Certara, Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; comparison is Q1 2021. Certara provides biosimulation software and technology-driven services for drug development, regulatory submissions, and market access. Amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $81.6 | $66.7 | +22% |
| Gross profit / margin | $48.8 / 59.8% | $40.7 / 61.0% | Margin down 1.2 points |
| Operating income / margin | $6.1 / 7.5% | $5.6 / 8.4% | Income +9% |
| Net income / margin | $2.2 / 2.7% | $1.1 / 1.6% | Income +110% |
| Adjusted EBITDA (non-GAAP) | $27.7 | $23.9 | +16% |
| Operating cash flow | $9.8 | $4.9 | +$4.9 |
- Software revenue increased 33% to $29.2 million, including $5.6 million from Pinnacle 21; excluding Pinnacle, software revenue grew 8%. Services revenue rose 17% to $52.4 million. Excluding Pinnacle revenue of $6.0 million, total revenue grew 13%.
- Bookings were $108.5 million versus $81.9 million; software renewal rate was 92% in both periods. Remaining performance obligations were approximately $101.2 million.
- Operating expenses increased 22% to $42.6 million. Sales and marketing rose 63%, R&D 60%, and G&A 11%; higher staffing and equity compensation were important drivers. Equity-based compensation was $7.5 million versus $5.2 million.
- Cash and cash equivalents were $184.3 million at quarter-end, down from $185.8 million at year-end. Operating cash flow was $9.8 million; investing used $8.7 million, including $6.0 million for acquisitions, and financing used $1.5 million. Cash and restricted cash declined $1.6 million overall.
- Debt principal was $299.7 million, with $291.3 million reported as long-term debt net of current portion and debt issuance costs. The company had $100 million of revolver availability and was compliant with debt covenants. The term loan matures in 2026; $288.4 million of principal is scheduled for 2026.
Changes, outlook, and risks
- Revenue growth reflected customer expansion, new customers, service demand, and acquisitions, particularly Pinnacle 21, acquired in October 2021. INDS was acquired in January 2022 for $8.1 million; its purchase-price allocation remained preliminary.
- Gross and operating margins declined as costs and operating expenses grew faster than revenue. Net income benefited from higher revenue, lower interest expense, and foreign-currency gains; the effective tax rate increased to 41% from 33%.
- Foreign-currency translation contributed a $3.2 million other comprehensive loss, resulting in a $0.9 million comprehensive loss despite positive net income.
- No specific numerical full-year revenue or earnings guidance is provided in the filing. Management expects continued investment in staff, sales and marketing, and R&D; it expects operating expenses to rise in dollars but at a slower rate than revenue, and believes available liquidity will meet foreseeable needs.
- Management described Omicron-related trial closeout and regulatory-project delays and temporary workforce utilization impacts as short-term and immaterial overall. Risks include competition, customer renewals and project timing, regulatory acceptance of biosimulation, acquisition integration, cybersecurity and data protection, and variable-rate debt exposure.
- Control weakness: Disclosure controls were deemed ineffective due to a material weakness in IT general controls. Management reported remediation progress and expected completion by September 30, 2022; it concluded the financial statements fairly present the company’s results.
- Management reported no material changes to previously disclosed legal proceedings, contractual obligations, or market-risk exposure; no material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How much of subsequent growth is organic versus acquired, and whether bookings convert into recognized revenue.
- Whether margin pressure eases as hiring, equity compensation, and acquisition-related costs evolve.
- Progress and completion of remediation of the IT-control material weakness.
- Debt repayment capacity and interest-rate exposure after the interest-rate hedge noted in the filing was scheduled to run through May 31, 2022.
- Whether COVID-related project delays, customer spending, or regulatory changes materially affect demand beyond management’s assessment.