What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 485 added, 360 removed, 824 unchanged (51% of the section changed)

9 unchanged sentences

Notes to the Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Certara, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Certara, Inc.

and Subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the year ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 1, 2023 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

We have audited the accompanying consolidated balance sheets of Certara, Inc.

and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 29, 2024, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting .

Basis for Opinion

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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Revenue Recognition on the Company’s Fixed Price Contract Revenue

As described in Note 2 (r) to the consolidated financial statements, the Company performs professional services under fixed price contracts with the associated revenue recognized over time.

As described in Note 2 (q) to the consolidated financial statements, the Company performs professional services under fixed price contracts with the associated revenue recognized over time.

For fixed price revenue contracts recognized over time, management utilizes the input method to measure estimated progress to completion.

We identified revenue recognition for fixed price contracts as a critical audit matter.

The principal consideration for our determination that revenue recognition for fixed price contracts was a critical audit matter is that the measure of progress towards completion is based upon the hours incurred to date as a percentage of the total estimated hours and utilizes assumptions for future hours to complete the performance obligations, and those assumptions have significant estimation

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We identified revenue recognition for fixed contracts as a critical audit matter.

A significant change in the assumptions could affect both the profitability of the contract and the amount of revenue and profit recognized in an accounting period.

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• We selected a sample of customer contracts and performed the following procedures:

o We reviewed the terms in the customer contract and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, to determine the revenue recognition conclusions are reasonable.

o We evaluated management’s estimated cost budget for each selection and compared the actual costs incurred to the amount recognized in accordance with management’s accounting policies.

◦ We reviewed the terms in the customer contract and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, to determine the revenue recognition conclusions are reasonable.

◦ We evaluated management’s estimated cost budget for each selection and compared the actual costs incurred to the amount recognized in accordance with management’s accounting policies.

Valuation of Regulatory Writing Reporting Unit for Goodwill Impairment Testing

As described in Notes 2 (l) and 8 to the financial statements, as of December 31, 2022, the Company’s consolidated goodwill balance was $717.8 million.

The Company tests for impairment of goodwill at the reporting unit level annually as of the first day of the fourth quarter, or more frequently if events or circumstances indicate a potential impairment.

During the year ended December 31, 2022, the impairment test was performed at the annual test date.

The Company determines the fair value of the Regulatory Writing reporting unit using a combination of the income approach using the discounted cash flow method, which discounts forecasted future cash flows expected to be generated, and the market approach, using the guideline public company method, which utilizes information of comparable entities with similar operations and economic characteristics.

To quantitatively measure goodwill impairment, the Company compares the fair value of the Regulatory Writing reporting unit to its carrying value.

When determining the fair value of the Regulatory Writing reporting unit management makes significant estimates and assumptions, including revenue growth rates, projected operating margins, and discount rates for the income approach and comparable market data for the market approach.

We identified the valuation of the Regulatory Writing reporting unit for goodwill impairment testing as a critical audit matter given the significant estimates and assumptions management makes to determine the fair value of the Regulatory Writing reporting unit, we identified management’s assumptions related to revenue growth rates, projected operating margins, discount rates and comparable market data utilized in the valuation of the Regulatory Writing reporting unit’s quantitative test for goodwill impairment as a critical audit matter.

Auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

As described in Notes 2 (k) and 8 to the consolidated financial statements, during the year ended December 31, 2023, the Company’s recorded $47.0 million of impairment related to the Regulatory Writing reporting unit.

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

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

The Company identified a triggering event for the Regulatory Writing reporting unit during the third quarter of 2023.

The Company determined the fair value of the Regulatory Writing reporting unit using a combination of the income approach using the discounted cash flow method, which discounts forecasted future cash flows expected to be generated, and the market approach, using the guideline public company method, which utilizes information of comparable entities with similar operations and economic characteristics.

To quantitatively measure goodwill impairment, the Company compared the fair value of the Regulatory Writing reporting unit to its carrying value.

When determining the fair value of the Regulatory Writing reporting unit, management made significant estimates and assumptions, including revenue growth rates, projected operating margins, and discount rates for the income approach and comparable market data for the market approach.

We identified the interim goodwill impairment assessment for the Regulatory Writing reporting unit as a critical audit matter given the significant estimates and assumptions used by management when estimating the fair value of the Regulatory Writing reporting unit, including assumptions related to revenue growth rates, projected

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operating margins, discount rates and comparable market data.

Our audit procedures related to revenue growth rates, projected operating margins, discount rates and comparable market data utilized in the valuation of the Company’s Regulatory Writing reporting unit included the following, among others:

• We obtained an understanding of the relevant controls related to the valuation of the Company’s Regulatory Writing reporting unit and tested such controls for design and operating effectiveness, including management review controls.

● We evaluated the reasonableness of management’s forecasted sales and expense growth rates by comparing actual results to management’s historical forecasts.

● We evaluated the reasonableness of management’s forecasts of sales growth rates by comparing the forecasts to (1) the historical results (2) internal communications to management and the Board of Directors, (3) external communications from analysts and investors, as applicable and (4) external market and industry data.

• We evaluated the reasonableness of management’s forecasts of revenue growth rates by comparing the forecasts to (1) the historical results, (2) internal communications to management and the Board of Directors, (3) external communications from analysts and investors, as applicable, and (4) external market and industry data.

• We evaluated the reasonableness of management’s forecasted expense growth rates by comparing actual results to management’s historical forecasts and internal communications to management and the Board of Directors.

• We evaluated the reasonableness of management’s selection of comparable entities with similar operations and economic characteristics.

• With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by:

o Evaluating the reasonableness of the discount rate and multiples of earnings of comparable companies by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

o Evaluating the appropriateness of the valuation methods used by management and testing their mathematical accuracy.

Valuation of developed technology and contingent consideration related to the acquisition of Vyasa Analytics, LLC

As described in Note 5 to the consolidated financial statements, on December 28, 2022, the Company completed the acquisition of Vyasa Analytics, LLC (“Vyasa”) which resulted in $13.1 million of intangible assets being recorded.

Those intangible assets were comprised of developed technology of $11.4 million and other intangibles of $1.7 million.

Fair values of the developed technology were estimated by management using an income approach that estimates discounted cash flows which are specifically attributable to an intangible asset..

Management’s determination of the fair value of the developed technology included significant assumptions related to future expected cash flows from the developed technology and discount rates.

As a result of the acquisition, the Company also recognized a contingent consideration liability of $19.8 million.

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 $60.0 million over the three year period.

The liability was valued using a valuation model that reflects the use of multiple probabilities.

We identified the valuation of developed technology and contingent consideration related to the acquisition of Vyasa Analytics, LLC as a critical audit matter given the significant judgment exercised by management when determining the valuation of developed technology, which in turn led to a high degree of auditor judgment, in performing procedures relating to management’s significant assumptions related to the revenue growth rates and discount rates.

◦ Evaluating the reasonableness of the discount rate and multiples of earnings of comparable companies by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

◦ Evaluating the appropriateness of the valuation methods used by management, testing their mathematical accuracy, and evaluating the allocation of fair value methods used in the analysis.

Valuation of Certain Intangible Assets and Contingent Consideration Related to the Acquisitions of Drug Interaction Solutions, Formedix Limited and Applied BioMath, LLC

As described in Note 5 to the consolidated financial statements, in 2023 the Company completed the acquisitions of Drug Interaction Solutions (DIDB), Formedix Limited (Formedix), and Applied BioMath, LLC (ABM) which resulted in $40.2 million of intangible assets being recorded.

Those intangible assets were comprised of developed technologies and database content of $21.9 million, customer relationships of $17.2 million and other intangibles of $1.1 million.

The fair value of the developed technologies and database content and customer relationships acquired were valued at acquisition date using forms of the income approach including the relief from royalty method and multi-period excess earnings method or the cost approach.

Key inputs used in the income approaches included estimations of the future cash flows attributable to these intangible assets considering their economic lives and applying appropriate discount rates.

The key input used in the cost approach is the estimated cost to recreate the asset.

As a result of the Formedix and ABM acquisitions, the Company also recognized contingent consideration liabilities totaling $9.7 million.

Future payments of contingent consideration are based on achieving certain

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eligible revenue thresholds for specific periods.

Total potential payments resulting from the Formedix acquisition range from $0 to $9.0 million over the two-year period.

Total potential payments resulting from the ABM acquisition range from $0 to $17.6 million over the two-year period.

The liabilities were valued using a valuation model that reflects the use of multiple probabilities.

Significant inputs used in the fair value measurement of contingent consideration include expected eligible revenue for the acquired businesses over the relevant measurement periods, probabilities of achieving eligible revenue thresholds, and the volatility assumptions and discount rates associated with the risk of the Company’s future liability payments.

We identified the valuation of developed technologies and database content, customer relationships and contingent considerations related to the acquisitions as a critical audit matter given the significant judgment exercised by management.

Determining the valuation of developed technologies and database content and customer relationships led to a high degree of auditor judgment in performing procedures relating to management’s significant assumptions related to the revenue growth rates, costs to recreate, customer attrition rates and discount rates.

The determination of the proper valuation of the contingent consideration liabilities by management required judgment and the valuation is based, in part, on unobservable inputs that are sensitive to changes in the probability of achieving the thresholds and volatility assumptions.

Given these factors, the related audit effort in evaluating management’s judgments in determining the valuation of such assets and liabilities was challenging, subjective, and complex and required a high degree of auditor judgment.

Also, the audit effort involved the use of professionals with valuation skill and knowledge.

The determination of the proper accounting treatment of the contingent consideration by management required judgment and the valuation is based, in part, on unobservable inputs that are sensitive to changes in the probability of achieving the thresholds and volatility assumptions.

Given these factors, the related audit effort in evaluating management’s judgments in determining the valuation of developed technology acquired and the contingent consideration due in the Vyasa acquisition was challenging, subjective, and complex and required a high degree of auditor judgment.

Our audit procedures related to the Company’s valuation of the contingent consideration and developed technology in connection with the aforementioned acquisition included the following, among others:

● We obtained an understanding of the relevant controls related to the valuation of the contingent consideration liability and developed technology asset and tested such controls for design and operating effectiveness, including management review controls related to the development of significant assumptions.

● We evaluated the reasonableness of management’s forecasts of sales by comparing the forecasts to (1) the historical results (2) internal communications to management and the Board of Directors, and (3) external market and industry data.

● With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by:

o Evaluating the reasonableness of the discount rates, volatility assumptions and the probability of certain financial forecast scenarios.

o Testing the relevance and reliability of source information underlying the determination of the discount rates and volatility assumptions.

