What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-29 · 143 added, 282 removed, 447 unchanged (49% of the section changed)

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Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part I, Item 1A above.

For a discussion of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, see “Results of Operations” and “Liquidity and Capital Resources” under Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report on Form 10-K.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Financial Statements.

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

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

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

On average, the pharmaceutical industry spends more than $270 billion annually on research and development("R&D").

Generally, companies spend an average of $6.2 billion per FDA-approved drug to develop one new medicine, including the cost of failures, according to "Analysis of pharma R&D productivity - a new perspective needed" on Drug Discovery Today.

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

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

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

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

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

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

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

FDA, Japanese PMDA, and Chinese cFDA.

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

We have worked with more than 2,400 life sciences companies and academic institutions and have collaborated on more than 9,000 customer projects in the last decade across a wide variety of therapeutic areas ranging from cancer and hematology to diabetes and hundreds of rare diseases.

Our software products are licensed by more than 94,000 users and are also used by 23 global drug regulatory agencies, including the FDA and Japanese PMDA.

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

Public Offerings and Other Key Shareholders Transactions

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

We did not offer any common stock in that transaction and did not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

We incurred cost of $1.1 million in relation to the secondary public offering.

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

We received net proceeds of $134.1 million, after deducting underwriters' discounts and commissions.

In addition, $0.7 million of legal, accounting and other offering costs incurred in connection with the sale of our common stock in the public offering, were capitalized and offset against the proceeds received.

On November 22, 2021, we completed another secondary public offering in which certain selling stockholders, including EQT, sold 10,000,000 shares of our common stock.

We did not offer any common stock in this transaction and did not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

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

On August 11, 2022, the Company completed another secondary public offering in which certain selling stockholders, including EQT, sold 7,000,000 shares of the Company’s common stock.

The Company did not offer any common stock in this transaction and did not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

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

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On December 8, 2022, Arsenal acquired an aggregate of 29,954,521 shares of our common stock from EQT at a price of $15.00 per share.

In connection with this transaction, we 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, we 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.

Key Factors Affecting Our Performance

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We monitor two key performance indicators to evaluate retention and expansion:

new bookings and renewal rates.

new bookings and net retention rates.

Our new bookings represent the estimated contract value of a signed contract or purchase order where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the software and/or services.

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See “Risk Factors — Risks Related to Our Business — Our bookings might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenue reflected in our backlog.”

• Renewal Rates:

Our renewal rates measure the percentage of software customers who renew their licenses or subscriptions at the end of the license or subscription periods.

The renewal rate is based on revenues and excludes the effect of price increases or expansions.

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

• Net Retention Rates:

Our net retention rates measure the percentage of recurring revenue that is retained from existing software customers over a specific period of time, inclusive of price increases and expansion, excluding revenue from acquisitions occurred within the past 12 months.

The tables below summarizes our quarterly bookings and net software retention rate trends:

Q1 Q2 Q3 Q4 FULL YEAR

(in millions)

2024 $ 105.8 $ 98.9 $ 96.1 $ 144.5 $ 445.3

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

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

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

2023 $ 112.7 $ 85.9 $ 84.8 $ 118.9 $ 402.3

2022 $ 108.5 $ 100.3 $ 79.8 $ 120.4 $ 409.0

Net Retention Rates

Q1 Q2 Q3 Q4 FULL YEAR

(in percentage)

2024 114.1 % 108.0 % 107.6 % 105.5 % 108.8 %

2023 108.3 % 110.5 % 106.4 % 103.4 % 108.4 %

2022 101.5 % 104.5 % 104.3 % 109.2 % 105.1 %

Investments in Growth

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and international expansion.

We expect to continue to invest (i) in scientific talent to expand our ability to deliver solutions across the drug development spectrum;

(ii) in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies;

(iii) in research and development to support existing solutions and innovate new technology;

(iv) in other operational and administrative functions to support our expected growth;

and (v) in complementary business.

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We expect to continue to invest in (i) scientific talent to expand our ability to deliver solutions across the drug development spectrum;

(ii) sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies;

(iii) research and development to support existing solutions and innovate new technology;

(iv) other operational and administrative functions to support our expected growth;

and (v) complementary business.

