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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-01 · 332 added, 221 removed, 397 unchanged (58% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Certara Inc.", "the Company", “we”, “us”, and “our” to refer to Certara, Inc.

You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Form 10K and our audited consolidated financial statements and notes thereto.

For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations section, we use the terms "Certara Inc.", "Company", “we”, “us”, and “our” to refer to Certara, Inc.

You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report and our audited consolidated financial statements and notes thereto.

As discussed in the section titled “Special Note Regarding Forward Looking Statements,” the following discussion and analysis, in addition to historical financial information, contains forward-looking statements that involve risks and uncertainties.

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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 PMDA, and UK’s MHR.

Demand for our offerings continues to expand rapidly.

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.

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 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.

A final hurdle to delivering medicines to patients is market access, defined as strategies, processes, and activities to ensure that therapies are available to patients at the right price.

We believe that biosimulation and market access will continue to be increasingly intertwined as health systems and countries move toward outcomes-based pricing.

We have expanded into market access solutions, which help our customers understand the real-world impact of therapies and dosing regimens earlier in the process and effectively communicate this to payors and health authorities.

Our solutions are underpinned by SaaS-based value communication tools.

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 safety and efficacy of medicines for all patients.

We are a leading provider of biosimulation technology and solutions for using MIDD in the global biopharmaceutical industry.

Biosimulation and MIDD can increase the probability of success in bringing a new drug to market and decrease the costs of drug development.

In addition, MIDD strategies are increasingly utilized to help predict commercial success, a critical part of the drug development process as new products must be both approved by regulators and adopted by the market.

Our goal is to enable the life science industry to use data, modeling, and analytics to make better decisions during drug development and commercialization to increase productivity rates and vastly reduce development costs.

Drug development is necessarily a highly regulated process involving the collection of vast amounts of laboratory, clinical and evidence data, and there are many failures at every step along the way which add to total cost.

The pharmaceutical industry spends more than $260 billion annually on R&D.

Generally, companies spend an average of $6.2 billion per FDA-approved drug.

Our software and scientists incorporate modern advances in scientific understanding, drug development experience, data analysis, and AI resulting in significant opportunities to decrease the cost and increase the odds of new drug approval and commercial success.

Our proprietary biosimulation platforms are built on biology, chemistry, and pharmacology principles with proprietary mathematical algorithms that model how medicines and diseases behave in the body.

For over two decades, our scientists have developed and validated our biosimulation technology using data from scientific literature, laboratory research, preclinical and clinical studies.

To do this, we have developed solutions for the collection, standardization, validation, storage, and analysis of the preclinical and clinical data needed for MIDD.

These data solutions are used internally and by global life sciences companies.

The scientific principles underlying our work with customers in biosimulation and MIDD must be transparent and fully explainable during the regulatory process, so we have become experts at incorporating data and results into regulatory documents.

Our software and regulatory services streamline the creation of regulatory filings and speed regulatory data flow to maximize the chances of successful commercialization.

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AI and machine learning technologies are being incorporated across our software and services portfolios providing opportunities to expand the number of data sources utilized, better predict outcomes, and streamline reporting.

For example, we are using machine learning to automate and speed the process of biosimulation, and we have created an AI application to aid creating regulatory documents from scientific analyses and clinical data.

We believe that AI predictive models will continue to enhance the accuracy and usefulness of biosimulation models and be utilized broadly across drug development.

We deliver software and technology-enabled services.

Our strategy is to create and apply validated software applications that can be used broadly in the life science industry.

We offer services, leveraging our technology, delivered by scientists with extensive drug development experience to aid our clients in applying biosimulation and MIDD to their specific projects.

Since 2014, customers who leverage our solutions have received more than 90% of all new drug approvals by FDA.

We have worked with nearly 2,400 life sciences companies and academic institutions and have collaborated on more than 8,000 customer projects in the last decade across a wide variety of therapeutic areas ranging from cancer and hematology to diabetes and hundreds of rare diseases.

Our software products are licensed by more than 57,000 users and are also used by 23 global drug regulatory agencies, including the U.S.

FDA, Japanese PMDA, and Chinese cFDA.

With continued innovation in and adoption of our biosimulation software, technology, and services, we believe more life science companies worldwide will leverage more of our end-to-end platform to reduce cost, accelerate speed to market, and ensure safety and efficacy of medicines for all patients.

Public Offerings and Other Key Shareholders Transactions

On December 11, 2020, we completed our initial public offering (“IPO”), pursuant to which we issued and sold 14,630,000 shares of common stock and certain selling stockholders, including former controlling shareholder, 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.

We received net proceeds of $316,3 million, after deducting underwriters' discounts and commissions.

In addition, $4,4 million of legal, accounting and other offering costs, net of the tax effect of $0.3 million, 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.

On March 29, 2021, we completed an underwritten secondary public offering in which certain selling stockholders, including EQT, sold 11,500,000 shares of our common stock, which included 1,500,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares.

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The Company incurred costs of $0.6 million, recorded in general and administrative expenses, in relation to the secondary public offering.

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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.

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new bookings and renewal rates.

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.

Our new bookings represent the estimated 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.

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The table below summarizes our quarterly bookings and renewal rate trends:

2021 2022 2023

(In Millions) Q1 Q2 Q3 Q4 FULL YEAR Q1 Q2 Q3 Q4 FULL YEAR Q1 Q2 Q3 Q4 FULL YEAR

Bookings $ 81.9 $ 75.1 $ 72.3 $ 112.4 $ 341.7 $ 108.5 $ 100.3 $ 79.8 $ 120.4 $ 409.0 $ 112.7 $ 85.9 $ 84.8 $ 118.9 $ 402.3

Renewal Rate 92 % 90 % 87 % 96 % 92 % 92 % 92 % 93 % 88 % 91 % 90 % 93 % 86 % 85 % 88 %

Investments in Growth

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and (v) in complementary business.

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We expect that our headcount will increase over time and also expect our total operating expenses will continue to increase over time.

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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.

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 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.

In our view, the principal competitive factors in our market are the functionality and quality of models, the breadth of molecular types, therapeutic areas, and modalities supported, regulator acceptance of our solutions, ease of use and functionality of applications, depth of experience in drug development, brand awareness and reputation, total cost, and the ability to securely integrate with other enterprise applications and the overall drug development process in the customer.

For additional information, see “Business — Competition”.

Impact of COVID-19

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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, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

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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 impairment expense, 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, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

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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.

