Certara, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Certara, Inc. Index to Consolidated Financial Statements PAGE Reports of Independent Registered Public Accounting Firm (PCAOB ID 0 49 ) 83 Report of Independent Registered Public Accounting Firm (PCAOB ID 596 ) 89 Consolidated Balance Sheets 90 Consolidated Statements of Operations and Comprehensive Income (Loss) 91 Consolidated Statements of Stockholders’ Equity 92 Consolidated Statements of Cash Flows 93 Notes to the Consolidated Financial Statements 82 T able of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Certara, Inc. Opinion on the Financial Statements 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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. 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 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 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 The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition on the Company’s Fixed Price Contract Revenue 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. 83 T able of Contents We identified revenue recognition for fixed 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 uncertainty. 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. Given these factors, the related audit effort in evaluating management’s judgments in determining the revenue recognition for fixed price contracts was challenging, subjective, and complex and required a high degree of auditor judgment. Our audit procedures related to testing the existence, accuracy and completeness of the Company’s fixed price contract revenue included the following, among others: • We obtained an understanding of the relevant controls related to the existence, accuracy and completeness of fixed price contract revenue and tested such controls for design and operating effectiveness, including management review controls. • We evaluated the reasonableness of management estimates of cost recognition by comparing costs incurred under completed contracts to the costs estimated by management at the inception of the customer agreement. • We selected a sample of customer contracts and performed the following procedures: ◦ 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 (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 84 T able of Contents operating margins, discount rates and comparable market data. 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 valuation specialists. 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 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: ◦ 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 85 T able of Contents 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. 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 We have served as the Company's auditor since 2022. Blue Bell, Pennsylvania February 29, 2024 86 T able of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Certara, Inc. Opinion on the Internal Control Over Financial Reporting We have audited Certara, Inc. 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, 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 Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. 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 87 T able of Contents 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 February 29, 2024 88 T able of Contents Report Of Independent Registered Public Accounting Firm Board of Directors and Stockholders Certara, Inc. Opinion on the Consolidated Financial Statements 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 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 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 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 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 We served as the Company's auditor from 2019 to 2021. Tysons, Virginia March 1, 2022 89 T able of Contents CERTARA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) 2023 2022 Assets Current assets: Cash and cash equivalents $ 234,951 $ 236,586 Accounts receivable, net of allowances for credit losses of $ 1,312 and $ 1,250 , respectively 84,857 82,584 Restricted cash — 3,102 Prepaid expenses and other current assets 20,393 19,980 Total current assets 340,201 342,252 Other assets: Property and equipment, net 2,670 2,400 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 Total assets $ 1,563,140 $ 1,572,922 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 5,171 $ 7,533 Accrued expenses 56,779 35,403 Current portion of deferred revenue 60,678 52,209 Current portion of long-term debt 3,020 3,020 Other current liabilities 4,375 4,993 Total current liabilities 130,023 103,158 Long-term liabilities: Deferred revenue, net of current portion 1,070 2,815 Deferred income taxes 50,826 65,046 Operating lease liabilities, net of current portion 6,955 10,133 Long-term debt, net of current portion and debt discount 288,217 289,988 Other long-term liabilities 39,209 22,121 Total liabilities 516,300 493,261 Commitments and contingencies 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; 159,848,286 and 159,525,943 shares outstanding as of December 31, 2023 and 2022, respectively 1,603 1,596 Additional paid-in capital 1,178,461 1,150,168 Accumulated deficit ( 116,230 ) ( 60,873 ) Accumulated other comprehensive loss ( 7,593 ) ( 8,230 ) Treasury stock at cost, 436,615 and 150,207 shares at December 31, 2023 and 2022, respectively ( 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 . 90 T able of Contents CERTARA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEAR ENDED DECEMBER 31, (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 Operating expenses: Sales and marketing 32,022 27,408 20,141 Research and development 34,173 28,205 20,379 General and administrative 95,385 71,773 79,539 Intangible asset amortization 43,973 41,429 38,715 Depreciation and amortization expense 1,552 1,731 2,135 Goodwill impairment expense 46,984 — — Total operating expenses 254,089 170,546 160,909 Income (loss) from operations ( 40,774 ) 32,521 13,579 Other expenses: Interest expense ( 22,916 ) ( 17,773 ) ( 16,837 ) Net other income (expense) 8,547 4,007 ( 117 ) Total other expenses ( 14,369 ) ( 13,766 ) ( 16,954 ) Income (loss) before income taxes ( 55,143 ) 18,755 ( 3,375 ) Provision for income taxes 214 4,024 9,891 Net income (loss) ( 55,357 ) 14,731 ( 13,266 ) Other comprehensive income (loss) 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 ) — — 2,268 Total other comprehensive income (loss) 637 ( 4,304 ) ( 2,339 ) Comprehensive income (loss) $ ( 54,720 ) $ 10,427 $ ( 15,605 ) 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. 91 T able of Contents CERTARA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS TREASURY STOCK TOTAL STOCKHOLDER’S EQUITY 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 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 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 ) Balance as of December 31, 2021 159,660,048 1,596 1,119,821 ( 75,604 ) ( 3,926 ) ( 1,100 ) ( 38 ) 1,041,849 Equity-based compensation expense, net of forfeiture ( 421,624 ) ( 4 ) 30,349 — — — — 30,345 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 ) — — — — — 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. 