Our audit procedures related to the Company’s valuation of the developed technologies and database content, customer relationships and contingent considerations in connection with the aforementioned acquisitions included the following, among others:

• We obtained an understanding of the relevant controls related to the valuation of the contingent consideration liabilities, customer relationships and developed technologies and database content assets and tested such controls for design and operating effectiveness, including management review controls related to the development of significant assumptions.

• We evaluated the reasonableness of management’s forecasts of revenue and customer attrition rates by comparing the forecasts to (1) the historical results, (2) internal communications to management and the Board of Directors, and (3) external market and industry data, as applicable.

• We evaluated the reasonableness of the cost to recreate a similar asset by comparing expected compensation amounts to internal documentation.

• With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodologies and significant assumptions by:

– Evaluating the reasonableness of the discount rates, volatility assumptions and the probability of certain financial forecast scenarios.

– Testing the relevance and reliability of source information underlying the determination of the discount rates and volatility assumptions.

/s/ RSM US LLP

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Blue Bell, Pennsylvania

March 1, 2023

February 29, 2024

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Report of Independent Registered Public Accounting Firm

Stockholders and the Board of Directors

Certara, Inc.

and Subsidiaries

To the Stockholders and the Board of Directors of Certara, Inc.

Opinion on the Internal Control Over Financial Reporting

1 unchanged sentence

and Subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements) and our report dated March 1, 2023, expressed an unqualified opinion.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the December 31, 2023 consolidated financial statements of the Company and our report dated February 29, 2024, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that

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controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Blue Bell, Pennsylvania

March 1, 2023

February 29, 2024

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Report Of Independent Registered Public Accounting Firm

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Certara, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As disclosed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2021 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases .

We have audited the accompanying consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows of Certara, Inc.

and Subsidiaries (the “Company”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ CohnReznick LLP

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March 1, 2022

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CERTARA, INC.

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Accounts receivable, net of allowances for credit losses of $ 1,312 and $ 1,250 , respectively

84,857 82,584

Restricted cash — 3,102

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Operating lease right-of-use assets 9,604 14,427

Goodwill 716,333 717,743

Intangible assets, net of $ 273,522 and $ 217,705 , respectively

487,043 486,782

Deferred income taxes 4,236 3,703

Other long-term assets 3,053 5,615

Liabilities and stockholder’s equity

Total assets $ 1,563,140 $ 1,572,922

Liabilities and stockholders' equity

Current liabilities:

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Current portion of long-term debt 3,020 3,020

Current operating lease liabilities

Other current liabilities 4,375 4,993

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Commitments and contingencies

Stockholder’s equity

Preferred shares, $ 0.01 par value, 50,000,000 and no shares authorized as of December 31, 2022 and 2021, respectively, no shares issued and outstanding as of December 31, 2022 and 2021, respectively

Stockholders' equity

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

Common shares, $ 0.01 par value, 600,000,000 shares authorized, 160,284,901 and 159,676,150 shares issued as of December 31, 2023 and 2022, respectively;

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Treasury stock at cost, 436,615 and 150,207 shares at December 31, 2023 and 2022, respectively

Total stockholder’s equity

Total liabilities and stockholder’s equity

( 9,401 ) ( 3,000 )

Total stockholders' equity 1,046,840 1,079,661

Total liabilities and stockholders' equity $ 1,563,140 $ 1,572,922

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

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CERTARA, INC.

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(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) 2023 2022 2021

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 )

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Foreign currency translation adjustment, net of tax of $( 717 ), $( 916 ), $ 195

2,696 ( 10,490 ) ( 5,154 )

Change in fair value of interest rate swap, net of tax of $ 1,393 , 2,056 , $( 16 )

( 2,059 ) 6,186 547

Reclassification of fair value of interest rate swap, net of tax of $ 0 , $ 0 , $( 765 )

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

Basic $ ( 0.35 ) $ 0.09 $ ( 0.09 )

Diluted $ ( 0.35 ) $ 0.09 $ ( 0.09 )

Weighted average common shares outstanding:

Basic 158,936,251 156,876,942 149,842,668

Diluted 158,936,251 159,354,394 149,842,668

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

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CERTARA, INC.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA) COMMON STOCK ADDITIONAL

PAID-IN CAPITAL ACCUMULATED

DEFICIT ACCUMULATED

COMPREHENSIVE

TREASURY STOCK

LOSS TREASURY STOCK TOTAL

STOCKHOLDER’S

(IN THOUSANDS, EXCEPT SHARE DATA)

PAID-IN CAPITAL

Balance as of December 31, 2019

Equity-based compensation awards

Repurchase of Parent Class B units

Capital contribution

Issuance of common stock upon initial public offering, net

Change in fair value of interest rate swap, net of tax

Foreign currency translation adjustment, net of tax

SHARES AMOUNT SHARES AMOUNT

Balance as of December 31, 2020 152,979,479 $ 1,529 $ 884,528 $ ( 62,338 ) $ ( 1,587 ) $ — $ — $ 822,132

Equity-based compensation awards

Restricted stock units withheld for tax liability

Equity-based compensation expense, net of forfeiture ( 59,148 ) — 29,483 — — — — 29,483

Restricted stock and stock units withheld for tax liabilities — — ( 234 ) — — ( 1,100 ) ( 38 ) ( 272 )

Issuance common stock from public offerings, net 4,500,000 45 133,306 — — — — 133,351

Common shares issued in connection with Pinnacle acquisition 2,239,717 22 72,738 — — — — 72,760

Restricted stock withheld for tax liability

Change in fair value from interest rate swap, net of tax — — — — 547 — — 547

Reclassification of fair value of interest rate swap, net of tax — — — — 2,268 — — 2,268

Net loss — — — ( 13,266 ) — — — ( 13,266 )

Foreign currency translation adjustment, net of tax — — — — ( 5,154 ) — — ( 5,154 )

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Equity-based compensation expense, net of forfeiture ( 421,624 ) ( 4 ) 30,349 — — — — 30,345

Restricted stock units withheld for tax liability

Restricted stock and stock units withheld for tax liabilities — — 2 — — ( 149,107 ) ( 2,962 ) ( 2,960 )

Common shares issued for employee share-based compensation 437,726 4 ( 4 ) — — — — —

Restricted stock withheld for tax liability

Change in fair value from interest rate swap, net of tax — — — — 6,186 — — 6,186

Net income — — — 14,731 — — — 14,731

Foreign currency translation adjustment, net of tax — — — — ( 10,490 ) — — ( 10,490 )

Balance as of December 31, 2022 159,676,150 1,596 1,150,168 ( 60,873 ) ( 8,230 ) ( 150,207 ) ( 3,000 ) 1,079,661

Equity-based compensation expense, net of forfeiture ( 201,838 ) ( 1 ) 28,301 — — — — 28,300

Restricted stock and stock units withheld for tax liabilities — — — — — ( 286,408 ) ( 6,401 ) ( 6,401 )

Common shares issued for employee share-based compensation 810,589 8 ( 8 ) — — — — —

Change in fair value from interest rate swap, net of tax — — — — ( 2,059 ) — — ( 2,059 )

Net loss — — — ( 55,357 ) — — ( 55,357 )

Foreign currency translation adjustment, net of tax — — — — 2,696 — — 2,696

Balance as of December 31, 2023 160,284,901 $ 1,603 $ 1,178,461 $ ( 116,230 ) $ ( 7,593 ) ( 436,615 ) $ ( 9,401 ) $ 1,046,840

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

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CERTARA, INC.

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

Adjustments to reconcile net loss to net cash provided by operating activities:

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

Depreciation and amortization of property and equipment 1,552 1,731 2,135

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Amortization of debt issuance costs 1,527 1,540 1,531

(Recovery of) provision for credit losses

Provision for credit losses 684 1,072 130

Loss on retirement of assets 65 169 351

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

Change in fair value of contingent considerations 24,118 — —

Goodwill impairment 46,984 — —

Lease abandonment expense 1,602 — —

Unrealized loss on derivative — — 1,144

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Prepaid and other assets 711 126 585

Accounts payable and accrued expenses

Accounts payable, accrued expenses, and other liabilities ( 5,607 ) 9,080 1,130

Deferred revenue 28 9,530 5,435

Change in other liabilities

Net cash provided by operating activities 82,755 92,543 60,388

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Capitalized software development costs ( 13,491 ) ( 11,099 ) ( 7,759 )

Investment in intangible assets ( 54 ) — —

Business acquisitions, net of cash acquired ( 64,228 ) ( 15,308 ) ( 261,020 )

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Cash flows from financing activities:

Capital contributions

Unit repurchase

Proceeds from issuance of common stock, net of underwriters' discounts and commissions — — 133,351

1 unchanged sentence

Payments on long-term debt and finance lease obligations ( 3,045 ) ( 3,313 ) ( 3,973 )

Proceeds from line of credit

Payments on financing component of interest rate swap — ( 1,088 ) ( 1,095 )

Payments on line of credit

Payment of deferred offering costs — — ( 1,767 )

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Contingent liabilities established in connection with business acquisition $ 11,308 $ 19,813 $ —

Property and equipment controlled through capital lease obligations

Deferred offering costs, accrued but not paid

Operating right-of-use assets recognized upon adoption of ASC 842 $ — $ — $ 15,857

2 unchanged sentences

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

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CERTARA, INC.

8 unchanged sentences

When combined, these solutions allow the Company to offer customers end-to-end support across the entire product life cycle.

On October 1, 2020, the Company amended the certificate of incorporation of EQT Avatar Topco, Inc.

to change the name of the Company to Certara, Inc.

The Company has operations in the United States, Australia, Canada, China, France, Germany, India, Italy, Japan, Luxembourg, Netherlands, Philippines, Poland, Portugal, Spain, Switzerland and the United Kingdom.

Summary of Significant Accounting Policies

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(b) Recently Issued Accounting Pronouncements

There have been no recent accounting pronouncements, changes in accounting pronouncements during 2022 that are significant to us.

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires that at the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”), as if it had originated the contracts.

Generally, this results in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements if the acquiree prepared financial statements in accordance with U.

For public business entities, the ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption of the ASU is permitted.

The Company early adopted ASU 2021-08 and has carried over the contract assets and liabilities from the 2021 business acquisitions into the Company’s 2021 consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes"

which removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The Company adopted this guidance on January 1, 2021 on a prospective basis.

The adoption of this guidance did not have an impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No.

2017-04, “Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment”, which simplifies the subsequent measurement of goodwill and eliminated Step 2 test from goodwill impairment test.

Step 2 required an entity to perform procedures that determine the fair value of its reporting units at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with it carrying amount.

The Company adopted the standard as of December 31, 2021.

The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”, which amended the existing accounting standard for the measurement of credit losses.