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

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However, some changes in regulations, such as a relaxation in regulatory requirements or the introduction of streamlined or expedited approval procedures, or an increase in regulatory requirements that we have difficulty satisfying or that make our regulatory strategy services less competitive, could eliminate or substantially reduce the demand for our regulatory services.

Additionally, a new

government administration may lead to either stricter or more relaxed regulatory environments.

Currently, the new U.S.

federal administration shows signs of reforming the pharmaceutical industry, particularly focusing on drug pricing and accelerated drug approval.

These changes are expected to potentially have a significant impact on the biopharmaceutical industries, creating a mix of opportunities and challenges for us.

In addition to the external regulatory environment, internally, we initiated a review process in 2024 to evaluate the long-term strategic options for our regulatory services business.

This review could result in several potential directions for the business, which could potentially have a significant impact on our operations.

The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented.

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For additional information, see “Business — Competition”.

Impact of COVID-19

The continued spread of COVID-19 may adversely impact our business, financial condition or results of operations.

As of December 31, 2023, we believe there have been and will be short-term impacts on our business due to new variants of COVID-19.

The presence of these new variants has caused a slowdown in closing out clinical trials and delays in regulatory services projects.

We believe that these are transitory impacts that we are well-equipped to manage going forward.

non-GAAP measures

Management uses various financial metrics, including total revenues, income from operations, net income, and certain metrics that are not required by, or presented in accordance with, GAAP, such as adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to measure and assess the performance of our business, to evaluate the effectiveness of our business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare our performance against that of other peer companies using similar measures.

Management uses various financial metrics, including total revenues, income from operations, net income, as well as certain metrics that are not required by, or presented in accordance with, GAAP, such as adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to measure and assess the performance of our business, to evaluate the effectiveness of our business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare our performance against that of other peer companies using similar measures.

We believe that presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business.

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Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, goodwill impairment expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

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Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statements of operations and comprehensive income (loss) that are necessary to run our business.

Other companies, including other companies in our industry, may not use these measures and may calculate both differently than as presented, limiting the usefulness as a comparative measure.

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Other companies, including other companies in our industry, may not use

these measures and may calculate both differently than as presented, limiting the usefulness as a comparative measure.

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

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Interest income(a) (9,034) (9,317) (1,294)

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

(Benefit from) Provision for income taxes(a) (5,133) 214 4,024

Depreciation and amortization expense(a) 1,994 1,552 1,731

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Adjusted EBITDA $ 122,046 $ 123,108 $ 120,174

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

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Adjusted net income $ 72,871 $ 69,021 $ 73,390

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

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__________________________________

(a) Represents amounts as determined under GAAP.

(a) Represents a measure determined under GAAP.

(b) Represents expense related to equity-based compensation.

Equity-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.

Equity-based compensation has been, and we expect will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.

(d) Represents expense associated with remeasuring fair value of contingent consideration of business acquisition.

(d) Represents expense associated with remeasuring fair value of contingent consideration of business acquisitions.

(e) Represents expense associated with goodwill impairment charge.

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

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

(h) Represents costs associated with our public offerings that are not capitalized, as well as debt issuance costs that are not deferred or treated as a contra-liability directly deducted from the carrying value of the associated debt liability.

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

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

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

In addition to adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, management also uses organic revenue, a non-GAAP financial metric, to measure the growth of our existing business operations excluding the impact of acquisitions and divestitures.

Our definition of organic revenue may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with GAAP.

The table below presents revenue growth from organic operations and acquisitions:

YEAR ENDED DECEMBER 31, Growth

(in thousands except percentage)

Total revenues $ 385,148 9 %

Revenue related to acquisitions* (27,410) 7 %

Organic revenue $ 357,738 2 %

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• Acquisition revenue includes revenues from DIDB, Formedix, ABM, and Chemaxon.

Components of Results of Operations

Our business generates revenue from the sales of software products and delivery of consulting services.

Our business generates revenue from the sale of software products and delivery of consulting services.

Our software business generates revenues from software licenses, software subscriptions and software maintenance as follows:

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Subscription revenue consists of subscription fees to provide our customers access to and related support for our cloud-based solutions.

We recognize subscription fees ratably over the term of the subscription, usually one to three years.

We recognize subscription fees ratably over the term of the subscription, usually over one to three years.

