10q10k10q10k.net

What changed in Certara, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Certara, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+425 added−460 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Certara, Inc.'s 2023 10-K

425 paragraphs added · 460 removed · 277 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

38 edited+63 added−97 removed32 unchanged
Biggest changeGrow Within Our Existing Customer Base As we continue to expand our portfolio of offerings, we integrate our solutions and sell more across our end-to-end platform. Our scientists and regulatory and market access experts, business developers, marketing professionals, and business leaders work together to ensure a high-quality customer experience and nurture long-term partnerships.
Biggest changeOur scientists and regulatory and market access experts, business developers, marketing professionals, and business leaders work together to ensure a high-quality customer experience and nurture long-term partnerships. As a result, our customer relationships grow steadily over time, driven by higher adoption of biosimulation with additional user licenses and more modules.
We have adopted practices and have implemented procedures to satisfy the privacy and security rules and other to safeguard the receipt, maintenance and transmission of protected health information.
We have adopted practices and have implemented procedures to satisfy the privacy and security rules and other practices to safeguard the receipt, maintenance and transmission of protected health information.
All of our proprietary software products are copyright protected, and further reinforced by contractual provisions in our software license agreements prohibiting our users from reverse engineering, deriving, or otherwise using the source code and underlying algorithms for anything other than the permitted and intended use.
All our proprietary software products are copyright protected, and further reinforced by contractual provisions in our software license agreements prohibiting our users from reverse engineering, deriving, or otherwise using the source code and underlying algorithms for anything other than the permitted and intended use.
For example, the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, as amended by the California Privacy Rights Act , which became effective 17 Table of Contents on January 1, 2023, imposes obligations and restrictions on businesses regarding their collection, use, and sharing of personal information and provides new and enhanced data privacy rights to California residents, such as affording them the right to access and delete their personal information and to opt out of certain sharing of personal information.
For example, the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, as amended by the California Privacy Rights Act , which became effective on January 1, 2023, imposes obligations and restrictions on businesses regarding their collection, use, and sharing of personal information and provides new and enhanced data privacy rights to California residents, such as affording them the right to access and delete their personal information and to opt out of certain sharing of personal information.
With increasing adoption of technology across all stages of drug discovery and development, we believe our end-to-end platform and growth strategies position us to further penetrate the rapidly growing technology-driven biopharmaceutical R&D market of the future that leverages advanced modeling and analytics. 7 Table of Contents Traditional drug discovery and development is costly and prone to failure.
With increasing adoption of technology across all stages of drug discovery and development, we believe our end-to-end platform and growth strategies position us to further penetrate the rapidly growing technology-driven biopharmaceutical R&D market of the future that leverages advanced modeling and analytics. Traditional drug discovery and development is costly and prone to failure.
Embedded within some of our biosimulation tools, including the Simcyp Simulator, are several decades’ worth of proprietary data that have been 15 Table of Contents compiled and collated from both public and private sources. These data, in tandem with our proprietary source code and algorithms, create powerful modeling tools that cannot be readily duplicated.
Embedded within some of our biosimulation tools, including the Simcyp Simulator, are several decades’ worth of proprietary data that have been compiled and collated from both public and private sources. These data, in tandem with our proprietary source code and algorithms, create powerful modeling tools that cannot be readily duplicated.
The biopharmaceutical industry was estimated to have spent a total of approximately $238 billion in 2022 on R&D. The probability of success of compounds entering Phase I trials continues under 10%. With less than 50% of Phase III drugs reaching the market, late-stage failures are common and especially disappointing as sponsors have already incurred significant cost and time.
The biopharmaceutical industry was estimated to have spent a total of approximately $262 billion in 2023 on R&D. The probability of success of compounds entering Phase I trials continues under 10%. With less than 50% of Phase III drugs reaching the market, late-stage failures are common and especially disappointing as sponsors have already incurred significant cost and time.
The following filings are available 18 Table of Contents through our Investor Relations website as soon as reasonably practicable after we file them with, or furnish them to, the SEC: Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statement for our annual meeting of stockholders, as applicable (as well as any amendments to those reports).
The following filings are available through our Investor Relations website as soon as reasonably practicable after we file them with, or furnish them to, the SEC: Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statement for our annual meeting of stockholders, Sustainability Report, as applicable (as well as any amendments to those reports).
Our scientists and experts have authored thousands of scientific publications, posters, and articles to share biosimulation knowledge and methods to advance adoption. We also partner with software distributors in global regions to expand our reach. Competition The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented.
Our scientists and experts have authored thousands of scientific publications, posters, and articles to share 14 T able of Contents biosimulation knowledge and methods to advance adoption. We also partner with software distributors in global regions to expand our reach. Competition The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented.
Biosimulation's use cases in dose finding and optimization are well-suited to help biopharmaceutical companies navigate this evolving regulatory landscape. As technology and analytics become increasingly powerful and the application of new solutions is validated, we anticipate this will drive further demand for these innovations.
Biosimulation's use cases in dose finding and optimization are well-suited to help biopharmaceutical companies navigate this evolving regulatory landscape. As technology and analytics become increasingly powerful along with AI and the application of new solutions is validated, we anticipate further demand for these innovations.
This is further supported by regulatory agencies that have increasingly issued guidance that supports adoption of many of these innovations. For example, the FDA recently announced their Project Optimus initiative to reform the dose selection and optimization paradigm in oncology drug development to maximize both efficacy and safety.
This is further supported by regulatory agencies that have increasingly issued guidance that supports the adoption of many of these innovations. For example, the FDA announced in 2021 their Project Optimus initiative to reform the dose selection and optimization paradigm in oncology drug 12 T able of Contents development to maximize both efficacy and safety.
Additional privacy laws in Virginia, Connecticut, Colorado and Utah which also take effect during 2023 have similar requirements but more limited application (i.e., only consumers and not employees or B2B data). The interpretation and application of the new state laws and their pending regulations are uncertain.
Additional privacy laws in Virginia, Connecticut, Colorado and Utah which also took effect during 2023, have similar requirements but more limited applications (i.e., only consumers and not employees or business-to-business data). The interpretation and application of the new state laws and their pending regulations are uncertain.
Our internet website and the information contained therein or connected to or linked from our internet web site are not incorporated information and do not constitute a part of this Annual Report. ​ ​
Our internet website and the information contained therein or connected to or linked from our internet web site are not incorporated information and do not constitute a part of this Annual Report. 18 T able of Contents
Informa also estimates that the R&D pipeline encompassed more than 20,000 drug programs in 2022. As drug discovery and development in Asia Pacific grows, we are investing heavily to expand our presence in the region to work with these customers where they are, just as we already have in North America, Europe, China and Japan.
Citeline also estimates that the R&D pipeline encompassed more than 21,000 drug programs in 2023. As drug discovery and development in Asia Pacific grows, we are investing to expand our presence in the region to work with these customers where they are, just as we already have in North America, Europe, China and Japan.
Legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States, including the Court of Justice of the European Union (the “CJEU”) decision to invalidate the EEA to U.S. personal data transfer framework as well as decisions from regulators in Austria, Denmark, France and Italy about transfers made by Google.
Legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States, including the Court of Justice of the European Union (the “CJEU”) decision 17 T able of Contents to invalidate the EEA to U.S. personal data transfer framework as well as decisions from regulators in Austria, Denmark, France and Italy regarding transfers made via Google.
The success of our land and expand approach is further demonstrated by our high re-occurring revenue streams with an aggregate renewal rate of 91% for our software customers from 2021 to 2022 and net revenue repeat rate (defined as the level of technology-driven services revenue generated from our existing services customers from period to period, accounting for expansion and churn) of 101% for our technology-driven services customers from 2021 to 2022.
The success of our land and expand approach is further demonstrated by our high re-occurring revenue streams with an aggregate renewal rate of 88% for our software customers from 2022 to 2023 and net revenue repeat rate (defined as the level of technology-enabled services revenue generated from our existing services customers from period to period, accounting for expansion and churn) of 96% for our technology-enabled services customers from 2022 to 2023.
We are not presently a party to any legal proceedings relating to intellectual property that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, financial condition, results of operations or cash flows.
We are not presently a party to any legal proceedings relating to intellectual property that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, financial condition, results of operations or cash flows. Human Capital We are a globally diverse team united in our purpose to accelerate medicine to patients.
Expand Our Customer Base Globally We are growing our footprint globally to match that of the biopharmaceutical industry. There are more than 5,400 biopharmaceutical companies worldwide with active R&D pipelines in 2022, up from nearly 2,400 in 2011, according to Informa’s Pharma R&D Annual Review 2022.
Expand Our Customer Base Globally 13 T able of Contents We are growing our footprint globally to match that of the biopharmaceutical industry. There are more than 5,500 biopharmaceutical companies worldwide with active R&D pipelines as of January 2023, up from nearly 2,400 in 2011, according to Citeline’s Pharma R&D Annual Review 2023.
As exciting new research areas arise, we attract and hire specialized talent and acquire complementary businesses to expand our offerings to address these market opportunities.
As exciting new research and technologies areas and opportunities arise, we continually attract and hire specialized talent and acquire complementary businesses to expand our offerings accordingly.
In the biosimulation software market, we primarily compete with companies smaller than ourselves, such as Simulations Plus and NONMEM, a division of ICON. Other competitors include Schrodinger, open-sourced solutions such as R and PK-Sim, and internally-developed software in biopharmaceutical companies.
In the biosimulation software market, we compete with other technology companies including Mathworks, Ansys, Simulations plus, and NONMEM, a division of ICON. Other competitors include open-sourced solutions such as R and PK-Sim and internally developed software from biopharmaceutical companies.
From 2012, we have acquired 17 companies of which 12 included software or technology such as Simcyp, the core of our mechanistic biosimulation platform, Xenologiq, which jumpstarted our biosimulation initiative using QSP, Pinnacle 21, which enhances our software offerings in data management and the regulatory drug approval process, and Vyasa, which brings state-of-the-art artificial intelligence (AI) capabilities to our end-to-end platform.
From 2013, we have acquired 20 companies of which 13 included software or technology such as Simcyp, the core of our mechanistic biosimulation platform, Pinnacle 21, which enhances our software offerings in data management and the regulatory drug approval process, and Vyasa, which brings state-of-the-art AI capabilities to our end-to-end platform.
We generally compete in the biosimulation software market on the basis of the quality and capabilities of our products, our scientific and technical expertise, our ability to innovate and develop solutions attractive to customers, our customer and regulatory agency partnerships, and price, among other factors.
We generally compete in the biosimulation software market based on the quality and capabilities of our products, our scientific and technical expertise, our ability to innovate and develop solutions attractive to customers, our regulatory agency partnerships, and price, among other factors. Our technology-enabled services generally compete with in-house teams at biopharmaceutical companies.
We build our biosimulation technology on first principles of biology, chemistry, and pharmacology with proprietary mathematical algorithms that model how medicines and diseases behave in the body. For over two decades, we have honed and validated our biosimulation technology with an abundance of data from scientific literature, lab research, and preclinical and clinical studies.
Our proprietary biosimulation platforms are built on biology, chemistry, and pharmacology principles with proprietary mathematical algorithms that model how medicines and diseases behave in the body. For over two decades, our scientists have developed and validated our biosimulation technology using data from scientific literature, laboratory research, preclinical and clinical studies.
In alignment with our purpose to accelerate medicine to patients, we strive to reinforce a positive and rewarding work environment for our employees. 16 Table of Contents Government Regulation Regulation of Biopharmaceutical Products The development, testing, manufacturing, labeling, approval, promotion, distribution and post-approval monitoring and reporting of biopharmaceutical products are subject to regulation by numerous governmental authorities at both the national and local levels, including the FDA in the United States, as well as those of other countries, such as the EMA in the European Union and the MHRA in the United Kingdom.
Government Regulation Regulation of Biopharmaceutical Products The development, testing, manufacturing, labeling, approval, promotion, distribution and post-approval monitoring and reporting of biopharmaceutical products are subject to regulation by numerous governmental authorities at both the national and local levels, including the FDA in the United States, as well as those of other countries, such as the EMA in the EU and the MHRA in the United Kingdom.
Sales and Marketing Our sales and marketing functions pursue a coordinated approach with a global commercial team of business development, product management, and marketing experts. Our global commercial team collaborates with our scientists, subject matter experts, and technologists to engage with customers and prospects to understand their needs and offer tailored solutions with our biosimulation software and technology-driven services.
Our global commercial team collaborates with our scientists, subject matter experts, and technologists to engage with customers and prospects to understand their needs and offer tailored solutions with our biosimulation software and technology-enabled services.
We believe that our competitive position is strong, and that we are able to effectively win new projects with our integrated, end-to-end platform. Intellectual Property We safeguard and enhance our innovative technology platforms, systems, processes, and databases with a full array of intellectual property rights, including copyrights, trade secrets, know-how, patents, and tradenames/trademarks.
Intellectual Property We safeguard and enhance our innovative technology platforms, systems, processes, and databases with a full array of intellectual property rights, including copyrights, trade secrets, know-how, patents, and tradenames/trademarks.
We also maintain a portfolio of issued and pending patents in several of jurisdictions in which we do business. As of December 31, 2022 our patent portfolio consisted of 28 issued patents and 11 pending patent applications related to our software and technology. We do not currently consider any of our issued patents to be material to our business.
As of December 31, 2023, our patent portfolio consists of 27 issued patents and 12 pending patent applications related to our software and technology. We do not currently consider any of our issued patents to be material to our business.
The diversity and depth of expertise, experience, and backgrounds in our vibrant community bring richness of ideas, problem-solving capabilities, and mutual respect. We are dedicated to attracting, retaining, and growing leading scientists and experts who are passionate about developing medicines that matter. We strive to encourage intellectual curiosity and offer a myriad of professional development opportunities.
The diversity and depth of expertise, experience, and backgrounds fuel innovation by bringing rich ideas, problem-solving capabilities, and mutual respect. We are dedicated to attracting, retaining, and growing leading scientists and experts, who are passionate about developing medicines that matter.
Our processes and systems are further protected by trade secrets and know-how, which we secure by requiring and strictly enforcing confidentiality obligations with our employees, contractors, customers, and other third parties, and invention assignment agreements with our employees, as well as through administrative and technical safeguards. However, trade secrets and confidential know-how are difficult to protect.
Our processes and systems are further protected by trade secrets and expertise, which we secure by requiring and strictly enforcing confidentiality obligations with our employees, contractors, customers, and other third parties, and invention assignment agreements with our employees, as well as through administrative and technical safeguards. 15 T able of Contents We also maintain a portfolio of issued and pending patents in several jurisdictions in which we do business.