The new standard primarily requires using the current expected credit losses approach to measure and recognize credit losses of financial assets held at amortization cost.

It replaces the existing incurred loss model with an expected loss model and requires using historical data and adjusting for current economic conditions, including reasonable and supportable forecasts to estimate credit losses to be expected.

The Company adopted the standard as of December 31, 2021.

The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which supersedes FASB Topic 840, “Leases (Topic 840)” and requires lessees to recognize most leases on the balance sheet with a corresponding right of use asset.

Leases will be classified as financing or operating which will drive the expense recognition pattern.

For lessees, the income statement presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively.

Companies may elect to exclude short-term leases.

The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted the new standard as of January 1, 2021, due to its loss of emerging growth company (“EGC”) status, using the effective date transition method.

As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application was not updated.

An adjustment to opening accumulated deficits was not required in conjunction with the Company’s adoption.

The Company has elected not to reassess whether expired or existing contracts contain leases, nor did the Company reassess the classification of existing leases as of the adoption date.

The Company did not use hindsight in the assessment of lease terms as of the effective date.

For additional information, see Note 14 - Leases.

(d) Principles of Consolidation

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” The ASU requires an enhanced disclosure of significant segment expenses on an annual and interim basis.

This ASU will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of this ASU on the disclosures within our consolidated financial statements.

In December 2023, The FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures".

The ASU requires disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions.

The ASU will be effective for public business entities for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The Company is

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currently evaluating the impact of these amendment on the disclosures within our consolidated financial statements.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

( e) Fair Value Measurements

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

(d) Fair Value Measurements

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

GAAP, and requires certain disclosures about fair value measurements.

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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 Company utilizes Monte Carlo or a series of black-scholes-merton options models to estimate the fair value of the contingent consideration liabilities of business acquisitions.

Significant inputs used in the fair value measurement of contingent consideration include:

expected eligible revenue for the acquired businesses over the

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relevant measurement periods, the risk-profile of the expected eligible revenue for the acquired businesses, the uncertainty regarding the expected eligible revenue for the acquired businesses, the risk-free rate of return, the expected timing at which settlement of the contingent liabilities may occur, and the credit-adjusted discount rate associated with the risk of the Company’s future liability payments.

At the acquisition date, the fair value of the contingent consideration liabilities related with eligible revenues was $ 19,813 , $ 790 , $ 4,380 , and $ 5,357 for the acquisitions of Vyasa Analytics, LLC (“Vyasa”), Drug Interaction Solutions, University of Washington (“DIDB”), Formedix Limited ("Formedix") , and Applied BioMath, LLC (“ABM”), respectively.

The following table sets forth the assets and liabilities that were measured at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2023:

LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

(In thousands)

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Interest rate swap assets — 5,624 — 5,624

Total assets $ 147,478 $ 5,624 $ — $ 153,102

Contingent liabilities $ — $ — $ 54,457 $ 54,457

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

LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

(In thousands)

Money market funds $ 100,999 $ — $ — $ 100,999

Interest rate swap assets — 8,374 — 8,374

(f) Cash and Cash Equivalents and Restricted Cash

Total assets $ 100,999 $ 8,374 $ — $ 109,373

Contingent liabilities $ — $ — $ 19,813 $ 19,813

Total liabilities $ — $ — $ 19,813 $ 19,813

For the period ended December 31, 2023, there were no transfers between the levels within the fair value hierarchy.

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

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

December 31, 2023

(In thousands)

Beginning balance at December 31, 2022 $ 19,813

Additions 10,527

Change in fair value 24,117

Ending balance at December 31, 2023 $ 54,457

(e) Cash and Cash Equivalents and Restricted Cash

Cash equivalents include highly-liquid investments with maturities of three months or less from the date purchased.

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Total cash and cash equivalents, and restricted cash $ 234,951 $ 239,688

(g) Accounts Receivable

(f) Accounts Receivable

Accounts receivable includes current outstanding invoices billed to customers.

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The Company generally writes off a receivable or records a specific allowance for credit losses if the Company determines that the receivable is not collectible.

Allowances for credit losses of $ 1,250 and $ 262 were provided in the accompanying consolidated financial statements as of December 31, 2022 and 2021, respectively.

Allowances for credit losses of

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$ 1,312 and $ 1,250 were provided in the accompanying consolidated financial statements as of December 31, 2023 and 2022, respectively.

(In thousands)

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Other receivables 354 287

Allowances for credit losses

Allowance for credit losses ( 1,312 ) ( 1,250 )

Accounts receivable, net $ 84,857 $ 82,584

The following is the allowance rollforward of credit losses for the Company’s accounts receivable as of December 31, 2022 and 2021.

The following is a summary of the changes to the allowance for credit losses as of December 31, 2023 and 2022.

(In thousands)

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Ending balance $ 1,312 $ 1,250

(h) Property and Equipment

(g) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.

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The Company has elected not to recognize ROU assets and lease liabilities for short-term leases of real estate with a lease term of 12 months or less.

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The Company generally uses its incremental borrowing rate in determining the present value of future payments as the rate implicit in the lease is unknown.

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ROU assets under finance leases are depreciated in a manner similar to other property and equipment.

(j) Software Development Costs

Lessee's ROU assets under ASC 842 are subject to the FASB ASC Subtopic 360-10 impairment guidance applicable to long-lived assets.

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

The expense is included within the general and administrative expenses in the Company's consolidated statements of operations and comprehensive income (loss).

(i ) Software Development Costs

Software development costs are accounted for in accordance with FASB ASC Subtopic 985-20 if the software is to be sold, leased or otherwise marketed, or by FASB ASC Subtopic 350-40 if the software is for internal use.

technological feasibility of the software has been established (for software to be marketed), or at the beginning of application development (for internal-use software), software development costs, which include primarily salaries and related payroll costs and costs of independent contractors incurred during development, are capitalized.

After the technological feasibility of the software has been established (for software to be marketed), or at the beginning of application development (for internal-use software), software development costs, which include primarily salaries and related payroll costs and costs of independent contractors incurred during development, are capitalized.

Research and development (“R&D”) costs incurred prior to the establishment of technological feasibility (for software to be marketed), or prior to application development (for internal-use software), are expensed as incurred.

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There was no impairment of software development costs for the years ended December 31, 2023, 2022, and 2021.

(k) Debt Issuance Costs

(j) Debt Issuance Costs

Debt issuance costs are capitalized and amortized over the term of the related debt using the effective interest rate method.

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The amortization costs are included in interest expense within the consolidated statements of operations and comprehensive income (loss), regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

(l) Goodwill and Other Intangible Assets

The Company has four reporting units – Software reporting unit (“Software”), SimCyp reporting unit (“SimCyp”), Integrated Drug Development reporting unit (“IDD”), and Regulatory Writing reporting unit (“Regulatory Writing”) which are within a single operating segment of the Company.

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(k) Goodwill and Other Intangible Assets

During the third quarter of 2023, the Company streamlined its Integrated Drug Development reporting unit ("IDD") and Regulatory Writing reporting unit into Certara Drug Development Solutions reporting unit (“CDDS”), resulting in aggregation of its four reporting units into three reporting units for goodwill allocation and impairment testing purposes.

As of December 31, 2023, the Company had three reporting units – CDDS, Software reporting unit (“Software”), and SimCyp reporting unit (“SimCyp”), which are within a single operating segment of the Company.

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment.

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If the result of the quantitative test shows that the carrying amount of reporting units exceeds its fair values, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

For the years ended December 31, 2022, 2021, and 2020, the Company performed quantitative assessments of goodwill.

The most recent assessment was performed on October 1, 2022.

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

Accordingly, no impairment loss was recorded for the years ended December 31, 2022, 2021, and 2020.

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 useful lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows:

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

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

During the third quarter of 2023, the Company performed interim goodwill impairment tests for Regulatory Writing reporting unit, which was integrated into the CDDS 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 $ 46,984 for the reporting unit.

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

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

For the years ended December 31, 2023, 2022, and 2021, the Company performed annual quantitative assessments of goodwill, with the most recent assessment was performed on October 1, 2023.

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

The Company recorded a goodwill impairment charge of $ 46,984 for the year ended December 31, 2023.

There was no impairment recorded for the years ended December 31, 2022, and 2021.

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 useful 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;

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customer relationships — 11 to 16 years;

and trademarks — 10 to 17 years .

trade names — 10 to 20 years:

patents — 5 years.

The fair value of the intangible assets acquired were valued at acquisition date using forms of the income approach including the relief from royalty method and multi-period excess earnings method or the cost approach.

Key inputs used in the income approaches included estimations of the future cash flows attributable to certain intangible assets, considering their economic lives, and then applying appropriate discount rates.

Key inputs used in the cost approaches include the cost of re-creation and appropriate returns on those re-creation efforts.

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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There were no impairment charges related to intangible assets for the years ended December 31, 2023, 2022, and 2021.

(m) Foreign Currency Translation

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(l) Foreign Currency Translation

Generally, the functional currency of the Company’s international subsidiaries is the local currency of the country in which they operate.

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Foreign currency transaction gains and losses are included net within comprehensive gain or loss in the consolidated statements of operations and comprehensive income (loss) and resulted in foreign currency gains (losses) of $( 638 ), $ 3,166 , and $( 175 ) for the years ended December 31, 2023, 2022, and 2021, respectively.

(n) Derivative Instruments

(m) Derivative Instruments

In the normal course of business, the Company is subject to risk from adverse fluctuations in interest rates.

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The swap agreement has a notional amount of $ 230,000 , a fixed rate of 2.8 % and a termination date of August 31, 2025.

At December 31, 2022, the interest swap had a fair value of $ 8,374 and the fair value recognized in accumulated other comprehensive income was $ 8,374 .

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

At December 31, 2023 and 2022, the interest swap had a fair value of $ 5,624 and $ 8,374 , respectively.

The gross fair value recognized in accumulated other comprehensive income was $ 5,624 and $ 8,374 , respectively, at December 31, 2023 and December 31, 2022.

The Company also had an interest rate swap agreement for a notional amount of $ 230,000 that fixed the interest rate at 2.1 %, non-inclusive of the fixed credit spread through May 31, 2022.

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At inception, the financing component of $ 1,966 was recorded at amortized cost.

The embedded at-the-market derivative was designated and qualified as a cash flow hedge of interest rate risk for a notional amount of $ 230,000 that fixed the interest rate at 1.2757 %, non-inclusive of the fixed credit spread.

Due to an other-than-insignificant financing element on a portion of such hybrid instrument, the cash flows associated with this hybrid instrument were classified as financing activities in the condensed consolidated statements of cash flows.