Any subscription revenue paid upfront that is not recognized in the current period is included in deferred revenue in our consolidated balance sheet until earned.

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• Research and Development.

Research and development expense consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits.

Research and development expense consists primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits.

We plan to continue to invest in our R&D efforts to enhance and scale our software product offerings by development of new features and increased functionality.

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• General and Administrative.

General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation.

General and administrative ("G&A") expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation.

General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

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We expect income tax expense to increase over time as the Company continues to grow more profitable.

On March 2, 2021, we completed a transaction that qualified as a business combination for a total consideration of $2.7 million.

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

Based on our purchase price allocation, approximately $1.2 million, $0.1 million and $1.2 million of the purchase price was assigned to customer relationships, non-compete agreements and goodwill, respectively.

Insight Medical Writing Limited

On June 7, 2021, we completed a transaction that qualified as a business combination for a total consideration of $15.2 million.

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

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

Pinnacle 21, LLC (“Pinnacle”)

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

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

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Since 2013, we have successfully acquired 21 companies.

Below is an overview of the businesses we acquired in 2024, 2023, and 2022.

Integrated Nonclinical Development Solutions, Inc.

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

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

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

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Based on the Company’s purchase price allocation, approximately $11.4 million, $1.5 million, $0.1 million, $0.1 million and $16.6 million of the purchase price was assigned to developed technology, customer relationships, trademarks, non-compete agreements and goodwill, respectively.

The total estimated consideration includes a portion of contingent consideration that is payable over the next three years in a combination of 70% cash and 30% in shares of our common stock.

The total estimated consideration includes a portion of contingent consideration that is payable over the next three years following the acquisition in a combination of 70% cash and 30% in shares of our common stock.

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

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

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

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

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

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

For the year ended December 31, 2024, the Company paid contingent consideration of $12.4 million, consisting of $8.6 million in cash and $3.7 million in Company stock.

At December 31, 2024 and 2023, the contingent consideration was remeasured to $43.9 million and $45.2 million, respectively, resulting in fair value adjustments of $11.0 million and $25.4 million, respectively.

These adjustments were recorded in G&A expenses on the accompanying consolidated statement of operations and comprehensive income (loss).

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

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

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

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

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

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

At December 31, 2024 and 2023, the contingent consideration was remeasured to zero and $0.1 million, respectively, resulting in negative fair value adjustments of $0.1 million and $0.7 million, respectively, and recorded in G&A expenses on the accompanying consolidated statement of operations and comprehensive income (loss).

Formedix Limited ("Formedix")

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

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

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

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

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

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

Future payments of contingent consideration are

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

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

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

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

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

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

For the year ended December 31, 2024, the Company paid contingent consideration of $1.8 million.

At December 31, 2024 and 2023, the contingent consideration related to eligible revenue was remeasured to zero and $3.7 million, respectively, resulting in negative fair value adjustments of $1.9 million and $0.7 million, respectively, and recorded in G&A expenses on the accompanying consolidated statement of operations and comprehensive income (loss).

In addition, as of December 31, 2024, the contingent consideration related to tax contingencies was $0.5 million.

Applied BioMath, LLC ("ABM")

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

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

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

The contingent consideration related with revenue threshold are remeasured on a recurring basis at fair value for each reporting period.

For the year ended December 31, 2024, the Company paid contingent consideration of $4.7 million.

At December 31, 2024 and 2023, the contingent consideration was remeasured to zero and $5.4 million, respectively, resulting in fair value adjustments of $(0.7) million and $23.0 thousand.

These adjustments were recorded in G&A expenses 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.

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

Chemaxon, Kft.("Chemaxon")

On October 1, 2024, we completed the acquisition of 100% of the equity of Chemaxon, a software company that develops leading software products for chemical structure drawing, property prediction, search, and analysis, for a total cash consideration of $96.4 million.

Based on our purchase price allocation, approximately $2.9 million, $0.3 million, $11.0 million, $36.0 million, and $46.5 million of the purchase price was assigned to

trademark, non-compete agreement, customer relationships, developed technology, and goodwill, respectively.

The results of Chemaxon have been included in our consolidated results of operations and comprehensive income (loss) since the date of acquisition.

The current purchase price allocation for Chemaxon is preliminary.

