Certara(CERT) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements show key financial positions and performance for the periods ended September 30, 2023 Condensed Consolidated Balance Sheets Total assets decreased to $1.53 billion as of September 30, 2023, primarily due to a goodwill impairment charge Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $272,312 | $236,586 | | Goodwill | $673,159 | $717,743 | | Total Assets | $1,526,821 | $1,572,922 | | Liabilities & Equity | | | | Total Liabilities | $475,070 | $493,261 | | Total Stockholders' Equity | $1,051,751 | $1,079,661 | | Total Liabilities & Equity | $1,526,821 | $1,572,922 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a Q3 2023 net loss of $49.0 million, driven by a significant goodwill impairment charge Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $85,576 | $84,700 | $266,327 | $249,011 | | Income (loss) from operations | $(52,784) | $10,859 | $(32,307) | $21,141 | | Net income (loss) | $(48,965) | $3,936 | $(42,901) | $5,557 | | Diluted EPS | $(0.31) | $0.02 | $(0.27) | $0.03 | - A goodwill impairment expense of $46,984 thousand was recorded in Q3 2023, which was the primary driver of the net loss for the period[49] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity declined to $1.05 billion, mainly due to the period's net loss and partially offset by equity-based compensation - The balance of total stockholders' equity was $1,051,751 thousand as of September 30, 2023, down from $1,079,661 thousand at December 31, 2022[40][91] - Key changes during the nine months ended September 30, 2023 include a net loss of $42.9 million and equity-based compensation expense of $20.8 million[91] Condensed Consolidated Statements of Cash Flows Net cash from operations was $59.4 million for the nine months ended September 30, 2023, contributing to a higher cash balance Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $59,429 | $57,058 | | Net cash used in investing activities | $(18,503) | $(15,238) | | Net cash used in financing activities | $(8,195) | $(6,395) | | Net increase in cash | $32,624 | $27,159 | | Cash at end of period | $272,312 | $213,783 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies and highlight a $47.0 million goodwill impairment and recent acquisitions - The company is a global leader in biosimulation, providing software and technology-driven services to accelerate drug discovery and development[11] - During Q3 2023, the company recorded a goodwill impairment charge of $46,984 thousand for its Regulatory and Writing business reporting unit[6][272] - On June 20, 2023, the company acquired the Drug Interaction Database (DIDB) from the University of Washington for a total estimated consideration of $8.34 million[109] - On October 10, 2023, subsequent to the quarter end, the company acquired Formedix Limited for a total consideration of up to $39.0 million[183] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth offset by a goodwill impairment impacting net income Key Performance Indicators | | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Bookings (in millions) | $84.8 | $79.8 | | Renewal Rate | 86% | 93% | Non-GAAP Reconciliation: Adjusted EBITDA (in thousands) | | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(48,965) | $3,936 | $(42,901) | $5,557 | | Adjusted EBITDA | $28,844 | $32,703 | $93,523 | $88,312 | Non-GAAP Reconciliation: Adjusted Net Income (in thousands) | | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(48,965) | $3,936 | $(42,901) | $5,557 | | Adjusted Net Income | $17,074 | $16,648 | $54,748 | $48,194 | Results of Operations Q3 revenue grew 1% while nine-month revenue grew 7%, with net loss driven by a goodwill impairment charge Revenue by Segment - Three Months Ended Sep 30 (in thousands) | Segment | 2023 | 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Software | $31,331 | $28,392 | $2,939 | 10% | | Services | $54,245 | $56,308 | $(2,063) | (4)% | | Total | $85,576 | $84,700 | $876 | 1% | Revenue by Segment - Nine Months Ended Sep 30 (in thousands) | Segment | 2023 | 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Software | $98,058 | $86,309 | $11,749 | 14% | | Services | $168,269 | $162,702 | $5,567 | 3% | | Total | $266,327 | $249,011 | $17,316 | 7% | - The Q3 2023 net loss of $49.0 million was primarily driven by a $47.0 million goodwill impairment expense and an $8.8 million increase in expense related to contingent considerations[344] - For the nine months ended Sep 30, 2023, General and Administrative expenses increased by $8.3 million, or 16%, mainly due to an $11.3 million increase related to contingent consideration[356] Liquidity and Capital Resources The company maintains a strong liquidity position with $272.3 million in cash and sufficient credit availability Liquidity Summary (in thousands) | Item | Sep 30, 2023 | | :--- | :--- | | Cash and cash equivalents | $272,312 | | Term loan outstanding | $295,205 | | Revolving line of credit availability | $100,000 | - Net cash provided by operating activities increased to $59.4 million for the nine months ended Sep 30, 2023, from $57.1 million in the prior-year period[381] - The company was in compliance with all covenants of its Credit Agreement as of September 30, 2023[387] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk exposure during the nine months ended September 30, 2023 - There were no material changes to the Company's market risk exposure during the nine months ended September 30, 2023[401] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[402][404] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[405] PART II – OTHER INFORMATION Legal Proceedings No material changes to legal proceedings have occurred since the 2022 Annual Report - There have been no material changes to the company's legal proceedings as disclosed in the 2022 Annual Report[408] Risk Factors A new risk factor was added concerning potential adverse developments in the financial services industry - A new risk factor was added regarding adverse developments in the financial services industry, which could impair the ability to access cash and equivalents[409][410] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 36,944 shares in Q3 2023 to satisfy employee tax withholding obligations Equity Security Repurchases - Q3 2023 | Period | Total Shares Purchased | Weighted Avg. Price Paid | | :--- | :--- | :--- | | Jul 2023 | 568 | $18.21 | | Aug 2023 | 5,108 | $19.40 | | Sep 2023 | 31,268 | $14.43 | | Total | 36,944 | $15.18 | - Share repurchases were made to cover employee tax obligations from the vesting of stock-based compensation awards[413] Other Information Disclosures include a new Rule 10b5-1 trading plan for the General Counsel and an amended CFO employment agreement - On August 11, 2023, the company's General Counsel adopted a Rule 10b5-1 trading plan for the potential sale of up to 76,070 shares of common stock[415] - On November 7, 2023, the company amended the employment agreement with CFO John Gallagher to include a payment of $235,750 related to an unpaid bonus from a prior employer[422]