The embedded at-the-market derivative was designated and qualified as

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a cash flow hedge of interest rate risk for a notional amount of $ 230,000 that fixed the interest rate at 1.2757 %, non-inclusive of the fixed credit spread.

The interest rate swap matured on May 31, 2022.

At December 31, 2023, the Company did not record any amounts for the financing component and fair value of the interest rate swap in the consolidated balance sheets.

The Company reclassified $ 3,033 of

accumulated comprehensive loss to interest expense in the consolidated statements of operation and comprehensive loss in the second quarter of 2021 due to hedge ineffectiveness.

Excluding the amount reclassified, interest expense on derivative instruments recognized in the Company’s consolidated statements of operations and comprehensive income (loss) were $ 25 , $ 726 , and $ 1,573 for the years ended December 31, 2022, 2021, and 2020, respectively.

The Company reclassified $ 3,033 of accumulated comprehensive loss to interest expense in the consolidated statements of operation and comprehensive loss in the second quarter of 2021 due to hedge ineffectiveness.

Excluding the amount reclassified, interest expense (income) on derivative instruments recognized in the Company’s consolidated statements of operations and comprehensive income (loss) were $( 5,295 ), $ 25 , and $ 726 for the years ended December 31, 2023, 2022, and 2021, respectively.

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

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The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from accumulated other comprehensive gains into earnings over the next twelve months is $ 4,466 .

(o) Warranty ‌

The Company includes an assurance commitment warranting the application software products will perform in accordance with written user documentation and the agreements negotiated with customers.

Since the Company does not customize its applications software, warranty costs are insignificant and expensed as incurred.

(p) Earnings per Share

(o) Earnings per Share

Basic earnings per common share is computed by dividing the net earnings by the weighted-average number of shares outstanding during the reporting period, without consideration for potentially dilutive securities.

Diluted earnings per share is computed by dividing the net earnings attributable to stockholders by the weighted-average number of shares and dilutive securities outstanding during the period.

(q) Income Taxes

(p) Income Taxes

The Company accounts for income taxes under the asset and liability method.

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Deferred tax assets also include realizable tax losses and tax credit carryforwards.

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The deferred tax assets may be reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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The Company assessed its uncertain tax positions and determined that a liability of $ 2,708 and $ 2,818 was required to be recorded for uncertain tax positions as of December 31, 2023 and 2022, respectively.

Uncertain tax positions relate primarily to federal and state R&D credits.

Uncertain tax positions relate primarily to federal and state R&D credits and certain foreign tax assessments.

The Company's policy is to recognize interest and penalties as a component of the provision for income taxes.

For December 31, 2022 and 2021, the Company recognized interest of $ 0.1 million of interest and no penalties.

For December 31, 2021 the Company recognized neither interest or penalties .

For December 31, 2023 and 2022, the Company recognized interest of $ 0.1 million and $ 0.1 million, respectively, and no penalties.

The Company does not anticipate any significant changes to its uncertain tax positions during the next twelve months.

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Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions.

(r) Revenue Recognition

In accordance with Accounting Standards Codification Topic 606 ("ASC Topic 606"), “Revenue from Contracts with Customers”, the Company determines revenue recognition through the following steps:

(q) Revenue Recognition

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

Identification of the contract, or contracts, with a customer

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The Company’s revenue consists of fees for perpetual and term licenses for its software products, post- contract customer support (referred to as maintenance), software as a service (“SaaS”), and professional services including training and other revenue.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services.

Revenue is recognized upon transfer of control of promised products or

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services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services.

The following describes the nature of the Company’s primary types of revenues and the revenue recognition policies as they pertain to the types of transactions the Company enters into with its customers.

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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”).

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

The delivery of a particular type of

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software and each of the user licenses would be one performance obligation.

Additionally, any training, implementation, or support and maintenance promises as part of the software license agreement would be considered separate performance obligations, as those promises are distinct and separately identifiable from the software licenses.

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The Company typically invoices customers for term licenses, subscriptions, maintenance and support fees in advance with payment due before the start of the subscription term, ranging from one to three years .

The Company records the amounts collected in advance of the satisfaction of performance obligations, usually over time, as a contract liability or deferred

The Company records the amounts collected in advance of the satisfaction of performance obligations, usually over time, as a contract liability or deferred revenue.

Invoiced amounts for non-cancelable services starting in future periods are included in contract assets and deferred revenue.

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Deferred Contract Acquisition Costs

Under ASC 606, sales commissions paid to the sales force and the related employer payroll taxes, collectively deferred contract acquisition costs, are considered incremental and recoverable costs of obtaining a contract with a customer.

Under ASC Topic 606, sales commissions paid to the sales force and the related employer payroll taxes, collectively deferred contract acquisition costs, are considered incremental and recoverable costs of obtaining a contract with a customer.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year.

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Amortization of capitalized costs are included in sales and marketing expense in our consolidated statements of operations and comprehensive income (loss).

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Capitalized contract acquisition costs were $ 655 and $ 981 as of December 31, 2023 and 2022, respectively, and were included in prepaid expenses and other current assets in the consolidated balance sheets.

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YEAR ENDED DECEMBER 31,

2023 2022 2021

(In thousands)

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Service revenues earned over time 222,660 220,178 199,279

(s) Equity-Based Compensation

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

(r) Equity-Based Compensation

The Company measures equity-based compensation at fair value and recognizes the expense over the vesting period.

Forfeitures are recognized as they occur for all awards.

The fair value of restricted stock, restricted stock units, performance stock units are determined by market price of our common stock on the date of grant.

Compensation costs for our restricted stock, restricted stock units are recognized on a straight-line basis over the requisite service period.

The fair value of restricted stock, restricted stock units, performance stock units are primarily determined by market price of our common stock on the date of grant.

For a specific group of performance stock units, the Monte Carlo simulation model was used to estimate the fair value.

Compensation costs for our restricted stock and restricted stock units are recognized on a straight-line basis over the requisite service period.

Performance stock units with graded vesting schedule are recognized using graded vesting attribution approach.

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At each reporting period, we reassess the probability of the achievement of such corporate performance goals and any increase or decrease in equity-based compensation expense resulting from an adjustment in the estimated shares to be released is treated as a cumulative catch-up in the period of adjustment.

Compensation costs for our legacy Class B Units, issued by former parent company, that vested based on continued service requirements and the restricted stock into which they were exchanged are recognized on a straight-line basis over the requisite service period.

Compensation costs for our legacy Class B Profits Interest Unit (the “Class B Units”), issued by former parent company, that vested based on continued service requirements and the restricted stock into which they were exchanged are recognized on a straight-line basis over the requisite service period.

Compensation costs for our restricted stock exchanged for our legacy Class B Units with performance vesting conditions are recognized using the accelerated attribution approach.

Compensation costs for our restricted stock units are recognized on a straight-line basis over the requisite service period.

(t) Comprehensive Income (Loss)

FASB ASC 220, “Comprehensive Income,” establishes standards for reporting of comprehensive income and its components (revenue, gains, and losses) in a full set of general-purpose financial statements.

FASB ASC 220 requires that all components of comprehensive income, including net income, be reported in a financial statement that is displayed with the same prominence as other financial statements.

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(s) Comprehensive Income (Loss)

FASB ASC 220, “Comprehensive Income,” (“ASC Topic 220”) establishes standards for reporting of comprehensive income and its components (revenue, gains, and losses) in a full set of general-purpose financial statements.

ASC Topic 220 requires that all components of comprehensive income, including net income, be reported in a financial statement that is displayed with the same prominence as other financial statements.

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.

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The components of other comprehensive income (loss) consisted of the foreign currency translation adjustments totaling $ 2,696 , $( 10,490 ) and $( 5,154 ), respectively, and the changes in fair value of interest rate swap (excluding $ 2,268 reclassification, net of tax in 2021), totaling $( 2,059 ), $ 6,186 , and $ 547 for the years ended December 31, 2023, 2022, and 2021, respectively.

(u) Reclassification

(t) Reclassification

Certain previously reported amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.

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Public Offerings and Other significant Shareholder Transactions

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

EQT, sold 18,783,250 shares of our common stock (representing the full exercise of the underwriters’ option to purchase additional shares), at a public offering price of $ 23.00 per share.

The Company received net proceeds of $ 316,301 , after deducting underwriters' discounts and commissions.

In addition, $ 4,408 of legal, accounting and other offering costs, net of the tax effect of $ 259 , incurred in connection with the sale of the Company's common stock in the IPO, were capitalized and offset against the proceeds received in the IPO.

The Company was party to a registration rights agreement with EQT AB and its affiliates (“EQT”), Arsenal Capital Partners, and certain other stockholders, dated December 10, 2020.

The Company was party to a registration rights agreement with EQT AB and its affiliates (“EQT”) (collectively, our former controlling shareholder), Arsenal Capital Partners (“Arsenal”), and certain other stockholders, dated December 10, 2020.

That agreement was terminated following the sale of all of EQT’s common shares in the Company to Arsenal on December 8, 2022.

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The Company incurred costs of $ 1,100 , recorded in general and administrative expenses, in relation to the secondary public offering.

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On September 13, 2021, the Company completed another public offering, at a public offering price of $ 31.00 per share, pursuant to which the Company sold 4,500,000 shares of its common stock, and certain selling stockholders sold 18,500,000 shares of the Company’s common stock, including 3,000,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares.

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The Company invests available cash in bank deposits, investment-grade securities, and short-term interest-producing investments, including government obligations and other money market instruments.

At December 31, 2022 and 2021, the investments were bank deposits and overnight sweep accounts.

At December 31, 2023 and 2022, the investments were bank deposits and overnight sweep accounts, and money market funds.

The Company has adopted credit policies and standards to evaluate the risk associated with sales that require collateral, such as letters of credit or bank guarantees, whenever deemed necessary.

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Business Combinations

Acquisitions have been accounted for using the acquisition method of accounting pursuant to FASB ASC 805, “Business Combinations.” Amounts allocated to the purchased assets and liabilities assumed are based upon the total purchase price and the estimated fair values of such assets and liabilities on the effective date of the purchase as determined by an independent third party.

The results of operations have been included in the Company’s results of operations prospectively from the date of acquisition.

Acquisitions have been accounted for using the acquisition method of accounting pursuant to FASB ASC 805, “Business Combinations” (“ASC Topic 805”).

Amounts allocated to the purchased assets and liabilities assumed are based upon the total purchase price and the estimated fair values of such assets and liabilities on the effective date of the purchase as determined by an independent third party.

The results of operations have been included in the Company’s consolidated financial statements prospectively from the date of acquisition.

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On March 2, 2021, the Company completed a transaction which qualified as a business combination for a total consideration of $ 2,667 .