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of deferred taxes and residual goodwill.

The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition date during the measurement period.

Any adjustments to the preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively.

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"Business Combinations" in the notes to the consolidated financial statements.

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Results of Operations

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Interest expense (21,520) (22,916) (17,773)

Net other income (expense) 8,547 4,007 (117)

Net other income (expenses) 6,067 8,547 4,007

Total other expenses (15,453) (14,369) (13,766)

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Total revenues $ 385,148 $ 354,337 $ 30,811 9 %

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

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

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

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

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Revenues increased by $30.8 million, or 9%, to $385.1 million for the year ended December 31, 2024, as compared to the same period in 2023.

The overall revenue growth was primarily due to an increase in our technology-enabled services and software product offerings, driven by growth from business acquisitions, which increased by $24.1 million, as well as strong demand from existing customers, expansion of relationships with existing customers and new customers.

Software revenue increased by $24.0 million, or 18%, to $155.7 million for the year ended December 31, 2024, as compared to the same period in 2023, primarily driven by strong demand within existing customers, and expansion of relationships with existing customers, and business acquisitions.

Revenue from acquisitions increased by $11.3 million.

Services revenue increased by $6.8 million, or 3%, to $229.5 million for the year ended December 31, 2024, as compared to the same period in 2023.

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

The growth in overall services revenue was primarily attributed to growth from business acquisitions, which increased by $12.8 million, as well as continued growth in technology-enabled services with both existing and new customers.

Cost of Revenues

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Cost of revenues increased by $13.5 million, or 10%, to $154.5 million for the year ended December 31, 2024, as compared to the same period in 2023.

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

The increase was primarily due to a $6.7 million increase in employee-related costs resulting primarily from billable headcount growth, a $3.9 million increase in intangible assets amortization, a $2.3 million increase in equipment and software expense, a $1.8 million increase in equity-based compensation cost, a $0.5 million decrease in capitalized software cost, and a $0.5 million increase in license expense, partially offset by a $2.3 million decrease in consulting and professional services cost resulting from the implementation of a cost reduction plan.

Sales and Marketing Expense

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% of total revenues 12 % 9 %

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

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

Sales and marketing expense increased by $15.4 million, or 48%, to $47.4 million for the year ended December 31, 2024, as compared to the same period in 2023.

Sales and marketing expense increased primarily due to a $6.7 million increase in employee-related costs mainly resulting from headcount growth driven by acquisitions along with investment to build the commercial organization, a $4.2 million increase in commission expenses, a $1.7 million increase in equity-based compensation cost, a $1.0 million increase in marketing expense, a $0.6 million increase in consulting and professional services expense, a $0.6 million increase in travel related expense, and a $0.6 million increase in equipment and software expense.

Research and Development Expense

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% of total revenues 10 % 10 %

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

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

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Research and development expense increased by $2.9 million, or 9%, to $37.1 million for the year ended December 31, 2024, as compared to the same period in 2023.

The increase in research and development expense was primarily due to a $9.6 million increase in employee-related costs, mainly resulting from headcount growth associated with investments in software development, including AI integration across our product portfolio, a $0.8 million increase in equipment and software expense, and a $0.4 million increase in the cost of licenses, partially offset by a $6.3 million increase in capitalized cost in R&D, a $1.1 million decrease in equity-based compensation cost, and a $0.4 million decrease in consulting and professional services expense.

General and Administrative Expense

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% of total revenues 24 % 27 %

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

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

G&A expense decreased by $1.2 million, or (1)%, to $94.2 million for the year ended December 31, 2024, as compared to the same period in 2023.

The decrease in general and administrative expenses was primarily due to a $16.0 million decrease related to a change in the fair value of contingent considerations, a $1.2 million decrease in equipment and software related expenses, a $1.0 million decrease in business acquisition-related costs, and a $0.4 million decrease in lease abandonment expense, partially offset by a $7.1 million increase in employee-related costs, mainly resulting from headcount growth and organizational restructuring, a $4.1 million increase in equity-based compensation cost, a $2.4 million increase in transaction expense primarily related to refinancing of our term loan and revolving line of credit, a $1.1 million increase in professional and consulting costs, a $1.0 million increase in franchise and other miscellaneous business taxes, a $0.8 million increase in provision for credit allowance, a $0.5 million increase in public company expense, and a $0.5 million increase in facility lease-related expenses.

