Certara, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative figures are for Q1 2022 unless otherwise noted. Amounts are in U.S. dollars. Certara provides biosimulation software and technology-driven services, alongside regulatory science and market-access solutions.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $90.3 million | $81.6 million | Up 11% |
| Software revenue | $33.0 million | $29.2 million | Up 13% |
| Services revenue | $57.3 million | $52.4 million | Up 9% |
| Gross profit / margin | $55.4 million / 61.4% | $48.8 million / 59.8% | Margin up 1.6 percentage points |
| Operating income / margin | $7.4 million / 8.2% | $6.1 million / 7.5% | Income up 21% |
| Net income | $1.4 million | $2.2 million | Down 39% |
| Adjusted EBITDA (non-GAAP) | $32.3 million | $27.7 million | Up 17% |
| Adjusted net income (non-GAAP) | $19.3 million | $16.9 million | Up 14% |
| Operating cash flow | $10.0 million | $9.8 million | Up $0.2 million |
- Cash and cash equivalents were $244.1 million at March 31, 2023; restricted cash was an additional $3.1 million. Cash increased from $236.6 million at year-end 2022.
- Investing cash outflow was $2.7 million, versus $8.7 million in Q1 2022; financing cash outflow was $0.9 million, versus $1.5 million. The year-over-year investing change mainly reflects lower acquisition payments.
- Term-loan principal was $296.7 million, with $100.0 million available under the revolving facility and no revolver borrowings. The term loan matures in 2026; $288.4 million of principal is scheduled for that year. The company reported compliance with credit-agreement covenants.
- The term-loan effective interest rate was 8.03%, compared with 3.64% in Q1 2022. A $230 million interest-rate swap has a fixed rate of 2.8% and expires in August 2025.
- Current assets were $348.3 million and current liabilities $93.8 million. Principal debt less cash was approximately $52.6 million.
Material changes and operating indicators
- Revenue growth reflected expansion with existing customers and new customers, particularly in technology-driven services and software; foreign exchange partly offset growth.
- Operating expenses rose to $48.0 million from $42.6 million. Sales and marketing increased 31%, R&D 23%, and G&A 8%, principally reflecting employee-related costs, growth investments, and the contingent-consideration remeasurement.
- Interest expense increased 70% to $5.5 million, primarily because of higher market rates on floating-rate debt; $1.0 million of swap-related interest income partly offset the increase. Higher costs and interest expense outweighed revenue growth, reducing GAAP net income.
- Bookings were $112.7 million, up from $108.5 million. Software renewal rate was 90%, compared with 92%.
- Unsatisfied performance obligations totaled approximately $130.2 million; the company expected to recognize $114.7 million, or 88%, over the next 12 months.
Outlook, risks, and unusual items
- The filing provides no quantified revenue or earnings guidance. Management expects continued investment in scientific talent, sales and marketing, R&D, and operations, and expects headcount and operating expenses to increase over time. Management believes available cash, operating cash flow, and credit facilities will meet foreseeable needs, while noting that acquisitions or other growth opportunities could increase cash requirements.
- Management cited short-term delays in closing clinical trials and regulatory-services projects related to COVID-19, which it viewed as transitory but said it would continue to monitor. Other risks include competition, customer renewals and contract timing, regulatory acceptance of biosimulation, foreign exchange, and higher interest rates.
- Financial-services instability is a highlighted risk: substantially all cash is held at U.S. and multinational financial institutions, with deposits exceeding insured limits. Certara said it held no deposits or securities at Silicon Valley Bank, but future bank failures could affect access to cash; customer access to funds could also delay payments.
- The Vyasa acquisition’s contingent consideration liability was remeasured to $21.1 million, generating a $1.3 million Q1 expense. Potential payments can reach $60 million, depending on revenue thresholds through 2025.
- The company reported no pending or threatened litigation expected to materially affect its financial statements, no material off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2023.
Most important facts for investors to verify
- Whether bookings convert to recognized revenue and the 90% software renewal rate stabilizes or improves.
- How higher floating-rate borrowing costs affect earnings and cash flow, including the protection and limits of the interest-rate swap.
- Whether operating-expense growth and acquisition-related costs are matched by sustainable revenue and margin gains; review non-GAAP adjustments alongside GAAP results.
- Performance against Vyasa earn-out thresholds and the resulting contingent-consideration liability.
- Cash availability and customer payment behavior amid financial-sector risk, and the company’s ability to service debt and meet the 2026 maturity.