92 T able of Contents CERTARA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, (IN THOUSANDS) 2023 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 55,357 ) $ 14,731 $ ( 13,266 ) 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 Amortization of intangible assets 54,519 50,739 42,980 Amortization of debt issuance costs 1,527 1,540 1,531 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 Deferred income taxes ( 16,523 ) ( 11,511 ) ( 1,184 ) Changes in assets and liabilities Accounts receivable 152 ( 15,009 ) ( 10,066 ) Prepaid and other assets 711 126 585 Accounts payable, accrued expenses, and other liabilities ( 5,607 ) 9,080 1,130 Deferred revenue 28 9,530 5,435 Net cash provided by operating activities 82,755 92,543 60,388 Cash flows from investing activities: Capital expenditures ( 1,777 ) ( 1,430 ) ( 1,143 ) 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 ) Net cash used in investing activities ( 79,550 ) ( 27,837 ) ( 269,922 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of underwriters' discounts and commissions — — 133,351 Proceeds from borrowings on long-term debt — — 89 Payments on long-term debt and finance lease obligations ( 3,045 ) ( 3,313 ) ( 3,973 ) Payments on financing component of interest rate swap — ( 1,088 ) ( 1,095 ) Payment of deferred offering costs — — ( 1,767 ) Payment of debt issuance costs — — ( 2,942 ) Payment of taxes on shares and units withheld for employee taxes ( 6,402 ) ( 2,962 ) ( 272 ) Net cash provided by (used in) financing activities ( 9,447 ) ( 7,363 ) 123,391 Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 1,505 ( 4,279 ) ( 524 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 4,737 ) 53,064 ( 86,667 ) Cash, cash equivalents, and restricted cash, at beginning of year 239,688 186,624 273,291 Cash, cash equivalents, and restricted cash, at end of year $ 234,951 $ 239,688 $ 186,624 Supplemental disclosures of cash flow information Cash paid for interest $ 19,089 $ 17,268 $ 14,169 Cash paid for taxes $ 19,320 $ 10,141 $ 8,595 Supplemental schedule of noncash investing and financing activities Contingent liabilities established in connection with business acquisition $ 11,308 $ 19,813 $ — Operating right-of-use assets recognized upon adoption of ASC 842 $ — $ — $ 15,857 Operating lease liability recognized upon adoption of ASC 842 $ — $ — $ 16,809 Common shares issued in connections with the Pinnacle acquisition $ — $ — $ 72,760 The accompanying notes are an integral part of the consolidated financial statements. 93 T able of Contents CERTARA, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE PERCENTAGES AND SHARE AND UNIT DATA) 1. Description of Business Certara, Inc. and its wholly-owned subsidiaries (together, the “Company”) deliver software products and technology-driven services to customers to efficiently carry out and realize the full benefits of biosimulation in drug discovery, preclinical and clinical research, regulatory submissions and market access. The Company is a global leader in biosimulation, and the Company’s biosimulation software and technology-driven services help optimize, streamline, or even waive certain clinical trials to accelerate programs, reduce costs, and increase the probability of success. The Company’s regulatory science and market access software and services are underpinned by technologies such as regulatory submissions software, natural language processing, and Bayesian analytics. When combined, these solutions allow the Company to offer customers end-to-end support across the entire product life cycle. The Company has operations in the United States, Australia, Canada, China, France, Germany, India, Italy, Japan, Luxembourg, Netherlands, Philippines, Poland, Portugal, Spain, Switzerland, Egypt, and the United Kingdom. 2. Summary of Significant Accounting Policies (a) Basis of Presentation and Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of progress of completion on fixed-price service contracts, the determination of fair values and useful lives of long-lived assets as well as intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, valuation of interest rate swaps, determination of fair value of equity-based awards and assumptions used in testing for impairment of long-lived assets. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. (b) Recently Issued Accounting Pronouncements 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 94 T able of Contents currently evaluating the impact of these amendment on the disclosures within our consolidated financial statements. (c) Principles of Consolidation 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. (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. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction. Fair value measurement is based on a hierarchy of observable or unobservable inputs. The standard describes three levels of inputs that may be used to measure fair value. Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical securities as of the reporting date; Level 2 — Inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk etc. as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies; and Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is little, or no market activity of the securities and the reporting entity makes estimates and assumptions relating to the pricing of the securities including assumptions regarding risk. If the inputs used to measure fair value fall in different levels of the fair value hierarchy, the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. For the acquisitions noted in Note 5, the fair value measurement methods used to estimate the fair value of the assets acquired and liabilities assumed at the acquisition dates utilized a number of significant unobservable inputs of Level 3 assumptions. These assumptions included, among other things, projections of future operating results, implied fair value of assets using an income approach by preparing a discounted cash flow analysis, and other subjective assumptions. Interest rate swaps are valued in the market using discounted cash flows techniques. These techniques incorporate Level 1 and Level 2 inputs. The market inputs are utilized in the discounted cash flows’ calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative instrument valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy. Contingent liabilities related to acquisitions are measured at fair value using Level 3 unobservable inputs. The Company's estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent liabilities are included in the earnings in the 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 95 T able of Contents 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) Assets Money market funds $ 147,478 $ — $ — $ 147,478 Interest rate swap assets — 5,624 — 5,624 Total assets $ 147,478 $ 5,624 $ — $ 153,102 Liabilities Contingent liabilities $ — $ — $ 54,457 $ 54,457 Total liabilities $ — $ — $ 54,457 $ 54,457 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) Assets Money market funds $ 100,999 $ — $ — $ 100,999 Interest rate swap assets — 8,374 — 8,374 Total assets $ 100,999 $ 8,374 $ — $ 109,373 Liabilities Contingent liabilities $ — $ — $ 19,813 $ 19,813 Total liabilities $ — $ — $ 19,813 $ 19,813 For the period ended 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. 96 T able of Contents The following table summarizes the Level 3 activity of the changes in the contingent consideration liability. Year Ended December 31, 2023 (In thousands) Beginning balance at December 31, 2022 $ 19,813 Additions 10,527 Payments — 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. At times, cash balances held at financial institutions were in excess of the Federal Deposit Insurance Corporation’s (“FDIC”) insured limits; however, the Company primarily places its temporary cash with high-credit quality financial institutions. The Company has never experienced losses related to these balances and believes it is not exposed to any significant credit risk on cash. Restricted cash represents cash that is reserved to provide for a Company credit card program and unexpended restricted grant funds. The restricted cash balance was $ 0 and $ 3,102 at December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the carrying values reflected in the consolidated balance sheets reasonably approximate the fair values of cash and cash equivalents and restricted cash due to the short-term maturity of these items. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the amounts presented in the consolidated statements of cash flows: DECEMBER 31, 2023 2022 (In thousands) Cash and cash equivalents $ 234,951 $ 236,586 Restricted cash, current — 3,102 Total cash and cash equivalents, and restricted cash $ 234,951 $ 239,688 (f) Accounts Receivable Accounts receivable includes current outstanding invoices billed to customers. Invoices are typically issued with net 30-days to net 90-days terms upon delivery of product or upon achievement of billable events for service-based contracts. Unbilled receivables relate to the Company’s rights to consideration for performance obligations satisfied but not billed at the reporting date on contracts. Unbilled receivables are billed and transferred to customer accounts receivable when the rights become unconditional. The carrying amount of accounts receivable is reduced by a valuation allowance. The Company estimates the expected credit losses for accounts receivables using historical loss data adjusted for current economic conditions, including reasonable and supportable forecasts to estimate the relative size of credit losses to be expected. The Company generally writes off a receivable or records a specific allowance for credit losses if the Company determines that the receivable is not collectible. Allowances for credit losses of 97 T able of Contents $ 1,312 and $ 1,250 were provided in the accompanying consolidated financial statements as of December 31, 2023 and 2022, respectively. DECEMBER 31, 2023 2022 (In thousands) Trade receivables $ 75,410 $ 72,238 Unbilled receivables 10,405 11,309 Other receivables 354 287 Allowance for credit losses ( 1,312 ) ( 1,250 ) Accounts receivable, net $ 84,857 $ 82,584 The following is a summary of the changes to the allowance for credit losses as of December 31, 2023 and 2022. DECEMBER 31, 2023 2022 (In thousands) Beginning balance $ 1,250 $ 262 Provision for credit losses 684 1,009 Charge-offs, net of recoveries ( 622 ) ( 21 ) Ending balance $ 1,312 $ 1,250 (g) Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets, which range from three to ten years for computer and office equipment, the shorter of the useful lives of the improvement or the life of the related lease term for leasehold improvements, and one to three years for purchased software. The Company seeks to match the book useful life of assets to the expected productive lives. Assets deemed to be impaired or no longer productive are written down to their net realizable value. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If such events or changes in circumstances are present, an impairment loss would be recognized if the sum of the expected future net cash flows is less than the carrying amount of the asset. An impairment loss would be recorded for the excess of the carrying value of the asset over the estimated fair value. There was no impairment of property and equipment for the years ended December 31, 2023, 2022, and 2021. (h) Leases The Company determines if a contract contains a lease at contract inception and whether its classification as either an operating or finance lease at lease commencement. The Company’s current portfolio includes operating leases of real estate and capital leases of equipment. The Company records a lease liability, as of the lease commencement date, in an amount equal to the present value of future fixed payments over the lease term. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. A right-of-use (“ROU”) asset is recorded in an amount equal to the corresponding lease liability adjusted for prepayments, initial directs costs and lease incentives, if applicable. 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. 98 T able of Contents 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. The incremental borrowing rate represents the rate of interest that the Company would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Fixed lease payments on operating leases are recognized on a straight-line basis over the lease term, while variable payments are recognized in the period incurred. Variable lease payments include real estate taxes and charges for other non-lease services due to lessors that are not dependent on an index or rate. The Company’s real estate contracts may include fixed consideration attributable to both lease and non-lease components, including non-lease services provided by the lessor, which are accounted for as a single fixed minimum payment. ROU assets under finance leases are depreciated in a manner similar to other property and equipment. 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. 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. Software development costs are amortized on a product-by-product basis commencing on the date of general release of the products (for software to be marketed) or the date placed in service (for internal-use software). During the years ended December 31, 2023, 2022 and 2021, costs of $ 13,566 , $ 11,119 , and $ 7,759 , respectively, were capitalized related to software development activities. Software development costs for software to be marketed are amortized using the straight-line method over its estimated useful life, which is typically three years . The Company reviews capitalized software for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If such events or changes in circumstances are present, an impairment loss would be recognized if the sum of the expected future net cash flows is less than the carrying amount of the asset. An impairment loss would be recorded for the excess of the carrying value of the asset over the estimated fair value. There was no impairment of software development costs for the years ended December 31, 2023, 2022, and 2021. (j) Debt Issuance Costs Debt issuance costs are capitalized and amortized over the term of the related debt using the effective interest rate method. Amortization of debt issuance costs is included in interest expense within the consolidated statements of operations and comprehensive income (loss). The unamortized amount is included as an offset against long-term debt on the consolidated balance sheets. Debt issuance costs related to line-of-credit arrangements are capitalized and are included in other long-term assets on the consolidated balance sheets. The capitalized costs are amortized ratably over the term of the line-of-credit arrangement. 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. 99 T able of Contents (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. When testing goodwill for impairment, the Company performs a qualitative assessment to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair values of the reporting units are less than their carrying amounts. If the Company determines that it is not more-likely-than-not that the fair values of the reporting units are less than their carrying values, no further assessment is performed. If the Company determines that it is more-likely-than-not that the fair values of the report units are less than carrying value, the Company proceeds to perform a quantitative goodwill impairment test. 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. 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; non-compete agreements —  2 to 5 years; customer relationships — 11 to 16 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. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset are less than its carrying amount. There were no impairment charges related to intangible assets for the years ended December 31, 2023, 2022, and 2021. 100 T able of Contents (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. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each reporting period. Revenue and expenses for these subsidiaries are translated using average exchange rates prevailing during the period. Gains and losses from these translations are recognized as a cumulative translation adjustment and included as a separate component in accumulated other comprehensive loss within the consolidated statement of stockholders’ equity. For transactions that are not denominated in the local functional currency, the Company remeasures monetary assets and liabilities at exchange rates in effect at the end of each reporting period. 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. (m) Derivative Instruments In the normal course of business, the Company is subject to risk from adverse fluctuations in interest rates. The Company has chosen to manage this risk through the use of derivative financial instruments that consist of interest rate swap contracts. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes. The objective in managing exposure to market risk is to limit the impact on cash flows. To qualify for hedge accounting, the interest rate swaps must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must be, and be expected to remain, probable of occurring in accordance with the related assertions. FASB ASC 815, “Derivatives and Hedging,” requires the Company to recognize all derivatives on the balance sheet at fair value. The Company may enter into derivative contracts such as interest rate swap contracts that effectively convert portions of the Company’s floating rate debt to a fixed rate, which serves to mitigate interest rate risk. The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company had entered into an interest rate swap agreement in May 2022 that pays fixed, receives variable to modify the interest rate characteristics of term loan debt from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. The swap agreement has a notional amount of $ 230,000 , a fixed rate of 2.8 % and a termination date of August 31, 2025. During the quarter ended 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. On August 31, 2021, the Company entered into an amendment to the interest rate swap agreement. The amended interest rate swap agreement does not in its entirety meet the definition of a derivative instrument because of its off market fixed rate at inception and is deemed to be a hybrid instrument with a financing component and an embedded at-the-market derivative. Such embedded derivative is bifurcated and accounted for separately. At inception, the financing component of $ 1,966 was recorded at amortized cost. The embedded at-the-market derivative was designated and qualified as 101 T able of Contents 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 consolidated statements of cash flows. 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 (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. The Company records derivatives at fair value on its consolidated balance sheets. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss). Those amounts are reclassified into interest expenses in the same period during which the hedged transactions impact earnings. The notional amounts and fair values, locations of derivative instruments in the consolidated balance sheets as of December 31, 2023 were as follows: Interest rate swap derivative designated as cash flow hedging instruments: 2023 2022 (In thousands) Notional amounts $ 230,000 $ 230,000 Prepaid expenses and other current assets $ 4,473 $ 4,638 Other long-term assets $ 1,151 $ 3,736 The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from accumulated other comprehensive gains into earnings over the next twelve months is $ 4,466 . (n) 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. (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. (p) Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, the amount of taxes currently payable or refundable is accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax basis of existing assets and liabilities. Deferred tax assets also include realizable tax losses and tax credit carryforwards. 102 T able of Contents 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. In addition, management is required to evaluate all available evidence, both positive and negative, when making its judgment to determine whether to record a valuation allowance for a portion, or all, of its deferred tax assets. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rate is recognized in the period that includes the enactment date. Uncertainty in Income Taxes The Company accounts for uncertainty in income taxes using a two-step approach. The first step requires the Company to conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by a tax authority. The second step requires the Company to measure the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon ultimate settlement with tax authority. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Further, the benefit to be recorded in the consolidated financial statements is the amount most likely to be realized assuming a review by the tax authorities having all relevant information and applying current conventions. The Company's policy is to recognize interest and penalties related to income tax positions taken as a component of the provision for income taxes. 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 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, 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. U.S. federal income tax returns are generally subject to examination for a period of three years after the filing of the return. However, the Internal Revenue Service can audit the NOLs generated in respective years in the years that the NOLs are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions. (q) Revenue Recognition In accordance with ASC Topic 606, “Revenue from Contracts with Customers”, the Company determines revenue recognition through the following steps: i. Identification of the contract, or contracts, with a customer ii. Identification of the performance obligations in the contract iii. Determination of the transaction price iv. Allocation of the transaction price to the performance obligations in the contract v. Recognition of revenue when, or as, the Company satisfies a performance obligation The Company’s revenue consists of fees for perpetual and term licenses for its software products, post- contract customer support (referred to as maintenance), software as a service (“SaaS”), and professional services including training and other revenue. Revenue is recognized upon transfer of control of promised products or 103 T able of Contents 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. Consulting Service Revenues The Company’s primary professional services offering includes consulting services, which may be either strategic consulting services, reporting and analysis services, regulatory writing services, or any combination of the three. The Company’s professional services contracts are either time-and-materials or fixed fee. Services revenues are generally recognized over time as the services are performed. Generally, these services are delivered to customers electronically. Revenue from time-and-material contracts is recognized on an output basis as labor hours are delivered and/or direct expenses are incurred. Revenues for fixed price services are generally recognized over time applying input methods to estimate progress to completion. Accordingly, the number of resources being paid for and varying lengths of time they are being paid for, determine the measure of progress. Software Licenses Software license revenue consists primarily of sales of software licenses downloaded and installed by our customers on their own hardware. The license period is generally 1 year or less and includes an insignificant amount of customer support to assist the customer with the software. Software license performance obligations are generally recognized upfront at the point in time when the software license has been delivered. Software as a Service (SaaS) Revenues SaaS revenues consists of subscription fees for access to, and related support for, the Company’s cloud-based solutions. The Company typically invoices subscription fees in advance in annual installments. The invoice is initially deferred and revenue is recognized ratably over the life of the contract. The Company’s software contracts do not typically include variable consideration or options for future purchases that would not be similar to the original goods. Software Services Maintenance services agreements on perpetual software consist of fees for providing software updates and for providing technical support for software products for a specified term. Revenue allocated to maintenance services is recognized ratably over the contract term beginning on the delivery date of each offering. Maintenance contracts generally have a term of one year . While transfer of control of the software training and implementation performance obligations are over time, the services are typically started and completed within a few days. Due to the quick nature of the performance obligation from start to finish and the insignificant amounts, the Company recognizes any software training or implementation revenue at the completion of the service. Any unrecognized portion of amounts paid in advance for licenses and services is recorded as deferred revenue. Arrangements with Multiple Performance Obligations For contracts with multiple performance obligations, such as a software license plus software training, implementation, and/or maintenance/support, or in contracts where there are multiple software licenses, the Company determines if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis (“SSP”). The delivery of a particular type of 104 T able of Contents 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. The payment terms in these arrangements are less than one year such that there is no significant financing component to the transaction. Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (deferred revenue, contract liabilities) on the consolidated balance sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., quarterly or monthly) or upon achievement of contractual milestones. Contract assets relate to the Company’s rights to consideration for performance obligations satisfied but not billed at the reporting date on contracts (i.e., unbilled revenue, a component of accounts receivable in the Consolidated Balance Sheets). Contract assets are billed and transferred to customer accounts receivable when the rights become unconditional. The Company typically invoices customers for term licenses, subscriptions, maintenance and support fees in advance with payment due before the start of the subscription term, ranging from one to three years . The Company records the amounts collected in advance of the satisfaction of performance obligations, usually over time, as a contract liability or deferred revenue. Invoiced amounts for non-cancelable services starting in future periods are included in contract assets and deferred revenue. The portion of deferred revenue that will be recognized within 12 months is recorded as current deferred revenue, and the remaining portion is recorded as deferred revenue in the consolidated balance sheets. Contract balances at December 31, 2023 and 2022 were as follows: YEAR ENDED DECEMBER 31, 2023 2022 (In thousands) Contract assets $ 10,405 $ 11,309 Contract liabilities $ 61,748 $ 55,024 During 2023, the Company recognized revenue of $ 52,209 related to contract liabilities at December 31, 2022. The unsatisfied performance obligation as of December 31, 2023 was approximately $ 123,672 . We expect to recognize approximately $ 105,551 or 85.3 % of this revenue over the next 12 months and the remainder thereafter. Deferred Contract Acquisition Costs Under ASC Topic 606, sales commissions paid to the sales force and the related employer payroll taxes, collectively deferred contract acquisition costs, are considered incremental and recoverable costs of obtaining a contract with a customer. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company has determined that certain sales incentive programs meet the requirements to be capitalized. The costs capitalized are primarily sales commissions for our sales force personnel. Capitalized costs to obtain a contract are amortized on a straight line basis over the expected period of benefit. Amortization of capitalized costs are included in sales and marketing expense in our consolidated statements of operations and comprehensive income (loss). 105 T able of Contents 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. Grant Revenue The Company receives grant funding for certain specific projects from time to time. These grants specify the funds provided are to be used exclusively to satisfy the deliverables outlined in the grant agreements. In these agreements, both involved parties receive and sacrifice approximately commensurate value so these are accounted for as exchange transactions and revenue is recognized according to ASC Topic 606. The grant funding is generally provided near contract inception so a contract liability is initially recorded and revenue is recognized as the performance obligations are satisfied over time. Sources and Timing of Revenue The Company’s performance obligations are satisfied either over time or at a point in time. The following table presents the Company’s revenue by timing of revenue recognition to understand the risks of timing of transfer of control and cash flows: YEAR ENDED DECEMBER 31, 2023 2022 2021 (In thousands) Software licenses transferred at a point in time $ 49,754 $ 46,139 $ 40,167 Software licenses transferred over time 81,923 69,327 46,658 Service revenues earned over time 222,660 220,178 199,279 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 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. Performance stock unit represents a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. 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 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. 106 T able of Contents (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. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, and changes in fair value of derivative instruments (interest rate swap agreements) designated as cash flow hedges, shall be reported to arrive at comprehensive (loss). Comprehensive income (loss) is displayed in the consolidated statements of operations and comprehensive income (loss). 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. (t) Reclassification Certain previously reported amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. (u) COVID-19 Since the first quarter of 2020, the COVID-19 pandemic has posed a significant threat to public health as well as the global and U.S. economies. The continued spread of variants of COVID-19 may adversely impact our business, financial condition or results of operations as a result of increased costs, negative impacts to our workforce, or a sustained economic downturn. Although the economy has rebounded in many areas, the outlook for containing the outbreak is still highly uncertain. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the global and US economy and our business. 3. Public Offerings and Other significant Shareholder Transactions 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. Arsenal and the Company entered into a new registration rights agreement, dated November 3, 2022 (the “Registration Rights Agreement”), which contains provisions that entitle Arsenal to certain rights to have their securities registered by the Company under the Securities Act. While the Registration Rights Agreement is in effect, Arsenal is entitled to (i) four “demand” registrations, (ii) one underwritten offering in any consecutive 90-day period and (iii) two underwritten offerings in any consecutive 360-day period, subject in each case to certain limitations. In addition, the Registration Rights Agreement provides that the Company will share certain expenses of Arsenal relating to such registrations and indemnify Arsenal against certain liabilities which may arise under the Securities Act. On March 29, 2021, the Company completed an underwritten secondary public offering in which certain selling stockholders, including EQT, sold 11,500,000 shares of the Company’s common stock, including 1,500,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares. The Company did no t offer any common stock in this transaction and did no t receive any proceeds from the sale of the shares of common stock by the selling stockholders. The Company incurred costs of $ 1,100 , recorded in general and administrative expenses, in relation to the secondary public offering. 107 T able of Contents 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. The Company received net proceeds of $ 134,096 , after deducting underwriters' discounts and commissions. In addition, $ 745 of legal, accounting and other offering costs incurred in connection with the sale of the Company's common stock in the public offering, were capitalized and offset against the proceeds received. On November 22, 2021, the Company completed another secondary public offering in which certain selling stockholders, including EQT, sold 10,000,000 shares of the Company’s common stock. The Company did no t offer any common stock in this transaction and did no t receive any proceeds from the sale of the shares of common stock by the selling stockholders. The Company incurred costs of $ 644 , recorded in general and administrative expenses, in relation to the secondary public offering. On August 11, 2022, the Company completed a secondary public offering in which certain selling stockholders, including EQT, sold 7,000,000 shares of the Company’s common stock. The Company did no t offer any common stock in this transaction and did no t receive any proceeds from the sale of the shares of common stock by the selling stockholders. The Company incurred costs of $ 596 , recorded in general and administrative expenses, in relation to the secondary public offering. On December 8, 2022, Arsenal acquired an aggregate of 29,954,521 shares of the Company’s common stock from EQT at a price of $ 15.00 per share. In connection with this transaction, the Company entered into a letter agreement, effective December 8, 2022, with Arsenal providing that, subject to certain exceptions, Arsenal is prohibited from transferring the acquired shares until December 8, 2024. Also, in connection with the transaction, the Company entered into a stockholders agreement with Arsenal, effective December 8, 2022, which, among other things, grants certain conditional rights to Arsenal to nominate up to two directors to our Board. 4. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk have consisted principally of cash and cash equivalent investments and trade receivables. The Company invests available cash in bank deposits, investment-grade securities, and short-term interest-producing investments, including government obligations and other money market instruments. At 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. Management believes that any risk of loss is significantly reduced due to the nature of the customers and distributors with which the Company does business. As of December 31, 2023 and 2022, no customer accounted for more than 10% of the Company’s accounts receivable. For the years ended December 31, 2023, 2022, and 2021, no customer accounted for more than 10% of the Company’s revenues. 5. Business Combinations 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. 108 T able of Contents Author! B.V. On March 2, 2021, the Company completed a transaction which qualified as a business combination for a total consideration of $ 2,667 . The business combination was not material to our consolidated financial statements. Based on the Company’s purchase price allocation, approximately $ 1,200 , $ 100 and $ 1,200 of the purchase price was assigned to customer relationships, non-compete agreements and goodwill, respectively. Insight Medical Writing Limited On June 7, 2021, the Company completed a transaction which qualified as a business combination for a total consideration of $ 15,197 . The business combination was not material to our consolidated financial statements. Based on the Company’s purchase price allocation, approximately $ 7,400 and $ 4,700 of the purchase price was assigned to customer relationships and goodwill, respectively. Pinnacle 21, LLC 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 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. The results of operations of the acquired business 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 acquisition. The Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2021 includes revenues of $ 6,129 and a net income of $ 380 which includes the effects of purchase accounting adjustments, primarily changes in amortization of intangible assets. Integrated Nonclinical Development Solutions, Inc. On January 3, 2022, the Company completed the acquisition for a total consideration of $ 8,048 , which qualified as a business combination. The business combination was not significant to the Company’s consolidated financial statements. 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 (“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. 109 T able of Contents 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. 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). 110 T able of Contents 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. 111 T able of Contents 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 2023 2022 (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: a. 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. 6. Prepaid expenses and other current assets and Other long-term assets Prepaid and other current assets consisted of the following: DECEMBER 31, 2023 2022 (In thousands) Prepaid expenses $ 6,363 $ 8,389 Income tax receivable 3,395 2,014 Research and development tax credit receivable 5,004 4,207 Current portion of interest rate swap asset 4,473 4,638 Other current assets 1,158 732 Prepaid expenses and other current assets $ 20,393 $ 19,980 Other long-term assets consisted of the following: DECEMBER 31, 2023 2022 (In thousands) Long-term deposits $ 1,451 $ 1,150 Interest rate swap asset - long term 1,151 3,736 Deferred financing cost 451 729 Total other long-term assets $ 3,053 $ 5,615 112 T able of Contents 7. Property and Equipment Property and equipment consisted of the following: DECEMBER 31, 2023 2022 (In thousands) Computer and office equipment $ 4,898 $ 4,575 Furniture 2,489 2,426 Purchased software for internal use 717 701 Leasehold improvements 1,198 1,345 Property and equipment 9,302 9,047 Less: Accumulated depreciation and amortization ( 6,632 ) ( 6,647 ) Property and equipment, net $ 2,670 $ 2,400 Depreciation and amortization expense was $ 1,552 , $ 1,731 , and $ 2,135 for the years ended December 31, 2023, 2022, and 2021, respectively. 8. Goodwill and Other Intangible Assets The following table presents the Company’s intangible assets (other than goodwill) and the related amortization: WEIGHTED AVERAGE AMORTIZATION PERIOD (IN YEARS) DECEMBER 31, 2023 DECEMBER 31, 2022 GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION NET GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION NET (In thousands) Acquired software 11.95 $ 160,696 $ ( 32,002 ) $ 128,694 $ 138,157 $ ( 20,441 ) $ 117,716 Capitalized software development costs 2.57 55,640 ( 35,227 ) 20,413 41,323 ( 26,139 ) 15,184 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. Amortization expense of $ 10,546 , $ 9,310 , and $ 4,265 was recorded in cost of revenues for the years ended December 31, 2023, 2022, and 2021, respectively. 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. 113 T able of Contents 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: ACQUIRED SOFTWARE CAPITALIZED SOFTWARE DEVELOPMENT COSTS NON- COMPETE AGREEMENTS TRADE NAMES PATENTS CUSTOMER RELATIONSHIPS TOTAL (In thousands) 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 Goodwill The goodwill impairment test is performed at least annually at the reporting unit level. An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value. 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. The decline in the fair value of the Regulatory Writing reporting unit was driven by revised revenue growth and profitability forecasts resulting from certain reductions in our financial planning assumptions. These reductions were primarily attributable to a decrease in demand from certain customer groups for the legacy reporting unit. 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: (In thousands) Balance, December 31, 2021 $ 703,371 Goodwill associated with 2022 business combinations 19,451 Foreign currency translation ( 5,079 ) Balance, December 31, 2022 717,743 Goodwill associated with 2023 business combinations 43,223 Foreign currency translation 2,351 Impairment expense ( 46,984 ) Balance, December 31, 2023 $ 716,333 114 T able of Contents 9. Accrued Expenses and Other Long-Term Liabilities Accrued expenses consist of the following: DECEMBER 31, 2023 2022 (In thousands) Accrued compensation $ 28,624 $ 29,518 Legal and professional accruals 3,913 1,297 Interest payable 2,351 176 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 Other long-term liabilities consist of the following : DECEMBER 31, 2023 2022 (In thousands) Uncertain tax position liability $ 2,381 $ 2,308 Contingent consideration 36,828 19,813 Total other long-term liabilities $ 39,209 $ 22,121 10. Long-Term Debt and Revolving Line of Credit The Company has been a party to a Credit Agreement since August 2017 that provides for a senior secured term loan and commitments under a revolving credit facility. The Company and the lenders most recently modified the Credit Agreement on June 17, 2021, which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $ 80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $ 100,000 ). The term loan under this Amendment has substantially the same terms as the existing term loans and revolving credit commitments. The Credit Agreement is collateralized by substantially all U.S. assets and stock pledges for the non-U.S. subsidiaries and contain various financial and nonfinancial covenants. As of December 31, 2023 and 2022, available borrowings under the revolving lines of credits were $ 100,000 , respectively. 