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The following table reconciles net income (loss) to adjusted EBITDA :

YEAR ENDED DECEMBER 31,

2023 2022 2021

(in thousands)

Net income (loss)

Net income (loss)(a) $ (55,357) $ 14,731 $ (13,266)

Interest expense(a) 22,916 17,773 16,837

Interest income(a) (9,317) (1,294) (271)

(Benefit from) provision for income taxes (a)

Provision for income taxes(a) 214 4,024 9,891

Depreciation and amortization expense(a) 1,552 1,731 2,135

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Equity-based compensation expense(b) 28,300 30,345 29,483

Acquisition-related expense (d)

Integration expense (e)

Transaction related expenses (f)

Severance expense (g)

Reorganization expense (h)

Loss on disposal of fixed assets (i)

Executive recruiting expense (j)

First-year Sarbanes-Oxley and ASC 842 implementation costs (k)

Change in fair value of contingent consideration(d) 24,118 — —

Goodwill impairment expense(e) 46,984 — —

Acquisition-related expenses(f) 6,064 2,233 11,241

Integration expense(g) 121 — 31

Transaction-related expenses(h) — 1,136 2,754

Severance expenses(i) — 653 60

Reorganization expense(j) 1,660 — —

Loss on disposal of fixed assets(k) 65 169 351

Executive recruiting expense(l) 631 139 733

First-year Sarbanes-Oxley implementation costs(m) — 961 929

Adjusted EBITDA $ 123,108 $ 120,174 $ 103,713

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The following table reconciles net income (loss) to adjusted net income:

YEAR ENDED DECEMBER 31,

2023 2022 2021

(in thousands)

Net income (loss)

Net income (loss) (a) $ (55,357) $ 14,731 $ (13,266)

Currency (gain) loss(a) 638 (3,166) (175)

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Amortization of acquisition-related intangible assets(c) 45,838 43,822 36,413

Acquisition-related expense (d)

Integration expense (e)

Transaction related expenses (f)

Severance expense (g)

Reorganization expense (h)

Loss on disposal of fixed assets (i)

Executive recruiting expense (j)

First-year Sarbanes-Oxley and ASC 842 implementation costs (k)

Income tax expense impact of adjustments (l)

Change in fair value of contingent consideration(d) 24,118 — —

Goodwill impairment expense(e) 46,984 — —

Acquisition-related expenses(f) 6,064 2,233 11,241

Integration expense(g) 121 — 31

Transaction-related expenses(h) — 1,136 2,754

Severance expenses(i) — 653 60

Reorganization expense(j) 1,660 — —

Loss on disposal of fixed assets(k) 65 169 351

Executive recruiting expense(l) 631 139 733

First-year Sarbanes-Oxley implementation costs(m) — 961 929

Income tax expense impact of adjustments(n) (30,041) (17,633) (15,344)

Adjusted net income $ 69,021 $ 73,390 $ 53,210

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The following table reconciles diluted earnings per share to adjusted diluted earnings per share:

YEAR ENDED DECEMBER 31,

2023 2022 2021

Diluted earnings per share(a) $ (0.35) $ 0.09 $ (0.09)

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Amortization of acquisition-related intangible assets(c) 0.29 0.28 0.24

Acquisition-related expense (d)

Integration expense (e)

Transaction related expenses (f)

Severance expense (g)

Reorganization expense (h)

Loss on disposal of fixed assets (i)

Executive recruiting expense (j)

First-year Sarbanes-Oxley and ASC 842 implementation costs (k)

Income tax expense impact of adjustments (l)

Change in fair value of contingent consideration(d) 0.15 — —

Goodwill impairment expense(e) 0.30 — —

Acquisition-related expenses(f) 0.04 0.01 0.07

Integration expense(g) — — —

Transaction-related expenses(h) — 0.01 0.02

Severance expenses(i) — — —

Reorganization expense(j) 0.01 — —

Loss on disposal of fixed assets(k) — — —

Executive recruiting expense(l) — — —

First-year Sarbanes-Oxley implementation costs(m) — 0.01 0.01

Income tax expense impact of adjustments(n) (0.19) (0.11) (0.10)

Adjusted diluted earnings per share $ 0.43 $ 0.46 $ 0.34

Basic weighted average common shares outstanding 158,936,251 156,876,942 149,842,668

Effect of potentially dilutive shares outstanding (m)

Effect of potentially dilutive shares outstanding (o) 943,886 2,477,452 4,401,021

Adjusted diluted weighted average common shares outstanding 159,880,137 $ 159,354,394 154,243,689

__________________________________

(a) Represents amounts as determined under GAAP.

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(d) Represents costs associated with acquisitions and any retention bonuses pursuant to the acquisitions.

(e) Represents integration costs related to post - acquisition integration activities.

(f) Represents costs associated with our public offerings that are not capitalized.

(g) Represents charges for severance provided to former executives.

(h) Represents expense related to reorganization, including legal entity reorganization.

(i) Represents the gain/loss related to disposal of fixed assets.

(j) Represents recruiting and relocation expenses related to hiring senior executives.

(k) 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.

(l) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(m) Represents dilutive shares or potentially dilutive shares that were excluded from the Company's GAAP diluted weighted average common shares outstanding because the Company had a reported net loss and therefore including these shares would have been anti-dilutive.

(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.

(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.

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(o) Represents dilutive shares or potentially dilutive shares that were excluded from the Company's GAAP diluted weighted average common shares outstanding because the Company had a reported net loss and therefore including these shares would have been anti-dilutive.

Components of Results of Operations

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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.

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• General and Administrative.

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Based on our purchase price allocation, approximately $7.4 million and $4.7 million of the purchase price was assigned to customer relationships and goodwill, respectively.

Pinnacle 21, LLC

On October 1, 2021, we completed the acquisition of 100% of the equity of Pinnacle for a total consideration of $339.1 million, consisting of cash $266.3 million ($246.9 million net with cash acquired from the acquisition) and 2,239,717 shares of our restricted common stock.

Pinnacle 21, LLC (“Pinnacle”)

On October 1, 2021, we completed the acquisition of 100% of the equity of Pinnacle for a total consideration of $339.1 million, consisting of cash of $266.3 million ($246.9 million net with cash acquired from the acquisition) and 2,239,717 shares of our restricted common stock.

Based on our purchase price allocation, approximately $15.8 million, $103.0 million, $24.6 million and $180.9 million of the purchase price was assigned to trademark, acquired software, customer relationships, and goodwill, respectively.

Pinnacle has been included in our consolidated results of operations since the date of acquisition.