Intangible Asset Amortization Expense

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Intangible asset amortization expense increased by $7.6 million, or 17%, to $51.6 million for the year ended December 31, 2024, as compared to the same period in 2023.

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

The increase in intangible asset amortization was primarily due to a $4.7 million increase in amortization expense from acquired intangible assets and a $2.9 million increase in amortization expense from capitalized software.

Depreciation and Amortization Expense

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% of total revenues 1 % — %

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

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

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Depreciation and amortization expense increased by $0.4 million, or 28%, to $2.0 million for the year ended December 31, 2024, as compared to the same period in 2023.

The increase was primarily due to an increase in depreciation expense related to computer equipment.

Goodwill Impairment Expense

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

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

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

There was no goodwill impairment charge for the year ended December 31, 2024.

Goodwill impairment expense was $47.0 million for the year ended December 31, 2023, primarily due to an impairment related to the legacy Regulatory and Writing reporting unit, as its carrying value exceeded its fair value.

Interest Expense

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% of total revenues 6 % 6 %

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

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

Net Other Income (Expense)

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

Interest expense decreased by $1.4 million, or (6)%, to $21.5 million for the year ended December 31, 2024, as compared to the same period in 2023.

The decrease was primarily due to a $0.5 million decrease related with the amortization of debt issuance cost, a $0.5 million increase in gain from our interest swap hedge activities, and a $0.4 million decrease in interest expense from our floating rate term loan debt, primarily related to the base margin rate reduction from term loan refinancing.

Net Other Income (Expense)

% of total revenues 2 % 1 %

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

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

Provision for Income Taxes

YEAR ENDED DECEMBER 31, CHANGE

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(in thousands)

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

Effective tax rate (0.4) % 21.5 %

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

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

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

Net Income (Loss)

YEAR ENDED DECEMBER 31, CHANGE

2023 2022 $ %

(in thousands)

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

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

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

Comparison of the Years Ended December 31, 2022 and 2021

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

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

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

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

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

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

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

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

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

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

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

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

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

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Cost of Revenues

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Cost of revenues $ 132,577 $ 111,616 $ 20,961 19 %

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

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

Sales and Marketing Expense

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Sales and marketing $ 27,408 $ 20,141 $ 7,267 36 %

% of total revenues 8 % 7 %

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

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

Research and Development Expense

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Research and development $ 28,205 $ 20,379 $ 7,826 38 %

% of total revenues 8 % 7 %

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

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

General and Administrative Expense

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

General and administrative $ 71,773 $ 79,539 $ (7,766) (10) %

% of total revenues 21 % 28 %

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

The decrease in general and administrative expenses was primarily

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

Intangible Asset Amortization Expense

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

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

% of total revenues 12 % 14 %

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

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

Depreciation and Amortization Expense

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Depreciation and amortization $ 1,731 $ 2,135 $ (404) (19) %

% of total revenues 1 % 1 %

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

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

Interest Expense

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

Interest expense $ 17,773 $ 16,837 $ 936 6 %

% of total revenues 5 % 6 %

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

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

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

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Net other income (expense) $ 6,067 $ 8,547 $ (2,480) (29) %

YEAR ENDED DECEMBER 31, CHANGE

2022 2021 $ %

(in thousands)

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

% of total revenues 2 % 2 %

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

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

Net other income (expense) decreased by $2.5 million to $6.1 million for the year ended December 31, 2024 as compared to the same period in 2023.

The decrease in net other income (expense) was primarily due to a $1.7 million increase in remeasurement losses related to the fluctuation of foreign currency exchange rates, a $0.3 million increase in loss related to disposal fixed assets, and a $0.3 million decrease in interest income.

Provision for Income Taxes

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Effective tax rate 29.9 % (0.4) %

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

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

Our income tax benefit was $5.1 million, resulting in an effective income tax rate of 29.9%, for the year ended December 31, 2024, as compared to an income tax expense of $0.2 million, or an effective income tax rate of (0.4)% for the year ended December 31, 2023.

Our income tax benefit for the year ended December 31, 2024 was primarily due to the impact of non-deductible items, the impact of valuation allowances recorded against certain tax attributes, and the relative mix of domestic and international earnings.