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 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. 115 T able of Contents The effective interest rate was 8.84 % and 5.28 % for the years ended December 31, 2023 and 2022, respectively, for the Credit Agreement. As discussed previously, the Company entered into interest rate swap agreements that fixed the interest rate. Interest incurred on the Credit Agreement with respect to the term loan amounted to $ 26,202 , $ 15,803 , and $ 11,206 for the years ended December 31, 2023, 2022, and 2021, respectively. Accrued interest payable on the Credit Agreement with respect to the term loan amounted to $ 2,400 and $ 130 at December 31, 2023 and 2022, respectively, and is included in accrued expenses. 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 $ 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: DECEMBER 31, 2023 2022 (In thousands) Term loans $ 294,450 $ 297,470 Revolving line of credit — — Less: debt issuance costs ( 3,213 ) ( 4,462 ) Total 291,237 293,008 Current portion of long-term debt ( 3,020 ) ( 3,020 ) Long-term debt, net of current portion and debt issuance costs $ 288,217 $ 289,988 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. 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. 11. Employee Benefit Plan The Company established a defined contribution 401(k) plan covering all U.S. employees who are at least 21 years of age and who meet IRS requirements for plan eligibility. Employees may contribute to the plan up to 50 % of their compensation, which may be further limited by law. 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. 116 T able of Contents The Company also operates a Group Personal defined contribution plan (“Plan”) covering all U.K. employees. 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. Employees may contribute to their personal pension account and then convert that account into income at retirement. The Company contributes an additional 8 % of salary for those employees who have registered for the Plan, which exceeds their duties under U.K. 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. 12. 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 The Company does not have any pending or threatened litigation which, individually or in the aggregate, would have a material adverse effect on the consolidated financial statements as of December 31, 2023. Assurance-type 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. For information related to commitments for future minimum lease payments, please see Note 14 – Leases. 13. Equity-Based Compensation The Company’s equity-based compensation programs are intended to attract, retain and provide incentives for employees, officers and directors. The Company has the following stock-based compensation plans and programs. Restricted Stock The majority of the Company’s restricted stock awarded to its employees was originally issued on December 10, 2020 in exchange for the Class B Units of EQT, which was the former parent of the Company. Share-based compensation for the restricted stock exchanged for the time-based Class B Units is recognized on a straight-line basis over the requisite service period of the award, which is generally five years . Share-based compensation for the restricted stock exchanged for the performance-based Class B Units is recognized using the accelerated attribution approach. In 2021, the Company granted 87,127 replacement shares of restricted stock in connection with the Pinnacle acquisition under which equity-based awards are outstanding. The fair value of the restricted stock awarded was initially based on the fair value of our common stock on the date of grant, then adjusted for time restrictions due 117 T able of Contents 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 . A summary of the restricted stock in 2023 is shown below: SHARES WEIGHTED-AVERAGE GRANT-DATE FAIR VALUE Non-vested restricted stock as of December 31, 2022 1,402,813 $ 23.27 Granted — — Vested ( 728,534 ) 23.38 Forfeited ( 135,618 ) 23.00 Non-vested restricted stock as of December 31, 2023 538,661 $ 23.18 __________________________________ • 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. At December 31, 2023, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the accelerated attribution approach was $ 934 . The unrecognized compensation expense for the category at December 31, 2023 is expected to be recognized over a weighted-average period of 14.4 months. Equity-based compensation expenses related to the time-based restricted stock were $ 1,313 , $ 3,166 and $ 3,104 for the years ended December 31, 2023, 2022 and 2021, respectively. At December 31, 2023, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach were $ 1,170 . The unrecognized compensation expense for the category at December 31, 2023 is expected to be recognized over a weighted-average period of 17.2 months. Equity-based employee compensation expenses related to the time-based restricted stock for the Pinnacle acquisition were $ 983 , $ 1,169 , and $ 292 for the years ended December 31, 2023, 2022, and 2021, respectively. At December 31, 2023, the total unrecognized equity-based compensation expenses related to outstanding restricted stock recognized using the straight-line attribution approach was $ 318 . The unrecognized compensation expense for the category at December 31, 2023 is expected to be recognized over a weighted-average period of 9 months. 2020 Incentive Plan In order to align the Company’s equity compensation program with public company practices, the Company’s Board of Directors adopted and stockholders approved the 2020 Incentive Plan. The 2020 Incentive Plan allows for grants of non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), and performance stock units (“PSUs”) to employees, directors, officers, and consultants or advisors of the Company. The 2020 Incentive Plan allows for 20,000,000 shares (the “plan share reserve”) of common stock to be issued. No more than the number of shares of common stock equal to the plan share reserve may be issued in the aggregate pursuant to the exercise of incentive stock options. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $ 1,000,000 in total value, except 118 T able of Contents 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 (“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. The fair value of the RSUs is based on the fair value of the underlying shares on the date of grant. A summary of the Company’s RSU activity is as follows: UNITS WEIGHTED- AVERAGE GRANT DATE FAIR VALUE Non-vested RSUs as of December 31, 2022 2,005,095 $ 24.71 Granted 1,718,670 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 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. At December 31, 2023, the total unrecognized equity-based compensation expense related to outstanding RSUs was $ 40,639 , which is expected to be recognized over a weighted-average period of 22.0 months. 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 (“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 119 T able of Contents recognize compensation cost. The following table presents a summary of activity on the PSUs for the period ended December 31, 2023. UNITS WEIGHTED- AVERAGE GRANT DATE FAIR VALUE Non-vested PSUs as of December 31, 2022 654,308 $ 23.99 Granted 484,885 27.00 Vested ( 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 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. 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. 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. Year Ended December 31, 2023 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. 120 T able of Contents Equity-based compensation expense The following table summarizes the components of total equity-based compensation expense included in the consolidated statements of operations and comprehensive income (loss) for each period presented: YEAR ENDED DECEMBER 31, 2023 2022 2021 (In thousands) Cost of revenues $ 11,545 $ 7,494 $ 5,193 Sales and marketing 1,763 2,091 2,204 Research and development 6,316 5,829 2,872 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. 