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Integrated Nonclinical Development Solutions, Inc.

On January 3, 2022, we completed an acquisition for a total consideration of $8.0 million, which qualified as a business combination.

On January 3, 2022, we completed an acquisition for a total consideration of $8.0 million.

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 was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively.

Vyasa Analytics, LLC

On December 28, 2022, we completed the acquisition of Vyasa Analytics, LLC (“Vyasa”), a company that provides an AI powered, scalable deep learning software and analytics platform for organizations within healthcare and life sciences, higher education and state and local governments for total estimated consideration of $29.3 million.

Vyasa Analytics, LLC (“Vyasa”)

On December 28, 2022, we 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 consolidated financial statements.

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% Certara common stock.

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 was 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% in shares of our common stock.

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

Potential payments range from $0 to $60 million over the three years period.

In December 2023, we modified the acquisition agreement and revised thresholds for eligible revenues.

The potential payments range from $0 to $60 million over the three years period.

The fair value of the contingent consideration was estimated to be $19.8 million as of the acquisition date.

At December 31, 2023, the contingent consideration was remeasured to $45.2 million, resulting in a fair value adjustment of $25.4 million for the year ended at December 31, 2023 and recorded in general and administrative (“G&A”) on the accompanying consolidated statement of operations and comprehensive income (loss).

Drug Interaction Solutions, University of Washington ("DIDB")

On June 20, 2023, we 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 $8.3 million.

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

Based on our purchase price allocation, approximately $0.3 million, $5.6 million, $0.4 million, and $2.3 million of the purchase price was assigned to trademarks, database content/technology, customer relationships and goodwill, respectively.

The total estimated consideration included a portion of contingent consideration that is payable over the next two years in cash, not to exceed $2.0 million.

The fair value of the contingent consideration was estimated to be $0.8 million as of the acquisition date.

At December 31, 2023, the contingent consideration was remeasured to $0.1 million, resulting in a negative fair value adjustment of $0.7 million and recorded in G&A on the accompanying consolidated statement of operations and comprehensive income (loss).

Formedix Limited ("Formedix")

On October 10, 2023, we completed the acquisition of Formedix for a total estimated consideration of $41.4 million.

The business combination was not material to our consolidated financial statements.

The total estimated consideration included a portion of contingent consideration that is payable over two years in cash, not to exceed $9.0 million.

The fair value of the contingent consideration related to revenue threshold was estimated to be $4.4 million as of the acquisition date.

Future payments of contingent consideration are

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based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively.

Additional, another portion of the contingent consideration is based on the resolution of certain tax contingencies.

In total, the fair value of the contingent consideration was estimated to be $5.2 million as of the acquisition date.

At December 31 2023, the contingent consideration related to revenues was remeasured to $3.7 million, resulting in a negative fair value adjustment of $0.7 million and recorded in G&A on the accompanying consolidated statement of operations and comprehensive income (loss).

Based on our purchase price allocation, approximately $11.7 million, $3.1 million, and $25.1 million of the purchase price were assigned to developed technology, customer relationships and goodwill, respectively.

Applied BioMath, LLC ("ABM")

On December 12, 2023, we completed the acquisition of ABM, an industry-leader in providing model-informed drug discovery and development support to help accelerate and de-risk therapeutic research and development, for total estimated consideration of $36.6 million.

The business combination was not material to our consolidated financial statements.

Based on our preliminary purchase price allocation, approximately $4.6 million, $0.8 million, $13.7 million and $15.9 million of the purchase price was assigned to developed technology, non-compete agreements, customer relationships and goodwill, respectively.

The total estimated consideration includes a portion of contingent consideration that is payable over two years in cash, not to exceed $17.6 million.

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

The fair value of the contingent consideration was estimated to be $5.4 million as of the acquisition date.

At December 31, 2023, the contingent consideration was remeasured to $5.4 million, resulting in fair value adjustment of $23 thousand and recorded in G&A on the accompanying consolidated statement of operations and comprehensive income (loss).

The contingent considerations for all acquisitions were classified as a liability and included in accrued expense and other long term liabilities on our consolidated balance sheet.

The contingent consideration related with revenue threshold are 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 consolidated statements of operations and comprehensive income (loss).

The current purchase price allocations for acquisitions of Formedix and ABM are preliminary.

The primary areas of the preliminary purchase price allocations that are not yet finalized that relate to the fair value of certain tangible assets and liabilities assumed and residual goodwill.

We continue to gather information supporting the acquired assets and liabilities, including but not limited to the estimation of the fair value of the identifiable intangible assets, measurement of deferred revenue and corresponding impact on goodwill, 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.

For more information about our acquisitions, see Note 5.

“Business Combinations” in the notes to the consolidated financial statements.

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Results of Operations

2023 2022 2021

(dollars in thousands)

Statement of operations data:

Revenues $ 354,337 $ 335,644 $ 286,104

Cost of revenues 141,022 132,577 111,616

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Depreciation and amortization expense 1,552 1,731 2,135

Goodwill impairment expense 46,984 — —

Total operating expenses 254,089 170,546 160,909

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Income (loss) before income taxes (55,143) 18,755 (3,375)

Provision for (benefit from) income taxes

Provision for income taxes 214 4,024 9,891

Net income (loss) $ (55,357) $ 14,731 $ (13,266)

Comparison of the Years Ended December 31, 2023 and 2022

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

Software $ 131,677 $ 115,466 $ 16,211 14 %

Services 222,660 220,178 2,482 1 %

Total revenues $ 354,337 $ 335,644 $ 18,693 6 %

Revenue increased by $18.7 million, or 6%, to $354.3 million for the year ended December 31, 2023, as compared to the same period in 2022.

The overall increase in revenue was primarily due to business acquisitions, growth in our technology-driven services and software product offerings from strong renewal rates, client expansion, and new customers.

The increase was partially offset by the negative impact on our revenues from fluctuations in foreign currency exchange rates and a decline in regulatory and access revenue.

The overall increase in revenues was primarily due to growth in our software product offerings and technology-driven service from continued demand from existing customers, new product introductions, and client expansions.

Software revenue increased by $16.2 million, or 14%, to $131.7 million for the year ended December 31, 2023, as compared to the same period in 2022.

The overall growth is primarily attributable to maintaining high net revenue retention rates and renewal rates for our core software products, growth from acquisitions, and new customers.

The increase was partially offset by the negative impact on our revenue from fluctuation of the foreign currency exchange rates.