Net Income (Loss)

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Net income (loss) $ (12,051) $ (55,357) $ 43,306 (78) %

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

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

Net loss was $12.1 million, representing a $43.3 million increase in net income for the year ended December 31, 2024, as compared to the same period in 2023.

The increase in net income was primarily due to a $30.8 million increase in revenue, a $21.7 million decrease in operating expense, a $5.3 million decrease in tax expense, and a $1.4 million decrease in interest expense, partially offset by a $13.5 million increase in cost of revenue and a $2.5 million decrease in net other income.

Liquidity and Capital Resources

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and as of December 31, 2024, 2023, and 2022.

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2024 2023 2022

3 unchanged sentences

$ 179,183 $ 234,951 $ 236,586

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

Term loan credit facilities $ 298,500 $ 294,450 $ 297,470

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(1) Represents the expected cash payments for interest on our long-term debt based on the amounts outstanding as of the end of each period and the interest rates applicable on such debt as of December 31, 2024.

We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs.

We believe our existing sources of liquidity will be sufficient to meet our working capital, capital expenditures, and contractual obligations for the foreseeable future.

We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions.

Our expected primary uses on a short-term and long-term basis are for repayment of debt, interest payments, working capital, capital expenditures, geographic or service offering expansion, acquisitions, investments, and other general corporate purposes.

We believe we will meet short-term and long-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions .

Our future capital requirements, however, will depend on many factors, including funding needed for potential acquisitions, investments, and other growth and strategic opportunities, which could increase our cash requirements.

While we believe we have, and will be able to generate, sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by factors described under “Risk Factors” elsewhere in this report.

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

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Net cash used in investing activities (112,368) (79,550) (27,837)

Net cash provided by (used in) financing activities (9,447) (7,363) 123,391

Net cash used in financing activities (21,010) (9,447) (7,363)

Effect due to foreign exchange rate changes on cash, cash equivalents, and restricted cash (2,856) 1,505 (4,279)

5 unchanged sentences

Net cash provided by operating activities for the year ended December 31, 2024 was $80.5 million, compared to $82.8 million for the year ended December 31, 2023.

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

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

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

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

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

The $2.3 million decrease in cash provided from operating activities was primarily driven by an increase in accounts receivable, and an increase in cash used for prepaid and other assets, partially offset by higher cash inflows from deferred revenues, a decrease in cash used for liability payments, and an increase in cash-adjusted net income.

Investing Activities

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The change in investing activities was primarily due to a $27.1 million increase in cash payments in connection with business acquisitions, and a $5.9 million increase in cash utilized in capitalized development costs.

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

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

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

Cash used in investing activities was primarily for

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

Financing Activities

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

The $2.1 million increase in cash used from financing activities was primarily due to a $3.4 million increase in cash payments in connection with share awards vested and withheld for payroll tax, partially offset by a $1.1 million decrease in cash payments on the financing component of the interest rate swap.

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

The $130.8 million decrease in cash provided from financing activities was primarily due to $133.4 million in proceeds received from stock offerings in 2021, partially offset by the increase on tax payment related to shares withheld for employee taxes in 2022.

During the year ended December 31, 2021, financing activities provided approximately $123.4 million, compared to $208.2 million in the same period of 2020.

The $84.8 million decrease in cash from financing activities was primarily due to $183.0 million less proceeds from stock offerings in 2021 compared to 2020.

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

During the year ended December 31, 2024, net cash used in financing activities was approximately $21.0 million, compared to $9.4 million in the same period of 2023.

The $11.6 million increase in cash used from financing activities was primarily due to a $15.2 million increase in cash payments for contingent consideration related to business acquisitions, and a $2.3 million increase in cash payments in connection with share awards vested and withheld for payroll tax, partially offset by a $5.1 million increase in cash proceeds net of debt issuance cost from refinancing of term loan debt, and a $0.8 million decrease in quarterly prepayments of term loan debt .

Credit Facilities

We have been a party to a Credit Agreement since August 2017 that provided for a senior secured term loan and commitments under a revolving credit facility.

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

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

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

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

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

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

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

The CSA varied depending on the selected interest period.

