Certara(CERT) - 2024 Q2 - Quarterly Report

Revenue and Financial Performance - Revenue for Q2 2024 increased to $93.3 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 $189.967 million, compared to $180.751 million for the same period in 2023[62] - Total revenues increased by $2.9 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 $4.5 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 $1.6 million (3%) to $55.1 million for Q2 2024, primarily due to a decline in consulting services revenue[169] - Total revenues increased by $9.2 million (5%) to $190.0 million for the six months ended June 30, 2024, with software revenues growing $10.8 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 $135,190 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 $32,025 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 $13,536 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 $37.677 million in 2023[62] Net Income and Loss - Net loss for Q2 2024 was $12.6 million, compared to a net income of $4.7 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 $4,706 thousand[17] - Net income for the six months ended June 30, 2024 was a loss of $17.257 million, compared to a profit of $6.064 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 $6,064 for the same period in 2023[117] - Net loss was $12.6 million for the three months ended June 30, 2024, a $17.3 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 $17.3 million for the six months ended June 30, 2024, a $23.3 million decrease from net income of $6.1 million in 2023, primarily due to a $32.0 million increase in operating expenses[195] Operating Expenses - Operating expenses for Q2 2024 rose to $62.5 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 $9.1 million, up from $7.9 million in Q2 2023[14] - Cost of revenues increased by $3.6 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 $4.1 million (51%) to $12.2 million for Q2 2024, driven by headcount growth and higher commission expenses[172] - Research and development expenses increased by $1.2 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 $13.8 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 $8.0 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 $6.8 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 $3.9 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 $17.0 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 $1.54 billion as of June 30, 2024, from $1.56 billion as of December 31, 2023[13] - Cash and cash equivalents stood at $224.6 million as of June 30, 2024, down from $235.0 million as of December 31, 2023[13] - Accounts receivable increased to $90.4 million as of June 30, 2024, from $84.9 million as of December 31, 2023[13] - Long-term debt increased to $293.7 million as of June 30, 2024, from $288.2 million as of December 31, 2023[13] - Accumulated deficit grew to $133.5 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 $1,043,401 thousand, a decrease from $1,054,358 thousand as of April 1, 2024[16] - Accumulated deficit increased to $(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 $153,102 thousand, with money market funds accounting for $147,478 thousand and interest rate swap assets at $5,624 thousand[35] - Contingent liabilities decreased from $54,457 thousand at December 31, 2023 to $45,994 thousand at June 30, 2024, with payments of $14,133 thousand and fair value remeasurement of $5,670 thousand[37] - Cash and cash equivalents decreased from $234,951 thousand at December 31, 2023 to $224,599 thousand at June 30, 2024[38] - Accounts receivable, net increased from $84,857 thousand at December 31, 2023 to $90,378 thousand at June 30, 2024, with unbilled receivables rising from $10,405 thousand to $16,913 thousand[40] - Allowances for credit losses increased from $1,312 thousand at December 31, 2023 to $1,968 thousand at June 30, 2024, with a provision for credit losses of $807 thousand[41] - Long-term debt increased to $300 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 $300,000 thousand, with $286,500 thousand maturing after 2028[87] - Total lease liabilities as of June 30, 2024 are $15,870 thousand, up from $11,330 thousand at December 31, 2023[89] - Total future lease payments as of June 30, 2024 amount to $18,419 thousand, with imputed interest of $2,549 thousand[90] - Accrued expenses as of June 30, 2024 total $55,613 thousand, down from $56,779 thousand at December 31, 2023[91] - Total other long-term liabilities as of June 30, 2024 are $23,542 thousand, down from $39,209 thousand at December 31, 2023[92] Equity and Compensation - Equity-based compensation expense, net of forfeiture, was $9,783 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 $3,610 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 $3,610 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-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 $41.389 million, with $25.062 million allocated to goodwill[71][73] - The acquisition of Applied BioMath, LLC was completed for a total estimated consideration of $36.594 million, with $15.872 million allocated to goodwill[74] - The company completed the acquisition of Formedix for $41.4 million, with $11.7 million allocated to developed technology and $25.1 million to goodwill[160] - The company acquired Applied BioMath for $36.6 million, with $4.6 million allocated to developed technology and $15.9 million to goodwill[162] - The company acquired Drug Interaction Solutions for $8.3 million, with $5.6 million allocated to database content/technology and $2.3 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 $28.015 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 $6.270 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 $13.9 million compared to $28.0 million in 2023[196][199] - Cash and cash equivalents totaled $224.6 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 $4.8 million to $9.7 million for the six months ended June 30, 2024, primarily due to a $7.6 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 $100.0 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 $0.03 in Q2 2023[14] - Basic earnings per common share for the six months ended June 30, 2024 was $(0.11), compared to $0.04 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 $0.04 for the same period in 2023[117] - Adjusted EBITDA for Q2 2024 was $26.3 million, down from $32.4 million in Q2 2023, while six-month adjusted EBITDA for 2024 was $55.5 million, compared to $64.7 million in 2023[143] - Adjusted net income for Q2 2024 was $11.4 million, a decrease from $18.4 million in Q2 2023, and six-month adjusted net income for 2024 was $27.9 million, down from $37.7 million in 2023[145] - Adjusted diluted earnings per share for Q2 2024 were $0.07, compared to $0.12 in Q2 2023, and six-month adjusted diluted EPS for 2024 was $0.17, down from $0.24 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 $45.994 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 $45,994 thousand at June 30, 2024, with payments of $14,133 thousand and fair value remeasurement of $5,670 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 $5,603 thousand at June 30, 2024[45] - Derivative gains reclassified from accumulated other comprehensive income were $1,526 thousand and $3,051 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 $11.3 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 $10,405 thousand at December 31, 2023 to $16,913 thousand at June 30, 2024, while contract liabilities increased slightly from $61,748 thousand to $62,179 thousand[57] - The company recognized $45,783 thousand in revenue related to contract liabilities at December 31, 2023, and expects to recognize $101,546 thousand (84.3%) of the $120,444 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 $655 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 $4.8 million (44% effective rate) in the same period of 2023[194] - Net other income increased by $2.4 million (161%) to $4.0 million for the six months ended June 30, 2024, primarily due to a $1.5 million increase in interest income and a $1.0 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 $112.7 million, while Q2 2024 bookings were $98.9 million, up from Q2 2023's $85.9 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