CERT 10-Q

Certara, Inc. (CERT)

10-Q 2021-05-07 For: 2021-03-31

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Title of Each Class	Trading symbol	Name of Exchange on which registered
Common stock, par value $0.01 per share	CERT	The Nasdaq Stock Market LLC


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐	Emerging growth company	☒

HIDDEN_ROW
Item		Page
	PART 1 – FINANCIAL INFORMATION

1.	Financial Statements (Unaudited)	6

	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	6

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020	7

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020	8

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	10

	Notes to Condensed Consolidated Financial Statements	11

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

3.	Quantitative and Qualitative Disclosures About Market Risk	35

4.	Controls and Procedures	35


	PART II – OTHER INFORMATION

1.	Legal Proceedings	36

1A.	Risk Factors	36

2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

3.	Defaults Upon Senior Securities	36

4.	Mine Safety Disclosures	36

5.	Other Information	36

6.	Exhibits	36

SIGNATURE		38


	MARCH 31,		DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	272,988	$	271,382
Accounts receivable, net of allowance for doubtful accounts of $131 and $132, respectively		54,402		54,091
Restricted cash		733		1,909
Prepaid expenses and other current assets		19,438		19,202
Total current assets		347,561		346,584
Other assets:
Property and equipment, net		3,505		3,872
Long-term deposits		1,184		1,163
Goodwill		519,226		518,592
Intangible assets, net of accumulated amortization of $137,193 and $127,172, respectively		388,225		396,445
Deferred income taxes		2,923		2,744
Total assets	$	1,262,624	$	1,269,400
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,593	$	6,394
Accrued expenses		19,415		30,729
Current portion of deferred revenue		29,802		30,662
Current portion of interest rate swap liability		2,603		2,605
Current portion of long-term debt		4,680		4,680
Current portion of capital lease obligations		279		275
Total current liabilities		63,372		75,345
Long-term liabilities:
Capital lease obligations, net of current portion		246		318
Deferred revenue, net of current portion		853		545
Deferred income taxes		76,085		75,894
Long-term portion of interest rate swap liability		430		1,066
Long-term debt, net of current portion and debt discount		293,689		294,100
Other long-term liabilities		682		—
Total liabilities		435,357		447,268
Commitments and contingencies
Stockholders' equity:
Preferred shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		—		—
Common shares, $0.01 par value, 600,000,000 shares authorized, 152,979,479 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		1,529		1,529
Additional paid-in capital		889,679		884,528
Accumulated deficit		(61,286)		(62,338)
Accumulated other comprehensive loss		(2,655)		(1,587)
Total stockholders’ equity		827,267		822,132
Total liabilities and stockholders’ equity	$	1,262,624	$	1,269,400


	THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)	2021		2020
Revenues	$	66,718	$	57,449
Cost of revenues		26,016		22,183
Operating expenses:
Sales and marketing		3,752		2,938
Research and development		4,706		2,875
General and administrative		16,562		11,541
Intangible asset amortization		9,456		9,359
Depreciation and amortization expense		602		553
Total operating expenses		35,078		27,266
Income from operations		5,624		8,000
Other income (expenses):
Interest expense		(3,928)		(6,858)
Miscellaneous, net		(117)		525
Total other income (expenses)		(4,045)		(6,333)
Income before income taxes		1,579		1,667
Provision for income taxes		527		621
Net income		1,052		1,046
Other comprehensive loss:
Foreign currency translation adjustment		(1,545)		(3,332)
Change in fair value of interest rate swap, net of tax of $161 and $(680)		477		(2,132)
Total other comprehensive loss		(1,068)		(5,464)
Comprehensive loss	$	(16)	$	(4,418)

Net income per share attributable to common stockholders:
Basic	$	0.01	$	0.01
Diluted	$	0.01	$	0.01
Weighted average common shares outstanding:
Basic		147,160,084		132,407,786
Diluted		152,084,745		132,407,786