We believe we are still in the early stages of a long-term trend that will continue to advance traditional drug discovery and development into a technology-driven era of advanced modeling and analytics. In addition, as a result of the COVID-19 pandemic, we believe that the demand for innovative technology solutions in drug discovery and development will continue to be strong.
We believe we are still in the early stages of a long-term trend that will continue to advance traditional drug discovery and development into a technology-driven era of advanced modeling, analytics, and AI enabled solutions. Our end-to-end platform is well positioned to continue benefiting from market trends.
Our Growth Strategy Our growth strategy is to build upon our scalable, end-to-end platform. We continue to innovate in biosimulation, engage with regulatory agencies, and land and expand our customer partnerships.
Our Growth Strategy Our growth strategy is to build upon our platforms creating more value through increased automation and connectivity. We continue to innovate in biosimulation, develop more AI enabled offerings across our portfolio, engage with regulatory agencies, and land and expand our customer partnerships.
Since 2014, customers who use our biosimulation software and technology-driven services have received 90% of all new drug approvals by the U.S. Food and Drug Administration (“FDA”).
Since 2014, customers who leverage our solutions have received more than 90% of all new drug approvals by the US Food and Drug Administration ("FDA").
We believe that our end-to-end platform is well-positioned to continue benefiting from market trends. In addition to continued growth in our core markets, we expect to capture a broader share of overall biopharmaceutical R&D spend as we continue to innovate and add new solutions to our end-to-end platform.
In addition to continued growth in our core markets, we expect to capture a broader share of overall biopharmaceutical R&D spend as we continue to innovate and add new solutions, including numerous ones that are AI enabled to meet the increasingly strong demand across life sciences.
To help ensure compliance with GLP and GCP, we have established a robust quality management system that includes standard operating procedures, working practice documents and processes, and quality assurance personnel to audit deliverables intended to be used in our customers’ drug and biologic approval applications.
To help ensure compliance with GLP and GCP, we have established a robust quality management system that includes standard operating procedures, working practice documents and processes, and quality assurance personnel to audit deliverables intended to be used in our customers’ drug and biologic approval applications. 16 T able of Contents Privacy and Cybersecurity Laws The collection, use, disclosure, disposal, protection, and other processing of information about individuals, in particular healthcare data, is highly regulated both in the United States, EU and other jurisdictions, including but not limited to, under the U.S.
We deploy natural language processing software and other technology to enable efficient and scalable document creation. ● Regulatory Operations: We manage the submission of regulatory documents using our GlobalSubmit platform. Our submission management services include submission leadership, program management and planning, due diligence and readiness preparation, submission compilation, and eCTD publishing.
Submission programs require the coordinated technology-enabled expertise that Certara regulatory writing solutions offers delivering quality and speed at scale. Regulatory Operations : We manage the submission of regulatory documents using the GlobalSubmit platform. Submission management services include submission leadership, program management and planning, due diligence and readiness preparation, submission compilation, and eCTD publishing using Global Submit.
Many of our customers who use biosimulation also rely on us for regulatory strategy, writing, and submissions support, including the majority of our top 50 customers. The number of customers with annual customer value of $100,000 or more in revenue increased from 299 in 2021 to 370 in 2022, a 24% increase.
We also cross-sell our software and technology-enabled services throughout our end-to-end platform. Many of our customers who use biosimulation also rely on us for regulatory strategy, writing, and submissions support, including the majority of our top 50 customers.
We have collaborated on more than 7,000 customer projects in the past decade in therapeutic areas ranging from cancer and hematology to diabetes and hundreds of rare diseases. 6 Table of Contents Biosimulation results need to be incorporated into regulatory documents for compelling submissions.
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.
Moreover, 20 global regulatory authorities license our biosimulation software to independently analyze, verify, and review regulatory submissions, including the FDA, Health Canada, Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”), and the UK’s Medicines and Healthcare products Regulatory Agency (“MHRA”). Demand for our offerings continues to expand rapidly.
Since 2014, customers who use Certara biosimulation software and technology-enabled services have received 90% of all new drug approvals by the U.S. FDA. There are 23 global regulatory authorities that license Certara’s biosimulation software to independently analyze, verify, and review regulatory submissions, including the FDA, Health Canada, Japan’s PMDA, and the UK’s Medicines and Healthcare products Regulatory Agency (“MHRA”).
Removed
Item 1. Business. Our Company We accelerate medicines to patients using biosimulation software, technology, and services to transform traditional drug discovery and development. Biosimulation is a powerful technology used to conduct virtual trials using virtual patients to better understand how drugs behave in different individuals.
Added
Item 1. Business. Our Company We are a leading provider of biosimulation technology and solutions for using Model-Informed Drug Development ("MIDD") in the global biopharmaceutical industry. MIDD is an approach that utilizes biological and statistical models derived from preclinical and clinical data to inform decision-making in drug development and commercialization.
Removed
Biopharmaceutical companies use our proprietary biosimulation software throughout drug discovery and development to inform critical decisions that not only save significant time and money but also advance drug safety and efficacy, improving millions of lives each year.
Added
Biosimulation is a critical component of MIDD that uses computer-aided mathematical simulation of biological processes and systems to understand the action of a drug in a human body or a population of humans. Biosimulation and MIDD can increase the probability of success in bringing a new drug to market and decrease the costs of drug development.
Removed
As a global leader in biosimulation based on 2022 revenue, we provide an integrated, end-to-end platform used by more than 2,300 biopharmaceutical companies and academic institutions across 70 countries, including 39 of the top 40 biopharmaceutical companies by R&D spend in 2021.
Added
There are many successful examples of currently approved drugs where models were used in first-in-human dose predictions, clinical trial design, and for drug interaction label claims. Biosimulation is also used to support drug development beyond the approval stage; examples include determining formulation or manufacturing changes and label extensions.
Removed
While traditional drug development has led to important therapies, such as vaccines and chemotherapy, many patients still wait for life-saving medicines, which can take more than 10 years and $2 billion to bring to market. Change is necessary to continue delivering meaningful gains in human health at an accelerated pace. We believe that biosimulation helps enable this change.
Added
In addition, MIDD strategies are increasingly utilized to help predict commercial success, a critical part of the drug development process as new products must be both approved by regulators and adopted by the market. The diagram below shows the different areas of expertise that come together to enable MIDD.
Removed
In turn, our customers use biosimulation to conduct virtual trials to answer critical questions, such as: What will be the human response to a drug based on preclinical data? How will other drugs interfere with this new drug? What is a safe and efficacious dose for children, the elderly, or patients with pre-existing conditions?
Added
Our organization has been purposefully designed to include all of these capabilities to collectively enable a new model of drug development for our clients. 7 T able of Contents Our goal is to enable the life science industry to use data, modeling, and analytics to make better decisions during drug development and commercialization to increase productivity rates and vastly reduce development costs.
Removed
Virtual trials may be used to optimize dosing on populations that are otherwise difficult to study for ethical or logistical reasons, such as infants, pregnant women, the elderly, and cancer patients. The benefits of biosimulation are significant.
Added
The pharmaceutical industry spends more than $260 billion annually on research and development. On average, it takes 10-15 years and costs $6.2 billion to develop one new medicine, including the cost of failures.
Removed
One of our customers, a top ten global biopharmaceutical company by R&D spend, estimated that they saved more than half a billion dollars over three years using biosimulation to inform key decisions.
Added
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 that add to total cost.
Removed
Biosimulation can reduce the size of and cost of human trials, the most expensive and time-consuming part of drug development, and in some cases, eliminate certain human trials completely, thereby accelerating time to market.
Added
Our software and scientists incorporate modern advances in scientific understanding, drug development experience, data analysis, and artificial intelligence resulting in significant opportunities to decrease the cost and increase the odds of new drug approval and commercial success.
Removed
An analysis published on Applied Clinical Trials Online, to which we contributed, estimated that $1 billion was saved in clinical trial costs using biosimulation for a cancer drug due to consistently shorter completion times in the later phase clinical trials.
Added
To do this, we have developed solutions for the collection, standardization, validation, storage, and analysis of the preclinical and clinical data needed for MIDD. These data solutions are used internally and by global life sciences companies.
Removed
We develop and apply our biosimulation technology throughout drug discovery and development with what we believe to be the largest and best team of scientists with deep expertise in biosimulation. Our scientists are recognized key opinion leaders who are at the forefront of the science and technology underpinning the rapidly emerging biosimulation field.
Added
The scientific principles underlying our work with customers in biosimulation and MIDD must be transparent and fully explainable during the regulatory process, so we have become experts at incorporating data and results into regulatory documents. Our software and regulatory services streamline the creation of regulatory filings and speed regulatory data flow to maximize the chances of successful commercialization.
Removed
Accordingly, we provide regulatory science solutions and integrate them with biosimulation, so that our customers can navigate the complex and evolving regulatory landscape and maximize their chances of approval.
Added
Artificial intelligence (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.
Removed
Our differentiated regulatory services are powered by submissions management software and natural language processing for scalability and speed, allowing us to deliver more than 300 regulatory submissions over the past five years. Our team of regulatory professionals has extensive experience applying industry guidelines and global regulatory requirements.
Added
For example, we are using machine learning to automate and speed the process of biosimulation, and we have created an AI application to aid creating regulatory documents from scientific analyses and clinical data. We believe that AI predictive models will continue to enhance the accuracy and usefulness of biosimulation models and be utilized broadly across drug development.
Removed
In addition, in October 2021, we completed the acquisition of Pinnacle 21, LLC (“Pinnacle”), which develops advanced software for standards-based data management for regulatory submission. Pinnacle enhances our software offerings in data management and the regulatory drug approval process, accelerating the speed and efficiency of developing and bringing drugs to market.
Added
We deliver software and technology-enabled services. Our strategy is to create and apply validated software applications that can be used broadly in the life science industry. We offer services, leveraging our technology, delivered by scientists with extensive drug development experience to aid our customers in applying biosimulation and MIDD to their specific projects.
Removed
Pinnacle’s products are used by the FDA and Japan’s PMDA to review the quality of submissions. A final hurdle to delivering medicines to patients is market access, defined as strategies, processes, and activities to ensure that therapies are available to patients at the right price.
Added
Our software products are licensed by more than 57,000 users and are also used by 23 global drug regulatory agencies, including the FDA, Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”), and China Food and Drug Administration ("cFDA"). Our Solutions We offer differentiated and comprehensive solutions for MIDD, which include software and technology-enabled services.
Removed
We believe that biosimulation and market access will continue to be increasingly intertwined as healthcare systems and countries move toward outcomes-based pricing. We provide technology-driven market access solutions, which help our customers understand the real-world impact of therapies and dosing regimens earlier in the process and effectively communicate this to payors and health authorities.
Added
Customers use our solutions to implement MIDD with the aim of improving certainty, accuracy, commercial success and the speed decisions are made during the drug development process. Life sciences companies make many decisions during the MIDD process that have regulatory considerations.
Removed
Our solutions are underpinned by software as a service (“SaaS”) based offerings.
Added
We help support these decisions with comprehensive regulatory science solutions that include technology platforms along with regulatory submission and regulatory writing expertise. In addition, recognizing that time 8 T able of Contents to approval is one of the most valuable components of the drug development journey, we designed our regulatory solutions to accelerate the regulatory writing and filing process.
Removed
We have a proven track record of steady growth, driven by higher adoption of biosimulation, expansion of our technology portfolio, strategic acquisitions, and cross-selling of biosimulation, regulatory science, and market access solutions across our end-to-end platform: ● From 2021 to 2022 , ou r revenue increa sed by 17% from $286.1 million to $335.6 million. ● The number of customers with Annual Customer Value (“ACV”) of $100,000 or more in revenue increased from 299 in 2021 to 370 in 2022.
Added
By offering solutions including both software and services, we provide flexible offerings for life sciences companies of all sizes and requirements. Services are complemented by scientific and regulatory expertise to conduct and interpret biosimulation results and make recommendations on the next best action to take to move a program forward.
Removed
We believe that biosimulation continues to grow in adoption, driven by increasing global regulatory support and advancements in technology. We believe we are well-positioned to capture the significant market opportunity ahead of us.
Added
In 2023, we extended the capabilities of MIDD and regulatory offerings with the launch of an AI platform designed for life sciences, Certara.AI. It is a secure, flexible platform for deploying life science specific Generative Pre-Trained Transformers ("GPTs") across an organization’s data, enabling faster search, connectivity, and content generation.
Removed
Our growth strategy is to build out the depth and breadth of our scalable, end-to-end biopharmaceutical platform to advance all stages of the continuum, from discovery and development to regulatory submission and market access. We continue to innovate and introduce new functionality and uses of biosimulation and technology-driven solutions.
Added
Our Biosimulation Solutions Our biosimulation solutions are designed to predict both pharmacokinetics (how the body interacts with drugs) and pharmacodynamics (how a drug affects the body). We offer both mechanistic and empirical biosimulation solutions providing clients with a comprehensive offering based on their therapy goals, mechanism of action, and available data sources.
Removed
We increasingly integrate the science and data we obtain across this end-to-end platform to inform critical decisions. We further reduce the cost and time of human trials to materially accelerate the speed of development and availability of therapies to patients worldwide.
Added
Mechanistic biosimulation models are built by experts using known scientific principles and facts, while empirical biosimulation solutions are typically statistical models built using preclinical and clinical data. Our customers use biosimulation results to improve the design of clinical trials, reduce trial size and complexity, and in some cases obtain clinical trial waivers to replace clinical testing.
Removed
With continued innovation in and adoption of our biosimulation software, technology and services, we believe more biopharmaceutical 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. Our Markets We believe our addressable market within the biopharmaceutical industry is large and rapidly expanding.
Added
Simcyp Simulator The Simcyp Simulator is a mechanistic biosimulation platform for physiologically-based pharmacokinetic ("PBPK") simulation. It is frequently utilized for determining first-in-human dosing, optimizing clinical study design, evaluating new drug formulations, setting the dose in untested populations, performing virtual bioequivalence analyses, and predicting drug-drug interactions ("DDIs").