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Pinnacle 21, LLC

On October 1, 2021, the Company acquired 100 % of the equity of Pinnacle.

On October 1, 2021, the Company acquired 100 % of the equity of Pinnacle for a total consideration of $ 339,075 , which consisted of cash $ 266,315 and 2,239,717 shares of the Company's restricted common stock.

Pinnacle provides software and services for preparing clinical trial data for regulatory submission.

The acquisition executes on the Company’s strategy to invest in innovation to increase the use cases of biosimulation and grow adoption of Certara’s end-to-end platform.

The acquisition of Pinnacle was accounted for as a purchase in accordance with ASC 805, “Business Combinations”, which requires allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed in the transaction.

The following table summarizes the fair value of the consideration paid as well as the fair values of the assets acquired and liabilities assumed as of the date of the acquisition:

(In thousands)

Fair value of consideration:

Cash paid to sellers

Cash paid to others and escrow

Unregistered shares of Certara, Inc.

( 2,239,717 shares)

Total consideration

Assets acquired and liabilities assumed:

Cash and cash equivalents

Accounts receivable

Other current assets

Property and equipment

Deferred tax assets

Identifiable intangible assets:

Acquired software

Customer relationships

Long-term deposits

Current liabilities

Current portion of deferred revenue

Net assets acquired

The fair value of the unregistered shares given as part of the purchase consideration was determined based on the market price of Certara’s common stock on the closing date less a 7 % discount for lack of marketability.

The acquisition was structured as an asset acquisition for income tax purposes;

therefore, the Company’s tax basis in Pinnacle’s identifiable assets reflects the fair value of consideration paid.

However, the Company did not recognize tax basis in certain liabilities assumed at the acquisition date;

resulting in deferred income taxes being recorded in purchase accounting.

The fair value of the intangible assets is based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements within the fair value measurement hierarchy.

The fair value of the customer relationships (distributor method), trademarks (relief from royalty method) and developed technology (multi-period excess earnings method) was determined under the income approach.

Goodwill of $ 180,947 was recorded to reflect the excess of the purchase price over the estimated fair value of the net identifiable assets acquired, which is generally deductible for income tax purposes.

The excess of the purchase prices over the fair values of the acquired business's net assets represent cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill.

The acquisition of Pinnacle was accounted for as a purchase in accordance with ASC Topic 805, “Business Combinations”, which requires allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed in the transaction.

Based on the Company’s purchase price allocation, approximately $ 103,000 , $ 24,600 , $ 15,800 and $ 180,947 of the purchase price was assigned to acquired software, customer relationships, trademarks and goodwill, respectively.

The Company incurred $ 7,615 of transaction costs related to this acquisition, which are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.

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Based on the Company’s purchase price allocation, approximately $ 2,380 , $ 1,040 , $ 100 , and $ 2,910 of the purchase price was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively.

Vyasa Analytics, LLC

On December 28, 2022, the Company completed the acquisition of Vyasa Analytics, LLC (“Vyasa”), a company that provides an 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 $ 29,276 .

Vyasa Analytics, LLC (“Vyasa”)

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 estimated consideration of $ 29,276 .

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

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Based on the Company’s purchase price allocation, approximately $ 11,400 , $ 1,500 , $ 120 , $ 80 and $ 16,589 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 % Certara 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.

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

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

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

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

At December 31, 2023, the contingent consideration was remeasured to $ 45,249 , resulting in a fair value adjustment of $ 25,436 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, the Company entered into an asset purchase agreement with the University of Washington and completed the acquisition of DIDB, including the Drug Interaction Database and related products, from The University of Washington for a total estimated consideration of $ 8,340 .

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

The total estimated consideration includes a portion of contingent consideration that is payable over the next two years in cash, not to exceed $ 2,000 .

Future payments of contingent consideration are based on eligible revenue for the period from July 1, 2023 through June 30, 2025.

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

At December 31 2023, the contingent consideration was remeasured to $ 132 , resulting in a negative fair value adjustment of $ 658 and recorded in G&A on the accompanying consolidated statement of operations and comprehensive income (loss).

Based on the Company’s purchase price allocation, approximately $ 330 , $ 5,600 , $ 360 , and $ 2,289 of the purchase price were assigned to trademarks, database content/technology, customer relationships and goodwill, respectively.

The Company expects goodwill to be fully deductible for U.S.

federal income tax purposes due to the fact the acquisition was treated as an asset acquisition under the relevant sections of the Internal Revenue Code (“IRC”).

Formedix Limited ("Formedix")

On October 10, 2023, the Company completed the acquisition of Formedix, a provider of clinical metadata repository and clinical trial automation software, for total estimated consideration of $ 41,389 .

The business combination was not material to the Company’s 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 $ 9,000 .

The fair value of the contingent consideration related to revenue threshold was estimated to be $ 4,380 as of the acquisition date.

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.

Additionally, the Company agreed to further contingent consideration based on the resolution of certain tax contingencies.

In total, the fair value of the contingent consideration was estimated to be $ 5,161 as of the acquisition date.

At December 31 2023, the contingent consideration related to eligible revenue was remeasured to $ 3,696 , resulting in a negative fair value adjustment of $ 684 and recorded in G&A on the accompanying consolidated statement of operations and comprehensive income (loss).

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Based on the Company’s purchase price allocation, approximately $ 11,700 , $ 3,100 , and $ 25,062 of the purchase price were assigned to developed technology, customer relationships and goodwill, respectively.

The Company does not expect goodwill to be deductible due to the fact the Company treated the acquisition as a stock acquisition under the relevant sections of the IRS.

Applied BioMath, LLC ("ABM")

On December 12, 2023, the Company 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 $ 36,594 .

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

Based on the Company’s preliminary purchase price allocation, approximately $ 4,600 , $ 800 , $ 13,700 and $ 15,872 of the purchase price were assigned to developed technology, non-compete agreements, customer relationships and goodwill, respectively.

The Company expects goodwill to be fully deductible for U.S.

federal income tax purposes due to the fact the Company treated the acquisition as an asset acquisition under the relevant sections of the IRS.

The total estimated consideration includes a portion of contingent consideration that is payable over the next two years in cash, not to exceed $ 17,550 .

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 $ 5,357 as of the acquisition date.

At December 31 2023, the contingent consideration was remeasured to $ 5,380 , resulting in fair value adjustment of $ 23 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 liability and included in accrued expense and other long term liabilities on the Company’s consolidated balance sheet.

The contingent consideration related to eligible revenues that 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.

The Company continues 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.

The Company incurred $ 200 , $ 1,418 , and $ 936 of transaction costs related to DIDB, Formedix, and ABM acquisitions, which are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2023.

The results of operations of the acquired businesses and the fair value of the acquired assets and liabilities assumed are included in the Company’s consolidated financial statements with effect from the date of the acquisitions.

The Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2023 includes revenue of $ 3,303 and a net loss of $ 412 related to the acquired businesses.

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Supplemental Pro Forma Information (unaudited)

The following unaudited pro forma consolidated financial information assumes that the three individually immaterial acquisitions occurred on January 1, 2022.

The pro forma financial information is presented for informational purposes only and is not necessarily indicative of what would have occurred if the three acquisitions had been made as of that date.

YEAR ENDED DECEMBER 31

(In thousands)

Revenues $ 374,748 $ 355,983

Net income (loss) $ ( 57,610 ) $ 10,015

The unaudited pro forma consolidated results for the years ended December 31, 2023 and 2022 primarily include the following pro forma adjustment:

Incremental amortization expense, net of tax, related to purchased intangible assets for all three acquisitions in an aggregate amount of $ 3,457 and $ 4,171 for the years ended December 31, 2023 and 2022, respectively.

Prepaid expenses and other current assets and Other long-term assets

13 unchanged sentences

Total other long-term assets $ 3,053 $ 5,615

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Property and Equipment

2 unchanged sentences

Computer and office equipment $ 4,898 $ 4,575

Furniture 2,489 2,426

Purchased software for internal use 717 701

3 unchanged sentences

Property and equipment, net $ 2,670 $ 2,400

Depreciation and amortization expense were $ 1,731 , $ 2,135 , and $ 2,443 for the years ended December 31, 2022, 2021, and 2020, respectively.

Depreciation and amortization expense was $ 1,552 , $ 1,731 , and $ 2,135 for the years ended December 31, 2023, 2022, and 2021, respectively.

Goodwill and Other Intangible Assets

The following table presents the Company’s intangible assets (other than goodwill) and the related amortization:

DECEMBER 31, 2022

DECEMBER 31, 2021

(IN YEARS) DECEMBER 31, 2023 DECEMBER 31, 2022

AMOUNT ACCUMULATED

AMORTIZATION NET GROSS

AMOUNT ACCUMULATED

AMORTIZATION NET

(In thousands)

2 unchanged sentences

Non-compete agreements 4.81 2,358 ( 1,439 ) 919 1,543 ( 1,339 ) 204

Trade names 13.37 56,823 ( 15,329 ) 41,494 56,483 ( 12,229 ) 44,254

Customer relationships 9.14 484,873 ( 189,454 ) 295,419 466,861 ( 157,557 ) 309,304

Patents 3.27 175 ( 71 ) 104 120 — 120

Total $ 760,565 $ ( 273,522 ) $ 487,043 $ 704,487 $ ( 217,705 ) $ 486,782

Amortization expense for intangible assets was $ 54,519 , $ 50,739 , and $ 42,980 for the years ended December 31, 2023, 2022 and 2021, respectively.

1 unchanged sentence

The remaining amortization of $ 43,973 , $ 41,429 , and $ 38,715 was recorded in operating expenses for the years ended December 31, 2023, 2022, and 2021, respectively.

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Based on the current amount of intangibles subject to amortization, the estimated annual amortization expense for each of the succeeding five years and thereafter is as follows:

RELATIONSHIPS

SOFTWARE CAPITALIZED

AGREEMENTS TRADE

NAMES PATENTS CUSTOMER

RELATIONSHIPS TOTAL

(In thousands)

The Company has no t recognized any impairment charges for the years ended December 31, 2022, 2021, and 2020.

2024 $ 13,612 $ 9,913 $ 200 $ 3,110 $ 71 $ 36,412 $ 63,318

2025 13,457 6,812 196 3,110 11 33,672 57,258

2026 13,231 3,688 196 3,110 11 32,758 52,994

2027 11,317 — 176 3,110 11 32,758 47,372

2028 11,108 — 151 3,110 — 32,758 47,127

Thereafter 65,969 — — 25,944 — 127,061 218,974

Total $ 128,694 $ 20,413 $ 919 $ 41,494 $ 104 $ 295,419 $ 487,043

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

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

For the years ended December 31, 2023, 2022, and 2021, the Company performed annual quantitative assessments of goodwill, with the most recent assessment was performed on October 1, 2023.

