited approval procedures, or an increase in regulatory requirements that we have difficulty satisfying or that make our regulatory strategy services less competitive, could eliminate or substantially reduce the demand for our regulatory services. Competition The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented. In biosimulation software, we compete with other scientific software providers, technology companies, in-house development by biopharmaceutical companies, and certain open source solutions. In the technology-driven services market, we compete with specialized companies, in-house teams at biopharmaceutical companies, and academic and government institutions. In some standard biosimulation services, and in regulatory and market access, we also compete with contract research organizations, who may also offer more traditional methods of drug development and clinical trial design that are used in lieu of biosimulation. Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D, and other resources. Some of our competitors offer products and services directed at more specific markets than those we target, enabling these competitors to focus a greater proportion of their efforts and resources on those specific markets. Some competing products are developed and made available at a lower cost by government organizations and academic institutions, and these entities may be able to devote substantial resources to product development. Some clinical research organizations or technology companies may decide to enter into or expand their offerings in the biosimulation area, whether through acquisition or internal development. We also face competition from open source software initiatives, in which developers provide software and intellectual property free of charge, such as R and PK-Sim software. In addition, some of our customers spend significant internal resources in order to develop their own solutions. Macroeconomic challenges Uncertain macroeconomic conditions, including higher inflation, rising interest rates and instability in the financial system, geopolitical conflicts, and the residual effects of the COVID-19 pandemic, may pose challenges to our business. We believe that any impacts these conditions may have on our business would be transitory and that we are well-equipped to manage them going forward. 33 Table of Contents Non-GAAP Measures Management uses various financial metrics, including total revenues, income from operations, net income, and certain metrics that are not required by, or presented in accordance with, GAAP, such as adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to measure and assess the performance of our business, to evaluate the effectiveness of our business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare our performance against that of other peer companies using similar measures. We believe that presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business. Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, goodwill impairments, change in fair value of contingent consideration, acquisition and integration expense, and other items not indicative of our ongoing operating performance. Management also measures operating performance based on adjusted net income defined for a particular period as net income (loss) excluding, equity-based compensation expense, amortization of acquisition-related intangible assets, goodwill impairments, change in fair value of contingent consideration, acquisition and integration expense, and other items not indicative of our ongoing operating performance. Further, management measures operating performance based on adjusted diluted earnings per share defined for a particular period as adjusted net income divided by the weighted-average diluted common shares outstanding. We believe adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical periods. In addition, these measures are frequently used by analysts, investors, and other interested parties to evaluate and assess performance. Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share are non-GAAP measures and are presented for supplemental purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations and comprehensive income (loss) that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures and may calculate both differently than as presented, limiting the usefulness as a comparative measure. 34 Table of Contents The following table reconciles net income (loss) to adjusted EBITDA: THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 2023 2022 (in thousands) Net income (loss)(a) $ (48,965) $ 3,936 $ (42,901) $ 5,557 Interest expense(a) 5,903 5,221 17,046 12,328 Interest income(a) (2,864) (322) (6,428) (347) (Benefit from) Provision for income taxes(a) (4,644) 4,557 142 9,473 Depreciation and amortization expense(a) 367 417 1,139 1,321 Intangible asset amortization(a) 13,813 12,846 40,099 38,007 Currency (gain) loss(a) (2,179) (2,376) (165) (5,639) Equity-based compensation expense(b) 8,645 6,804 20,798 23,818 Change in fair value of contingent consideration(d) 8,757 — 11,316 — Goodwill impairment expense(e) 46,984 — 46,984 — Acquisition-related expenses(f) 1,392 253 3,276 1,331 Integration expense(g) 33 — 190 — Transaction-related expenses(h) — 596 — 724 Severance expenses(i) — 722 — 722 Reorganization expense(j) 1,602 — 1,602 — Loss on disposal of fixed assets(k) — 49 29 56 Executive recruiting expense(l) — — 396 — First-year Sarbanes-Oxley implementation costs(m) — — — 