… 118 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

116 edited+27 added−45 removed218 unchanged
Biggest changeThese risks include, among others, the following key risks: ● Deceleration in, or resistance to, the acceptance of model-informed biopharmaceutical discovery and development by regulatory authorities or academic institutions could damage our reputation or reduce the demand for our products and service. ● We compete in a competitive and highly fragmented market. ● We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which could harm our business. ● Changes or delays in government regulation relating to the biopharmaceutical industry could decrease the need for some of the services we provide. ● Reduction in research and development spending by our customers for a variety of reasons, as well as delays in the drug discovery and development process, may reduce demand for our products and services and negatively impact our results of operations and financial condition. ● Consolidation within the biopharmaceutical industry may reduce the pool of potential customers for our products and services or reduce the number of licenses for our software products. ● As customers increase their utilization of our products and services, we may be subject to additional pricing pressures. ● Our continued revenue growth depends on our ability to successfully enter new markets, increase our customer base and expand our relationship and the products and services we provide to our existing customers. ● Delays or defects in the release of new or enhanced software or other biosimulation tools may result in increased cost to us, delayed market acceptance of our products, diminished demand for our products, delayed or lost revenue, and liability. ● If our existing customers do not renew their software licenses, do not buy additional solutions from us or renew at lower prices, our business and operating results will suffer. ● Our customers may delay or terminate contracts, or reduce the scope of work, for reasons beyond our control, or we may underprice or overrun cost estimates with our fixed-fee contracts, potentially resulting in financial losses. ● We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which could harm our business. ● We have government customers and have received government grants, which subject us to risks including early termination, audits, investigations, sanctions, or penalties. 19 Table of Contents ● Our recent growth rates may not be sustainable or indicative of future growth. ● We regularly evaluate potential acquisitions of other companies and technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results. ● Our estimated addressable market is subject to inherent challenges and uncertainties.
Biggest changeThese risks include, among others, the following key risks: • Deceleration in, or resistance to, the acceptance of model-informed biopharmaceutical discovery and development could reduce the demand for our products and services. • We compete in a competitive and highly fragmented market. • Changes or delays in government regulation relating to the biopharmaceutical industry could decrease the need for some of the services we provide. • Reduction in R&D spending by our customers, as well as delays in the drug discovery and development process, may reduce demand for our products and services. • Consolidation within the biopharmaceutical industry may reduce the pool of potential customers for our products and services or reduce the number of licenses for our software products. • As customers increase their utilization of our products and services, we may be subject to additional pricing pressures. • Our continued revenue growth depends on our ability to successfully enter new markets, increase our customer base and expand our relationships and the products and services we provide. • We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which could harm our business. • If our independent contractors are characterized as employees, we would be subject to adverse effects on our business and employment and withholding liabilities. • Delays or defects in the release of new or enhanced software or other biosimulation tools may result in increased cost to us, delayed market acceptance of our products, diminished demand for our products, delayed or lost revenue, and liability. • Issues relating to the use of artificial intelligence and machine learning in our products and services could adversely affect our business and operating results. • If our existing customers do not renew their software licenses, do not buy additional solutions from us or renew at lower prices, our business and operating results will suffer. • We have government customers and have received government grants, which subject us to risks including early termination, audits, investigations, sanctions, or penalties. • Our recent growth rates may not be sustainable or indicative of future growth. • We regularly evaluate potential acquisitions of other companies and technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results. • Our estimated addressable market is subject to inherent challenges and uncertainties. • We are subject to risks associated with the operation of a global business. 19 T able of Contents • We are subject to the FCPA and the Bribery Act and similar anti-corruption laws and regulations in other countries. • Our failure to comply with trade compliance and economic sanctions laws and regulations could materially adversely affect our reputation and results of operations. • Current and future litigation against us could be costly and time consuming to defend. • Our insurance coverage may not be sufficient to avoid material impact on our financial position resulting from claims or liabilities against us. • If we fail to perform our services in accordance with contractual requirements, regulatory standards and ethical considerations, we could be liable for significant costs or penalties and our reputation could be harmed. • We derive a significant percentage of our revenues from a concentrated group of customers and the loss of more than one of our major customers could materially and adversely affect our business, results of operations and/or financial condition. • We may need additional funding.
The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented. In biosimulation software, we compete with other scientific software providers, technology companies, in-house development by biopharmaceutical companies, and certain open source solutions. In the technology-driven services market, we compete with specialized companies, in-house teams at biopharmaceutical companies, academic and government institutions.
The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented. In biosimulation software, we compete with other scientific software providers, technology companies, in-house development by biopharmaceutical companies, and certain open source solutions. In the technology-driven services market, we compete with specialized companies, in-house teams at biopharmaceutical companies, and academic and government institutions.
Personnel redundancies and layoffs by merged companies to achieve deal synergies would result in a commensurate reduction in total users of our software, reducing the license fees we charge based on number of users. As customers increase their utilization of our products and services, we may be subject to additional pricing pressures.
Personnel redundancies and layoffs by merged companies to achieve deal synergies would result in a commensurate reduction in total users of our software, reducing the license fees we charge based on the number of users. As customers increase their utilization of our products and services, we may be subject to additional pricing pressures.
Our TAM is based on publicly available third-party market research and internal estimates regarding the size of our markets, and is subject to significant uncertainty and is based on assumptions that may not prove to be accurate. We base the TAM for our business on our current core markets, biosimulation, regulatory science, and market access.
Our Total Available Market ("TAM") is based on publicly available third-party market research and internal estimates regarding the size of our markets, is subject to significant uncertainty and is based on assumptions that may not prove to be accurate. We base the TAM for our business on our current core markets, biosimulation, regulatory science, and market access.
Although we do not believe that reduction or elimination of the use of any of our software products that are currently licensed by regulatory authorities would have a direct impact on the use of those products by our industry customers, it could diminish our reputation and negatively impact our ability to effectively market and sell our software products, particularly if such move were part of a wider reversal of government or regulatory acceptance of in silico data.
Although we do not believe that reduction or elimination of the use of any of our software products that are currently licensed by regulatory authorities would have a direct impact on the use of those products by our industry customers, it could diminish our reputation and negatively impact our ability to effectively market and sell our software products, particularly if such action were part of a wider reversal of government or regulatory acceptance of in silico data.
These provisions provide, among other things: ● for the division of our board of directors into three classes, as nearly equal in size as possible, with directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year; ● that directors may only be removed for cause, and only by the affirmative vote of the holders of at least two-thirds in voting power of all the then-outstanding shares of stock entitled to vote thereon, voting together as a single class; ● for the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control; ● for advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; ● that special stockholder meetings may be called only by or at the direction of our board of directors or the chairman of our board of directors; and ● that certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws pertaining to amendments, our board of directors, limitation of director liability, stockholder consents, annual and special stockholder meetings, competition and corporate opportunities and business combinations, may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all the then- 42 Table of Contents outstanding shares of our stock entitled to vote thereon, voting together as a single class, which limitation may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our Company.
These provisions provide, among other things: • for the division of our board of directors into three classes, as nearly equal in size as possible, with directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year; 45 T able of Contents • that directors may only be removed for cause, and only by the affirmative vote of the holders of at least two-thirds in voting power of all the then-outstanding shares of stock entitled to vote thereon, voting together as a single class; • for the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control; • for advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; • that special stockholder meetings may be called only by or at the direction of our board of directors or the chairman of our board of directors; and • that certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws pertaining to amendments, our board of directors, limitation of director liability, stockholder consents, annual and special stockholder meetings, competition and corporate opportunities and business combinations, may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class, which limitation may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our Company.
Pursuant to the terms of the 2020 Incentive Plan, the Plan Share Reserve automatically increases on the first day of each fiscal year by a number of shares of common stock equal to the lesser of (i) the positive difference, if any, between (A) 4% of the Company’s outstanding common stock on the last day of the immediately preceding fiscal year, and (B) the Plan Share Reserve on the last day of the immediately preceding fiscal year, and (ii) the number of shares of common stock as may be determined by the Board.
Pursuant to the terms of the 2020 Incentive Plan, the Plan Share Reserve automatically increases on the first day of each fiscal year by a number of shares of common stock equal to the lesser of (i) the positive difference, if any, between (A) 4% of our outstanding common stock on the last day of the immediately preceding fiscal year, and (B) the Plan Share Reserve on the last day of the immediately preceding fiscal year, and (ii) the number of shares of common stock as may be determined by the Board.
Our amended and restated certificate of incorporation provides, subject to limited exceptions, that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, employee or stockholder of our company to the Company or our stockholders, (iii) action asserting a claim against the Company or any current or former director, officer, employee or stockholder of the Company arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), or our amended and restated certificate of incorporation or our amended and restated bylaws (as either might be amended from time to time) or (iv) action asserting a claim governed by the internal affairs doctrine of the State of Delaware.
Our amended and restated certificate of incorporation provides, subject to limited exceptions, that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding 46 T able of Contents brought on behalf of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, employee or stockholder of our company to the Company or our stockholders, (iii) action asserting a claim against the Company or any current or former director, officer, employee or stockholder of the Company arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), or our amended and restated certificate of incorporation or our amended and restated bylaws (as either might be amended from time to time) or (iv) action asserting a claim governed by the internal affairs doctrine of the State of Delaware.
In such an event, our revenues may be reduced through increased downward pricing pressure, reduction in the scope of projects, delays or cancellations of ongoing projects, or our customers’ shifting away from using third parties for their modeling and simulation work.
In such an event, our revenues may be reduced through increased downward pricing pressure, reduction in the scope of projects, delays or cancellations of ongoing projects, or our customers shifting away from using third parties for their modeling and simulation work.
In the future, we may also issue our securities in connection with investments or acquisitions. For example, we issued 2,239,717 shares of common stock in connection with our acquisition of Pinnacle in October 2021. We may issue additional shares in connection with our acquisition of Vyasa Analytics, LLC based on the results of its future performance.
In the future, we may also issue our securities in connection with investments or acquisitions. For example, we issued 2,239,717 shares of common stock in connection with our acquisition of Pinnacle in October 2021. We may issue additional shares in connection with our acquisition of Vyasa based on the results of its future performance.
This, in turn, could have a material adverse impact on our revenue and future growth. Our software products are licensed by the FDA, Japan’s PMDA and 18 other regulatory authorities, who use them in assessing new drug applications.
This, in turn, could have a material adverse impact on our revenue and future growth. Our software products are licensed by the FDA, Japan’s PMDA and 21 other regulatory authorities, who use them in assessing new drug applications.
We could also experience a delay 29 Table of Contents or cancellation of work orders to the extent they rely on clinical trials being conducted in Ukraine. Potential trade restrictions, exchange controls, adverse tax consequences and legal restrictions may affect our revenue from customers located outside the United States and the repatriation of funds into the United States.
We could also experience a delay or cancellation of work orders to the extent they rely on clinical trials being conducted in Ukraine. Potential trade restrictions, exchange controls, adverse tax consequences and legal restrictions may affect our revenue from customers located outside the United States and the repatriation of funds into the United States.
In addition, we do not know whether our current practices will be deemed sufficient under applicable laws or whether new regulatory requirements might make our current practices insufficient. Our solutions involve the collection, analysis and retention of our customers’ proprietary information related to their drug development efforts, including clinical data.
Accordingly, we do not know whether our current practices will be deemed sufficient under applicable laws or whether new regulatory requirements might make our current practices insufficient. Our solutions involve the collection, analysis and retention of our customers’ proprietary information related to their drug development efforts, including clinical data.
If their products are not successful or they have 23 Table of Contents difficulty raising sufficient investment capital, they may not be able to timely or fully pay for our services, or they may terminate or decrease the scope of projects for which they use our products and services, which could adversely impact our revenues.
If their products are not successful or they have difficulty raising sufficient investment capital, they may not be able to timely or fully pay for our services, or they may terminate or decrease the scope of projects for which they use our products and services, which could adversely impact our revenues.
Our software solutions and biosimulation tools and models are inherently complex and may contain defects or errors. The risk of errors is particularly significant when a new product is first introduced or when new versions or enhancements of existing software solutions are released, such as the integration of artificial intelligence technology with our existing software products.
Our software solutions and biosimulation tools and models are inherently complex and may contain defects or errors. The risk of errors is particularly significant when a new product is first introduced or when new versions or enhancements of existing software solutions are released, such as the integration of AI technology with our existing software products.
In some standard biosimulation services, and in regulatory, and market access, we also compete with contract research organizations. Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, research and development and other resources.
In some standard biosimulation services, and in regulatory, and market access, we also compete with contract research organizations. Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D and other resources.
In 39 Table of Contents the event of an acceleration of our debt upon a default, we may not have or be able to obtain sufficient funds to make any accelerated payments. Furthermore, the terms of any future indebtedness we may incur could have further additional restrictive covenants.
In the event of an acceleration of our debt upon a default, we may not have or be able to obtain sufficient funds to make any accelerated payments. Furthermore, the terms of any future indebtedness we may incur could have further additional restrictive covenants.
As of December 31, 2022, Arsenal owns or controls approximately 22.8% of our outstanding common stock, and subject to the terms of the Stockholder Agreement, maintains the right to nominate up to two board members. In addition, Arsenal will have significant influence over the outcome of all matters requiring stockholder approval, including any potential change of control of our Company.
As of December 31, 2023, Arsenal owns or controls approximately 22.7% of our outstanding common stock, and subject to the terms of the Stockholder Agreement, maintains the right to nominate up to two board members. In addition, Arsenal will have significant influence over the outcome of all matters requiring stockholder approval, including any potential change of control of our Company.
Government and university-based funding of scientific research can vary for a number of reasons, including general economic conditions, political priorities, changes in the number of students and other demographic changes. Our customers’ revenue and/or profitability could decline as a result of efforts by government and third-party payors to reduce the cost of healthcare.
Government and university-based funding of scientific research can vary for a number of reasons, including general economic conditions, political priorities, changes in the number of students and other demographic changes. 22 T able of Contents Our customers’ revenue and/or profitability could decline as a result of efforts by government and third-party payors to reduce the cost of healthcare.
The loss of any key employee, or our inability to continue to recruit, retain, and motivate key personnel, replace departed personnel in a timely fashion, or train our scientists to develop new business, may adversely impact our ability to compete effectively and grow our business and negatively affect our ability to meet our short and long-term financial and operational objectives.
The loss of any key employee, 24 T able of Contents or our inability to continue to recruit, retain, and motivate key personnel, replace departed personnel in a timely fashion, or train our scientists to develop new business, may adversely impact our ability to compete effectively and grow our business and negatively affect our ability to meet our short and long-term financial and operational objectives.
We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which could harm our business. Our success depends to a significant extent on the continued services of our senior management and other key contributors throughout our business. As of December 31, 2022, 380 of our employees held PhDs.