								ACCUMULATED
								OTHER		TOTAL
(IN THOUSANDS,	COMMON STOCK			ADDITIONAL		ACCUMULATED		COMPREHENSIVE		STOCKHOLDERS'
EXCEPT SHARE DATA)	SHARES	AMOUNT		PAID-IN CAPITAL		DEFICIT		LOSS		EQUITY
Balance as of December 31, 2019	132,407,786	$	1,324	$	509,162	$	(12,941)	$	(5,497)	$	492,048
Equity compensation	—		—		538		—		—		538
Change in fair value of interest rate swap, net of tax	—		—		—		—		(2,132)		(2,132)
Net income	—		—		—		1,046		—		1,046
Foreign currency translation adjustment	—		—		—		—		(3,332)		(3,332)
Balance as of March 31, 2020	132,407,786	$	1,324	$	509,700	$	(11,895)	$	(10,961)	$	488,168


	THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)	2021		2020
Cash flows from operating activities:
Net income	$	1,052	$	1,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment		602		553
Amortization of intangible assets		10,102		9,930
Amortization of debt issuance costs		378		382
Recovery of doubtful accounts		(1)		(17)
Equity-based compensation expense		5,151		538
Deferred income taxes		12		1,084
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(2)		49
Prepaid expenses and other current assets		(673)		(2,025)
Accounts payable and accrued expenses		(11,180)		(1,274)
Deferred revenue		(507)		(1,443)
Net cash provided by operating activities		4,934		8,823
Cash flows from investing activities:
Capital expenditures		(222)		(459)
Capitalized development costs		(1,192)		(1,875)
Business acquisitions, net of cash acquired		(2,044)		(675)
Net cash used in investing activities		(3,458)		(3,009)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		(855)		(849)
Proceeds from line of credit		—		19,880
Net cash provided by (used in) financing activities		(855)		19,031
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		(191)		(251)
Net increase in cash, cash equivalents, and restricted cash		430		24,594
Cash, cash equivalents, and restricted cash, at beginning of period		273,291		29,762
Cash, cash equivalents, and restricted cash, at end of period	$	273,721	$	54,356
Supplemental disclosures of cash flow information
Cash paid for interest	$	3,552	$	8,987
Cash paid for taxes	$	1,644	$	1,763
Supplemental schedule of noncash investing and financing activities
Liabilities assumed in connection with business acquisition	$	921	$	—
Property and equipment controlled through new capital leases	$	—	$	831


	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Liability
Interest rate swap liability	$	—	$	3,033	$	—	$	3,033
Total	$	—	$	3,033	$	—	$	3,033


	2021		2022		2023		2024		TOTAL
Maturities	$	3,891	$	3,153	$	3,153	$	293,113	$	303,310


	OPERATING		CAPITAL
	LEASES		LEASES
Remainder of 2021	$	4,418	$	228
2022		4,768		304
2023		3,268		25
2024		2,612		—
2025		2,069		—
Thereafter		2,381		—
Non-cancelable future minimum lease payments		19,516		557
Less amount representing interest		—		(32)
Net non-cancelable future minimum lease payments	$	19,516	$	525
Current portion of net non-cancelable future minimum lease payments				279
Net long-term non-cancelable future minimum lease payments			$	246


		WEIGHTED-
		AVERAGE
		GRANT DATE
	SHARES	FAIR VALUE
Non-vested restricted stock as of December 31, 2020	5,941,693	$	23.00
Exchanged
Granted	—		—
Vested	310,762		23.00
Forfeited	—		—


	THREE MONTHS ENDED MARCH 31,				CHANGE
	2021		2020		$		%

	( in thousands)
Software	$	21,904	$	20,261	$	1,643	8	%
Services		44,814		37,188		7,626	21	%
Total revenues	$	66,718	$	57,449	$	9,269	16	%




		Incorporated by Reference
Exhibit Number	Exhibit Title		Form	File No.	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation of Certara, Inc.		S-8	333-251368	4.1	12/15/2020
3.2	Amended and Restated Bylaws of Certara, Inc.		S-8	333-251368	4.2	12/15/2020
10.1	Form of Performance Stock Unit Grant Notice and Agreement for Certara, Inc. 2020 Incentive Plan†*
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)


	CERTARA, INC.

Date: May 7, 2021	By:	/s/ William F. Feehery
	Name:	William F. Feehery
	Title:	Chief Executive Officer (Principal Executive Officer)
Date: May 7, 2021	By:	/s/ M. Andrew Schemick
	Name:	M. Andrew Schemick
	Title:	Chief Financial Officer (Principal Financial Officer)