961 Adjusted EBITDA $ 28,844 $ 32,703 $ 93,523 $ 88,312 35 Table of Contents The following table reconciles net income (loss) to adjusted net income: THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 2023 2022 (in thousands) Net income (loss) (a) $ (48,965) $ 3,936 $ (42,901) $ 5,557 Currency (gain) loss(a) (2,179) (2,376) (165) (5,639) Equity-based compensation expense(b) 8,645 6,804 20,798 23,818 Amortization of acquisition-related intangible assets(c) 11,377 10,921 33,892 32,900 Change in fair value of contingent consideration(d) 8,757 — 11,316 — Goodwill impairment expense(e) 46,984 — 46,984 — Acquisition-related expenses(f) 1,392 253 3,276 1,331 Integration expense(g) 33 — 190 — Transaction-related expenses(h) — 596 — 724 Severance expenses(i) — 722 — 722 Reorganization expense(j) 1,602 — 1,602 — Loss on disposal of fixed assets(k) — 49 29 56 Executive recruiting expense(l) — — 396 — First-year Sarbanes-Oxley implementation costs(m) — — — 961 Income tax expense impact of adjustments(n) (10,572) (4,257) (20,669) (12,236) Adjusted net income $ 17,074 $ 16,648 $ 54,748 $ 48,194 36 Table of Contents The following table reconciles diluted earnings per share to adjusted diluted earnings per share: THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 2023 2022 (in thousands except share and per share data) Diluted earnings per share(a) $ (0.31) $ 0.02 $ (0.27) $ 0.03 Currency (gain) loss(a) (0.01) (0.01) — (0.04) Equity-based compensation expense(b) 0.06 0.05 0.13 0.16 Amortization of acquisition-related intangible assets(c) 0.07 0.07 0.21 0.21 Change in fair value of contingent consideration(d) 0.05 — 0.07 — Goodwill impairment expense(e) 0.30 — 0.30 — Acquisition-related expenses(f) 0.01 — 0.02 0.01 Integration expense(g) — — — — Transaction-related expenses(h) — — — — Severance expenses(i) — — — — Reorganization expense(j) 0.01 — 0.01 — Loss on disposal of fixed assets(k) — — — — Executive recruiting expense(l) — — — — First-year Sarbanes-Oxley implementation costs(m) — — — 0.01 Income tax expense impact of adjustments(n) (0.07) (0.03) (0.13) (0.08) Adjusted diluted earnings per share $ 0.11 $ 0.10 $ 0.34 $ 0.30 Basic weighted average common shares outstanding 159,165,206 157,140,166 158,769,638 156,523,022 Effect of potentially dilutive shares outstanding (o) 742,488 2,447,479 1,078,382 2,869,512 Adjusted diluted weighted average common shares outstanding 159,907,694 159,587,645 159,848,020 159,392,534 ___________________________________ (a) Represents amounts as determined under GAAP. (b) Represents expense related to equity-based compensation. Equity-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy. (c) Represents amortization costs associated with acquired intangible assets in connection with business acquisitions. (d) Represents expense associated with remeasuring fair value of contingent consideration of business acquisition. (e) Represents expense associated with goodwill impairment charge. (f) Represents costs associated with mergers and acquisitions and any retention bonuses pursuant to the acquisitions. (g) Represents integration costs related to post - acquisition integration activities. (h) Represents costs associated with our public offerings that are not capitalized. (i) Represents charges for severance provided to former executives. (j) Represents expense related to reorganization, including legal entity reorganization and lease abandonment cost associated with the evaluation of our office space footprint. (k) Represents the gain/loss related to disposal of fixed assets. (l) Represents recruiting and relocation expenses related to hiring senior executives. 37 Table of Contents (m) Represents the first-year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act, as well as implementation cost of adopting ASC 842. (n) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction. (o) Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding. Components of Results of Operations Revenues Our business generates revenue from the sales of software products and delivery of consulting services. • Software . Our software business generates revenues from software licenses, software subscriptions and software maintenance as follows: • Software licenses : We recognize revenue for software license fees up front, upon delivery of the software license. • Software subscription : Subscription revenue consists of subscription fees to provide our customers access to and related support for our cloud-based solutions. We recognize subscription fees ratably over the term of the subscription, usually one to three years. Any subscription revenue paid upfront that is not recognized in the current period is included in deferred revenue in our condensed consolidated balance sheet until earned. • Software maintenance : Software maintenance revenue includes fees for providing updates and technical support for software offerings. Software maintenance revenue is recognized ratably over the contract term, usually one year. • Services . Our services business generates revenues primarily from technology-driven services and professional services, which include software implementation services. Our service arrangements are time and materials, fixed fee, or prepaid. Revenues are recognized over the time services are performed for time and materials, and over time by estimating progress to completion for fixed fee and prepaid services. Cost of Revenues Cost of revenues consists primarily of employee related expenses, equity-based