We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which could harm our business. Our success depends to a significant extent on the continued services of our senior management and other key contributors throughout our business. As of December 31, 2023, 433 of our employees held PhDs.
Third parties may in the future assert intellectual property rights to technologies that are important to our business and demand back royalties or that we license their technology. Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, overall 30 Table of Contents financial condition and operating results.
Third parties may in the future assert intellectual property rights to technologies that are important to our business and demand back royalties or that we license their technology. Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, overall financial condition and operating results.
Reduction in research and development spending by our customers for a variety of reasons, as well as delays in the drug discovery and development process, may reduce demand for our products and services and negatively impact our results of operations and financial condition.
Reduction in R&D spending by our customers for a variety of reasons, as well as delays in the drug discovery and development process, may reduce demand for our products and services and negatively impact our results of operations and financial condition.
A significant change in the liquidity or financial position of our customers could also have a material adverse effect on the collectability of our accounts receivable, our liquidity, and our future operating results. 31 Table of Contents We may need additional funding.
A significant change in the liquidity or financial position of our customers could also have a material adverse effect on the collectability of our accounts receivable, our liquidity, and our future operating results. We may need additional funding.
Our customers have no obligation to renew their product licenses or subscriptions for our software solutions after the license term expires, which are typically between one and three years, and some of our contracts may be terminated or reduced in scope either immediately or upon notice.
Our customers have no obligation to renew their product licenses or subscriptions for our software solutions after the license term expires, which are typically between one and three years, and some of our contracts may be terminated or 26 T able of Contents reduced in scope either immediately or upon notice.
One of our strategic goals is to increase the breadth and utilization of products and services we provide to our existing customers, such as increasing the number of user licenses for our software products, selling licenses for new software products and expanding the number and scope of services we provide to individual customers.
O ne of our strategic goals is to increase the breadth and utilization of products and services we provide to our existing customers, such as increasing the number of user licenses for our software products, selling licenses for new software products and expanding the number and scope of services we provide to individual customers.
Because our products and services depend on our customers’ research and development expenditures, our revenues may be materially negatively affected by any economic, competitive, regulatory, demand, or other market impact that decreases our customers’ profitability or their ability to raise capital, which may cause them to decrease or delay research and development spend.
Because our products and services depend on our customers’ R&D expenditures, our revenues may be materially negatively affected by any economic, competitive, regulatory, demand, or other market impact that decreases our customers’ profitability or their ability to raise capital, which may cause them to decrease or delay R&D spend.
Our customers’ expenses could continue to increase as a result of the higher costs of developing more complex drugs and biologics and complying with more onerous government regulations. Furthermore, our customers finance their research and development spending from both private and public sources, including the capital markets.
Our customers’ expenses could continue to increase as a result of the higher costs of developing more complex drugs and biologics and complying with more onerous government regulations. Furthermore, our customers finance their R&D spending from both private and public sources, including the capital markets.
Further, under certain regulatory schemes, such as the CCPA, individual California residents may 34 Table of Contents bring private claims for our failure to deploy reasonable and appropriate cybersecurity controls and we also may be liable for statutory and multiple damages in California and other states.
Further, under certain regulatory schemes, such as the CCPA, individual California residents may bring private claims for our failure to deploy reasonable and appropriate cybersecurity controls and we also may be liable for statutory and multiple damages in California and other states.
Our success is dependent upon our intellectual property and other proprietary rights. We rely upon a combination of trademark, trade secret, copyright, patent and unfair competition laws, as well as contractual provisions, to protect our intellectual property and other proprietary rights.
We rely upon a combination of trademark, trade secret, copyright, patent and unfair competition laws, as well as contractual provisions, to protect our intellectual property and other proprietary rights.
The steps we take to protect these rights may not be adequate to prevent misappropriation of our technology by third parties or may not be adequate under the laws of some foreign countries, which may not protect our intellectual property rights to the same extent as do the laws of the United States.
The steps we take to protect these rights may not be adequate to prevent 39 T able of Contents misappropriation of our technology by third parties or may not be adequate under the laws of some foreign countries, which may not protect our intellectual property rights to the same extent as do the laws of the United States.
Additionally, we are subject to compliance with FDA’s regulations set forth in part 11 of title 21 of the Code of Federal Regulations, which relates to the creation, modification, maintenance, storage, retrieval, or transmittal of electronic records submitted to the FDA.
Additionally, we are subject to compliance with FDA’s regulations set forth in part 11 of title 21 of the Code of Federal Regulations, which relates to the creation, modification, 32 T able of Contents maintenance, storage, retrieval, or transmittal of electronic records submitted to the FDA.
These licenses, which accounted for 0.1 % of our annual revenue in 2022, are typically renewed on an annual basis, and there is no obligation for these regulatory authorities to renew these licenses at the same or any level.
These licenses, which accounted for 0.2 % of our annual revenue in 2023, are typically renewed on an annual basis, and there is no obligation for these regulatory authorities to renew these licenses at the same or any level.
We derive a significant percentage of our revenues from a concentrated group of customers and the loss of more than one of our major customers could materially and adversely affect our business, results of operations and/or financial condition. Our ten largest customers accounted for 28% and 29% of revenues for the years ended December 31, 2022 and 2021, respectively.
We derive a significant percentage of our revenues from a concentrated group of customers and the loss of more than one of our major customers could materially and adversely affect our business, results of operations and/or financial condition. Our ten largest customers accounted for 28% of revenues for each of the years ended December 31, 2023 and 2022.
Litigation or other enforcement actions initiated by a copyright owner could have a negative effect on our business, financial condition and results of operations, or require us to devote additional research and development resources to change our solutions.
Litigation or other enforcement actions initiated by a copyright owner could have a negative effect on our business, financial condition and results of operations, or require us to devote additional R&D resources to change our solutions.
We expect to devote substantial financial resources to our ongoing and planned activities, including the continued investment in our biosimulation software platform. As of December 31, 2022, we had cash and cash equivalents of $236.6 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operations and capital expenditure requirements for an extended period.
We expect to devote substantial financial resources to our ongoing and planned activities, including the continued investment in our biosimulation software platform. As of December 31, 2023, we had cash and cash equivalents of $235.0 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operations and capital expenditure requirements for an extended period.
This could have an adverse impact on our profitability. ​ Risks Related to Our Business Our continued revenue growth depends on our ability to successfully enter new markets, increase our customer base and expand our relationship and the products and services we provide to our existing customers.
This could have an adverse impact on our profitability. 23 T able of Contents Risks Related to Our Business Our continued revenue growth depends on our ability to successfully enter new markets, increase our customer base and expand our relationship and the products and services we provide to our existing customers.
In addition, industry trends, economic factors, regulatory developments, patent protection and political and 22 Table of Contents other events and circumstances that affect the biopharmaceutical industry, such as volatility or declines in securities markets limiting capital and liquidity, decreased government funding of scientific research, or other circumstances that decrease our customers’ research and development spending also affect us.
In addition, industry trends, economic factors, regulatory developments, patent protection and political and other events and circumstances that affect the biopharmaceutical industry, such as volatility or declines in securities markets limiting capital and liquidity, decreased government funding of scientific research, or other circumstances that decrease our customers’ R&D spending also affect us.
Any penalties, damages, fines, suspension, or damages could adversely affect our ability to operate our business and our financial results. ​ Our recent growth rates may not be sustainable or indicative of future growth. ​ We have experienced significant growth in recent years. Revenue increased from $286.1 million for 2021 to $335.6 million for 2022.
Any penalties, damages, fines, suspension, or damages could adversely affect our ability to operate our business and our financial results. Our recent growth rates may not be sustainable or indicative of future growth. We have experienced significant growth in recent years. Revenue increased from $335.6 million for 2022 to $354.3 million for 2023.
If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, effectively manage the combined business following the acquisition or preserve the operational synergies between our business units that we underwrite at the time of the acquisition.
We may not be able to successfully integrate the personnel, operations and technologies of the businesses we acquire, effectively manage the combined business following an acquisition or preserve the operational synergies between our business units that we underwrite at the time of such acquisition.
As a result, our revenues and financial performance may be adversely impacted if our customers are unable to obtain sufficient capital on acceptable terms to finance their research and development spending.
As a result, our revenues and financial performance may be adversely impacted if our customers are unable to obtain sufficient capital on acceptable terms to finance their R&D spending.
In these situations, we attempt to revise the scope of activity from the contract specifications and negotiate contract modifications shifting the additional cost to the customer, but are not always successful.
In these situations, we attempt to revise the scope of activity from the contract specifications and 27 T able of Contents negotiate contract modifications shifting the additional cost to the customer, but are not always successful.
Although Arsenal agreed with the Company not to sell any of the shares acquired by EQT for a 2-year period (with certain limited exceptions or without the 41 Table of Contents written consent of the Company), the market price of our shares of common stock could drop significantly if Arsenal or our officers and directors sell their shares or are perceived by the market as intending to sell them.
Although Arsenal agreed with us not to sell any of the shares acquired by EQT for a two-year period (with certain limited exceptions or without our written consent), the market price of our shares of common stock could drop significantly if Arsenal or our officers and directors sell their shares or are perceived by the market as intending to sell them.
This could further exacerbate the risks associated with our leverage. We and our subsidiaries may be able to incur substantial additional debt in the future.
We and our subsidiaries may incur substantially more debt, which could further exacerbate the risks associated with our leverage. We and our subsidiaries may be able to incur substantial additional debt in the future.
These carryforwards that may be utilized in a future period may be subject to limitations based upon changes in the ownership of our stock in a future period.
These carryforwards that may be utilized in a future period may be subject to limitations based upon changes in the ownership of our stock in a 43 T able of Contents future period.
These and other adverse impacts on our customers and economic conditions related to COVID-19 may cause our customers to delay or cancel projects or significantly scale back their operations or research and development spending and limit the use of third parties, which could have a material adverse effect on our business.
These and other adverse impacts on our customers and economic conditions may cause our customers to delay or cancel projects or significantly scale back their operations or R&D spending and limit the use of third parties, which could have a material adverse effect on our business.
A breach of any of these covenants could result in a default under our Credit Agreement. Upon the occurrence of an event of default under our Credit Agreement, the lenders could elect to declare all amounts outstanding under our Credit Agreement to be immediately due and payable and terminate any commitments to extend further credit.
Upon the occurrence of an event of default under our Credit Agreement, the lenders could elect to declare all amounts outstanding under our Credit Agreement to be immediately due and payable and terminate any commitments to extend further credit.
Although we do not believe the current conflict between Russia and Ukraine poses any immediate material impact to our business, if the conflict intensifies or expands beyond Ukraine, it could have an adverse impact on our business, particularly our operations in Poland and our ability to use consultants in that region of the world.
Although we do not believe the current conflicts between Russia and Ukraine in Europe and Israel and Hamas in the Middle East pose any immediate material impact to our business, if the conflict intensifies or expands beyond Ukraine or Gaza, it could have an adverse impact on our business, particularly our operations in Poland and our ability to use consultants in that region of the world.
While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances; this has created uncertainty.
While the Court of Justice of the European Union (CJEU) upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances; and the validity of the standard contractual clauses as a transfer mechanism remains uncertain.
These requirements include, for example: ● compliance with complex regulations for procurement, formation, administration, and performance of government contracts under the Federal Acquisition Regulations, agency-specific regulations supplemental to the Federal Acquisition Regulations, and regulations specific to the administration of grants by the U.S. government. ● specialized disclosure and accounting requirements unique to government contracts and grants. ● mandatory financial and compliance audits that may result in potential liability for price or cost adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government. ● public disclosures of certain contract, grant, and company information; and 27 Table of Contents ● mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements. ​ Government contracts and grants are also generally subject to greater scrutiny by the government, which can unilaterally initiate reviews, audits and investigations regarding our compliance with government contract and grant requirements.
These requirements include, for example: • compliance with complex regulations for procurement, formation, administration, and performance of government contracts under the Federal Acquisition Regulations, agency-specific regulations supplemental to the Federal Acquisition Regulations, and regulations specific to the administration of grants by the U.S. government; • specialized disclosure and accounting requirements unique to government contracts and grants; • mandatory financial and compliance audits that may result in potential liability for price or cost adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government; • public disclosures of certain contract, grant, and company information; and 28 T able of Contents • mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.
If we are unable to raise additional capital on terms acceptable to us or at all or generate cash flows necessary to maintain or expand our operations, we may not be able to compete successfully. ● Our bookings might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenue reflect in our bookings. ● We rely upon third-party providers of cloud-based infrastructure to host our software solutions.
If we are unable to raise additional capital on terms acceptable to us or at all or generate cash flows necessary to maintain or expand our operations, we may not be able to compete successfully. • Our bookings might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenue reflect in our bookings. • Our business may be subject to risks arising from natural disasters, epidemic diseases, pandemics and public health crises. • We rely upon third-party providers of cloud-based infrastructure to host our software solutions.
We have performed an analysis for the period January 1, 2022 through December 31, 2022 and determined that an ownership change did not occur during this period. In addition, we 40 Table of Contents determined that ownership changes occurred in prior periods and therefore our NOLs and R&D tax credit carryforwards reflect the amounts available after considering such limitations.
We have performed an analysis for the period January 1, 2023 through December 31, 2023 and determined no ownership change occurred during this period. In addition, we determined that ownership changes occurred in prior periods and therefore our NOLs and R&D tax credit carryforwards reflect the amounts available after considering such limitations.
We could be forced, including by court order, to cease developing and commercializing the infringing 37 Table of Contents technology or product. A finding of infringement could prevent us from commercializing any product candidates or force us to cease some of our business operations, which could materially harm our business. In addition, we may be forced to redesign a product.
We could be forced, including by court order, to cease developing and commercializing the infringing technology or product. A finding of infringement could 40 T able of Contents prevent us from commercializing any product candidates or force us to cease some of our business operations, which could materially harm our business.
We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants. We and our subsidiaries may still be able to incur substantially more debt.
We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants.
In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our hosted software solutions for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition and results of operations.
We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the third-party hosting services we use. 35 T able of Contents In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our hosted software solutions for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition and results of operations.
Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our reputation, business, financial condition and results of operations.
In addition, we may be forced to redesign a product. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our reputation, business, financial condition and results of operations.
Customers terminate, delay or reduce the scope of these types of contracts for a variety of reasons, including but not limited to: ● lack of available funding or financing; ● mergers or acquisitions involving the customer; ● a change in customer priorities; ● impacts to client trial operations, such as those caused by COVID-19 interruptions or other health crises; ● delay or termination of a specific product candidate development program; and 26 Table of Contents ● the customer decides to shift business to a competitor or to use internal resources.