The increase is primarily due to growth in our biosimulation technology-driven software portfolio from continued demand from existing customers,and new product introductions.

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Services revenue increased by $2.5 million, or 1%, to $222.7 million for the year ended December 31, 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 negative impact on our revenue from fluctuations in foreign currency exchange rates and a decline in regulatory and access revenue.

The growth in overall services revenue is primarily attributable to continued growth in biosimulation, partially offset by decrease in regulatory services.

Cost of Revenues

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

Cost of revenues $ 141,022 $ 132,577 $ 8,445 6 %

Cost of revenues increased by $21.0 million, or 19%, to $132.6 million for the year ended December 31, 2022, as compared to 2021.

The increase was primarily due to a $12.8 million increase in employee-related costs resulting from billable head count growth, a $5.0 million increase in intangible assets amortization, a $2.3 million increase in equity-based compensation cost, a $1.5 million increase related to cost of licenses, a $1.2 million increase in travel, equipment, and facility related expenses, partially offset by a $2.6 million decrease in consulting and professional services cost.

Cost of revenues increased by $8.4 million, or 6%, to $141.0 million for the year ended December 31, 2023, as compared to the same period in 2022.

The increase was primarily due to a $4.4 million increase in employee-related costs resulting primarily from billable head count growth, a $4.1 million increase in equity-based compensation cost, a $1.2 million increase in intangible assets amortization, a $0.5 million increase in travel expenses, partially offset by a $0.7 million decrease in consulting and professional services cost, a $0.4 million increase in capitalized software cost, a $0.4 million decrease in miscellaneous expense, and a $0.2 million decrease in cost of licenses.

Sales and Marketing Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues 9 % 8 %

Sales and marketing expenses increased by $7.3 million, or 36%, to $27.4 million for the year ended December 31, 2022, as compared to 2021.

Sales and marketing expenses increased primarily due to a $5.2 million increase in employee-related costs resulting from head count growth, a $0.9 million increase in marketing costs, a $0.5 million increase in travel related expenses, and a $0.3 million increase in professional and consulting costs.

Sales and marketing expenses increased by $4.6 million, or 17%, to $32.0 million for the year ended December 31, 2023, as compared to the same period in 2022.

Sales and marketing expenses increased primarily due to a $3.8 million increase in employee-related costs resulting primarily from head count growth, a $0.7 million increase in travel related expenses, a $0.4 million increase in marketing costs, partially offset by a $0.3 million decrease in equity-based compensation cost.

Research and Development Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues 10 % 8 %

Research and development expenses increased by $7.8 million, or 38%, to $28.2 million for the year ended December 31, 2022, as compared to 2021.

The increase in R&D expenses was primarily due to a $8.1 million increase in employee-related costs resulting from head count growth and a $3.0 million increase in equity-based compensation cost, partially offset by a $3.3 million increase in capitalized cost in R&D.

R&D expenses increased by $6.0 million, or 21%, to $34.2 million for the year ended December 31, 2023, as compared to the same period in 2022.

The increase in R&D expenses was primarily due to a $7.2 million increase in employee-related costs resulting primarily from head count growth, a $0.5 million increase in travel related expenses, a $0.5 million increase in equity-based compensation cost, and $0.3 million increase in cost of licenses, partially offset by a $2.1 million increase in capitalized cost in R&D, and a $0.4 million decrease in consulting and professional services cost.

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General and Administrative Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues 27 % 21 %

General and administrative expenses decreased by $7.8 million, or 10 %, to $71.8 million for the year ended December 31, 2022, as compared to 2021.

The decrease in general and administrative expenses was primarily due to a $9.7 million decrease in acquisition-related costs, a $4.3 million decrease in equity-based compensation cost, a $1.6 million decrease in transaction costs related to public offerings, and a $1.0 million decrease in facility and lease related expenses, partially offset by a $5.1 million increase in employee-related costs resulting from head count growth, a $2.4 million increase in professional and consulting costs, and a $1.0 million increase in travel and equipment related expenses.

General and administrative expenses increased by $23.6 million, or 33%, to $95.4 million for the year ended December 31, 2023, as compared to the same period in 2022.

The increase in general and administrative expenses was primarily due to a $24.1 million increase related to a change in the fair value of contingent considerations, a $2.4 million increase in business acquisition-related costs, a $2.3 million increase in equipment and software related expenses, a $1.6 million increase in lease abandonment expense, a $1.3 million increase in employee-related costs resulting primarily from head count growth, a $1.2 million increase in professional and consulting costs, and a $0.5 million increase in executive recruiting expense, partially offset by a $6.3 million decrease in equity-based compensation cost, a $1.1 million decrease in insurance costs, a $1.1 million decrease in transaction costs related to public offerings, a $1.0 million decrease related to first-year Sarbanes-Oxley implementation costs, and a $0.5 million decrease in facility lease related expenses.

Intangible Asset Amortization Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues 12 % 12 %

Intangible asset amortization expense increased by $2.7 million, or 7%, to $41.4 million for the year ended December 31, 2022, as compared to 2021.

The increase in intangible asset amortization was primarily the result of increased amortization in acquired intangible assets.

Intangible asset amortization expense increased by $2.5 million, or 6%, to $44.0 million for the year ended December 31, 2023, as compared to the same period in 2022.

The increase in intangible asset amortization was primarily due to a $1.8 million increase in amortization expense from capitalized software and an $0.8 million increase in amortization expense from acquired intangible assets.

Depreciation and Amortization Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues — % 1 %

Depreciation and amortization expense decreased by $0.4 million, or 19 %, to $1.7 million for the year ended December 31, 2022, as compared to 2021.

The decrease was primarily due to a decrease in depreciation from computer equipment and furniture for the year ended December 31, 2022 as compared to the same period in 2021.

Depreciation and amortization expense decreased by $0.2 million or (10)%, to $1.6 million for the year ended December 31, 2023, as compared to the same period in 2022.

The decrease was primarily due to decrease in depreciation from finance lease and furniture, partially offset by increase in depreciation expense from computer equipment.

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Goodwill Impairment Expense

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

Goodwill impairment expense $ 46,984 $ — $ 46,984 nm

Goodwill impairment expense was $47.0 million for the year ended December 31, 2023 as compared to no goodwill impairment expense for the same period in 2022.

The increase in goodwill impairment expense was primarily due to recognizing a goodwill impairment for legacy regulatory and writing reporting unit as the carrying value exceeded its fair value.

Interest Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues 6 % 5 %

Interest expense increased by $0.9 million, or 6%, to $17.8 million for the year ended December 31, 2022, as compared to 2021.