14. Leases 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 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, 2023 December 31, 2022 (In thousands) Lease right of use assets Operating leases $ 9,604 $ 14,427 Financing leases — 24 $ 9,604 $ 14,451 Lease liabilities Current Operating leases $ 4,375 $ 4,968 Financing leases — 25 Noncurrent Operating leases 6,955 10,133 Financing leases — — $ 11,330 $ 15,126 121 T able of Contents For the year ended December 31, 2023 For the year ended December 31, 2022 Weighted-average remaining lease term (years): Operating leases 3.5 3.90 Financing leases — 0.08 Weighted-average discount rate: Operating leases 3.37 % 3.45 % Financing leases — % 6.19 % The components of total lease cost were as follows: December 31, 2023 December 31, 2022 (In thousands) Operating lease cost $ 4,813 $ 4,978 Short-term lease cost 740 729 Variable lease cost ( 190 ) 191 Sublease income ( 399 ) ( 379 ) Finance lease cost: Amortization of right-of-use assets 46 254 Interest on lease liabilities — 11 Total lease cost $ 5,010 $ 5,784 Supplemental cash flow and non-cash flow information was as follows: December 31, 2023 December 31, 2022 (In thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from finance leases $ — $ 11 Operating cash flows from operating leases $ 4,949 $ 5,360 Financing cash flows from finance leases $ 25 $ 293 Right-of-use assets obtained in exchange for new and remeasured operating leases $ 803 $ 2,501 Right-of-use assets obtained through acquisition $ 644 $ 129 122 T able of Contents The following table summarizes by year the maturities of our minimum lease payments as of December 31, 2023. OPERATING LEASES (In thousands) Year ending December 31, 2024 $ 4,250 2025 3,489 2026 2,274 2027 1,022 2028 528 Thereafter — Total future lease payments 11,563 Less: imputed interest ( 233 ) Total $ 11,330 Lease abandonment In the third quarter of 2023, the Company recorded a lease abandonment expense of $ 1,602 and reduced its lease ROU assets for the same amount in connection with the evaluation of the Company's office space footprint. This expense is included within the general and administrative expenses in the Company's consolidated statements of operations and comprehensive loss. 15. Segment data Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company has determined that its chief executive officer (“CEO”) is its CODM. The Company manages its operations as a single segment for the purpose of assessing and making operating decisions. The Company’s CODM allocates resources and assesses performance based upon financial information at the consolidated level. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements. 123 T able of Contents The following table summarizes revenue by geographic area: YEAR ENDED DECEMBER 31, 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 The following table summarizes property, plant and equipment, net by geographic area as of December 31, 2023 and 2022: DECEMBER 31, 2023 2022 (In thousands) Property, plant and equipment, net: Americas $ 1,824 $ 1,406 EMEA 622 732 Asia Pac 224 262 Total $ 2,670 $ 2,400 16. Income Taxes 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 ) 124 T able of Contents The components of provision for (benefit from) income taxes were as follows: DECEMBER 31, 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 ) Total provision (benefit) $ 214 $ 4,024 $ 9,891 The effective income tax rate was ( 0.39 )%, 21.46 %, and ( 293.06 )% for the years ended December 31, 2023, 2022 and 2021, respectively. 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: DECEMBER 31, 2023 2022 2021 (In thousands, except for percentage) Tax at U.S. federal statutory rate $ ( 11,580 ) 21.00 % $ 3,939 21.00 % $ ( 709 ) 21.00 % State taxes, net of federal benefit 136 ( 0.25 ) % 967 5.16 % 226 ( 6.71 ) % Foreign rate differential 4,552 ( 8.26 ) % 3,545 18.90 % 3,872 ( 114.72 ) % Permanent items 5,205 ( 9.44 ) % ( 1,227 ) ( 6.54 ) % ( 670 ) 19.84 % Equity compensation 1,582 ( 2.87 ) % 2,278 12.15 % 3,534 ( 104.70 ) % 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 ) % Return to provision adjustments ( 1,288 ) 2.34 % ( 405 ) ( 2.16 ) % ( 66 ) 1.95 % Valuation allowance 5,353 ( 9.71 ) % 6,062 32.32 % 1,837 ( 54.40 ) % Effective tax rate $ 214 ( 0.39 ) % $ 4,024 21.46 % $ 9,891 ( 293.06 ) % 125 T able of Contents The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized as follows: DECEMBER 31, 2023 2022 (In thousands) Deferred tax assets Accounts receivable $ 341 $ 279 Accrued compensation 4,033 4,385 Accrued expenses 27 529 Deferred revenue 2,061 392 Net operating loss carryforwards 17,192 14,264 R&D credit carryforward 4,172 3,918 Foreign tax credits 14,970 12,131 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 Less: Valuation allowance ( 31,500 ) ( 25,732 ) Net deferred tax asset 29,841 27,771 Deferred tax liabilities Property, equipment, and other long-lived assets ( 223 ) ( 152 ) Goodwill and intangible assets ( 71,253 ) ( 82,100 ) Prepaid expenses ( 1,715 ) ( 1,820 ) Interest rate hedge ( 1,393 ) ( 2,085 ) Right-of-use (ROU) Asset ( 1,847 ) ( 2,957 ) Total gross deferred tax liability ( 76,431 ) ( 89,114 ) Net deferred tax liability $ ( 46,590 ) $ ( 61,343 ) The net change in the total valuation allowance resulted in an increase of $ 5,768 in 2023 compared to an increase of $ 7,497 in 2022. The valuation allowance is determined separately for each jurisdiction. A U.S. valuation allowance was required against the foreign tax credit carryforward. At the foreign subsidiaries, the valuation allowance was primarily related to foreign net operating losses that, in the judgment of management, are not more likely than not to be realized.. In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and carryforward attributes can be utilized. Management considered the reversal of deferred tax liabilities in making this assessment. Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the existing valuation allowance, at December 31, 2023. 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 $ 43 , which will expire if 126 T able of Contents 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 $ 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 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. 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 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, 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. The Company does not anticipate any significant changes to its uncertain tax positions during the next twelve months. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows: (In thousands) Balance at December 31, 2021 $ 1,059 Additions for tax positions related to the current year 205 Additions for tax positions of prior years 1,554 Balance at December 31, 2022 2,818 Additions for tax positions related to the current year 309 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, 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. U.S. federal income tax returns are generally subject to examination for a period of three years after the filing of the return. However, the Internal Revenue Service can audit the NOLs generated in respective years in the years that the NOLs are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions. 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. 127 T able of Contents 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. 17. Earnings per Share Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to stockholders by the weighted-average number of shares and dilutive potential common shares during the period. YEAR ENDED DECEMBER 31, 2023 2022 2021 (In thousands, except per share and share data) Basic earnings per share Net income (loss) available to common shareholders $ ( 55,357 ) $ 14,731 $ ( 13,266 ) Basic weighted-average common shares outstanding 158,936,251 156,876,942 149,842,668 Basic earnings per common share $ ( 0.35 ) $ 0.09 $ ( 0.09 ) Diluted earnings per share Net income available to common shares $ ( 55,357 ) $ 14,731 $ ( 13,266 ) Basic weighted-average common shares outstanding 158,936,251 156,876,942 149,842,668 Dilutive potential common shares — (1) 2,477,452 (2) — (2) Diluted weighted-average common shares outstanding 158,936,251 159,354,394 149,842,668 Diluted earnings per common share $ ( 0.35 ) $ 0.09 $ ( 0.09 ) __________________________________ (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. 128 T able of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.