Customers terminate, delay or reduce the scope of these types of contracts for a variety of reasons, including but not limited to: • lack of available funding or financing; • mergers or acquisitions involving the customer; • a change in customer priorities; • impacts to client trial operations; • delay or termination of a specific product candidate development program; and • the customer decides to shift business to a competitor or to use internal resources.
As of December 31, 2022, a total of 19,460,378 and 1,700,000 shares of common stock have been reserved for future issuance under the 2020 Incentive Plan and our 2020 Employee Stock Purchase Plan, respectively.
As of December 31, 2023, a total of 15,454,916 and 1,700,000 shares of common stock have been reserved for future issuance under the 2020 Incentive Plan and our 2020 Employee Stock Purchase Plan, respectively.
If our TAM, or the size of any of the various markets in which we operate, proves to be inaccurate, our future growth opportunities may be limited and there could be a material adverse effect on our prospects, business, financial condition and results of operations. We are subject to risks associated with the operation of a global business.
If our TAM, or the size of any of the various markets in which we 30 T able of Contents operate, proves to be inaccurate, our future growth opportunities may be limited and there could be a material adverse effect on our prospects, business, financial condition and results of operations.
Alternatively, if a court were to find the choice of forum provisions that will be contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. 43 Table of Contents Our board of directors are authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Alternatively, if a court were to find the choice of forum provisions that will be contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
The following factors could result in our failure to achieve the expected synergies: ● inability to integrate or benefit from acquired technologies or services in a profitable manner; ● unanticipated costs or liabilities associated with the acquisition; ● incurrence of acquisition-related costs; ● difficulty integrating the accounting systems, operations and personnel of the acquired business; ● difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; ● difficulty converting the customers of the acquired business onto our solutions and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company; ● diversion of management’s attention from other business concerns; ● adverse effects to our existing business relationships with business partners and customers as a result of the acquisition; 28 Table of Contents ● the potential loss of key employees; ● use of resources that are needed in other parts of our business; and ● use of substantial portions of our available cash to consummate the acquisition. ​ For example, we also recently acquired Vyasa Analytics, which provides a novel deep learning AI-powered platform for organizations to integrate and analyze content across enterprise data landscape.
The following factors could result in our failure to achieve the expected synergies: • inability to integrate or benefit from acquired technologies or services in a profitable manner; • unanticipated costs or liabilities associated with the acquisition; • incurrence of acquisition-related costs; • difficulty integrating the accounting systems, operations and personnel of the acquired business; 29 T able of Contents • difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; • difficulty converting the customers of the acquired business onto our solutions and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company; • diversion of management’s attention from other business concerns; • adverse effects to our existing business relationships with business partners and customers as a result of the acquisition; • the potential loss of key employees; • use of resources that are needed in other parts of our business; and • use of substantial portions of our available cash to consummate the acquisition.
Our global business may be affected by local economic conditions, including inflation, recession and currency exchange rate fluctuations. Changes in the value of the U.S. dollar relative to other currencies could result in material foreign currency exchange rate fluctuations and, as a result, our revenue and net earnings could be materially adversely affected.
Changes in the value of the U.S. dollar relative to other currencies could result in material foreign currency exchange rate fluctuations and, as a result, our revenue and net earnings could be materially adversely affected.
For example, the California Consumer Privacy Act (“CCPA”), which took effect in 2020, imposes obligations and restrictions on businesses regarding their collection, use, and sharing of personal information and provides new and enhanced data privacy rights to California residents, such 35 Table of Contents as affording them the right to access and delete their personal information and to opt out of certain sharing of personal information.
For example, the CCPA, imposes obligations and restrictions on businesses regarding their collection, use, and sharing of personal information and provides new and enhanced data privacy rights to California residents, such as affording them the right to access and delete their personal information and to opt out of certain sharing of personal information.
Although an increase in bookings will generally result in an increase in future revenue to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in bookings at a particular point in time does not necessarily correspond to an increase in revenues during a 32 Table of Contents particular period.
While bookings decreased in 2023 compared to 2022, an increase or decrease in bookings will generally result in an increase or decrease in future revenue to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in bookings at a particular point in time does not necessarily correspond to an increase in revenues during a particular period.
Our hosting services are subject to service-level agreements and, in the event that we fail to meet guaranteed service or performance levels, we could be subject to customer credits or termination of these customer contracts.
Our hosting services are subject to service-level agreements and, in the event that we fail to meet guaranteed service or performance levels, we could be subject to customer credits or termination of these customer contracts. If the cost of meeting these data storage and management requirements increases, our results of operations could be harmed.
In addition, the restrictive covenants in our Credit Agreement require us to maintain a specified first lien leverage ratio when a certain percentage of our revolving credit facility commitments are borrowed and outstanding as of the end of each fiscal quarter. In certain circumstances, our ability to meet this financial covenant may be affected by events beyond our control.
In addition, the restrictive covenants in our Credit Agreement require us to maintain a specified first lien leverage ratio when a certain percentage of our revolving credit facility commitments are borrowed and outstanding as of the end of each fiscal quarter.
As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us, including restrictions under the covenants of the agreements governing our Credit Agreement.
Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us, including restrictions under the covenants of the agreements governing our Credit Agreement. If we are unable to obtain funds from our subsidiaries, we may be unable to meet our financial obligations.
Additional legislation or regulation might, among other things, require us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other information about individuals, each of which may require substantial expenditures or limit our ability to offer some of our services. ​ ​ 36 Table of Contents We may be unable to adequately enforce or defend our ownership and use of our intellectual property and other proprietary rights.
Additional legislation or regulation might, among other things, require us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other information about individuals, each of which may require substantial expenditures or limit our ability to offer some of our services.
Some acquisitions are structured in such a way that a portion of the purchase price may be based on achieving certain post-closing conditions (i.e. “earn-outs”), such as the Company recognizing certain levels of revenue generated by the acquired business.
The planned integration of these businesses into our existing product offerings may be delayed or may not achieve the expected results. Some acquisitions are structured in such a way that a portion of the purchase price may be based on achieving certain post-closing conditions (i.e. “earn-outs”), such as the Company recognizing certain levels of revenue generated by the acquired business.
Work-from-home and other measures introduced to mitigate the spread of the COVID 19 pandemic have impacted our third-party vendors by increasing operational challenges and risks, including vulnerabilities to cybersecurity and information technology infrastructure threats.
Work- from-home and other flexible work arrangements have impacted our third-party vendors by increasing operational challenges and risks, including vulnerabilities to cybersecurity and information technology infrastructure threats.
You should not rely on our historical rate of revenue growth as an indication of our future performance. ​ We regularly evaluate potential acquisitions of other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.
We regularly evaluate potential acquisitions of other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.
Failure to continue our revenue growth or improve margins would have a material adverse effect on our business, financial condition and results of operations.
Failure to continue our revenue growth or improve margins would have a material adverse effect on our business, financial condition and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.
The successful assertion of one or more large claims against us that exceed available insurance coverage, denial of coverage as to any specific claim, or any change or cessation in our insurance policies and coverages, including premium increases or the imposition of large deductible requirements, could have a material adverse effect on our reputation, business, financial condition and results of operations.
The successful assertion of one or more large claims against us that exceed available insurance coverage, denial of coverage as to any specific claim, or any change or cessation in our insurance policies and coverages, including premium increases or the imposition of large deductible requirements, could have a material adverse effect on our reputation, business, financial condition and results of operations. 37 T able of Contents We are subject to numerous privacy and cybersecurity laws and related contractual requirements and our failure to comply with those obligations could cause us significant harm, including financial losses and reputational harm.
Unauthorized access to this information or data, whether deliberate or unintentional, could result in the loss of information, litigation, indemnity obligations, damage to our reputation and other liability.
Unauthorized access to this information or data, whether deliberate or unintentional, could result in the loss of information, litigation, indemnity obligations, damage to our reputation and other liability. Our reliance on remote access to our information systems exposes us to potential cybersecurity breaches and the risk of loss or exposure of such information and data.
Our business involves assisting biopharmaceutical companies strategically and tactically navigate the regulatory approval process. New or amended regulations are expected to result in higher regulatory standards and potentially additional revenues for companies that service these industries.
New or amended regulations are expected to result in higher regulatory standards and potentially additional revenues for companies that service these industries.
A number of factors may affect bookings and the direct revenue generated from our bookings, including: ● the size, complexity and duration of solutions; ● changes in the scope of work during the course of a project; and ● the cancellation or delay of a solution. ​ Our bookings for the year ended December 31, 2022 were $409.0 million compared to bookings of $341.7 million for the year ended December 31, 2021 .
A number of factors may affect bookings and the direct revenue generated from our bookings, including: • the size, complexity and duration of solutions; • changes in the scope of work during the course of a project; and • the cancellation or delay of a solution.
If the cost of meeting these data storage and management requirements increases, our results of operations could be harmed. ​ 33 Table of Contents Our software solutions utilize third-party open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business, subject us to litigation and create potential liability.
Some of our software solutions utilize third-party open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business, subject us to litigation and create potential liability.
Many similar privacy laws have been proposed at the federal level and in other states. The GDPR became enforceable on May 25, 2018. The GDPR and the UK’s version of the GDPR regulate our processing of personal data, and imposes stringent requirements.
Many similar privacy laws have been proposed at the federal level and in other states. 38 T able of Contents The GDPR and the UK GDPR regulate our processing of personal data, and imposes stringent requirements.
Our future capital requirements will depend on many factors, including: ● the growth of our revenue; ● the growth of our employee base; ● the timing and launch of new products; ● the continued expansion of sales and marketing activities; and ● mergers and acquisitions of technologies or services complementing or extending our biosimulation, regulatory science and market access businesses. ​ In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all.
Our future capital requirements will depend on many factors, including: • the growth of our revenue; • the growth of our employee base; 33 T able of Contents • the timing and launch of new products; • the continued expansion of sales and marketing activities; and • mergers and acquisitions of technologies or services complementing or extending our biosimulation, regulatory science and market access businesses.
If these rates were to increase significantly, whether because of an increase in market interest rates or a decrease in our creditworthiness, our ability to borrow additional funds may be reduced and the risks related to our debt would intensify. 38 Table of Contents Servicing our debt requires a significant amount of cash.
Furthermore, all of our debt under our Credit Agreement bears interest at variable rates. If these rates were to increase significantly, whether because of an increase in market interest rates or a decrease in our 41 T able of Contents creditworthiness, our ability to borrow additional funds may be reduced and the risks related to our debt would intensify.

… 108 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed0 unchanged
Biggest changeWe believe that our facilities are suitable and adequate for our operations and we anticipate that additional suitable space will be available when needed. ​ As of December 31, 2022, our material operating locations, which we define as the facilities we lease with more than 10,000 square feet, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ APPROXIMATE ​ LEASE EXPIRATION LOCATION SQUARE FOOTAGE DATES Wilmington, Delaware, USA ​ 18,250 ​ 2/28/2027 Princeton, New Jersey, USA 17,560 6/30/2025 Sheffield, UK 13,910 1/28/2028 Raleigh, North Carolina, USA 11,250 8/31/2027 ​ ​
Biggest changeAs of December 31, 2023, our material operating locations, which we define as the facilities we lease with more than 10,000 square feet, were as follows: LOCATION APPROXIMATE SQUARE FOOTAGE LEASE EXPIRATION DATES Wilmington, Delaware, USA 18,250 2/28/2027 Princeton, New Jersey, USA 17,560 6/30/2025 Sheffield, UK 13,910 1/28/2028 Raleigh, North Carolina, USA 11,250 1/31/2028
Item 2. Properties. As of December 31, 2022, we had 32 offices in 15 countries, with our headquarters located in Princeton, New Jersey. We lease or sublease all of our offices. None of our facilities are used for anything other than general office use.
Item 2. Properties. As of December 31, 2023, we had 36 offices in 16 countries, with our headquarters located in Princeton, New Jersey. We lease or sublease all of our offices. None of our facilities are used for anything other than general office use.
Added
We believe that our facilities are suitable and adequate for our operations and we anticipate that additional suitable space will be available when needed.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeMine Safety Disclosures. Not applicable. ​ 48 Table of Contents PART II
Biggest changeMine Safety Disclosures. Not applicable. 49 T able of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−0 removed5 unchanged
Biggest changeThe graph uses the closing market price on December 11, 2020 of $38.08 per share as the initial value of our common stock. ​ ​ 49 Table of Contents As discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. ​ ​ Issuer Purchases of Equity Securities The following table summarizes our purchases of common stock in the three months ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of Shares Purchased(a) ​ Weighted Average Price Paid per Share ​ Total Number of Shares Purchased Under Announced Programs ​ Approximate Dollar Value of Shares That May Yet be Purchased Under Announced Programs 10/1/2022 to 10/31/2022 ​ 4,751 ​ $ 13.28 ​ 0 ​ $ 0 11/1/2022 to 11/30/2022 ​ 2,248 ​ $ 12.23 ​ 0 ​ $ 0 12/1/2022 to 12/31/2023 ​ 2,664 ​ $ 16.98 ​ 0 ​ $ 0 Total ​ 9,663 ​ $ 14.06 ​ 0 ​ ​ ​ (a) Shares purchased were due to shares delivered by employees to us for the payment of taxes resulting from issuance of common stock upon the vesting of restricted stock or restricted stock units (RSUs) relating to stock-based compensation plans. ​ ​ Item 6. [Reserved] ​ 50 Table of Contents
Biggest changeAs discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. 50 T able of Contents Issuer Purchases of Equity Securities The following table summarizes our purchases of common stock in the three months ended December 31, 2023: Total Number of Shares Purchased(a) Weighted Average Price Paid per Share Total Number of Shares Purchased Under Announced Programs Approximate Dollar Value of Shares That May Yet be Purchased Under Announced Programs 10/1/2023 to 10/31/2023 3,986 $ 14.54 0 $ 0 11/1/2023 to 11/30/2023 428 $ 12.19 0 $ 0 12/1/2023 to 12/31/2023 1,048 $ 14.41 0 $ 0 Total 5,462 $ 14.33 0 __________________________________ (a) Shares purchased were due to shares delivered by employees to us for the payment of taxes resulting from issuance of common stock upon the vesting of restricted stock or restricted stock units (RSUs) relating to stock-based compensation plans.
Any determination to declare dividends in the future will be at the discretion of our board of directors, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition.
Any determination to declare dividends in the future will be at the discretion of our Board, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition.