The increase in interest expense was primarily due to market interest rates increase reflected on our term loan floating rate debt.

The increase in interest expense was partially offset by $3.3 million of interest expense reclassified from other comprehensive income due to hedge ineffectiveness in 2021 and the decrease of interest on interest swap.

Interest expense increased by $5.1 million, or 29%, to $22.9 million for the year ended December 31, 2023, as compared to the same period in 2022.

The increase was primarily due to a $10.4 million increase in interest expense on our term loan floating rate debt due to increase in market interest rates, partially offset by a $5.3 million gain from interest swap hedge activities.

Net Other Income (Expense)

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

1 unchanged sentence

% of total revenues 2 % 1 %

Net other income (expense) increased by $4.1 million to $4.0 million for the year ended December 31, 2022, as compared to 2021.

The increase in net other income (expense) was primarily due to a $3.0 million increase in remeasurement gains related to the fluctuation of foreign currency exchange rates and a $1.0 million increase in interest income.

Provision for (Benefit from) Income Taxes

YEAR ENDED DECEMBER 31,

Net other income (expense) increased by $4.5 million to $8.5 million for the year ended December 31, 2023 as compared to the same period in 2022.

The increase in net other income (expense) was primarily due to an $8.0 million increase in interest income, and a $0.2 million decrease in other expenses, partially offset by $3.8 million remeasurement losses related to the fluctuation of foreign currency exchange rates.

Provision for Income Taxes

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

Provision for (benefit from) income taxes

Provision for income taxes $ 214 $ 4,024 $ (3,810) (95) %

Effective tax rate (0.4) % 21.5 %

Our income tax expense was $0.2 million, resulting in an effective income tax rate of (0.4)%, for the year ended December 31, 2023, as compared to an income tax expense of $4.0 million, or an effective income tax rate of 21.5%, in 2022.

Our income tax expense for the year ended December 31, 2022 was primarily due to the impact of rate changes in certain jurisdictions, the impact of non-deductible items, and the relative mix of domestic and international earnings.

Our income tax expense for the year ended December 31, 2023 was primarily due to the impact

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of non-deductible items, the impact of valuation allowances recorded against certain tax attributes, and the relative mix of domestic and international earnings.

Net Income (Loss)

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

Net income (loss) $ (55,357) $ 14,731 $ (70,088) (476) %

Net income increased by $28.0 million, or 211%, to $14.7 million for the year ended December 31, 2022, as compared to the same period in 2021.

The increase was primarily due to a $49.5 million increase in revenues, a $5.9 million decrease in tax expense, and a $4.1 million increase in net other income mainly related to increase in remeasurement gain and interest income, partially offset by a $21.0 million increase in cost of revenue, a $9.6 million increase in operating expense, and a $0.9 million increase in interest expense.

Net loss was $55.4 million, representing a $70.1 million decrease in net income for the year ended December 31, 2023, as compared to the same period in 2022.

The decrease was primarily due to a $47.0 million goodwill impairment charge, a $24.1 million increase in expense related to change in the fair value of contingent considerations, a $12.4 million increase in expense from other components of operating expense, a $8.4 million increase in cost of revenues, a $5.1 million increase in interest expense, and a $3.8 million increase in remeasurement losses related to the fluctuation of foreign currency exchange rates, partially offset by a $18.7 million increase in total revenue, a $8.0 million increase in interest income, and a $3.8 million decrease in tax expense.

Comparison of the Years Ended December 31, 2022 and 2021

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Software $ 115,466 $ 86,825 $ 28,641 33 %

Services 220,178 199,279 20,899 10 %

Total revenues $ 335,644 $ 286,104 $ 49,540 17 %

Revenues increased by $42.6 million, or 17%, to $286.1 million for the year ended December 31, 2021, as compared to the same period in 2020.

Excluding $6.1 million revenue from Pinnacle 21, which was acquired in the fourth quarter of 2021, the revenues increased $36.4 million, or 15% for the year ended December 31, 2021 as compared to the same period in 2020.

The overall increase in revenues was primarily a result of growth in our technology enabled services and software product offerings from strong renewal rates, client expansions and new customers.

Software revenue increased by $13.4 million, or 18%, to $86.8 million for the year ended December 31, 2021 as compared to the same period in 2020, driven primarily by growth in sales of our software subscriptions of 29%, or $9.6 million and sales of our software licenses of 10%, or $3.7 million.

Excluding $5.7 million revenue from Pinnacle 21, the revenue from software subscription increased $3.9 million, or 12%.

Revenue increased by $49.5 million, or 17%, to $335.6 million for the year ended December 31, 2022, as compared to the same period in 2021.

The increase was partially offset by the negative impact on our revenues from fluctuations in foreign currency exchange rates and a decline in regulatory and access revenue.

Software revenue increased by $28.6 million, or 33%, to $115.5 million for the year ended December 31, 2022, as compared to the same period in 2021.

The overall growth is primarily attributable to maintaining high net revenue retention rates and renewal rates for our core software products, growth from acquisitions, and new customers.

Services revenue increased by $29.2 million, or 17%, to $199.3 million for the year ended December 31, 2021, as compared to the same period in 2020, primarily driven by growth in our technology-driven services product lines, which increased by 18%, or $29.5 million.

The growth in overall services revenue is primarily attributable to strong growth in biosimulation and regulatory services from client expansions with ACV greater than $0.1 million and new customers.

The increase was partially offset by the negative impact on our revenue from fluctuation of the foreign currency exchange rates.

Services revenue increased by $20.9 million, or 10%, to $220.2 million for the year ended December 31, 2022, as compared to the same period in 2021.

The growth in overall services revenue is primarily attributable to continued growth in biosimulation.

The increase was partially offset by the negative impact on our revenue from fluctuations in foreign currency exchange rates and a decline in regulatory and access revenue.

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Cost of Revenues

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

1 unchanged sentence

Cost of revenues increased by $21.0 million, or 19%, to $132.6 million for the year ended December 31, 2022, as compared to 2021.

The increase was primarily due to a $10.0 million increase in employee-related costs resulting from billable head count growth, a $2.8 million increase in consulting costs, and $1.4 million increase in intangible assets amortization, partially offset by a $3.6 million decrease in equity-based compensation cost.

Excluding $0.8 million expense from Pinnacle, the cost of revenue increased $10.1 million.