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

During the third quarter of 2023, the Company performed interim goodwill impairment tests for Regulatory Writing reporting unit, which was integrated into the CDDS 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 $ 46,984 for the reporting unit.

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

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

As the result, the Company recorded impairment charges $ 46,984 for the year ended December 31, 2023.

The Company had not recognized any impairment charges for the years ended December 31, 2022 and 2021.

A reconciliation of the change in the carrying value of goodwill is as follows:

6 unchanged sentences

Foreign currency translation 2,351

Impairment expense ( 46,984 )

Balance, December 31, 2023 $ 716,333

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Accrued Expenses and Other Long-Term Liabilities

5 unchanged sentences

Income taxes payable 1,010 2,223

Short-term contingent considerations 18,410 —

Accrued business acquisition liabilities — 700

Other 2,471 1,489

Total accrued expenses $ 56,779 $ 35,403

1 unchanged sentence

(In thousands)

Non-current finance lease liabilities

Uncertain tax position liability $ 2,381 $ 2,308

2 unchanged sentences

Long-Term Debt and Revolving Line of Credit

Effective August 14, 2017, the Company entered into a credit agreement with lenders for a $ 250,000 term loan (“Credit Agreement”).

The Credit Agreement is a syndicated arrangement with various lenders providing the financing.

The $ 250,000 term loan is due to mature on August 14, 2024.

The Company also entered into a $ 20,000 revolving line of credit with lenders with a sub-commitment for issuance of letters of credit of $ 10,000 .

The Company and lenders entered into Amendment No.

1 to the Credit Agreement on January 25, 2018, where an additional tranche of $ 25,000 was added to the term loan.

The amortization schedule of the new tranche was made coterminous with the rest of the term loan.

There were no other changes to the terms of the Credit Agreement.

The Company and lenders entered into Amendment No.

2 to the Credit Agreement on April 3, 2018, where an additional tranche of $ 40,000 was added to the term loan.

The amortization schedule of the new tranche was made coterminous with the rest of the term loan.

There were no other changes to the terms of the Credit Agreement.

The Company and lenders entered into a third amended and restated 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 $ 80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $ 100,000 ).

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

The Company has been a party to a Credit Agreement since August 2017 that provides for a senior secured term loan and commitments under a revolving credit facility.

The Company and the lenders most recently modified the Credit Agreement on June 17, 2021, which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $ 80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $ 100,000 ).

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

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

2 unchanged sentences

As of December 31, 2023 and 2022, available borrowings under the revolving lines of credits were $ 100,000 , respectively.

Available borrowings under the revolving lines of credits of $ 100,000 as of December 31, 2022 and 2021, respectively, were reduced by $ 120 and $ 239 standby letter of credit issued to a landlord in lieu of a security deposit.

Available borrowing under the revolving lines of credits of $ 100,000 as of December 31, 2022, was reduced by $ 239 standby letter of credit issued to a landlord in lieu of a security deposit.

Borrowings under the Credit Agreement are subject to a variable interest rate at LIBOR plus a margin.

The applicable margins are based on achieving certain levels of compliance with financial covenants.

The applicable margins were based on achieving certain levels of compliance with financial covenants.

In response to the discontinuation of LIBOR, the Company executed a LIBOR transition amendment on June 26, 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.

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The effective interest rate was 8.84 % and 5.28 % for the years ended December 31, 2023 and 2022, respectively, for the Credit Agreement.

3 unchanged sentences

Interest incurred on the Credit Agreement with respect to the revolving line of credit was $ 257 , $ 257 , and $ 163 for the years ended December 31, 2023, 2022, and 2021, respectively.

There was $ 66 accrued interest payable on the revolving line of credit at December 31, 2022 and 2021.

Effective August 14, 2017, the Company entered into an unsecured credit agreement with another lender for a $ 100,000 term loan (“Loan Agreement”).

The loan carried interest at 8.25 % which was payable in semi-annual installments on January and July 15 through August 14, 2025, at which time all outstanding principal and interest were due.

Under the Loan Agreement, the Company could voluntarily repay outstanding loans without premium or penalty.

On July 15, 2020, the Company made a $ 20,000 prepayment on the loan, which reduced the amount outstanding to $ 80,000 .

On December 28, 2020, the Company repaid the remaining $ 80,000 aggregate principal amount owed under the Loan Agreement, including $ 3,000 of accrued interest.

The Company's obligations under the Loan Agreement were discharged on that date.

Interest incurred on the loan amounted to $ 0 , $ 0 , and $ 7,608 for the years ended December 31, 2022, 2021, and 2020, respectively.

There was $ 2 and $ 66 accrued interest payable on the revolving line of credit at December 31, 2023 and 2022, respectively.

Long-term debt consists of the following:

(In thousands)

Term loans $ 294,450 $ 297,470

Revolving line of credit — —

debt issuance costs ( 3,213 ) ( 4,462 )

Total 291,237 293,008

Current portion of long-term debt ( 3,020 ) ( 3,020 )

1 unchanged sentence

The principal amount of long-term debt outstanding as of December 31, 2023, matures in the following years:

2024 2025 2026 TOTAL

(In thousands)

Maturities $ 3,020 $ 3,020 $ 288,410 $ 294,450

The Credit Agreement requires the Company to make an annual mandatory prepayment as it relates to the Company’s Excess Cash Flow calculation.

For the year ended December 31, 2023, the Company was not required to make a mandatory prepayment on the term loan.

The Company is required to make a quarterly principal payment of $ 755 on the term loan each quarter starting from September 30, 2021.

The Company is required to make a quarterly principal payment of $ 755 on the term loan.

The fair values of the Company’s variable interest term loan and revolving line of credit are not significantly different than their carrying value because the interest rates on these instruments are subject to change with market interest rates.

3 unchanged sentences

Employees may contribute to the plan up to 50 % of their compensation, which may be further limited by law.

In addition, employees who reached the age of 50 during the calendar years 2021, 2020, and 2019 are eligible to make an additional catch-up contribution as set annually by IRS guidelines.

In addition, based on IRS guidelines, certain employees are eligible to make an additional catch up contribution.

Employees are considered catch-up eligible with respect to a plan year if the participant turns age 50 by the end of the calendar year in which the plan year ends & meets IRS guidance.

Catch up contributions & guidance for eligibility are determined & set by the IRS annually.

The Company matches employee contributions for a percentage of the employee’s deferral, not to exceed the first 6 % of each employee’s compensation.

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The Company also operates a Group Personal defined contribution plan (“Plan”) covering all U.K.

Employees are auto enrolled in the plan who are at least 22 years of age and paid more than £ 10 a year, up to the State Pension Age.

Employees are auto enrolled in the plan who are at least 22 years of age and paid more than £10 a year of basic salary, up to the State Pension Age.

However, all employees who are between the ages of 16 and 75 can elect to join the Plan.

1 unchanged sentence

The Company contributes an additional 8 % of salary for those employees who have registered for the Plan, which exceeds their duties under U.K.

auto enrolment legislation.

Total 401(k) and Plan contributions made by the Company were $ 4,746 , $ 4,138 , and $ 3,342 for the years ended December 31, 2022, 2021, and 2020 respectively.

autoenrollmentt legislation.

The 401(K) and plan contributions made by the Company were $ 5,382 , $ 4,746 , and $ 4,138 for the years ended December 31, 2023, 2022, and 2021 respectively.

Commitments and Contingencies

Contingent consideration

In connection with the Vyasa, DIDB, Formedix, and ABM acquisitions, the Company is required to pay additional consideration if the acquired businesses achieve certain eligible revenue thresholds for certain periods.

The maximum contingent considerations related to revenue thread for Vyasa, DIDB, Formedix, and ABM to be earned are $ 60,000 , $ 2,000 , $ 9,000 , and $ 17,550 , respectively.

In addition, the Company agreed to further contingent consideration based on the resolution of certain tax contingencies related with Formedix acquisition.

The contingent liabilities were $ 55,238 and $ 19,813 at December 31, 2023 and 2022, respectively.

Legal proceedings

3 unchanged sentences

Since the Company does not customize its applications software, warranty costs are insignificant and expensed as incurred.

For information related to commitments for future minimum lease payments, please see Note 14 – Lease.

For information related to commitments for future minimum lease payments, please see Note 14 – Leases.

Equity-Based Compensation

1 unchanged sentence

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

Restricted Stock and related Class B Plan

The majority of the Company’s restricted stock awarded to its employees was originally issued in December 10, 2020 in exchange for the Class B Profits Interest Unit (the “Class B Units”) of EQT Avatar Parent, L.P, which was former parent of the Company.

Prior to the Company’s IPO, the Company’s management participated in a 2017 Class B Profits Interest Unit Incentive Plan (the “Class B Plan”).

The majority of the employee grant agreements for the Class B Units were comprised of 50 % time-based vesting units (“Time-based Units”) and 50 % performance-based vesting units (“Performance-based Units”).

The fair value of the Time-based Units that vested solely upon continued employment was measured at the grant date and was recognized as cost over the employee’s requisite service period, which was generally five years .

The expense related to the vesting of the Time-based Units was recorded on the Company’s books because the Company directly benefited from the services provided by Class B Unit holders.

The grant date fair values of Class B Unit were determined based on the pricing models and valuation assumptions noted in the following table, shown at their weighted-average values:

YEAR ENDED DECEMBER 31,

Pricing model

Expected dividend yield

Risk-free interest rate (1)

Expected stock price volatility (2)

Expected exercise term (in years) (3)

(1) Based on the U.S.

Treasury constant maturity interest rate whose term is consistent with the expected exercise term of our incentive units

(2) In projecting expected stock price volatility, we consider the historical volatility of the stock prices of comparable public companies.

(3) The Company estimates the expected life of incentive units based upon the timing of a potential liquidity event.

Equity-based compensation expense related to the Time-based Units was $ 2,776 for the years ended December 31, 2020.

The Performance-based Units were not probable of vesting prior to the exchange of Class B Units for common shares, as such, no expense was recorded for these Units prior to the exchange date.

As of December 31, 2020, there were no unrecognized compensation costs related to the Units as they had been exchanged for restricted stock.

Based on the stock price of $ 23.00 per share, on December 10, 2020, the Company issued 5,941,693 shares of restricted common stock to holders of unvested Class B Units in exchange for such unvested Class B Units.

The total fair value of the restricted stock was $ 83,260 .

Because the service inception date preceded the grant date of the replacement awards, a catch up-adjustment of $ 56,487 was recorded at the modification date, based on the portion of the requisite service period that had elapsed since the original grant date for each tranche of the award.