compensation, the costs of third-party subcontractors, travel costs, distributor fees, amortization of capitalized software and allocated overhead. We may add or expand computing infrastructure service providers, make additional investments in the availability and security of our solutions, or add resources to support our growth. Operating Expenses • Sales and Marketing . Sales and marketing expense consists primarily of employee-related expenses, equity-based compensation, sales commissions, brand development, advertising, travel-related expenses and industry conferences and events. We plan to continue to invest in sales and marketing to increase penetration of our existing client base and expand to new clients. • Research and Development . Research and development expense consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits. We plan to continue to invest in our R&D efforts to enhance and scale our software product offerings by development of new features and increased functionality. • General and Administrative . General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation. General and administrative 38 Table of Contents expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses. • Intangible Asset Amortization . Intangible asset amortization consists primarily of amortization expense related to intangible assets recorded in connection with acquisitions and amortization of capitalized software development costs. • Depreciation and Amortization Expense . Depreciation and amortization expense consists of depreciation of property and equipment and amortization of leasehold improvements. Other Expenses • Interest Expense . Interest expense consists primarily of interest expense associated with the Credit Agreement, including amortization of debt issuance costs and discounts. • Net Other Income (Expense) . Net other income (expense) consists of miscellaneous non-operating expenses primarily comprised of interest income and foreign exchange transaction gains and losses. • Provision for (Benefit from) Income Taxes . Provision for (benefit from) income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We expect income tax expense to increase over time as the Company continues to grow more profitable. Acquisitions Since our inception, and as of September 30, 2023, we have 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. We continually seek and assess a range of highly focused opportunities in our immediately addressable market and in related adjacent markets, whether through acquisitions, licenses, or partnerships. Integrated Nonclinical Development Solutions, Inc. On January 3, 2022, we completed the acquisition of INDS for a total consideration of $8.0 million, which qualified as a business combination. The business combination was not significant to our consolidated financial statements. Based on the purchase price allocation, approximately $2.4 million, $1.0 million, $0.1 million, and $2.9 million 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, a company that provides an AI-powered, scalable deep learning software and analytics platform for organizations within healthcare and life sciences, higher education and state and local governments for total consideration of $29.3 million. The business combination was not significant to the Company’s condensed consolidated financial statements. Based on the Company’s purchase price allocation, approximately $11.4 million, $1.5 million, $0.1 million, $0.1 million and $16.6 million of the purchase price were assigned to developed technology, customer relationships, trademarks, non-compete agreements and goodwill, respectively. The fair value of the contingent consideration was estimated to be $19.8 million as of the acquisition date. The contingent consideration was classified as a liability and included in accrued liabilities and 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 $31.5 million, resulting in $11.7 million adjustment to fair value. 39 Table of Contents 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 total estimated consideration of $8.3 million. 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 $2.0 million. 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 $0.8 million as of the acquisition date. At September 30, 2023, the contingent consideration was remeasured to $0.4 million, resulting in a negative fair value adjustment of $0.4 million and recorded in general and administrative (“G&A”) on the accompanying condensed consolidated statement of operations and comprehensive income (loss). Based on the Company’s preliminary purchase price allocation, approximately $0.3 million, $5.6 million, $0.4 million, and $2.3 million of the purchase price were assigned to trademarks, database content/technology, customer relationships and goodwill, respectively. The current purchase price allocation is preliminary. 