Sales and Marketing Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

1 unchanged sentence

% of total revenues 8 % 7 %

Sales and marketing increased by $0.9 million, or 5%, to $20.1 million for the year ended December 31, 2021, as compared to 2020.

Sales and marketing expenses increased primarily due to a $5.4 million increase in employee-related costs resulting from head count growth and a $0.5 million increase in professional and consulting costs as well as $0.1 million increase in equipment and software expenses, partially offset by a $5.2 million decrease in equity-based compensation cost.

Sales and marketing expenses increased by $7.3 million, or 36%, to $27.4 million for the year ended December 31, 2022, as compared to 2021.

Research and Development Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

2 unchanged sentences

Research and development expenses increased by $7.8 million, or 38%, to $28.2 million for the year ended December 31, 2022, as compared to 2021.

The increase in R&D expenses was primarily due to a $5.1 million increases in employee-related costs resulting from head count growth, partially offset by a $4.3 million decrease in equity-based compensation cost.

Excluding $1.3 million expense in research and development from Pinnacle, the research and development expense decreased $0.6 million.

General and Administrative Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

2 unchanged sentences

General and administrative expenses decreased by $7.8 million, or 10 %, to $71.8 million for the year ended December 31, 2022, as compared to 2021.

The decrease was primarily due to a $24.4 million decrease in employee-related costs resulting from a $22.0 million decrease in equity-based compensation cost and a $2.4 million decrease in other-employee related costs.

The decreases were partially offset by increase of $10.7 million in acquisition costs, $2.7 million in insurance expenses, $1.0 million increase in public company expense, and $0.8 million increase in stock offering transaction cost.

The decrease in general and administrative expenses was primarily

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due to a $9.7 million decrease in acquisition-related costs, a $4.3 million decrease in equity-based compensation cost, a $1.6 million decrease in transaction costs related to public offerings, and a $1.0 million decrease in facility and lease related expenses, partially offset by a $5.1 million increase in employee-related costs resulting from head count growth, a $2.4 million increase in professional and consulting costs, and a $1.0 million increase in travel and equipment related expenses.

Intangible Asset Amortization Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Intangibles asset amortization

Intangible asset amortization $ 41,429 $ 38,715 $ 2,714 7 %

% of total revenues 12 % 14 %

1 unchanged sentence

The increase in intangible asset amortization was primarily the result of increased amortization in acquired intangible assets.

Excluding $2.4 million expense in intangible asset amortization from Pinnacle, the intangible asset amortization expense decreased $1.1 million.

Depreciation and Amortization Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

2 unchanged sentences

Depreciation and amortization expense decreased by $0.4 million, or 19 %, to $1.7 million for the year ended December 31, 2022, as compared to 2021.

The decrease in depreciation and amortization expense was primarily due to the decrease in average carrying balances of fixed assets in 2021 compared to 2020.

The decrease was primarily due to a decrease in depreciation from computer equipment and furniture for the year ended December 31, 2022 as compared to the same period in 2021.

Interest Expense

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

1 unchanged sentence

% of total revenues 5 % 6 %

Interest expense decreased by $8.5 million, or 33%, to $16.8 million for the year ended December 31, 2021 as compared to 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in 2021 compared to the same period in 2020.

The decrease in interest expense was partially offset by interest expense reclassified in 2021 as interest from other comprehensive income due to hedge ineffectiveness.

Interest expense increased by $0.9 million, or 6%, to $17.8 million for the year ended December 31, 2022, as compared to 2021.

The increase in interest expense was primarily due to market interest rates increase reflected on our term loan floating rate debt.

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Net other income (expense)

YEAR ENDED DECEMBER 31,

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Net other income (expense)

Net other income (expense) $ 4,007 $ (117) $ 4,124 nm

% of total revenues 1 % (0)%

Net other income (expense) decreased by $0.3 million, or 75%, to $0.1 million for the year ended December 31, 2021 as compared to 2020.

The decrease in net other income (expenses) was primarily due to increase in currency gain, partially offset by increase in loss from fixed asset disposals.

Provision for (Benefit from) Income Taxes

YEAR ENDED DECEMBER 31,

Net other income (expense) increased by $4.1 million to $4.0 million for the year ended December 31, 2022, as compared to 2021.

Provision for Income Taxes

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Provision for (Benefit from) income taxes

Effective income tax rate

Our income tax expense was $9.9 million, resulting in an effective income tax rate of (293.1)%, for the year ended December 31, 2021, as compared to an income tax benefit of $0.8 million, or an effective income tax rate of 1.6%, in

Provision for income taxes $ 4,024 $ 9,891 $ (5,867) (59) %

Effective tax rate 21.5 % (293.1) %

Our income tax expense was $4.0 million, resulting in an effective income tax rate of 21.5%, for the year ended December 31, 2022, as compared to an income tax expense of $9.9 million, or an effective income tax rate of (293.1)% in 2021.

YEAR ENDED DECEMBER 31,

Net Income (Loss)

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Net loss decreased by $36.1 million, or 73%, to $13.3 million for the year ended December 31, 2021, as compared to the same period in 2020.

The decrease was primarily due to increase in revenues and decrease in stock-based compensation expense and interest costs in 2021 compared to 2020, partially offset by increase in cost of revenue, employee-related costs, acquisition costs, and taxes.

Net income (loss) $ 14,731 $ (13,266) $ 27,997 (211) %

Net income increased by $28.0 million, or 211%, to $14.7 million for the year ended December 31, 2022, as compared to the same period in 2021.

Liquidity and Capital Resources

We have consistently generated positive cash flow from operations, providing $82.8 million, $92.5 million, and $60.4 million as a source of funds each year for the years ended December 31, 2023, 2022, and 2021, 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 line of credit.

The following table provides a summary of the major sources of liquidity for periods ended at December 31, 2022, 2021, and 2020 and as of December 31, 2022, 2021, and 2020.

Our additional sources of liquidity have included:

maintaining adequate balances of cash and cash equivalents, sale of common stock, and accessing our credit facilities and the revolving line of credit.

The following table provides a summary of the major sources of liquidity for periods ended December 31, 2023, 2022, and 2021.

and as of December 31, 2023, 2022, and 2021.

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2023 2022 2021

(in thousands)

1 unchanged sentence

Cash and cash equivalents (1)

Proceeds from issuing common stock

$ 234,951 $ 236,586 $ 185,797

Proceeds from sales of common stock $ — $ — $ 133,351

Term loan credit facilities $ 294,450 $ 297,470 $ 300,490

Revolving line of credit

(1) Cash balance as of December 31, 2022, 2021, and 2020 included $56.4 million, $39.8 million, and $19.9 million cash and cash equivalents held outside of the United States.