Considering the original awards contained performance conditions necessary to vest, the accelerated attribution approach was applied.

The accelerated attribution approach results in cost being allocated to each of the tranches of the awards and recognized ratably over each tranche as if they were separate awards.

Separately, upon completion of the offering, $ 3,912 of compensation cost was recognized related to our Chief Executive Officer’s 853,001 performance-based Class B Units that automatically vested upon the IPO of the Company and were exchanged for 1,561,950 common shares of the Company.

Modification accounting was not required for the time-based vesting Class B Units for which the vesting conditions, classification and fair market value did not change as a result of the shares of restricted common stock that replaced them.

The original grant date fair value will continue to be recognized on a straight-line basis.

Modification accounting was required for the performance-based vesting Class B Units that were exchanged for time-based vesting restricted common stock, given the vesting conditions were changed.

Such performance-vesting Class B Units that were improbable of vesting were remeasured based on the modification date fair value of the shares of restricted common stock replacing such Class B Units.

Restricted Stock

Unvested Class B Units were exchanged for restricted stock of the Company.

The majority of the Company’s restricted stock awarded to its employees was originally issued on December 10, 2020 in exchange for the Class B Units of EQT, which was the former parent of the Company.

Share-based compensation for the restricted stock exchanged for the time-based Class B Units is recognized on a straight-line basis over the requisite service period of the award, which is generally five years .

Equity-based compensation for the restricted stock exchanged for the performance-based Class B Units is recognized using the accelerated attribution approach.

Share-based compensation for the restricted stock exchanged for the performance-based Class B Units is recognized using the accelerated attribution approach.

In 2021, the Company granted 87,127 replacement shares of restricted stock in connection with the Pinnacle acquisition under which equity-based awards are outstanding.

The fair value of the restricted stock awarded was initially determined based on the fair value of our common stock on the date of grant, then adjusted for time restrictions due to unregistered shares and lack of marketability.

The fair value of the restricted stock awarded was initially based on the fair value of our common stock on the date of grant, then adjusted for time restrictions due

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to unregistered shares and lack of marketability.

Total grant date fair value was $ 2,762 .

The restricted stock issued in 2021 generally has a three-year vesting period except for one holder whose shares vests equally on a monthly basis for two years .

The Company exchanged 5,941,693 shares in 2020 and did not legally authorize or issue any restricted stock during the year ended December 31, 2022.

The weighted average grant date or exchange date fair values per share of restricted stock granted or exchanged during 2022, 2021 and 2020 were $ 17.07 , $ 31.7 , and $ 23.0 , respectively.

The total fair value of restricted stock vested during 2022, 2021 and 2020 was $ 46,401 , $ 45,051 and $ 0 , respectively.

A summary of the restricted stock in 2023 is shown below:

WEIGHTED-AVERAGE

SHARES WEIGHTED-AVERAGE

Non-vested restricted stock as of December 31, 2022 1,402,813 $ 23.27

( 2,020,065 )

Vested ( 728,534 ) 23.38

Forfeited ( 135,618 ) 23.00

Non-vested restricted stock as of December 31, 2023 538,661 $ 23.18

The Company did not legally authorize or issue any restricted stock during the year ended December 31, 2022.

During 2022, the Company modified an award for a recipient that resulted in 66,220 shares each assumed cancelled, granted, and forfeited.

Net compensation expense reversed was $ 146 .

The shares of restricted stock vested includes 11,069 shares of common stock that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

__________________________________

• The number of the restricted stock vested includes 9,416 shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

The Company did not authorize or issue any restricted stock during the year ended December 31, 2023.

Equity-based compensation expenses related to the restricted stock exchanged for performance-based Class B Units were $ 801 , $ 2,537 and $ 12,349 for the years ended December 31, 2023, 2022 and 2021, respectively.

12 unchanged sentences

No more than the number of shares of common stock equal to the plan share reserve may be issued in the aggregate pursuant to the exercise of incentive stock options.

The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $ 1,000,000 in total value, except for certain awards made to a non-executive chair of our Board of Directors.

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for certain awards made to a non-executive chair of our Board of Directors.

At December 31, 2023, there was 15,454,916 shares reserved for future issuance.

The plan share reserve will be increased on the first day of each fiscal year beginning with the 2021 fiscal year and ending after the tenth anniversary of the effective date in an amount equal to the lesser of (i) the positive difference, if any, between (x) 4.0 % of the outstanding common stock on the last day of the immediately preceding fiscal year and (y) the plan share reserve on the last day of the immediately preceding fiscal year and (ii) a lower number of shares of our common stock as determined by our board of directors.

Restricted Stock Units

Restricted stock units (“RSUs”) represent the right to receive shares of the Company’s common stock at a specified date in the future.

Restricted Stock Units (“RSUs”)

RSUs represent the right to receive shares of the Company’s common stock at a specified date in the future.

During year ended December 2023, the Company granted 1,718,670 RSUs under the 2020 Incentive Plan that generally vest over an average three-year period.

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

UNITS WEIGHTED-

Non-vested RSUs as of December 31, 2022 2,005,095 $ 24.71

Granted 1,718,670 23.35

Vested ( 801,476 ) 25.28

Forfeited ( 333,886 ) 23.63

Non-vested RSUs as of December 31, 2023 2,588,403 $ 23.77

The weighted average grant date fair values per share of restricted stock units granted during 2022 and 2021 were $ 21.98 and $ 29.19 , respectively.

The total fair value of restricted stock units vested during 2022 and 2021 were $ 12,395 and $ 569 , respectively.

The weighted average grant date fair values per share of RSUs granted during 2023, 2022, and 2021 were $ 23.35 , $ 21.98 , and 29.19 , respectively.

The total fair value of RSUs vested during 2023, 2022, and 2021 were $ 20,261 , $ 12,395 , and $ 569 , respectively.

Equity-based compensation expense related to the RSUs was $ 26,734 , $ 19,012 and $ 8,257 for the years ended December 31, 2023, 2022, and 2021, respectively.

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The number of RSUs vested in 2023 includes 276,992 shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

Performance Restricted Stock Units

Performance stock units (“PSUs”) are issued under the 2020 Incentive Plan and represent the right to receive shares of the Company’s common stock at a specified date in the future based on the satisfaction of various service conditions and the achievement of certain performance thresholds including year over year revenue growth and unlevered free cash flow growth.

Performance Restricted Stock Units (“PSUs”)

PSUs are issued under the 2020 Incentive Plan and represent the right to receive shares of the Company’s common stock at a specified date in the future based on the satisfaction of various service conditions and the achievement of certain performance thresholds for individual PSU plans including year over year revenue growth, unlevered free cash flow growth, annual revenue, and annual EBITDA.

The PSUs granted in 2023 also contain a market condition.

Equity-based compensation for the PSUs is only recognized to the extent a threshold is probable of being achieved and is recognized using the accelerated attribution approach.

The Company will continue to assess the probability of each condition being achieved at each reporting period to determine whether and when to recognize compensation cost.

The Company will continue to assess the probability of each condition being achieved at each reporting period to determine whether and when to

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recognize compensation cost.

The following table presents a summary of activity on the PSUs for the period ended December 31, 2023.

UNITS WEIGHTED-

Non-vested PSUs as of December 31, 2022 654,308 $ 23.99

Granted 484,885 27.00

Vested ( 195,672 ) 26.93

Forfeited ( 94,054 ) 25.71

Non-vested PSUs as of December 31, 2023 849,467 $ 24.84

The weighted average grant date fair values per share of performance stock units granted during 2022 and 2021 were $ 22.25 and $ 27.36 , respectively.

The total fair value of performance stock units vested during 2022 was $ 305 .

The weighted average grant date fair values per share of PSUs granted during 2023, 2022, and 2021 were $ 27.00 and $ 22.25 , and $ 27.36 , respectively.

The total fair values of PSUs vested were $ 5,269 and $ 305 during 2023 and 2022.

There were no PSU shares vested during 2021.

The total fair value of performance stock units vested were $ 305 and $ 0 for the year ended December 31, 2022, 2021.

Equity-based compensation expense related to the PSUs was $ 4,462 and $ 5,481 for the year ended December 31, 2022 and 2021.

Equity-based compensation expense related to the PSUs was $( 1,531 ), $ 4,462 , and $ 5,481 for the years ended December 31, 2023, 2022, and 2021.

At December 31, 2023, the total unrecognized equity-based compensation expense related to outstanding PSUs was $ 448 , which is expected to be recognized over a weighted-average period of 10.5 months.

2020 Employee Stock Purchase Plan

On December 10, 2020, stockholders approved the 2020 Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”).

Under the Employee Stock Purchase Plan, employees, and those of the Company’s subsidiaries, may purchase shares of common stock, during pre-specified offering periods.

Named executive officers will be eligible to participate in the Employee Stock Purchase Plan on the same terms and conditions as all other participating employees.

The maximum number of shares authorized for sale under the Employee Stock Purchase Plan is 1,700,000 shares.

Generally, all employees and those of the Company’s subsidiaries will be eligible to participate in the Employee Stock Purchase Plan, except for employees who own 5 % or more of the combined voting power or value of all issued and outstanding stock.

Employees may contribute through payroll deductions of 1 % to 15 % of such employees’ base compensation on each payroll date that falls within an offering period.

Participants may not acquire rights to purchase more than $ 25 of common stock under the Employee Stock Purchase Plan for any calendar year.

Common stock will be available for purchase for up to 27 months .

Shares will be purchased at a discounted per-share purchase price equal to 85 % of the per-share closing price of the Company’s common stock on the last day of the applicable offering period.

As of December 31, 2022, no shares of common stock have been purchased under the Employee Stock Purchase Plan and no offering has been made to eligible employees under the Plan.

The grant date fair values for 2023 PSU were determined based on Monte Carlo price model and the valuation assumptions noted in the following table.

Expected dividend yield —

Volatility 61.4 % - 61.9 %

Expected term (years) 2.54 - 2.74

Risk-free interest rate 3.89 %- 4.29 %

In March 2023, the Company modified the 2022 PSU agreement to adjust criteria regarding the inclusion of merger and acquisition revenues in the second and third years of the performance period, as well as the corresponding base years.

12 participants were affected by this modification The incremental cost recognized related to the modification was $ 651 as of December 31, 2023.

Additionally, in March 2022, the Company made a minor update to the 2021 PSU agreement and determined that immaterial acquisitions would not be excluded from the current measurement year's calculation of revenue.

17 participants were affected by this modification.

$ 37 and $ 221 increment costs were recognized as of December 31, 2023 and 2022, respectively.