The following graph compares (i) the cumulative total stockholder return on our common stock from December 11, 2020 (the date our common stock commenced trading on the Nasdaq) through December 31, 2022 with (ii) the cumulative total return of the NASDAQ Index and the S&P Small Cap 600 HealthCare Index over the same period, assuming the investment of $100 in our common stock and in each index on December 11, 2020 and the reinvestment of dividends.
The following graph compares (i) the cumulative total stockholder return on our common stock from December 11, 2020 (the date our common stock commenced trading on the Nasdaq) through December 31, 2023 with (ii) the cumulative total return of the NASDAQ Index and the S&P Small Cap 600 HealthCare Index over the same period, assuming the investment of $100 in our common stock and in each index on December 11, 2020 and the reinvestment of dividends.
As of February 15, 2023, there were 50 holders of record of our common stock as reported by our transfer agent.
As of February 15, 2024, there were 34 holders of record of our common stock as reported by our transfer agent.
Added
The graph uses the closing market price on December 11, 2020 of $38.08 per share as the initial value of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

103 edited+55 added−40 removed74 unchanged
Biggest changeThe following table reconciles net income (loss) to adjusted EBITDA : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net income (loss) ​ $ 14,731 ​ $ (13,266) ​ $ (49,397) Interest expense (a) ​ 17,773 ​ 16,837 ​ 25,296 Interest income (a) ​ (1,294) ​ (271) ​ (44) (Benefit from) provision for income taxes (a) ​ 4,024 ​ 9,891 ​ (784) Depreciation and amortization expense (a) ​ 1,731 ​ 2,135 ​ 2,443 Intangible asset amortization (a) ​ 50,739 ​ 42,980 ​ 40,310 Currency (gain) loss (a) ​ ​ (3,166) ​ (175) ​ 715 Equity-based compensation expense (b) ​ 30,345 ​ 29,483 ​ 64,507 Acquisition-related expense (d) ​ 2,233 ​ 11,241 ​ 1,456 Integration expense (e) ​ — ​ 31 ​ 78 Transaction related expenses (f) ​ 1,136 ​ 2,754 ​ 1,908 Severance expense (g) ​ 653 ​ 60 ​ 557 Reorganization expense (h) ​ — ​ — ​ 525 Loss on disposal of fixed assets (i) ​ ​ 169 ​ 351 ​ 19 Executive recruiting expense (j) ​ ​ 139 ​ 733 ​ 288 First-year Sarbanes-Oxley and ASC 842 implementation costs (k) ​ ​ 961 ​ ​ 929 ​ ​ — Adjusted EBITDA ​ $ 120,174 ​ $ 103,713 ​ $ 87,877 ​ ​ ​ ​ ​ 55 Table of Contents The following table reconciles net income (loss) to adjusted net income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net income (loss) ​ $ 14,731 ​ $ (13,266) ​ $ (49,397) Currency (gain) loss (a) ​ ​ (3,166) ​ ​ (175) ​ ​ 715 Equity-based compensation expense (b) ​ 30,345 ​ 29,483 ​ 64,507 Amortization of acquisition-related intangible assets (c) ​ ​ 43,822 ​ ​ 36,413 ​ ​ 33,534 Acquisition-related expense (d) ​ 2,233 ​ 11,241 ​ 1,456 Integration expense (e) ​ — ​ 31 ​ 78 Transaction related expenses (f) ​ 1,136 ​ 2,754 ​ 1,908 Severance expense (g) ​ 653 ​ 60 ​ 557 Reorganization expense (h) ​ — ​ — ​ 525 Loss on disposal of fixed assets (i) ​ ​ 169 ​ ​ 351 ​ ​ 19 Executive recruiting expense (j) ​ 139 ​ 733 ​ 288 First-year Sarbanes-Oxley and ASC 842 implementation costs (k) ​ ​ 961 ​ ​ 929 ​ ​ — Income tax expense impact of adjustments (l) ​ (17,633) ​ (15,344) ​ (10,213) Adjusted net income ​ $ 73,390 ​ $ 53,210 ​ $ 43,977 ​ ​ ​ The following table reconciles diluted earnings per share to adjusted diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ 2022 2021 2020 ​ ​ ​ Diluted earnings per share (a) ​ $ 0.09 ​ $ (0.09) ​ $ (0.37) Currency (gain) loss (a) ​ ​ (0.02) ​ ​ — ​ ​ 0.01 Equity-based compensation expense (b) ​ 0.19 ​ 0.19 ​ 0.48 Amortization of acquisition-related intangible assets (c) ​ ​ 0.28 ​ 0.24 ​ 0.25 Acquisition-related expense (d) ​ 0.01 ​ 0.07 ​ 0.01 Integration expense (e) ​ — ​ — ​ — Transaction related expenses (f) ​ 0.01 ​ 0.02 ​ 0.01 Severance expense (g) ​ — ​ — ​ 0.01 Reorganization expense (h) ​ — ​ — ​ 0.01 Loss on disposal of fixed assets (i) ​ ​ — ​ ​ — ​ ​ — Executive recruiting expense (j) ​ — ​ — ​ — First-year Sarbanes-Oxley and ASC 842 implementation costs (k) ​ 0.01 ​ 0.01 ​ — Income tax expense impact of adjustments (l) ​ ​ (0.11) ​ ​ (0.10) ​ ​ (0.08) Adjusted diluted earnings per share ​ $ 0.46 ​ $ 0.34 ​ $ 0.33 Basic weighted average common shares outstanding ​ ​ 156,876,942 ​ ​ 149,842,668 ​ ​ 133,247,212 Effect of potentially dilutive shares outstanding (m) ​ ​ 2,477,452 ​ ​ 4,401,021 ​ ​ 229,383 Adjusted diluted weighted average common shares outstanding ​ ​ 159,354,394 ​ $ 154,243,689 ​ ​ 133,476,595 (a) Represents amounts as determined under GAAP.
Biggest changeOther 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. 56 T able of Contents The following table reconciles net income (loss) to adjusted EBITDA : YEAR ENDED DECEMBER 31, 2023 2022 2021 (in thousands) Net income (loss)(a) $ (55,357) $ 14,731 $ (13,266) Interest expense(a) 22,916 17,773 16,837 Interest income(a) (9,317) (1,294) (271) Provision for income taxes(a) 214 4,024 9,891 Depreciation and amortization expense(a) 1,552 1,731 2,135 Intangible asset amortization(a) 54,519 50,739 42,980 Currency (gain) loss(a) 638 (3,166) (175) Equity-based compensation expense(b) 28,300 30,345 29,483 Change in fair value of contingent consideration(d) 24,118 — — Goodwill impairment expense(e) 46,984 — — Acquisition-related expenses(f) 6,064 2,233 11,241 Integration expense(g) 121 — 31 Transaction-related expenses(h) — 1,136 2,754 Severance expenses(i) — 653 60 Reorganization expense(j) 1,660 — — Loss on disposal of fixed assets(k) 65 169 351 Executive recruiting expense(l) 631 139 733 First-year Sarbanes-Oxley implementation costs(m) — 961 929 Adjusted EBITDA $ 123,108 $ 120,174 $ 103,713 57 T able of Contents The following table reconciles net income (loss) to adjusted net income: YEAR ENDED DECEMBER 31, 2023 2022 2021 (in thousands) Net income (loss) (a) $ (55,357) $ 14,731 $ (13,266) Currency (gain) loss(a) 638 (3,166) (175) Equity-based compensation expense(b) 28,300 30,345 29,483 Amortization of acquisition-related intangible assets(c) 45,838 43,822 36,413 Change in fair value of contingent consideration(d) 24,118 — — Goodwill impairment expense(e) 46,984 — — Acquisition-related expenses(f) 6,064 2,233 11,241 Integration expense(g) 121 — 31 Transaction-related expenses(h) — 1,136 2,754 Severance expenses(i) — 653 60 Reorganization expense(j) 1,660 — — Loss on disposal of fixed assets(k) 65 169 351 Executive recruiting expense(l) 631 139 733 First-year Sarbanes-Oxley implementation costs(m) — 961 929 Income tax expense impact of adjustments(n) (30,041) (17,633) (15,344) Adjusted net income $ 69,021 $ 73,390 $ 53,210 58 T able of Contents The following table reconciles diluted earnings per share to adjusted diluted earnings per share: YEAR ENDED DECEMBER 31, 2023 2022 2021 Diluted earnings per share(a) $ (0.35) $ 0.09 $ (0.09) Currency (gain) loss(a) — (0.02) — Equity-based compensation expense(b) 0.18 0.19 0.19 Amortization of acquisition-related intangible assets(c) 0.29 0.28 0.24 Change in fair value of contingent consideration(d) 0.15 — — Goodwill impairment expense(e) 0.30 — — Acquisition-related expenses(f) 0.04 0.01 0.07 Integration expense(g) — — — Transaction-related expenses(h) — 0.01 0.02 Severance expenses(i) — — — Reorganization expense(j) 0.01 — — Loss on disposal of fixed assets(k) — — — Executive recruiting expense(l) — — — First-year Sarbanes-Oxley implementation costs(m) — 0.01 0.01 Income tax expense impact of adjustments(n) (0.19) (0.11) (0.10) Adjusted diluted earnings per share $ 0.43 $ 0.46 $ 0.34 Basic weighted average common shares outstanding 158,936,251 156,876,942 149,842,668 Effect of potentially dilutive shares outstanding (o) 943,886 2,477,452 4,401,021 Adjusted diluted weighted average common shares outstanding 159,880,137 $ 159,354,394 154,243,689 __________________________________ (a) Represents amounts as determined under GAAP.
Financing Activities 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.
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.
We monitor two key performance indicators to evaluate retention and expansion: new bookings and renewal rates. ● Bookings: Our new bookings represent the estimated annual 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.
We monitor two key performance indicators to evaluate retention and expansion: new bookings and renewal rates. • Bookings: 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.
Pinnacle 21, LLC 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 $266.3 million ($246.9 million net with cash acquired from the acquisition) and 2,239,717 shares of our restricted common stock.
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.
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 54 Table of Contents compare our performance against that of other peer companies using similar measures.
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.
Borrowings under the Credit Agreement currently 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 68 Table of Contents 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%.
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%.
Consulting Service Revenues The Company’s primary professional services offering includes consulting services, which may be either strategic consulting services, reporting and analysis services, regulatory writing services, or any combination of the three. The Company’s professional services contracts are either time-and-materials or fixed fee. Services revenues are generally recognized over time as the services are performed.
Consulting Service Revenues Our primary professional services offering includes consulting services, which may be either strategic consulting services, reporting and analysis services, regulatory writing services, or any combination of the three. Our professional services contracts are either time-and-materials or fixed fee. Services revenues are generally recognized over time as the services are performed.
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. ​ 52 Table of Contents Key Factors Affecting Our Performance We believe that the growth of and future success of our business depends on many factors.
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 We believe that the growth of and future success of our business depends on many factors.
Revenues are recognized over the time services are performed for time and materials, and over time by estimating progress to completion for fixed fee and prepaid services. 57 Table of Contents Cost of Revenues Cost of revenues consists primarily of employee related expenses, equity-based compensation, the costs of third-party subcontractors, travel costs, distributor fees, amortization of capitalized software and allocated overhead.
Revenues are recognized over the time services are performed for time and materials, and over time by estimating progress to completion for fixed fee and prepaid services. Cost of Revenues Cost of revenues consists primarily of employee related expenses, equity-based compensation, the costs of third-party subcontractors, travel costs, distributor fees, amortization of capitalized software and allocated overhead.
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 less 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 $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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Certara Inc.", "the Company", “we”, “us”, and “our” to refer to Certara, Inc.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations section, we use the terms "Certara Inc.", "Company", “we”, “us”, and “our” to refer to Certara, Inc.
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. 60 Table of Contents 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 partially offset by the negative impact on our revenue from fluctuations in foreign currency exchange rates and a decline in regulatory and access revenue. 68 T able of Contents 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 $15.6 million increase in cash from operating activities compared to 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 $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.
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 investing in business acquisitions, capitalized software development, 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 73 T able of Contents investing in business acquisitions, capitalized software development, and capital expenditures to support our growth.
The change in investing activities was 67 Table of Contents 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.
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.
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. We performed the annual goodwill impairment analysis during the fourth quarter.
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. 77 T able of Contents We performed the annual goodwill impairment analysis during the fourth quarter.
Provision for (Benefit from) Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ CHANGE ​ 2022 ​ 2021 $ % ​ ​ (in thousands) Provision for (benefit from) income taxes ​ $ 4,024 $ 9,891 ​ $ (5,867) ​ (59) % Effective tax rate ​ 21.5 % ​ (293.1) % ​ ​ 62 Table of Contents 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.
Provision for Income Taxes YEAR ENDED DECEMBER 31, CHANGE 2022 2021 $ % (in thousands) Provision for income taxes $ 4,024 $ 9,891 $ (5,867) (59) % Effective tax rate 21.5 % (293.1) % 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.
The Company’s software contracts do not typically include variable consideration, or options for future purchases that would not be similar to the original goods. 70 Table of Contents Software Services Maintenance services agreements on perpetual licenses consist of fees for providing software updates and for providing technical support for software products for a specified term.
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 Maintenance services agreements on perpetual licenses consist of fees for providing software updates and for providing technical support for software products for a specified term.
Software as a Service (SaaS) Revenues SaaS revenues consists of subscription fees for access to, and related support for, the Company’s cloud-based solutions. The Company typically invoices subscription fees in advance in annual installments. The invoice is initially deferred and revenue is recognized ratably over the life of the contract.
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.
You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Form 10K and our audited consolidated financial statements and notes thereto.
You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report and our audited consolidated financial statements and notes thereto.
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.
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.
Income Taxes We recorded income tax expense of $4.0 million for the year ended December 31, 2022 and income tax expense of $9.9 million for the year ended December 31, 2021.
Income Taxes 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.
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, 2022, we believe there have been and will be short-term impacts on our business due to new variants of COVID-19.
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.
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 filing. ​ Cash Flows The following table presents a summary of our cash flows for the periods shown: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 92,543 ​ $ 60,388 ​ $ 44,810 Net cash used in investing activities ​ (27,837) ​ (269,922) ​ (8,612) Net cash provided by (used in) financing activities ​ (7,363) ​ 123,391 ​ 208,214 Effect due to foreign exchange rate changes on cash, cash equivalents, and restricted cash ​ (4,279) ​ (524) ​ (883) Net(decrease) increase in cash, cash equivalents and restricted cash ​ $ 53,064 ​ $ (86,667) ​ $ 243,529 Cash paid for interest ​ 17,268 ​ 14,169 ​ ​ 27,607 Cash paid for income taxes ​ 10,141 ​ 8,595 ​ ​ 12,278 ​ Operating Activities Our cash flows from operating activities primarily include net income (loss) adjusted for (i) non-cash items included in net income (loss), such as provisions for credit losses, depreciation and amortization, stock-based compensation, deferred taxes and other non-cash items and (ii) changes in the balances of operating assets and liabilities.