Available revolving line of credit $ 100,000 $ 100,000 $ 100,000

__________________________________

(1) Cash balance as of December 31, 2023, 2022, and 2021 included $47.3 million, $56.4 million, and $39.8 million, respectively, of cash and cash equivalents held outside of the United States.

Our material cash requirements from known contractual obligations as of December 31, 2023 are as follows:

TOTAL LESS THAN

1 YEAR 1 TO 3 YEARS 4 TO 5 YEARS MORE THAN

(in thousands)

Lease obligations:

Operating leases $ 11,563 $ 4,250 $ 5,763 $ 1,550 $ —

Finance leases (1)

Principal payments of long-term debt 294,450 3,020 291,430 — —

Interest on long-term debt (1)

(1) Inclusive of interest expense.

71,911 27,284 44,627 — —

Total $ 377,924 $ 34,554 $ 341,820 $ 1,550 $ —

__________________________________

(1) Represents the expected cash payments for interest on our long-term debt based on the amounts outstanding as of the end of each period and the interest rates applicable on such debt as of December 31, 2023.

2 unchanged sentences

Our future capital requirements, however, will depend on many factors, including funding needed 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” elsewhere in this filing.

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The following table presents a summary of our cash flows for the periods shown:

YEAR ENDED DECEMBER 31,

2023 2022 2021

(in thousands)

9 unchanged sentences

Net cash provided by operating activities for the year ended December 31, 2023 was $82.8 million, compared to $92.5 million for the year ended December 31, 2022.

The $32.2 million increase in cash from operating activities was primarily due to cash collected from higher revenues and more cash inflow from deferred revenues, partially offset by less cash used to pay for liabilities and increase in accounts receivables.

The $9.8 million decrease in cash provided from operating activities was primarily due to decrease in cash inflow from deferred revenues, increase of cash used to pay for liabilities and taxes, partially offset by higher cash collected from accounts receivables, higher revenue converted to cash for the period, and decreased spending on prepared and other assets.

During the year ended December 31, 2022, operating activities provided cash of approximately $92.5 million, compared to $60.4 million for the same period of 2021.

The $32.2 million increase in cash from operating activities was primarily due to cash collected from higher revenues and more cash inflow from deferred revenues, partially offset by a decrease in cash used to pay for liabilities and increase in accounts receivables.

During the year ended December 31, 2021, operating activities provided cash of approximately $60.4 million.

The $15.6 million increase in cash from operating activities compared to 2020 was primarily due to a decrease in cash paid in interest and taxes, partially offset by cash paid for accounts payable and accrued expense.

During the year ended December 31, 2020, operating activities provided approximately $44.8 million of cash and cash equivalents, primarily resulting from a net loss of $49.4 million, offset by $100.9 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, equity-based compensation costs, and deferred income taxes.

Changes in our operating assets and liabilities used cash and cash equivalents of approximately $6.7 million.

The $15.6 million increase in cash from operating activities compared to the same period of 2020 was primarily due to a decrease in cash paid in interest and taxes, partially offset by cash paid for accounts payable and accrued expense.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2022, was $27.8 million, a decrease of $242.1 million, compared to $269.9 million for the year ended December 31, 2021.

The change in investing activities was

primarily due to a $245.7 million decrease on cash used for business acquisitions, partially offset by cash utilized in capitalized development costs and capital expenditures to support our growth.

Net cash used in investing activities for the year ended December 31, 2023 was approximately $79.6 million, an increase of $51.7 million, compared to $27.8 million in 2022.

The change in investing activities was primarily due to a $48.9 million increase in cash payments in connection with business acquisitions, and a $2.4 million increase in cash utilized in capitalized development costs.

During the year ended December 31, 2022, investing activities used cash approximately $27.8 million, a decrease of $242.1 million, compared to $269.9 million for the year ended December 31, 2021.

The change in investing activities was primarily due to a $245.7 million decrease on cash used for business acquisitions, partially offset by cash utilized in capitalized development costs and capital expenditures to support our growth.

During the year ended December 31, 2021, investing activities used approximately $269.9 million of cash, an increase of $261.3 million, compared to $8.6 million in 2020.

Cash used in investing activities was primarily for investing in business acquisitions, capitalized software development, and capital expenditures to support our growth.

During the year ended December 31, 2020, investing activities used approximately $8.6 million of cash, primarily for investing in capital expenditures and capitalized software development to support our growth.

Cash used in investing activities was primarily for

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investing in business acquisitions, capitalized software development, and capital expenditures to support our growth.

Financing Activities

During the year ended December 31, 2023, financing activities used cash of approximately $9.4 million, compared to $7.4 million in the same period of 2022.

The $2.1 million increase in cash used from financing activities was primarily due to a $3.4 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.

During the year ended December 31, 2022, financing activities used cash of approximately $7.4 million, compared to $123.4 million cash provided by financing activities in the same period of 2021.

3 unchanged sentences

The decrease was partially offset by $100.4 million decrease in payments on long-term debt in 2021.

During the year ended December 31, 2020, financing activities provided approximately $208.2 million of cash, primarily attributable to proceeds from issuance of common stock in connection with our IPO, partially offset by payments on long-term debt.

Credit Facilities

We are a party to a Credit Agreement that originally provided for a $250.0 million senior secured term loan and commitments under a revolving credit facility in an aggregate principal amount of $20.0 million, with a sub-commitment for issuance of letters of credit of $10.0 million.

The loans were originally scheduled to mature on August 14, 2024, with respect to the term loan thereunder, and August 14, 2022, with respect to the revolving credit facility thereunder.

In January 2018, we and the lenders amended the Credit Agreement to add incremental term loans in the amount of $25.0 million to be used for our general corporate purposes.

Additionally, in April 2018, we and the lenders amended the Credit Agreement to (i) add incremental term loans in the amount of $40.0 million to be used for our general corporate purposes and (ii) provide a reduction of 50 basis points in the margin under the term loan.

The terms of such incremental term loans were the same as the terms of our existing term loans, including in respect of maturity, and are considered an increase in the aggregate principal amount of the existing term loans outstanding under the Credit Agreement and are part of the existing term loan.

We entered into a third restated and amended loan agreement on June 17, 2021 (“Third Amendment”), which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments under the Credit Agreement to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $80.0 million in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $100.0 million).

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

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

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

subsidiaries and contain various financial and nonfinancial covenants.