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Equity-based compensation expense

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YEAR ENDED DECEMBER 31,

2023 2022 2021

(In thousands)

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General and administrative expenses 8,676 14,931 19,214

Total $ 28,300 $ 30,345 $ 29,483

The tax benefit related to compensation expense was $ 3,797 , $ 1,933 , and $ 117 for the year ended December 31, 2023, 2022, and 2021.

There were no tax benefits related to compensation expense for the year ended December 31, 2020.

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

The Company leases certain office facilities and equipment under non-cancelable operating leases with remaining terms from less than one to four years , excluding the leases assumed from recent acquisitions.

Operating lease ROU assets are included in other asset while finance lease ROU assets are included in property and equipment, net in the consolidated balance sheets.

With respect to operating lease liabilities, current operating lease

liabilities are included in current liabilities and non-current operating lease liabilities are included in long-term liabilities in the consolidated balance sheets.

Current and non-current finance lease liabilities are included in other current liabilities and other long-term liabilities in the consolidated balance sheets.

With respect to operating lease liabilities, current operating lease liabilities are included in current liabilities and non-current operating lease liabilities are included in long-term liabilities in the consolidated balance sheets.

Current finance lease liabilities are included in other current liabilities and other long-term liabilities in the consolidated balance sheets.

The following table presents information about the operating and finance lease right-of-use assets and lease liabilities as well as lease term and discount rates:

Lease right-of-use assets, lease liabilities, lease term and discount rate:

December 31, 2022

December 31, 2021

December 31, 2023 December 31, 2022

(In thousands)

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Financing leases — 24

$ 9,604 $ 14,451

Lease liabilities

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Financing leases — —

For the year ended

$ 11,330 $ 15,126

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For the year ended

Weighted-average remaining lease term (years):

December 31, 2022

December 31, 2023 For the year ended

December 31, 2022

Weighted-average remaining lease term (years):

Operating leases 3.5 3.90

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The components of total lease cost were as follows:

December 31, 2022

December 31, 2021

December 31, 2023 December 31, 2022

(In thousands)

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Supplemental cash flow and non-cash flow information was as follows:

December 31, 2022

December 31, 2021

December 31, 2023 December 31, 2022

(In thousands)

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Right-of-use assets obtained through acquisition $ 644 $ 129

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The following table summarizes by year the maturities of our minimum lease payments as of December 31, 2023.

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imputed interest ( 233 )

Total $ 11,330

Lease abandonment

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

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.

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

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The following table summarizes revenue by geographic area:

2023 2022 2021

(In thousands)

Revenue (1) :

Americas $ 265,063 $ 252,921 $ 205,377

EMEA 63,567 57,002 56,410

Asia Pac 25,707 25,721 24,317

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

__________________________________

(1) Revenue is attributable to the countries based on the location of the customer

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Property, plant and equipment, net:

Americas $ 1,824 $ 1,406

Asia Pac 224 262

Total $ 2,670 $ 2,400

The components of income (loss) before income taxes were as follows:

YEAR ENDED DECEMBER 31,

2023 2022 2021

(In thousands)

Domestic $ ( 60,587 ) $ 9,456 $ ( 10,373 )

Foreign 5,444 9,299 6,998

Total $ ( 55,143 ) $ 18,755 $ ( 3,375 )

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The components of provision for (benefit from) income taxes were as follows:

2023 2022 2021

(In thousands)

Current tax provision

Federal $ 3,986 $ 1,882 $ 451

State and local 3,976 3,335 1,798

Foreign 8,775 10,318 8,826

Total current 16,737 15,535 11,075

Deferred tax benefit

Federal ( 10,957 ) ( 6,788 ) ( 4,416 )

State and local ( 2,835 ) ( 2,190 ) ( 1,156 )

Foreign ( 2,731 ) ( 2,533 ) 4,388

Total deferred ( 16,523 ) ( 11,511 ) ( 1,184 )

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The primary reconciling items between the statutory income tax rate of 21% and the effective income tax rate were as a result of the following:

2023 2022 2021

(In thousands, except for percentage)

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Equity compensation 1,582 ( 2.87 ) % 2,278 12.15 % 3,534 ( 104.70 ) %

GIL TI inclusion

GILTI inclusion 2,374 ( 4.30 ) % 451 2.41 % 540 ( 16.00 ) %

Tax credits ( 10,031 ) 18.19 % ( 6,427 ) ( 34.27 ) % ( 7,060 ) 209.19 %

Rate change ( 237 ) 0.43 % ( 605 ) ( 3.23 ) % 5,256 ( 155.75 ) %

Other adjustments 4,148 ( 7.52 ) % ( 4,554 ) ( 24.28 ) % 3,131 ( 92.76 ) %

2 unchanged sentences

Effective tax rate $ 214 ( 0.39 ) % $ 4,024 21.46 % $ 9,891 ( 293.06 ) %

A portion of the Company's income was attributable to Madeira, Portugal which qualified for special tax programs authorized by the European Union (“EU”) and administered by the Portuguese Tax Authority (“PTA”).

For the period of 2008 through 2011, the Company was subject to Madeira's income tax rate of 0 %, for 2012 an income tax rate of 4 % applied, for the period of 2013 through 2020 an income tax rate of 5 % applied, for 2021 an income tax rate of 5% applied.

During the current year, the EU disallowed the PTA’s interpretation of certain provisions of the Madeira Free Zone (“MFZ”) Regime III, with a lookback period of 10 years, which resulted in an increase to the tax rate applied to the Company’s income for the aforementioned years and for 2022.

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The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:

8 unchanged sentences

Foreign tax credits 14,970 12,131

Interest rate hedge

Equity based compensation 4,600 4,752

Other assets — 189

Interest expense 195 103

Lease liability 2,295 3,136

Section 174 11,455 9,425

Total gross deferred tax asset 61,341 53,503

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Prepaid expenses ( 1,715 ) ( 1,820 )

Accrued expenses

Deferred revenue

Interest rate hedge ( 1,393 ) ( 2,085 )

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At December 31, 2023, the Company has net operating loss carryforwards for federal income tax purposes of approximately $ 1,626 majority of which will expire if unused in years 2035 through 2036.

The Company has net operating loss carryforwards for state income tax purposes of approximately $ 50 , which will expire if unused in years 2029 through 2040.

The Company has net operating loss carryforwards for state income tax purposes of approximately $ 43 , which will expire if

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unused in years 2029 through 2040.

The Company has foreign net operating loss carryforwards of $ 81,616 which will expire if unused starting in 2024.

The Company has $ 395 of federal research and development credits that will expire if unused in years 2025 through 2042, $ 143 of California research and development credits with indefinite carryover period, and $ 363 of foreign research and development credits that will expire if unused starting in 2029.

The Company has foreign tax credits of $ 10,607 that will

expire if unused in years 2027 through 2031, and also Canadian investment tax credits of $ 3,552 which will expire if unused in years 2030 through 2040.

The Company has $ 324 of federal research and development credits that will expire if unused in years 2027 through 2028 and $ 297 of foreign research and development credits that will expire if unused by 2029.

The Company has foreign tax credits of $ 13,866 that will expire if unused in years 2027 through 2033, and also Canadian investment tax credits of $ 3,872 which will expire if unused in years 2031 through 2041.

The Company has net operating losses and tax credits that are subject to limitation under Internal Revenue Code Section 382 and Section 383 due to changes in ownership.

The Company has analyzed the realizability of these tax attributes carried forward and have recorded deferred tax assets for the attributes that meet the more-likely-than-not realizability threshold.

Foreign undistributed earnings were considered permanently invested, therefore no provision for U.S.

income taxes was accrued as of December 31, 2022 and 2021, with the exception of the withholding tax liability of $ 168 on the potential repatriation from Certara Canada Corporation.

Foreign undistributed earnings were considered permanently invested, therefore no provision for US income taxes was accrued as of December 31, 2023 and 2022, with the exception of the withholding tax liability of $ 168 on the potential repatriation from Certara Canada Corporation.

Uncertain tax positions relate primarily to federal and state R&D credits.

Uncertain tax positions relate primarily to federal and state R&D credits and certain foreign tax assessments.

The Company's policy is to recognize interest and penalties as a component of the provision for income taxes.

For December 31, 2022 and 2021, the Company recognized interest of $ 0.1 million of interest and no penalties.

For December 31, 2023 and 2022, the Company recognized interest of $ 0.1 million and $ 0.1 million, respectively and no penalties.

For December 31, 2022 the Company recognized neither interest or penalties.

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Additions for tax positions of prior years 17

Reductions for tax positions of prior years ( 436 )

Balance at December 31, 2023 $ 2,708

The uncertain tax positions, exclusive of interest and penalties, were $ 2,818 and $ 1,059 as of December 31, 2022 and December 31, 2021, respectively, which also represents potential tax benefits that if recognized, would impact the effective tax rate.

The uncertain tax positions, inclusive of interest and exclusive penalties, were $ 2,708 and $ 2,818 as of December 31, 2023 and December 31, 2022, respectively, which also represents potential tax benefits that if recognized, would impact the effective tax rate.

federal income tax returns are generally subject to examination for a period of three years after the filing of the return.

4 unchanged sentences

The Company is subject to tax on Global Intangible Low-Taxed Income (GILTI) and has elected to account for GILTI as a current period expense.

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The Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, has recommended changes to numerous longstanding tax principles.

Changes include imposing a global minimum corporation tax of 15% and introducing new filing obligations.

These changes are being adopted and implemented by many of the countries in which we do business.

Specifically, in December 2022, the EU adopted a directive issued by the European Commission requiring EU members to implement the OECD's global minimum tax rules in part by January 1, 2024 and fully by January 1, 2025.

The Company does not expect to be subject to the global minimum corporation tax.

Earnings per Share

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Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to stockholders by the weighted-average number of shares and dilutive potential common shares during the period.

2023 2022 2021

(In thousands, except per share and share data)

9 unchanged sentences

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

(1) For the year ended December 31, 2022, the Company excluded certain potentially dilutive securities attributable to outstanding RSUs and RSAs from the computation of diluted EPS because the securities would have had an antidilutive effect.

(2) For the year ended December 31, 2021, and 2020, the Company excluded the restricted stock and restricted stock units from the calculation of diluted earnings per share that could potentially dilute earnings per share in the future because of the anti-dilutive effect of the reported net loss.

__________________________________

(1) For the year ended December 31, 2023 and 2021, the Company excluded the restricted stock, RSUs, and PSUs from the calculation of diluted earnings per share that could potentially dilute earnings per share in the future because of the anti-dilutive effect of the reported net loss.

(2) For the year ended December 31, 2022, the Company excluded certain potentially dilutive securities attributable to outstanding RSUs and restricted stock from the computation of diluted earnings per share because the securities would have had an antidilutive effect.

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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data