Certara, Inc. — Q1 2024 Form 10-Q
Business and period: Certara provides biosimulation software and technology-enabled services for biopharmaceutical drug development, regulatory submissions, and market access. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $96.7 million | $90.3 million | +7% |
| Gross profit / gross margin | $57.4 million / 59.4% | $55.4 million / 61.4% | Margin down about 2.0 percentage points |
| Operating income (loss) | ($1.3 million) | $7.4 million | Declined $8.7 million |
| Net income (loss) | ($4.7 million) | $1.4 million | Declined $6.0 million |
| Diluted EPS | ($0.03) | $0.01 | — |
| Adjusted EBITDA | $29.1 million | $32.3 million | Down $3.2 million |
| Operating cash flow | $4.3 million | $10.0 million | Down $5.7 million |
Software revenue rose 19% to $39.3 million, while services revenue was essentially flat at $57.3 million. Revenue growth was attributed primarily to software demand from existing and new customers and customer expansions. By geography, revenue increased in EMEA to $20.8 million from $16.9 million; Americas revenue was $69.2 million and Asia Pacific revenue was $6.6 million.
Cost of revenue increased 13% to $39.3 million, outpacing revenue growth. Operating expenses increased to $58.7 million from $48.0 million, including higher sales and marketing, R&D, G&A, and intangible amortization. The company cited headcount and employee-related costs, amortization, and acquisition-related contingent consideration remeasurement among the drivers. Adjusted net income was $16.5 million, down from $19.3 million; adjusted diluted EPS was $0.10 versus $0.12. These are non-GAAP measures.
Liquidity, debt, and balance sheet
- Cash and cash equivalents were $224.8 million at March 31, 2024, down from $235.0 million at year-end 2023. Cash and cash equivalents held outside the United States totaled $46.2 million.
- Operating cash flow was $4.3 million; investing cash outflow was $3.6 million, including $3.0 million of capitalized software development costs; financing cash outflow was $10.3 million, including $8.6 million of cash contingent-consideration payments. Cash declined $10.2 million during the quarter.
- Term-loan principal was $293.7 million, with $287.8 million reported as long-term debt net of current portion and debt discount. The $100 million revolving facility was undrawn and available. The term loan matures in August 2026; the revolver commitments terminate in August 2025.
- The term loan’s effective interest rate was 9.24% in Q1 2024, versus 8.03% in Q1 2023. A $230 million interest-rate swap at a fixed rate of 2.8% runs through August 2025. The company reported compliance with credit-agreement covenants.
- Management stated that existing liquidity is expected to meet working-capital, capital-expenditure, and contractual needs for the foreseeable future. Future capital needs may vary with acquisitions and other growth opportunities.
Changes, outlook, and risks
- Bookings were $105.8 million, down from $112.7 million. Net retention rate increased to 114.1% from 110.5%.
- Remaining performance obligations were approximately $115.4 million; the company expected to recognize about $102.2 million, or 88.6%, over the next 12 months.
- The filing provides no specific Q1 financial guidance or numerical full-year outlook. Management described continued investment in scientific talent, sales and marketing, R&D, operations, and complementary businesses, and expects headcount and total operating expenses to increase over time.
- Management noted that macroeconomic uncertainty, including inflation, interest rates, geopolitical conflicts, and lingering pandemic effects, may pose challenges, but characterized potential impacts as transitory. Other disclosed risks include market acceptance of biosimulation, competition, customer renewals and contract scope, regulation, acquisitions, cybersecurity and data reliability, and debt obligations.
- Acquisition-related contingent liabilities were $45.0 million at March 31, 2024. Q1 included $2.9 million of fair-value remeasurement expense in the cash-flow reconciliation. Formedix and ABM purchase-price allocations remain preliminary.
- The company reported no pending or threatened litigation expected to materially affect the financial statements, no material changes to previously disclosed risk factors, and effective disclosure controls as of quarter-end.
Investor facts to verify
- Whether software growth and bookings trends persist, given bookings declined while revenue and net retention improved.
- Whether margins and cash generation recover as operating costs rise and services revenue remains flat.
- Debt-service capacity and exposure to variable rates after the interest-rate swap expires in August 2025.
- Timing and final amounts of acquisition contingent consideration, and any adjustments to preliminary acquisition accounting.
- Assumptions supporting management’s liquidity outlook and the expected conversion of remaining performance obligations into revenue and cash.