Borrowings under the Credit Agreement currently bear interest at a rate per annum equal to either (i) the Eurocurrency rate, with a floor of 0.00%, as adjusted for the reserve percentage required under regulations issued by the Federal Reserve

Board for determining maximum reserve requirements with respect to Eurocurrency funding, plus an applicable margin rate of 3.50% for the term loan and between 4.00% and 3.50% for revolving credit loans, depending on the applicable first lien leverage ratio, or (ii) an alternative base rate (“ABR”), with a floor of 1.00%, plus an applicable margin rate of 2.50% for the term loan or between 3.00% and 2.50% for revolving credit loans, depending on the applicable first lien leverage ratio (with the ABR determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.50%), and (c) the Eurocurrency rate plus 1.00%.

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.

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.

We and our lenders most recently modified the Credit Agreement on June 17, 2021.

The maturity date of the term loans under the Credit Agreement is August 2026;

the termination date of the revolving credit commitments is August 2025, As of December 31, 2023, we had $294.5 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to either (i) the Eurocurrency rate, with a floor of 0.00%, as adjusted for the reserve percentage required under regulations issued by the Federal Reserve Board for determining maximum reserve requirements with respect to Eurocurrency funding, plus an applicable margin rate of 3.50% for the term loan and between 4.00% and 3.50% for revolving credit loans, depending on the applicable first lien leverage ratio, or (ii) an alternative base rate (“ABR”), with a floor of 1.00%, plus an applicable margin rate of 2.50% for the term loan or between 3.00% and 2.50% for revolving credit loans, depending on the applicable first lien leverage ratio (with the ABR determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.50%), and (c) the Eurocurrency rate plus 1.00%.

Additionally, we are obligated to pay commitment fees and other customary fees under the revolving credit facility.

In response to the discontinuation of LIBOR, we executed a LIBOR transition amendment in June 2023, formalizing the replacement of LIBOR with the Secured Overnight Funding Rate (“SOFR”).

As part of this modification, a Credit Spread Adjustment (“CSA”) was introduced to aligning SOFR with LIBOR in terms of the overall interest rate earned by lenders under the Credit Agreement.

The CSA varied depending on the selected interest period.

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 December 31, 2022, we had $297.5 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.

All obligations under the Credit Agreement, and the

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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 December 31, 2023, we were in compliance with the covenants of the Credit Agreement.

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While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

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Revenue Recognition

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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.

Our 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.

Our professional services contracts are either time-and-materials or fixed fee.

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

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Software as a Service (SaaS) Revenues

SaaS revenues consists of subscription fees for access to, and related support for, the Company’s cloud-based solutions.

The Company typically invoices subscription fees in advance in annual installments.

SaaS revenues consists of subscription fees for access to, and related support for, our cloud-based solutions.

We typically invoice 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.

Our software contracts do not typically include variable consideration, or options for future purchases that would not be similar to the original goods.

Software Services

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While transfer of control of the software training and implementation performance obligations are over time, the services are typically started and completed within a few days.

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.

Due to the quick nature of the performance obligation from start to finish and the insignificant amounts, we recognize 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.

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Arrangements with Multiple Performance Obligations

For contracts with multiple performance obligations, such as a software license plus software training, implementation, and/or maintenance/support, or in contracts where there are multiple software licenses, the Company determines if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis (“SSP”).

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, we determine if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis (“SSP”).

The delivery of a particular type of software and each of the user licenses would be one performance obligation.

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The application of an interim or the annual goodwill impairment test begins with the identification of reporting units, which requires judgment.

We determined that we have four reporting units:

the software reporting unit (“Software”), the SimCyp reporting unit (“SimCyp”), the Integrated Drug Development reporting unit (“IDD”), and the regulatory writing reporting unit (“Regulatory Writing”), which are within a single operating segment of the Company.

We determined that we have three reporting units as of October 1, 2023 and December 31, 2023:

the software reporting unit (“Software”), the SimCyp reporting unit (“SimCyp”), and the Drug Development Solutions reporting unit (“CDDS”), which are within a single operating segment of the Company.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment.

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The income approach is based on the discounted cash flow method that discounts forecasted future cash flows expected to be generated which are based on the Company's estimates of financial performance including revenues, adjusted EBITDA, taxes, and working capital and capital asset requirements.

performing our market approach, we rely specifically on the guideline public company method.

When performing our market approach, we rely specifically on the guideline public company method.

Our guideline public company method incorporates revenues and EBITDA multiples from publicly traded companies with operations and other characteristics similar to our entity.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

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We performed the annual goodwill impairment analysis during the fourth quarter.

The quantitative assessments resulted in no impairment as the estimated fair value of each reporting unit exceeded its carrying value.

Our other intangible assets primarily consist of customer relationship assets, software products acquired in acquisitions, tradenames, software development costs, and non-compete agreements.

Other identifiable intangible assets with finite lives, such as software products acquired in acquisitions, non-compete agreements, tradenames, and customer relationship assets, are amortized over their estimated lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows:

acquired software — three to ten years;

non-compete agreements — two to five years;

During the third quarter of 2023, we performed an interim goodwill impairment test for regulatory writing reporting unit, which was integrated into the CDDS reporting unit at the end of third quarter 2023.

The fair value of regulatory writing reporting unit was determined to be less than its carrying value, resulting in a goodwill impairment charge of $47.0 million 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.

Our other intangible assets primarily consist of customer relationship assets, software products acquired in acquisitions, trade names, software development costs, and non-compete agreements.

Other identifiable intangible assets with finite lives, such as software products acquired in acquisitions, non-compete agreements, trade names, customer relationship assets, and patents, are amortized over their estimated lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows:

acquired software — 3 to 15 years;

non-compete agreements — 2 to 5 years;

customer relationships — 11 to 16 years;

and trademarks — 10 to 17 years.

trade names — 10 to 20 years;

and patents — 5 years.

The Company evaluates finite intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable.

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On a quarterly basis, we also assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (a likelihood of more than 50%) that all or a portion of such assets will not be realized.

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Business Acquisitions

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Our estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management.

We classified our contingent consideration as a liability in a recent acquisition and will remeasure the fair value of contingent liability quarterly until the contingency is resolved.

We classified our contingent considerations as liabilities and remeasure the fair value of contingent liabilities related to revenue thresholds quarterly until the contingency are resolved.

The changes in fair value will be recognized in earnings in our consolidated statements of operations and comprehensive income (loss).

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

What changed 10-K

Item 7. Management’s Discussion and Analysis