We have 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 (as amended, the “Credit Agreement”).

On June 26, 2024, we entered into the Fifth Amendment to the Credit Agreement (the "Amendment"), which primarily (1) amended the principal amount of the term loan to $300.0 million and the maturity date to June 26, 2031;

and (2) extended the termination date associated with the $100.0 million revolving credit commitment to June 26, 2029.

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

As of December 31, 2024, we had $298.5 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to, at the election of the Borrowers, either (i) the Term SOFR rate, with a floor of 0.00% plus an applicable margin rate of 3.00% for the Term Loans and between 3.50% and 2.75% for loans under the Revolving Facility, depending on the applicable first lien leverage ratio or (ii) an Alternate Base Rate (“ABR”), with a floor of 1.00%, plus an applicable margin rate of 2.00% for the Term Loans or between 2.50% and 1.75% for loans under the Revolving Facility, depending on the applicable first lien leverage ratio.

The ABR is determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.50% and (c) the Term SOFR rate plus 1.00%.

Additionally, we are obligated to pay a commitment fee on the unused amount and other customary fees.

All obligations under the Credit Agreement are unconditionally guaranteed by our wholly owned direct and indirect subsidiaries, subject to certain exceptions.

All obligations under the Credit Agreement, and the

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guarantees of those obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors.

All obligations under the Credit Agreement, and the guarantees of those obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors.

As of December 31, 2024, we were in compliance with the covenants of the Credit Agreement.

We recorded income tax expense of $0.2 million for the year ended December 31, 2023 and income tax expense of $4.0 million for the year ended December 31, 2022.

We recorded an income tax benefit of $(5.1) million for the year ended December 31, 2024 and income tax expense of $0.2 million for the year ended December 31, 2023.

As of December 31, 2024, we had federal and state NOLs of approximately $6.2 million and $4.9 million, respectively, which are available to reduce future taxable income and expire between 2035 and 2036 and 2029 and 2040, respectively.

We had federal and state R&D tax credit carryforwards of approximately $0.3 million and $0 million, respectively, to offset future income taxes, which expire between 2027 and 2028.

We had federal R&D tax credit carryforwards of approximately $0.3 million to offset future income taxes, which expire between 2027 and 2048.

We also had foreign tax credits of approximately $11 million, which will start to expire in 2027.

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

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Revenue Recognition

Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.

Applying GAAP to the measurement and recognition of revenue requires us to make judgments and estimates.

Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting, including whether promised goods and services specified in an arrangement are distinct performance obligations.

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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 one year or less and includes an insignificant amount of customer support to assist the customer with the software.

Software license performance obligations are generally recognized upfront at the point in time when the software license has been delivered.

Software as a Service (SaaS) Revenues

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

We typically invoice subscription fees in advance in annual installments.

The invoice is initially deferred and revenue is recognized ratably over the life of the contract.

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

Software Services

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Any unrecognized portion of amounts paid in advance for licenses and services is recorded as deferred revenue.

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Arrangements with Multiple Performance Obligations

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

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

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

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

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

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

During 2024, the Company reorganized its Certara Drug Development Solutions reporting unit (“CDDS”), Software reporting unit (“Software”), and SimCyp reporting unit (“SimCyp”) for goodwill allocation and impairment testing purposes.

We determined that we have three reporting units as of October 1, 2024:

the Certara Data Science Software (“CDS”), the Certara Predictive Technologies reporting unit (“CPT”), and the Certara Drug Development Services reporting unit (“CDDS”), which are within a single operating segment of the Company.

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

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Our quantitative goodwill impairment test uses both the income approach and the market approach to estimate fair value.

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

The income approach is based on the

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

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

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

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

We performed the annual goodwill impairment analysis during the fourth quarters of 2024 and 2023.

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

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

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

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

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

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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 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 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.

We recognize benefits for these uncertain tax positions in the period during which, based on all available evidence, we believe it is more likely than not (a likelihood of more than 50%) that the position will be sustained upon examination.

This process is inherently subjective since it requires our assessment of the probability of future outcomes.

This process is inherently subjective since

it requires our assessment of the probability of future outcomes.

We evaluate these uncertain tax positions on a quarterly basis, including consideration of changes in facts and circumstances.

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

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Business Acquisitions

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis