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Certara(CERT) - 2024 Q2 - Quarterly Report
CERTCertara(CERT)2024-08-06 20:30
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Revenue and Financial Performance - Revenue for Q2 2024 increased to 93.3million,upfrom93.3 million, up from 90.5 million in Q2 2023, representing a 3.2% growth[14] - Total revenue for the six months ended June 30, 2024 was 189.967million,comparedto189.967 million, compared to 180.751 million for the same period in 2023[62] - Total revenues increased by 2.9million(32.9 million (3%) to 93.3 million for Q2 2024 compared to Q2 2023, driven by growth in software product offerings[168] - Software revenues increased by 4.5million(134.5 million (13%) to 38.2 million for Q2 2024, driven by strong demand from existing customers and new client expansions[169] - Services revenues decreased by 1.6million(31.6 million (3%) to 55.1 million for Q2 2024, primarily due to a decline in consulting services revenue[169] - Total revenues increased by 9.2million(59.2 million (5%) to 190.0 million for the six months ended June 30, 2024, with software revenues growing 10.8million(1610.8 million (16%) due to strong demand and client expansions[183] - Revenue from the Americas region for the six months ended June 30, 2024 was 138,784, compared to 135,190forthesameperiodin2023[111]−RevenuefromtheEMEAregionforthesixmonthsendedJune30,2024was135,190 for the same period in 2023[111] - Revenue from the EMEA region for the six months ended June 30, 2024 was 38,088, compared to 32,025forthesameperiodin2023[111]−RevenuefromtheAsiaPacificregionforthesixmonthsendedJune30,2024was32,025 for the same period in 2023[111] - Revenue from the Asia Pacific region for the six months ended June 30, 2024 was 13,095, compared to 13,536forthesameperiodin2023[111]−Softwarelicensestransferredovertimegenerated13,536 for the same period in 2023[111] - Software licenses transferred over time generated 48.685 million in revenue for the six months ended June 30, 2024, up from 37.677millionin2023[62]NetIncomeandLoss−NetlossforQ22024was37.677 million in 2023[62] Net Income and Loss - Net loss for Q2 2024 was 12.6 million, compared to a net income of 4.7millioninQ22023[14]−NetlossfortheperiodendingJune30,2024,was4.7 million in Q2 2023[14] - Net loss for the period ending June 30, 2024, was 12,574 thousand[16] - Net income for the period ending June 30, 2023, was 4,706thousand[17]−NetincomeforthesixmonthsendedJune30,2024wasalossof4,706 thousand[17] - Net income for the six months ended June 30, 2024 was a loss of 17.257 million, compared to a profit of 6.064millioninthesameperiodin2023[18]−NetlossavailabletocommonshareholdersforthesixmonthsendedJune30,2024was6.064 million in the same period in 2023[18] - Net loss available to common shareholders for the six months ended June 30, 2024 was (17,257), compared to net income of 6,064forthesameperiodin2023[117]−Netlosswas6,064 for the same period in 2023[117] - Net loss was 12.6 million for the three months ended June 30, 2024, a 17.3milliondecreasecomparedtonetincomeof17.3 million decrease compared to net income of 4.7 million in the same period of 2023, driven by increased operating expenses and cost of revenue[182] - Net loss was 17.3millionforthesixmonthsendedJune30,2024,a17.3 million for the six months ended June 30, 2024, a 23.3 million decrease from net income of 6.1millionin2023,primarilyduetoa6.1 million in 2023, primarily due to a 32.0 million increase in operating expenses[195] Operating Expenses - Operating expenses for Q2 2024 rose to 62.5million,upfrom62.5 million, up from 41.2 million in Q2 2023, primarily due to increased general and administrative costs[14] - Research and development expenses for Q2 2024 were 9.1million,upfrom9.1 million, up from 7.9 million in Q2 2023[14] - Cost of revenues increased by 3.6million(103.6 million (10%) to 39.8 million for Q2 2024, mainly due to higher employee-related costs and intangible asset amortization[171] - Sales and marketing expenses increased by 4.1million(514.1 million (51%) to 12.2 million for Q2 2024, driven by headcount growth and higher commission expenses[172] - Research and development expenses increased by 1.2million(151.2 million (15%) to 9.1 million for Q2 2024, primarily due to investments in AI integration and software development[173] - General and administrative expenses increased by 13.8million(9713.8 million (97%) to 28.1 million for the three months ended June 30, 2024, driven by stock-based compensation, employee-related costs, and transaction expenses[175] - Cost of revenues increased by 8.0million(118.0 million (11%) to 79.1 million for the six months ended June 30, 2024, primarily due to employee-related costs and stock-based compensation[184] - Sales and marketing expenses increased by 6.8million(426.8 million (42%) to 22.9 million for the six months ended June 30, 2024, driven by employee-related costs and commission expenses[186] - Research and development expenses increased by 3.9million(233.9 million (23%) to 21.1 million for the six months ended June 30, 2024, mainly due to investments in software development and AI integration[187] - General and administrative expenses increased by 17.0million(5017.0 million (50%) to 51.1 million for the six months ended June 30, 2024, primarily due to employee-related costs and stock-based compensation[188] Assets and Liabilities - Total assets decreased slightly to 1.54billionasofJune30,2024,from1.54 billion as of June 30, 2024, from 1.56 billion as of December 31, 2023[13] - Cash and cash equivalents stood at 224.6millionasofJune30,2024,downfrom224.6 million as of June 30, 2024, down from 235.0 million as of December 31, 2023[13] - Accounts receivable increased to 90.4millionasofJune30,2024,from90.4 million as of June 30, 2024, from 84.9 million as of December 31, 2023[13] - Long-term debt increased to 293.7millionasofJune30,2024,from293.7 million as of June 30, 2024, from 288.2 million as of December 31, 2023[13] - Accumulated deficit grew to 133.5millionasofJune30,2024,from133.5 million as of June 30, 2024, from 116.2 million as of December 31, 2023[13] - Total stockholders' equity as of June 30, 2024, was 1,043,401thousand,adecreasefrom1,043,401 thousand, a decrease from 1,054,358 thousand as of April 1, 2024[16] - Accumulated deficit increased to (133,487)thousandasofJune30,2024,from(133,487) thousand as of June 30, 2024, from (120,913) thousand as of April 1, 2024[16] - Treasury shares increased to 882,883 shares as of June 30, 2024, from 496,792 shares as of April 1, 2024[16] - Total assets as of June 30, 2024 were 153,102thousand,withmoneymarketfundsaccountingfor153,102 thousand, with money market funds accounting for 147,478 thousand and interest rate swap assets at 5,624thousand[35]−Contingentliabilitiesdecreasedfrom5,624 thousand[35] - Contingent liabilities decreased from 54,457 thousand at December 31, 2023 to 45,994thousandatJune30,2024,withpaymentsof45,994 thousand at June 30, 2024, with payments of 14,133 thousand and fair value remeasurement of 5,670thousand[37]−Cashandcashequivalentsdecreasedfrom5,670 thousand[37] - Cash and cash equivalents decreased from 234,951 thousand at December 31, 2023 to 224,599thousandatJune30,2024[38]−Accountsreceivable,netincreasedfrom224,599 thousand at June 30, 2024[38] - Accounts receivable, net increased from 84,857 thousand at December 31, 2023 to 90,378thousandatJune30,2024,withunbilledreceivablesrisingfrom90,378 thousand at June 30, 2024, with unbilled receivables rising from 10,405 thousand to 16,913thousand[40]−Allowancesforcreditlossesincreasedfrom16,913 thousand[40] - Allowances for credit losses increased from 1,312 thousand at December 31, 2023 to 1,968thousandatJune30,2024,withaprovisionforcreditlossesof1,968 thousand at June 30, 2024, with a provision for credit losses of 807 thousand[41] - Long-term debt increased to 300millionasofJune30,2024,upfrom300 million as of June 30, 2024, up from 294.45 million as of December 31, 2023[85] - Long-term debt maturities as of June 30, 2024 total 300,000thousand,with300,000 thousand, with 286,500 thousand maturing after 2028[87] - Total lease liabilities as of June 30, 2024 are 15,870thousand,upfrom15,870 thousand, up from 11,330 thousand at December 31, 2023[89] - Total future lease payments as of June 30, 2024 amount to 18,419thousand,withimputedinterestof18,419 thousand, with imputed interest of 2,549 thousand[90] - Accrued expenses as of June 30, 2024 total 55,613thousand,downfrom55,613 thousand, down from 56,779 thousand at December 31, 2023[91] - Total other long-term liabilities as of June 30, 2024 are 23,542thousand,downfrom23,542 thousand, down from 39,209 thousand at December 31, 2023[92] Equity and Compensation - Equity-based compensation expense, net of forfeiture, was 9,783thousandfortheperiodendingJune30,2024[16]−Commonsharesissuedforemployeeshare−basedcompensationtotaled1,081,434shares,withastockamountof9,783 thousand for the period ending June 30, 2024[16] - Common shares issued for employee share-based compensation totaled 1,081,434 shares, with a stock amount of 11 thousand[16] - Equity-based compensation expense, net of forfeiture, was 3,610thousandfortheperiodendingJune30,2023[17]−Equity−basedcompensationexpensesforthethreemonthsendedJune30,2024were3,610 thousand for the period ending June 30, 2023[17] - Equity-based compensation expenses for the three months ended June 30, 2024 were 9,783, compared to 3,610forthesameperiodin2023[105]−Non−vestedrestrictedstockasofJune30,2024is405,447shareswithaweightedaveragegrantdatefairvalueof3,610 for the same period in 2023[105] - Non-vested restricted stock as of June 30, 2024 is 405,447 shares with a weighted average grant date fair value of 23.24[98] - Non-vested RSUs as of June 30, 2024 total 3,567,171 units with a weighted average grant date fair value of 20.16[101]−Non−vestedPSUsasofJune30,2024are763,134unitswithaweightedaveragegrantdatefairvalueof20.16[101] - Non-vested PSUs as of June 30, 2024 are 763,134 units with a weighted average grant date fair value of 21.08[104] Acquisitions and Investments - The company completed the acquisition of Formedix Limited for a total estimated consideration of 41.389million,with41.389 million, with 25.062 million allocated to goodwill[71][73] - The acquisition of Applied BioMath, LLC was completed for a total estimated consideration of 36.594million,with36.594 million, with 15.872 million allocated to goodwill[74] - The company completed the acquisition of Formedix for 41.4million,with41.4 million, with 11.7 million allocated to developed technology and 25.1milliontogoodwill[160]−ThecompanyacquiredAppliedBioMathfor25.1 million to goodwill[160] - The company acquired Applied BioMath for 36.6 million, with 4.6millionallocatedtodevelopedtechnologyand4.6 million allocated to developed technology and 15.9 million to goodwill[162] - The company acquired Drug Interaction Solutions for 8.3million,with8.3 million, with 5.6 million allocated to database content/technology and 2.3milliontogoodwill[158]−Contingentconsiderationforacquisitionsisremeasuredatfairvalueeachreportingperiod,withchangesrecordedinearnings[164]−Thecompanyhascompleted20acquisitionssince2013,with13involvingsoftwareortechnology[67]CashFlowandDebt−Netcashprovidedbyoperatingactivitiesdecreasedto2.3 million to goodwill[158] - Contingent consideration for acquisitions is remeasured at fair value each reporting period, with changes recorded in earnings[164] - The company has completed 20 acquisitions since 2013, with 13 involving software or technology[67] Cash Flow and Debt - Net cash provided by operating activities decreased to 14.110 million in the first half of 2024, down from 28.015millioninthefirsthalfof2023[18]−Capitalizedsoftwaredevelopmentcostsincreasedto28.015 million in the first half of 2023[18] - Capitalized software development costs increased to 8.651 million in the first half of 2024, up from 6.270millioninthesameperiodin2023[18]−Netcashfromoperatingactivitieswas6.270 million in the same period in 2023[18] - Net cash from operating activities was 14.1 million for the six months ended June 30, 2024, a decrease of 13.9millioncomparedto13.9 million compared to 28.0 million in 2023[196][199] - Cash and cash equivalents totaled 224.6millionasofJune30,2024,with224.6 million as of June 30, 2024, with 42.5 million held outside the United States[199][200] - Net cash used in investing activities decreased by 4.8millionto4.8 million to 9.7 million for the six months ended June 30, 2024, primarily due to a 7.6milliondecreaseincashusedforbusinessacquisitions[207]−ThecompanyamendeditsCreditAgreementonJune26,2024,extendingthetermloanto7.6 million decrease in cash used for business acquisitions[207] - The company amended its Credit Agreement on June 26, 2024, extending the term loan to 300.0 million with a maturity date of June 26, 2031, and the revolving credit commitment to 100.0millionwithaterminationdateofJune26,2029[209][210]EarningsPerShareandAdjustedMetrics−BasicanddilutednetlosspershareforQ22024was100.0 million with a termination date of June 26, 2029[209][210] Earnings Per Share and Adjusted Metrics - Basic and diluted net loss per share for Q2 2024 was 0.08, compared to a net income per share of 0.03inQ22023[14]−BasicearningspercommonshareforthesixmonthsendedJune30,2024was0.03 in Q2 2023[14] - Basic earnings per common share for the six months ended June 30, 2024 was (0.11), compared to 0.04forthesameperiodin2023[117]−DilutedearningspercommonshareforthesixmonthsendedJune30,2024was0.04 for the same period in 2023[117] - Diluted earnings per common share for the six months ended June 30, 2024 was (0.11), compared to 0.04forthesameperiodin2023[117]−AdjustedEBITDAforQ22024was0.04 for the same period in 2023[117] - Adjusted EBITDA for Q2 2024 was 26.3 million, down from 32.4millioninQ22023,whilesix−monthadjustedEBITDAfor2024was32.4 million in Q2 2023, while six-month adjusted EBITDA for 2024 was 55.5 million, compared to 64.7millionin2023[143]−AdjustednetincomeforQ22024was64.7 million in 2023[143] - Adjusted net income for Q2 2024 was 11.4 million, a decrease from 18.4millioninQ22023,andsix−monthadjustednetincomefor2024was18.4 million in Q2 2023, and six-month adjusted net income for 2024 was 27.9 million, down from 37.7millionin2023[145]−AdjusteddilutedearningspershareforQ22024were37.7 million in 2023[145] - Adjusted diluted earnings per share for Q2 2024 were 0.07, compared to 0.12inQ22023,andsix−monthadjusteddilutedEPSfor2024was0.12 in Q2 2023, and six-month adjusted diluted EPS for 2024 was 0.17, down from 0.24in2023[147]MarketandRegulatoryEnvironment−Thecompanyhasoperationsin20countriesincludingtheUnitedStates,China,Japan,andseveralEuropeannations[20]−Regulatoryacceptanceofmodel−informedbiopharmaceuticaldevelopmenthasincreaseddemandforthecompany′sproductsandservices[133]−Changesingovernmentorregulatorypoliciescouldimpactthedemandforthecompany′sregulatoryservices[134]−Thebiosimulationmarketishighlycompetitive,withkeyfactorsincludingmodelfunctionality,regulatoryacceptance,andintegrationcapabilities[135]−Macroeconomicconditionssuchasinflation,interestrates,andgeopoliticalconflictsmayposechallenges,butthecompanybelievesitiswell−equippedtomanagethem[137]FairValueandContingentLiabilities−ThecompanyutilizesMonteCarloandBlack−Scholes−Mertonmodelstoestimatefairvalueofcontingentconsiderationliabilitiesforbusinessacquisitions[33]−Moneymarketfundstotaling0.24 in 2023[147] Market and Regulatory Environment - The company has operations in 20 countries including the United States, China, Japan, and several European nations[20] - Regulatory acceptance of model-informed biopharmaceutical development has increased demand for the company's products and services[133] - Changes in government or regulatory policies could impact the demand for the company's regulatory services[134] - The biosimulation market is highly competitive, with key factors including model functionality, regulatory acceptance, and integration capabilities[135] - Macroeconomic conditions such as inflation, interest rates, and geopolitical conflicts may pose challenges, but the company believes it is well-equipped to manage them[137] Fair Value and Contingent Liabilities - The company utilizes Monte Carlo and Black-Scholes-Merton models to estimate fair value of contingent consideration liabilities for business acquisitions[33] - Money market funds totaling 151.338 million were classified as Level 1 assets in the fair value hierarchy as of June 30, 2024[34] - Contingent liabilities of 45.994millionwereclassifiedasLevel3liabilitiesinthefairvaluehierarchyasofJune30,2024[34]−ThecompanyisevaluatingtheimpactofnewFASBaccountingstandardsonsegmentreportingandincometaxdisclosures[26][27]−Contingentliabilitiesdecreasedfrom45.994 million were classified as Level 3 liabilities in the fair value hierarchy as of June 30, 2024[34] - The company is evaluating the impact of new FASB accounting standards on segment reporting and income tax disclosures[26][27] - Contingent liabilities decreased from 54,457 thousand at December 31, 2023 to 45,994thousandatJune30,2024,withpaymentsof45,994 thousand at June 30, 2024, with payments of 14,133 thousand and fair value remeasurement of 5,670thousand[37]InterestRateandDerivativeInstruments−Theinterestrateswapagreementhasanotionalamountof5,670 thousand[37] Interest Rate and Derivative Instruments - The interest rate swap agreement has a notional amount of 230,000 thousand, a fixed rate of 2.8%, and a termination date of August 31, 2025, with a fair value of 5,603thousandatJune30,2024[45]−Derivativegainsreclassifiedfromaccumulatedothercomprehensiveincomewere5,603 thousand at June 30, 2024[45] - Derivative gains reclassified from accumulated other comprehensive income were 1,526 thousand and 3,051thousandforthethreeandsixmonthsendedJune30,2024,respectively[46]−Theeffectiveinterestrateonthetermloandebtwas9.23,051 thousand for the three and six months ended June 30, 2024, respectively[46] - The effective interest rate on the term loan debt was 9.2% for the six months ended June 30, 2024, compared to 8.4% for the same period in 2023[84] - Interest expense increased by 0.2 million (2%) to 11.3millionforthesixmonthsendedJune30,2024,drivenbya11.3 million for the six months ended June 30, 2024, driven by a 1.1 million increase in floating rate term loan debt[191] Contract Assets and Liabilities - Contract assets increased from 10,405thousandatDecember31,2023to10,405 thousand at December 31, 2023 to 16,913 thousand at June 30, 2024, while contract liabilities increased slightly from 61,748thousandto61,748 thousand to 62,179 thousand[57] - The company recognized 45,783thousandinrevenuerelatedtocontractliabilitiesatDecember31,2023,andexpectstorecognize45,783 thousand in revenue related to contract liabilities at December 31, 2023, and expects to recognize 101,546 thousand (84.3%) of the 120,444thousandunsatisfiedperformanceobligationsoverthenext12months[58]−Capitalizedcontractacquisitioncostsincreasedto120,444 thousand unsatisfied performance obligations over the next 12 months[58] - Capitalized contract acquisition costs increased to 733 thousand as of June 30, 2024, up from 655thousandasofDecember31,2023[60]TaxandOtherFinancialMetrics−Thecompany′sglobaleffectivetaxrateforthesixmonthsendedJune30,2024was3655 thousand as of December 31, 2023[60] Tax and Other Financial Metrics - The company's global effective tax rate for the six months ended June 30, 2024 was 3%, compared to 44% for the same period in 2023[113] - Income tax benefit was 0.4 million with an effective tax rate of 3% for the six months ended June 30, 2024, compared to a tax expense of 4.8million(444.8 million (44% effective rate) in the same period of 2023[194] - Net other income increased by 2.4 million (161%) to 4.0millionforthesixmonthsendedJune30,2024,primarilyduetoa4.0 million for the six months ended June 30, 2024, primarily due to a 1.5 million increase in interest income and a 1.0millionremeasurementgainfromforeigncurrencyfluctuations[192][193]BookingsandRetentionRates−QuarterlybookingsforQ12024were1.0 million remeasurement gain from foreign currency fluctuations[192][193] Bookings and Retention Rates - Quarterly bookings for Q1 2024 were 105.8 million, a decrease from Q1 2023's 112.7million,whileQ22024bookingswere112.7 million, while Q2 2024 bookings were 98.9 million, up from Q2 2023's 85.9million[131]−Netsoftwareretentionratesremainedstrong,withQ12024at114.185.9 million[131] - Net software retention rates remained strong, with Q1 2024 at 114.1%, Q2 2024 at 108%, Q1 2023 at 110.5%, and Q2 2023 at 111.3%[131] Strategic Investments and Future Plans - The company plans to continue investing in scientific talent, sales and marketing, R&D, and international expansion to support growth[132] - The company made a combined payment of 14,133 on contingent consideration during