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. For more information about our acquisitions, see Note 5. “Acquisitions” in the notes to the condensed consolidated financial statements. Results of Operations We have included the results of operations of acquired companies in our condensed consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three and nine months ended September 30, 2023 to the three and nine months ended at September 30, 2022. Three Months Ended September 30, 2023 Versus Three Months Ended September 30, 2022 The following table summarizes our unaudited statements of operations data for the three months ended September 30, 2023 and 2022: Revenues THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Software $ 31,331 $ 28,392 $ 2,939 10 % Services 54,245 56,308 (2,063) (4) % Total revenues $ 85,576 $ 84,700 $ 876 1 % Revenues increased $0.9 million, or 1%, to $85.6 million for the three months ended September 30, 2023 as compared to the same period in 2022. The overall increase in revenues was primarily due to growth in our technology-driven services and software product offerings from strong demand within existing customers, new product introductions, and client expansions. The increase was partially offset by a decline in regulatory revenue. Software revenues increased $2.9 million, or 10%, to $31.3 million for the three months ended September 30, 2023 as compared to the same period in 2022, primarily driven by strong demand within existing customers, new product introductions, and expanding relationships with customers. 40 Table of Contents Services revenues decreased $2.1 million, or 4% to $54.2 million for the three months ended September 30, 2023, as compared to the same period in 2022. The decrease in overall services revenue is primarily attributable to a decline in regulatory revenue. Cost of Revenues THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Cost of revenues $ 35,876 $ 32,812 $ 3,064 9 % Cost of revenues increased by $3.1 million, or 9%, to $35.9 million for the three months ended September 30, 2023 as compared to the same period in 2022. The increase was primarily due to a $2.3 million increase in employee-related costs resulting from billable head count growth, a $0.7 million increase in stock-based compensation costs, a $0.4 million increase in intangible assets amortization, and a $0.1 million increase in travel and entertainment expense, partially offset by a $0.4 million decrease in miscellaneous operating expense and other items. Sales and Marketing Expenses THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Sales and marketing $ 7,238 $ 6,376 $ 862 14 % % of total revenues 8 % 8 % Sales and marketing expenses increased by $0.9 million, or 14%, to $7.2 million for the three months ended September 30, 2023 as compared to the same period in 2022. Sales and marketing expenses increased primarily due to a $0.8 million increase in employee-related costs primarily resulting from head count growth, a $0.2 million increase in stock-based compensation costs, partially offset by a $0.2 million decrease in marketing expense. Research and Development Expenses THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Research and development $ 8,980 $ 6,318 $ 2,662 42 % % of total revenues 10 % 7 % Research and development expenses increased by $2.7 million, or 42%, to $9.0 million for the three months ended September 30, 2023, as compared to the same period in 2022. The change in research and development expenses was primarily due to a $2.2 million increase in employee-related costs primarily resulting from head count growth and a $1.0 million increase in stock-based compensation costs, partially offset by a $0.6 million increase in capitalized cost in R&D. 41 Table of Contents General and Administrative Expenses THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) General and administrative $ 27,760 $ 17,327 $ 10,433 60 % % of total revenues 32 % 20 % General and administrative expenses increased by $10.4 million, or 60%, to $27.8 million for the three months ended September 30, 2023 as compared to the same period in 2022. The increase in general and administrative expenses was primarily due to a $8.8 million increase related to change in the fair value of contingent considerations, a $1.6 million increase in lease abandonment expense, $0.8 million increase in merger and acquisition expenses, $0.6 million increase in equipment and software expense, partially offset by a $0.6 decrease in transaction cost, a $0.3 million decrease in employee-related costs, and a $0.3 million decrease in insurance expense. Intangible Asset Amortization THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Intangible asset amortization $ 11,155 $ 10,591 $ 564 5 % % of total revenues 13 % 13 % Intangible asset amortization expense increased by $0.6 million, or 5%, to $11.2 million for the three months ended September 30, 2023, as compared to the same period in 2022. The increase in intangible asset amortization expense was primarily due to higher amortization expense from capitalized software. Depreciation and Amortization Expense THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Depreciation and amortization $ 367 $ 417 $ (50) (12) % % of total revenues — % — % Depreciation and amortization expense of $0.4 million was relatively flat for the three months ended September 30, 2023, as compared to the same period in 2022. Goodwill Impairment Expense THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Goodwill impairment expense $ 46,984 $ — $ 46,984 nm Goodwill impairment expense was $47.0 million for the three months ended September 30, 2023 as compared to no goodwill impairment expense for the same period in 2022. The increase in goodwill impairment expense was primarily due to record goodwill impairment for legacy Regulatory and Writing reporting unit as the carrying value exceeded its fair value. 42 Table of Contents Interest Expense THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Interest expense $ 5,903 $ 5,221 $ 682 13 % % of total revenues 7 % 6 % Interest expense increased by $0.7 million, or 13%, to $5.9 million for the three months ended September 30, 2023 as compared to the same period in 2022. The increase in interest expense was primarily due to an increase in market interest rates reflected on our term loan floating rate debt. The increase in interest expense was partially offset by a $1.5 million gain from interest swap hedge activities. Net Other Income THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Net other income $ (5,078) $ (2,855) $ (2,223) 78 % % of total revenues (6) % (3) % Net other income increased by $2.2 million, to $5.1 million for the three months ended September 30, 2023 as compared to the same period in 2022. The increase in net other income was primarily due to a $2.5 million increase in interest income primarily from cash investments, and partially offset by a $0.3 million decrease in gains related to the fluctuation of foreign currency exchange rates. Provision (benefit) for Income Taxes THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Provision (benefit) for income taxes $ (4,644) $ 4,557 $ (9,201) (202) % Effective income tax rate 9 % 54 % Income tax benefit was $4.6 million, resulting in an effective income tax rate of 9% for the three months ended September 30, 2023 as compared to an income tax expense of $4.6 million, or an effective income tax rate of 54%, for the same period in 2022. Our income tax (benefit) expense for the three months ended September 30, 2023 and 2022 were primarily tax effects of U.S. pre-tax income, the relative mix of domestic and international earnings, the impact of non-deductible items, adjustments to the valuation allowances, the effects of tax elections made for U.K. earnings, and discrete tax items. 43 Table of Contents Net Income (loss) THREE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Net income (loss) $ (48,965) $ 3,936 $ (52,901) nm Net loss was $49.0 million representing a $52.9 million decrease in net income for the three months ended September 30, 2023 as compared to a net income of $3.9 million in the same period of 2022. The decrease in net income was primarily due to a $47.0 million increase in goodwill impairment expense, a $8.8 million increase related to change in the fair value of contingent considerations, a $1.6 million increase in lease abandonment expense, a $4.1 million increase in other operating expenses, and a $3.1 million increase in cost of revenue, partially offset by a $9.2 million decrease in tax expense, and a $2.5 million increase in interest income. Nine Months Ended September 30, 2023 Versus Nine Months Ended September 30, 2022 The following table summarizes our unaudited statements of operations data for the nine months ended September 30, 2023 and 2022: Revenues NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Software $ 98,058 $ 86,309 $ 11,749 14 % Services 168,269 162,702 5,567 3 % Total revenues $ 266,327 $ 249,011 $ 17,316 7 % Revenues increased $17.3 million, or 7%, to $266.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The increase in revenues was primarily due to growth in our technology-driven services and software product offerings from strong demand within existing customers, client expansions, and new customers. The increase was partially offset by the negative impact on our revenue from the fluctuation of foreign currency exchange rates. Software revenues increased $11.7 million, or 14%, to $98.1 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The overall growth is primarily attributable to growth in strong demand within existing customers, new product introductions, and expanding relationships with customers. Services revenues increased $5.6 million, or 3%, to $168.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The growth in overall services revenue is primarily attributable to continued growth in biosimulation. The increase was partially offset by the decline in regulatory revenues. 44 Table of Contents Cost of Revenues NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Cost of revenues $ 106,956 $ 100,795 $ 6,161 6 % Cost of revenues increased by $6.2 million, or 6%, to $107.0 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The increase was primarily due to a $4.2 million increase in employee-related costs resulting from billable head count growth, a $1.5 million increase in stock-based compensation costs, a $0.9 million increase in intangible assets amortization, and a $0.5 million increase in travel, partially offset by a $0.4 million increase in capitalized software cost, a $0.3 million decrease in miscellaneous operation expenses, and a $0.2 million decrease in consulting and professional services. Sales and Marketing Expenses NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Sales and marketing $ 23,351 $ 19,608 $ 3,743 19 % % of total revenues 9 % 8 % Sales and marketing expenses increased by $3.7 million, or 19%, to $23.4 million for the nine months ended September 30, 2023 as compared to the same period in 2022. Sales and marketing expenses increased primarily due to a $3.2 million increase in employee-related costs resulting from head count growth, a $0.5 million increase in travel, a $0.2 million increase in marketing, and a $0.2 million increase in miscellaneous operating expense, partially offset by a $0.4 million decrease in stock-based compensation cost. Research and Development Expenses NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Research and development $ 26,155 $ 21,607 $ 4,548 21 % % of total revenues 10 % 9 % Research and development expenses increased by $4.5 million, or 21%, to $26.2 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The increase in research and development expenses was primarily due to a $5.3 million increase in employee-related costs primarily resulting from headcount growth, a $0.7 million increase in stock-based compensation cost, and a $0.3 million increase in travel, partially offset by a $1.5 million increase in capitalized cost in research & development, and a $0.3 million decrease in consulting and professional expense. 45 Table of Contents General and Administrative Expenses NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) General and administrative $ 61,777 $ 53,444 $ 8,333 16 % % of total revenues 23 % 21 % General and administrative expenses increased by $8.3 million, or 16%, to $61.8 million for the nine months ended September 30, 2023, as compared to the same period in 2022. The increase in general and administrative expenses was primarily due to a $11.3 million increase related to the change in fair value of contingent consideration, a $1.6 million increase in lease abandonment expense, a $1.1 million increase in equipment expenses, a $0.8 million increase in merger and acquisition cost, a $0.6 million increase in consulting and professional services expense, a $0.4 million increase in executive recruiting expense, and a 0.3 million increase in employee-related costs resulting from head count growth, partially offset by a $4.8 million decrease in stock-based compensation costs, a $1.0 million decrease in first-year Sarbanes-Oxley implementation costs, a $0.9 million decrease in insurance expense, a $0.7 million decrease in transaction expense, and a $0.3 million decrease in facility and lease related expense. Intangible Asset Amortization NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Intangible asset amortization $ 32,272 $ 31,095 $ 1,177 4 % % of total revenues 12 % 12 % Intangible asset amortization expense increased by $1.2 million, or 4%, to $32.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The increase in intangible asset amortization expense is primarily due to increased amortization expense from capitalized software. Depreciation and Amortization Expense NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Depreciation and amortization $ 1,139 $ 1,321 $ (182) (14) % % of total revenues — % 1 % Depreciation and amortization expense decreased by $0.2 million, or 14%, to $1.1 million for the nine months ended September 30, 2023, as compared to the same period in 2022. The decrease was primarily due to a decrease in depreciation and amortization from finance lease and furniture for the nine months ended September 30, 2023 as compared to the same period in 2022. 46 Table of Contents Goodwill Impairment Expense NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Goodwill Impairment Expense $ 46,984 $ — $ 46,984 nm Goodwill impairment expense was $47.0 million for the nine months ended September 30, 2023 as compared to no goodwill impairment expense for the same period in 2022. The increase in goodwill impairment expense was primarily due to record goodwill impairment for legacy Regulatory and Writing reporting unit as the carrying value exceeded its fair value. Interest Expense NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Interest expense $ 17,046 $ 12,328 $ 4,718 38 % % of total revenues 6 % 5 % Interest expense increased by $4.7 million, or 38%, to $17.0 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The increase in interest expense was primarily due to an increase in market interest rates reflected on our term loan floating rate debt. The increase in interest expense was partially offset by a $3.8 million gain from interest swap hedge activities. Net other income NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Net other income $ (6,594) $ (6,217) $ (377) 6 % % of total revenues (2) % (2) % Net other income increased by $0.4 million to $6.6 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The increase in net other income was primarily due to a $6.1 million increase in interest income, partially offset by a $5.7 million remeasurement losses related to the fluctuation of foreign currency exchange rates. Provision for Income Taxes NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Provision for income taxes $ 142 $ 9,473 $ (9,331) (99) % Effective income tax rate (0.3) % 63 % Income tax expense was $0.1 million, resulting in an effective income tax rate of (0.3)% for the nine months ended September 30, 2023 as compared to an income tax expense of $9.5 million, or an effective income tax rate of 63%, for the same period in 2022. Our income tax expense for the nine months ended September 30, 2023 and 2022 was primarily due to the tax effects of U.S. pre-tax income, the relative mix of domestic and international earnings, the impact of non- 47 Table of Contents deductible items, adjustments to the valuation allowances, the effects of tax elections made for U.K. earnings, and discrete tax items. Net (Loss) income NINE MONTHS ENDED SEPTEMBER 30, CHANGE 2023 2022 $ % (in thousands) Net (loss) income $ (42,901) $ 5,557 $ (48,458) (872) % Net loss was $42.9 million, representing a $48.5 million decrease in net income for the nine months ended September 30, 2023, as compared to a net income of $5.6 million in the same period of 2022. The decrease in net income was primarily due to a $47.0 million increase in goodwill impairment charge, a $11.3 million increase in expense related to change in the fair value of contingent considerations, a $6.2 million increase in cost of revenue, a $5.7 million remeasurement losses related to the fluctuation of foreign currency exchange rates, a $4.7 million increase in other operating expense items, a $4.7 million increase in interest expense, and a $1.6 million increase in lease abandonment expense, partially offset by a $17.3 million increase in total revenue, a $9.3 million decrease in tax expense, a $6.1 million increase in interest income. Liquidity and Capital Resources We have consistently generated positive cash flow from operations, providing $59.4 million and $57.1 million as a source of funds for the nine months ended September 30, 2023 and 2022, respectively. Our additional liquidity comes from several sources: maintaining adequate balances of cash and cash equivalents, issuing common stock, and accessing credit facilities and revolving lines of credit. The following table provides a summary of the major sources of liquidity for the nine and twelve months periods ended at September 30, 2023 and December 31, 2022 and as of September 30, 2023 and December 31, 2022. September 30, 2023 December 31, 2022 (in thousands) Net cash from operating activities (a) 59,429 92,543 Cash and cash equivalents (b) 272,312 236,586 Term loan credit facilities 295,205 297,470 Revolving line of credit (c) 100,000 100,000 ___________________________________ (a) Net cash from operating activities for nine months ended at September 30, 2023 and twelve months ended at December 31, 2022. (b) Cash balance as of September 30, 2023 and December 31, 2022 included $70.0 million and $56.4 million cash and cash equivalents, respectively, held outside of the United States. (c) Available borrowings under the revolving lines of credits as of September 30, 2023 and December 31, 2022 were reduced by $0.1 million and $0.1 million standby letters of credit issued to a landlord in lieu of a security deposit in addition to any outstanding borrowings. Our material cash requirements from known contractual obligations are principal and interest payments of long-term debt. We also have future cash obligations of $12.7 million for lease contracts, which have remaining terms of one to six 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 (in thousands) Maturities $ 755 $ 3,020 $ 3,020 $ 288,410 $ 295,205 48 Table of Contents We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. We believe our existing sources of liquidity will be sufficient to meet our working capital, capital expenditures, and contractual obligations for the foreseeable future. Our expected primary uses on a short-term and long-term basis are for repayment of debt, interest payments, working capital, capital expenditures, geographic or service offering expansion, acquisitions, investments, and other general corporate purposes. We believe we will meet short and longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions. Our future capital requirements, however, will depend on many factors, including funding for potential acquisitions, investments, and other growth and strategic opportunities, which could increase our cash requirements. While we believe we have, and will be able to generate, sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by factors described under “Risk Factors” in our 2022 Annual Report. Cash Flows The following table presents a summary of our cash flows for the periods shown: NINE MONTHS ENDED SEPTEMBER 30, 2023 2022 (in thousands) Net cash provided by operating activities $ 59,429 $ 57,058 Net cash used in investing activities (18,503) (15,238) 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 paid for interest $ 13,668 $ 12,310 Cash paid for income taxes $ 12,365 $ 7,784 Operating Activities Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions for credit losses, depreciation and amortization, stock-based compensation, deferred taxes and other non-cash items and (ii) changes in the balances of operating assets and liabilities. Net cash provided by operating activities in the first nine months of 2023 was $59.4 million, compared to $57.1 million in the same period of 2022. The $2.4 million increase in cash from operating activities was primarily due to higher cash collections from accounts receivable, reduced cash payments for accounts payable and accrued expenses, and partially offset by increased cash utilization for obtaining prepaid and other assets, as well as higher payments for taxes and interest. Investing Activities Net cash used in investing activities in the first nine months of 2023 was $18.5 million, an increase of $3.3 million, compared to $15.2 million in the same period of 2022. The change in investing activities was primarily due to a $1.7 million increase in cash payments in connection with business acquisitions, and a $1.9 million increase in cash utilized in capitalized development costs, partially offset by a $0.4 million decrease in cash utilized in capital expenditures to support our growth. Financing Activities Net cash used in financing activities in the first nine months of 2023 was $8.2 million, compared to $6.4 million cash used in the same period of 2022. The $1.8 million decrease in cash flow in financing activities was primarily due to a $3.1 million increase in cash payments in connection with share awards vested and withheld for payroll tax, partially offset by a $1.1 million decrease in cash payments on the financing component of the interest rate swap. 49 Table of Contents Indebtedness We have been a party to a Credit Agreement since August 2017 that provided for a senior secured term loan and commitments under a revolving credit facility. 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 under the Credit Agreement to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $100,000). The term loan under the modified Credit Agreement 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. 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. We signed a LIBOR transition amendment on June 26, 2023 to adopt a new benchmark interest rate, SOFR, determined in accordance with the Credit Agreement to replace LIBOR. 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. Additionally, we are obligated to pay under the revolving credit facility (i) a commitment fee of between 0.50% and 0.25% per annum of the unused amount of the revolving credit facility, depending on the applicable first lien leverage ratio, (ii) customary letter of credit issuance and participation fees, and (iii) other customary fees and expenses of the letter of credit issuers. All obligations under the Credit Agreement are unconditionally guaranteed by our wholly owned direct and indirect subsidiaries, subject to certain exceptions. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors. As of September 30, 2023, we had $295.2 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement, and outstanding letters of credit of $0.1 million under the Credit Agreement. As of September 30, 2023, we were in compliance with the covenants of the Credit Agreement. Contractual Obligations and Commercial Commitments There have been no material changes to our contractual obligations during the nine months ended September 30, 2023 from those disclosed in our 2022 Annual Report, except for payments made in the ordinary course of business. Income Taxes We recorded income tax expense of $0.1 million for the nine months ended September 30, 2023 and income tax expense of $9.5 million for the nine months ended September 30, 2022. As of September 30, 2023, we had federal and state NOLs of approximately $1.8 million and $0.05 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2040, respectively. We had federal and state R&D tax credit carryforwards of approximately $0.4 million and $0.1 million, respectively, to offset future income taxes, which expire between 2025 and 2042. We also had foreign tax credits of approximately $10.6 million, which will start to expire in 2027. These carryforwards that may be utilized in a future period may be subject to limitations based upon changes in the ownership of our stock in a future period. Additionally, we carried forward foreign NOLs of approximately $65.8 million which will start to expire in 2023, foreign research and development credits of $0.3 million which expire in 2029, and Canadian investment tax credits of approximately $3.5 million which expire between 2030 and 2040. Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. As required by ASC Topic 740, Income Taxes, our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are composed principally of NOL carryforwards, Section 174 50 Table of Contents carryforwards, investment tax credit carryforward, and foreign tax credit carryforwards. Management has determined that it is more likely than not that we will not realize the benefits of foreign tax credit carryforwards. At the foreign subsidiaries, management has determined that it is more likely than not that we will not realize the benefits of certain NOL carryforwards. As a result, a valuation allowance of $25.7 million is recorded at December 31, 2022. As of September 30, 2023, the valuation allowance remained unchanged from December 31, 2022. Off-Balance Sheet Arrangements During the periods presented, we did not have, and currently do not have, any off-balance sheet arrangements, as defined under the rules and regulations of the SEC, that have, or are reasonably likely to have, a material effect on our current or future financial condition, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Estimates Our accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in our audited consolidated financial statements included in our 2022 Annual Report. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We monitor estimates and assumptions on a continuous basis and update these estimates and assumptions as facts and circumstances change and new information is obtained. Actual results could differ materially from those estimates and assumptions. We discussed the accounting policies that we believe are most critical to the portrayal of our results of operations and financial condition and require management’s most difficult, subjective and complex judgments in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2022 Annual Report. There were no significant changes to our critical accounting estimates during the three months ended September 30, 2023. Recently Adopted and Issued Accounting Standards We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report, such standards will not have a material impact on our condensed consolidated financial statements or do not otherwise apply to our operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s 2022 Annual Report. There were no material changes to the Company’s market risk exposure during the nine months ended September 30, 2023.