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. 72 T able of Contents Cash Flows The following table presents a summary of our cash flows for the periods shown: YEAR ENDED DECEMBER 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 82,755 $ 92,543 $ 60,388 Net cash used in investing activities (79,550) (27,837) (269,922) Net cash provided by (used in) financing activities (9,447) (7,363) 123,391 Effect due to foreign exchange rate changes on cash, cash equivalents, and restricted cash 1,505 (4,279) (524) Net(decrease) increase in cash, cash equivalents and restricted cash $ (4,737) $ 53,064 $ (86,667) Cash paid for interest 19,089 17,268 14,169 Cash paid for income taxes 19,320 10,141 8,595 Operating Activities Our cash flows from operating activities primarily include net income (loss) adjusted for (i) non-cash items included in net income (loss), such as provisions for credit losses, depreciation and amortization, stock-based compensation, deferred taxes and other non-cash items and (ii) changes in the balances of operating assets and liabilities.
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. For more information about our acquisitions, see Note 5.
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.
Vyasa Analytics, LLC On December 28, 2022, we completed the acquisition of Vyasa Analytics, LLC (“Vyasa”), a company that provides an AI powered, scalable deep learning software and analytics platform for organizations within healthcare and life sciences, higher education and state and local governments for total estimated consideration of $29.3 million.
Vyasa Analytics, LLC (“Vyasa”) On December 28, 2022, we completed the acquisition of Vyasa, a company that provides an AI powered, scalable deep learning software and analytics platform for organizations within healthcare and life sciences, higher education and state and local governments for total consideration of $29.3 million. The business combination was not significant to the Company’s consolidated financial statements.
The changes in fair value will be recognized in earnings in our consolidated statements of operations and comprehensive income (loss). ​ Recently Adopted and Issued Accounting Standards We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this annual report, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our operations. ​
Recently Adopted and Issued Accounting Standards We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this annual report, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our operations.
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.
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.
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.
Additionally, we carried forward foreign NOLs of approximately $65.8 million which will start to expire in 2022, foreign research and development credits of $0.4 million which expire in 2029, and Canadian investment tax credits of approximately $3.5 million which expire between 2030 and 2040. Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.
Additionally, we carried forward foreign NOLs of approximately $81.6 million which will start to expire in 2024, foreign research and development credits of $0.3 million which expire in 2029, and Canadian investment tax credits of approximately $3.8 million which expire between 2031 and 2041. Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.
(i) Represents the gain/loss related to disposal of fixed assets. (j) Represents recruiting and relocation expenses related to hiring senior executives. (k) Represents the first-year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act, as well as implementation cost of adopting ASC 842.
(l) Represents recruiting and relocation expenses related to hiring senior executives. (m) Represents the first-year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act, as well as implementation cost of adopting ASC 842.
As of December 31, 2022, we had federal and state NOLs of approximately $1.8 million and $0.05 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2040, respectively.
As of December 31, 2023, we had federal and state NOLs of approximately $1.6 million and $0.04 million, respectively, which are available to reduce future taxable income and expire between 2035 and 2036 and 2029 and 2040, respectively.
Based on the purchase price allocation, approximately $2.4 million, $1.0 million, $0.1 million, and $2.9 million of the purchase price was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively.
The business combination was not significant to our consolidated financial statements. Based on the purchase price allocation, approximately $2.4 million, $1.0 million, $0.1 million, and $2.9 million of the purchase price was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively.
Other identifiable intangible assets with finite lives, such as software products acquired in acquisitions, non-compete agreements, tradenames, and customer relationship assets, are amortized over their estimated lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows: acquired software — three to ten years; non-compete agreements — two to five years; customer relationships — 11 to 16 years; and trademarks — 10 to 17 years.
Other identifiable intangible assets with finite lives, such as software products acquired in acquisitions, non-compete agreements, trade names, customer relationship assets, and patents, are amortized over their estimated lives using either a straight-line method or a method based on pattern of expected economic benefit of the asset as follows: acquired software — 3 to 15 years; non-compete agreements — 2 to 5 years; customer relationships — 11 to 16 years; trade names — 10 to 20 years; and patents — 5 years.
Net cash provided by operating activities for the year ended December 31, 2022, was $92.5 million, compared to $60.4 million for the year ended December 31, 2021.
Net cash provided by operating activities for the year ended December 31, 2023 was $82.8 million, compared to $92.5 million for the year ended December 31, 2022.
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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 2021 2022 ​ ​ Q1 ​ Q2 ​ Q3 ​ Q4 ​ FULL YEAR ​ Q1 ​ Q2 ​ Q3 ​ Q4 ​ FULL YEAR ​ Q1 ​ Q2 ​ Q3 ​ Q4 ​ FULL YEAR Bookings 61.0 70.1 72.9 84.3 288.3 81.9 75.1 72.3 112.4 341.7 108.5 100.3 79.8 120.4 409.0 ​ Renewal Rate 92 % 96 % 84 % 89 % 90 % 92 % 90 % 87 % 96 % 92 % 92 % 92 % 93 % 88 % 91 % ​ ​ 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.
The table below summarizes our quarterly bookings and renewal rate trends: 2021 2022 2023 (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 % 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 had federal and state R&D tax credit carryforwards of approximately $0.4 million and $0.1 million, respectively, to offset future income taxes, which expire between 2025 and 2042. We also had foreign tax credits of approximately $10.6 million, which will start to expire in 2027.
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 also had foreign tax credits of approximately $13.8 million, which will start to expire in 2027.
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.
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. 54 T able of Contents We expect that our headcount will increase over time and also expect our total operating expenses will continue to increase over time.
Our solutions are underpinned by SaaS-based value communication tools. With continued innovation in and adoption of our biosimulation software, technology, and services, we believe more biopharmaceutical 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.
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.
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. ​ Executive Overview We accelerate medicines to patients using biosimulation software, technology, and services to transform traditional drug discovery and development.
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.
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.
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. 75 T able of Contents Revenue Recognition Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.
Support for the use of biosimulation in discovery and development from regulatory bodies, such as the FDA and EMA, has been critical to its rapid adoption by the biopharmaceutical industry.
Our Operating Environment The acceptance of model-informed biopharmaceutical discovery and development by regulatory authorities affects the demand for our products and services. Support for the use of biosimulation in discovery and development from regulatory bodies, such as the FDA and EMA, has been critical to its rapid adoption by the biopharmaceutical industry.
We build our biosimulation technology on first principles of biology, chemistry, and pharmacology with proprietary mathematical algorithms that model how medicines and diseases behave in the body. For over two decades, we have honed and validated our biosimulation technology with an abundance of data from scientific literature, lab research, and preclinical and clinical studies.
Our proprietary biosimulation platforms are built on biology, chemistry, and pharmacology principles with proprietary mathematical algorithms that model how medicines and diseases behave in the body. For over two decades, our scientists have developed and validated our biosimulation technology using data from scientific literature, laboratory research, preclinical and clinical studies.
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.
The business combination was not significant to the Company’s consolidated financial statements. 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.
Our review of impairment starts with performing a qualitative assessment to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the reporting units are less than their carrying amounts. Our qualitative assessment of the recoverability of goodwill considers various macroeconomic, industry-specific and company-specific factors.
The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. Our review of impairment starts with performing a qualitative assessment to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the reporting units are less than their carrying amounts.
Sales and marketing expenses increased primarily due to a $5.4 million increase in employee-related costs resulting from head count growth and a $0.5 million increase in professional and consulting costs as well as $0.1 million increase in equipment and software expenses, partially offset by a $5.2 million decrease in equity-based compensation cost.
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.
Our additional liquidity comes from several sources: maintaining adequate balances of cash and cash equivalents, issuing common stock, and accessing credit facilities and revolving line of credit.
Our additional sources of liquidity have included: maintaining adequate balances of cash and cash equivalents, sale of common stock, and accessing our credit facilities and the revolving line of credit.
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.
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. 78 T able of Contents Business Acquisitions When we acquire businesses, we allocate the purchase price to tangible assets and liabilities and identifiable intangible assets acquired at their acquisition date fair values.
The following table provides a summary of the major sources of liquidity for periods ended at December 31, 2022, 2021, and 2020 and as of December 31, 2022, 2021, and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ 2021 ​ ​ 2020 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 92,543 ​ $ 60,388 ​ $ 44,810 Cash and cash equivalents (1) ​ $ 236,586 ​ $ 185,797 ​ $ 271,382 Proceeds from issuing common stock ​ $ — ​ $ 133,351 ​ $ 316,301 Term loan credit facilities ​ $ 297,470 ​ $ 300,490 ​ $ 304,099 Revolving line of credit ​ $ 100,000 ​ $ 100,000 ​ $ 20,000 (1) Cash balance as of December 31, 2022, 2021, and 2020 included $56.4 million, $39.8 million, and $19.9 million cash and cash equivalents held outside of the United States.
The following table provides a summary of the major sources of liquidity for periods ended December 31, 2023, 2022, and 2021. and as of December 31, 2023, 2022, and 2021. 71 T able of Contents 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 82,755 $ 92,543 $ 60,388 Cash and cash equivalents (1) $ 234,951 $ 236,586 $ 185,797 Proceeds from sales of common stock $ — $ — $ 133,351 Term loan credit facilities $ 294,450 $ 297,470 $ 300,490 Available revolving line of credit $ 100,000 $ 100,000 $ 100,000 __________________________________ (1) Cash balance as of December 31, 2023, 2022, and 2021 included $47.3 million, $56.4 million, and $39.8 million, respectively, of cash and cash equivalents held outside of the United States.
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. Potential payments range from $0 to $60 million over the three years period. The fair value of the contingent consideration was estimated to be $19.8 million as of the acquisition date.
Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively. The fair value of the contingent consideration was estimated to be $5.4 million as of the acquisition date.
Arrangements with Multiple Performance Obligations For contracts with multiple performance obligations, such as a software license plus software training, implementation, and/or maintenance/support, or in contracts where there are multiple software licenses, the Company determines if the products or services are distinct and allocates the consideration to each distinct performance obligation on a relative standalone selling price basis (“SSP”).
Any unrecognized portion of amounts paid in advance for licenses and services is recorded as deferred revenue. 76 T able of Contents 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”).
The increase was primarily due to a $10.0 million increase in employee-related costs resulting from billable head count growth, a $2.8 million increase in consulting costs, and $1.4 million increase in intangible assets amortization, partially offset by a $3.6 million decrease in equity-based compensation cost. Excluding $0.8 million expense from Pinnacle, the cost of revenue increased $10.1 million.
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.
Changes in our operating assets and liabilities used cash and cash equivalents of approximately $6.7 million. Investing Activities Net cash used in investing activities for the year ended December 31, 2022, was $27.8 million, a decrease of $242.1 million, compared to $269.9 million for the year ended December 31, 2021.
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.
We recognize revenue when control of the promised good or service is transferred to the customer in an amount that reflects the consideration for which we are expected to be entitled in exchange for those services.
We consider various factors when making these judgments. Our revenue is primarily derived from the sale of software products and delivery of consulting services. We recognize revenue when control of the promised good or service is transferred to the customer in an amount that reflects the consideration for which we are expected to be entitled in exchange for those services.
Net other income (expense) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, CHANGE ​ 2022 2021 $ % ​ ​ (in thousands) Net other income (expense) ​ $ 4,007 ​ $ (117) ​ $ 4,124 ​ nm ​ % of total revenues ​ 1 % (0) % ​ ​ ​ Net other income (expense) increased by $4.1 million to $4.0 million for the year ended December 31, 2022, as compared to 2021.
Net Other Income (Expense) YEAR ENDED DECEMBER 31, CHANGE 2023 2022 $ % (in thousands) Net other income (expense) $ 8,547 $ 4,007 $ 4,540 113 % % 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.
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.
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.
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, acquisition and integration expense, and other items not indicative of our ongoing operating performance.
We believe that presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business. 55 T able of Contents 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.
Our income tax expense for the year ended December 31, 2021 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 expense for the year ended December 31, 2023 was primarily due to the impact 67 T able of Contents of non-deductible items, the impact of valuation allowances recorded against certain tax attributes, and the relative mix of domestic and international earnings.
“Business Combinations” in the notes to the consolidated financial statements. 59 Table of Contents Results of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ DECEMBER 31, ​ 2022 2021 2020 ​ (dollars in thousands) Statement of operations data: ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues ​ $ 335,644 ​ $ 286,104 ​ $ 243,530 Cost of revenues ​ 132,577 ​ 111,616 ​ ​ 100,765 Operating expenses: ​ ​ ​ ​ Sales and marketing ​ 27,408 ​ 20,141 ​ ​ 19,202 Research and development ​ 28,205 ​ 20,379 ​ ​ 19,644 General and administrative ​ 71,773 ​ 79,539 ​ ​ 88,482 Intangible asset amortization ​ 41,429 ​ 38,715 ​ ​ 37,414 Depreciation and amortization expense ​ 1,731 ​ 2,135 ​ ​ 2,443 Total operating expenses ​ 170,546 ​ 160,909 ​ ​ 167,185 Income (loss) from operations ​ 32,521 ​ 13,579 ​ ​ (24,420) Other expenses: ​ ​ ​ ​ ​ Interest expense ​ (17,773) ​ (16,837) ​ ​ (25,296) Net other income (expense) ​ 4,007 ​ (117) ​ ​ (465) Total other expenses ​ (13,766) ​ (16,954) ​ ​ (25,761) Income (loss) before income taxes ​ 18,755 ​ (3,375) ​ ​ (50,181) Provision for (benefit from) income taxes ​ 4,024 ​ 9,891 ​ ​ (784) Net Income (loss) ​ $ 14,731 ​ $ (13,266) ​ $ (49,397) ​ Comparison of the Years Ended December 31, 2022 and 2021 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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.
“Business Combinations” in the notes to the consolidated financial statements. 63 T able of Contents Results of Operations YEAR ENDED DECEMBER 31, 2023 2022 2021 (dollars in thousands) Statement of operations data: Revenues $ 354,337 $ 335,644 $ 286,104 Cost of revenues 141,022 132,577 111,616 Operating expenses: Sales and marketing 32,022 27,408 20,141 Research and development 34,173 28,205 20,379 General and administrative 95,385 71,773 79,539 Intangible asset amortization 43,973 41,429 38,715 Depreciation and amortization expense 1,552 1,731 2,135 Goodwill impairment expense 46,984 — — Total operating expenses 254,089 170,546 160,909 Income (loss) from operations (40,774) 32,521 13,579 Other expenses: Interest expense (22,916) (17,773) (16,837) Net other income (expense) 8,547 4,007 (117) Total other expenses (14,369) (13,766) (16,954) Income (loss) before income taxes (55,143) 18,755 (3,375) Provision for income taxes 214 4,024 9,891 Net income (loss) $ (55,357) $ 14,731 $ (13,266) Comparison of the Years Ended December 31, 2023 and 2022 Revenues YEAR ENDED DECEMBER 31, CHANGE 2023 2022 $ % (in thousands) Software $ 131,677 $ 115,466 $ 16,211 14 % Services 222,660 220,178 2,482 1 % Total revenues $ 354,337 $ 335,644 $ 18,693 6 % 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 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.
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.
Depreciation and Amortization Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ CHANGE ​ ​ 2021 2020 $ % ​ ​ ​ (in thousands) ​ Depreciation and amortization ​ $ 2,135 ​ $ 2,443 ​ $ (308) ​ (13) % % of total revenues ​ ​ 1 % ​ 1 % ​ ​ ​ ​ Depreciation and amortization expense decreased by $0.3 million, or (13) %, to $2.1 million for the year ended December 31, 2021 as compared to 2020.
Depreciation and Amortization Expense YEAR ENDED DECEMBER 31, CHANGE 2023 2022 $ % (in thousands) Depreciation and amortization $ 1,552 $ 1,731 $ (179) (10) % % 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.
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 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 are unconditionally guaranteed by our wholly owned direct and indirect subsidiaries, subject to certain exceptions.
When 71 Table of Contents performing our market approach, we rely specifically on the guideline public company method. Our guideline public company method incorporates revenues and EBITDA multiples from publicly traded companies with operations and other characteristics similar to our entity.
Our guideline public company method incorporates revenues and EBITDA multiples from publicly traded companies with operations and other characteristics similar to our entity.
The decrease in general and administrative expenses was primarily 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. ​ 61 Table of Contents 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 decrease in general and administrative expenses was primarily 69 T able of Contents 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 ​ ​ 2021 2020 $ % ​ ​ ​ (in thousands) ​ Intangibles asset amortization ​ $ 38,715 ​ $ 37,414 ​ $ 1,301 ​ 3 % % of total revenues ​ ​ 14 % ​ 15 % ​ ​ ​ 64 Table of Contents Intangible asset amortization expense increased by $1.3 million, or 3%, to $38.7 million for the year ended December 31, 2021 as compared to 2020.
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.
Revenue Recognition Application of GAAP related 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.
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. Revenue recognition is also impacted by our ability to determine when a contract is probable of collection and to estimate variable consideration.
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.
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.
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. Pinnacle has been included in our consolidated results of operations since the date of acquisition. Integrated Nonclinical Development Solutions, Inc.
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. 61 T able of Contents Integrated Nonclinical Development Solutions, Inc. On January 3, 2022, we completed an acquisition for a total consideration of $8.0 million.
Due to the quick nature of the performance obligation from start to finish and the insignificant amounts, the Company recognizes any software training or implementation revenue at the completion of the service. Any unrecognized portion of amounts paid in advance for licenses and services is recorded as deferred revenue.
Due to the quick nature of the performance obligation from start to finish and the insignificant amounts, we recognize any software training or implementation revenue at the completion of the service.
The decrease was primarily due to increase in revenues and decrease in stock-based compensation expense and interest costs in 2021 compared to 2020, partially offset by increase in cost of revenue, employee-related costs, acquisition costs, and taxes. ​ Liquidity and Capital Resources We have consistently generated positive cash flow from operations, providing $92.5 million, $60.4 million, and $44.8 million as a source of funds each year for the years ended December 31, 2022, 2021, and 2020, respectively.
Liquidity and Capital Resources We have consistently generated positive cash flow from operations, providing $82.8 million, $92.5 million, and $60.4 million as a source of funds each year for the years ended December 31, 2023, 2022, and 2021, respectively.
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 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.
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.
General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses. ● Intangible Asset Amortization . Intangible asset amortization consists primarily of amortization expense related to intangible assets recorded in connection with acquisitions and amortization of capitalized software development costs. ● Depreciation and Amortization Expense .
Intangible asset amortization consists primarily of amortization expense related to intangible assets recorded in connection with acquisitions and amortization of capitalized software development costs. • Depreciation and Amortization Expense. Depreciation and amortization expense consists of depreciation of property and equipment and amortization of leasehold improvements. Other Expenses • Interest Expense.
As of December 31, 2022, we had $297.5 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement, and outstanding letters of credit of $0.1 million under the Credit Agreement. As of December 31, 2022, we were in compliance with the covenants of the Credit Agreement.
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.
Sales and Marketing Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ CHANGE ​ ​ 2021 2020 $ % ​ ​ ​ (in thousands) ​ Sales and marketing ​ $ 20,141 ​ $ 19,202 ​ $ 939 ​ 5 % % of total revenues ​ ​ 7 % ​ 8 % ​ ​ ​ Sales and marketing increased by $0.9 million, or 5%, to $20.1 million for the year ended December 31, 2021, as compared to 2020.
Sales and Marketing Expense YEAR ENDED DECEMBER 31, CHANGE 2023 2022 $ % (in thousands) Sales and marketing $ 32,022 $ 27,408 $ 4,614 17 % % of total revenues 9 % 8 % 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.
Off-Balance Sheet Arrangements During the periods presented, we did not have, and currently we do not have, any significant off-balance sheet arrangements, as defined under the rules and regulations of the SEC. 69 Table of Contents Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP.
Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP.
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 consideration as a liability in a recent acquisition and will remeasure the fair value of contingent liability quarterly until the contingency is resolved.
Any residual purchase price is recorded as goodwill. We also estimate the fair value of any contingent consideration using Level 3 unobservable inputs. Our estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management.
Depreciation and amortization expense consists of depreciation of property and equipment and amortization of leasehold improvements. Other Expenses ● Interest Expense . Interest expense consists primarily of interest expense associated with the Credit Agreement, including amortization of debt issuance costs and discounts. ● Net Other Income (Expense) .
Interest expense consists primarily of interest expense associated with the Credit Agreement, including amortization of debt issuance costs and discounts. • Net Other Income (Expense). Net other income (expense) consists of miscellaneous non-operating expenses primarily comprised of foreign exchange transaction gains and losses. • Provision for (Benefit from) Income Taxes.
Comparison of the Years Ended December 31, 2021 and 2020 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ ​ ​ ​ ​ DECEMBER 31, ​ CHANGE ​ ​ 2021 2020 $ % ​ ​ ( in thousands) Software ​ $ 86,825 ​ $ 73,463 ​ $ 13,362 ​ 18 % Services ​ 199,279 ​ 170,067 ​ 29,212 ​ 17 % Total revenues ​ $ 286,104 ​ $ 243,530 ​ $ 42,574 ​ 17 % ​ Revenues increased by $42.6 million, or 17%, to $286.1 million for the year ended December 31, 2021, as compared to the same period in 2020.
Comparison of the Years Ended December 31, 2022 and 2021 Revenues 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 quantitative assessments resulted in no impairment as the estimated fair value of each reporting unit exceeded its carrying value. Our other intangible assets primarily consist of customer relationship assets, software products acquired in acquisitions, tradenames, software development costs, and non-compete agreements.
Our other intangible assets primarily consist of customer relationship assets, software products acquired in acquisitions, trade names, software development costs, and non-compete agreements.
Research and Development Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED DECEMBER 31, ​ CHANGE ​ ​ 2021 2020 $ % ​ ​ ​ (in thousands) ​ Research and development ​ $ 20,379 ​ $ 19,644 ​ $ 735 ​ 4 % % of total revenues ​ ​ 7 % ​ 8 % ​ ​ ​ ​ Research and development expenses increased by $0.7 million, or 4%, to $20.4 million for the year ended December 31, 2021 as compared to 2020.
Research and Development Expense YEAR ENDED DECEMBER 31, CHANGE 2023 2022 $ % (in thousands) Research and development $ 34,173 $ 28,205 $ 5,968 21 % % of total revenues 10 % 8 % 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.

… 118 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+1 added−1 removed9 unchanged
Biggest changeThis account exists only in the foreign subsidiary’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet, stated in U.S. dollars, in balance. 73 Table of Contents We report translation adjustments within accumulated other comprehensive loss as a separate component of stockholders’ equity on our consolidated balance sheets.
Biggest changeWe report translation adjustments within accumulated other comprehensive loss as a separate component of stockholders’ equity on our consolidated balance sheets. Gains or losses from translating amounts in foreign currencies are recorded in other comprehensive income (loss) on our consolidated statements of operations and comprehensive income (loss).
Interest Rate Risk We have borrowings under our Credit Agreement that bear interest at a rate per annum equal to either (a) 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 (b) 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.
Interest Rate Risk We have borrowings under our Credit Agreement that originally bear interest at a rate per annum equal to either (a) 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 3.50% and 4.00% for revolving credit loans, depending on the applicable first lien leverage ratio, or (b) 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.
Translation Risk We are exposed to movements in foreign currencies, predominately in U.S. dollars, pounds sterling, euros, or Japanese yen, with the majority in U.S. dollars. The vast majority of our contracts are entered into by our U.S. and U.K., E.U., and Japanese subsidiaries. Contracts entered into by our U.S. subsidiaries are almost always denominated in U.S. dollars.
Translation Risk We are exposed to movements in foreign currencies, predominately in U.S. dollars, British pounds sterling, Euros, or Japanese yen, with the majority in U.S. dollars. The vast majority of our contracts are entered into by our U.S. and U.K., E.U., and Japanese subsidiaries. Contracts entered into by our U.S. subsidiaries are almost always denominated in U.S. dollars.
Our strategy for managing foreign currency risk relies on efforts to negotiate customer contracts to receive payment in the same currency used to pay expenses. As of December 31, 2022, we had no outstanding foreign currency forward contracts. Foreign currency exchange rate risk is evidenced in our consolidated financial statements through translation risk and transaction and re-measurement risk.
Our strategy for managing foreign currency risk relies on efforts to negotiate customer contracts to receive payment in the same currency used to pay expenses. As of December 31, 2023, we had no outstanding foreign currency forward contracts. Foreign currency exchange rate risk is evidenced in our consolidated financial statements through translation risk and transaction and re-measurement risk.
If the U.S. dollar had weakened 10% or strengthened 10% relative to the pound sterling, the euro, and the Japanese yen in the year ended December 31, 2022, income from operations would have been lower or higher by approximately $2.2 million, based on revenues and costs related to our foreign operations.
If the U.S. dollar had weakened 10% or strengthened 10% relative to the pound sterling, the euro, and the Japanese yen in the year ended December 31, 2023, income from operations would have been lower or higher by approximately $2.4 million, based on revenues and costs related to our foreign operations.
Foreign Currency Exchange Rate Risk We are exposed to foreign currency exchange rate risk by virtue of our international operations. This risk arises because we use different currencies to recognize revenue and pay operating expenses. We derived 26% of our revenue for the year ended December 31, 2022 from operations outside of the United States.
Foreign Currency Exchange Rate Risk We are exposed to foreign currency exchange rate risk by virtue of our international operations. This risk arises because we use different currencies to recognize revenue and pay operating expenses. We derived 27% of our revenue for the year ended December 31, 2023 from operations outside of the United States.
Changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of foreign subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results.
Changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of foreign subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial 79 T able of Contents results.
However, new or modified exchange control restrictions could have an adverse effect on our ability to repatriate cash to fund our operations and make principal and interest payments, when necessary. ​ 74 Table of Contents ​ ​ ​
However, new or modified exchange control restrictions could have an adverse effect on our ability to repatriate cash to fund our operations and make principal and interest payments, when necessary. 81 T able of Contents
As of December 31, 2022, we recorded the fair value of our interest rate swaps in the amount of $8.4 million as a derivative asset included in prepaid expenses and other assets in our consolidated balance sheets.
Our exposure to interest rate risk is minimized by our interest rate swaps. As of December 31, 2023, we recorded the fair value of our interest rate swaps in the amount of $5.6 million as a derivative asset included in prepaid expenses and other assets in our consolidated balance sheets.
Translation of the balance sheet in this manner affects stockholders’ equity through the foreign currency translation adjustment account.
Translation of the balance sheet in this manner affects stockholders’ equity through the foreign currency translation adjustment account. This account exists only in the foreign subsidiary’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet, stated in U.S. dollars, in balance.
Gains or losses from translating amounts in foreign currencies are recorded in other comprehensive income (loss) on our consolidated statements of operations and comprehensive income (loss). Transaction and Re-measurement Risk We have currency risk resulting from the passage of time between the recognition of revenue, invoicing of customers under contracts, and the collection of payment.
Transaction and Re-measurement Risk We have currency risk resulting from the passage of time between the recognition of revenue, invoicing of customers under contracts, and the collection of payment.
The ABR is determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.5% or (c) the Eurocurrency rate plus 1.0%.
The ABR is determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.5% or (c) the Eurocurrency rate plus 1.0%. 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”).
Each quarter basis point increase in the Eurocurrency rate would increase interest expense on our current variable rate debt by approximately $0.2 million for the year ended December 31, 2022. Our exposure to interest rate risk is minimized by our interest rate swaps.
As of December 31, 2023, we had $294.5 million of outstanding borrowings on the term loan, no outstanding borrowings under the revolving credit facility. Each quarter basis point increase in the SOFR rate would increase interest expense on our current variable rate debt by approximately $0.2 million for the year ended December 31, 2023.
Removed
As of December 31, 2022, we had $297.5 million of outstanding borrowings on the term loan, no outstanding borrowings under the revolving credit facility and an outstanding letter of credit of $0.1 million under the Credit Agreement.
Added
As part of this modification, a Credit Spread Adjustment (“CSA”) was introduced to aligning SOFR with LIBOR in terms of 80 T able of Contents the overall interest rate earned by lenders under the Credit Agreement. The CSA varied depending on the selected interest period.

Other CERT 10-K year-over-year comparisons