Certara, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 earnings release. Certara provides biosimulation software and technology-driven services for drug development, regulatory submissions, and market access.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $286.1 million | $243.5 million | +17% |
| Software revenue | $86.8 million | $73.5 million | +18% |
| Services revenue | $199.3 million | $170.1 million | +17% |
| Gross profit / margin | $174.5 million / 61.0% | $142.8 million / 58.6% | Margin increased |
| Operating income (loss) | $13.6 million | ($24.4 million) | Improved |
| Net loss | ($13.3 million) | ($49.4 million) | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $103.7 million | $87.9 million | +18% |
| Operating cash flow | $60.4 million | $44.8 million | +$15.6 million |
Revenue growth reflected renewals, customer expansion, new customers, and the Pinnacle 21 acquisition. Excluding Pinnacle’s $6.1 million contribution, revenue increased 15%. Adjusted EBITDA and other non-GAAP measures are supplemental and exclude specified expenses.
- Margins and expenses: Cost of revenue increased 11%, slower than revenue. Research and development was $20.4 million (about 7% of revenue). General and administrative expense declined 10% to $79.5 million, partly reflecting lower stock-based compensation, while acquisition costs rose.
- Taxes: The company reported a $3.4 million pretax loss but a $9.9 million income tax expense, producing a 2021 net loss and an unusual effective tax rate of (293.1%). Management attributed tax expense mainly to jurisdictional tax-rate changes, nondeductible items, and the geographic mix of earnings.
- Liquidity: Cash and cash equivalents were $185.8 million at year-end, down from $271.4 million. Current assets were $274.7 million and current liabilities $92.2 million. The company said existing liquidity should fund operations and contractual obligations for the foreseeable future.
- Cash flow and investment: Operating activities provided $60.4 million. Investing activities used $269.9 million, principally for acquisitions; financing activities provided $123.4 million. Cash paid for interest was $14.2 million.
- Debt: Term-loan borrowings were $300.5 million gross ($291.7 million long-term debt net of current portion and debt discount). The $100 million revolving facility had no borrowings and approximately $99.8 million available after letters of credit. Term-loan maturity was extended to August 2026; the debt carries variable rates and is secured by substantially all assets, subject to exceptions. The company reported covenant compliance at year-end.
Material changes and notable items
- Completed the $339.1 million Pinnacle 21 acquisition in October 2021, funded with cash and 2.24 million shares. Pinnacle contributed $6.1 million of revenue after acquisition; purchase accounting recorded substantial acquired intangibles and goodwill. The purchase price allocation was preliminary.
- Bookings rose to $341.7 million from $288.3 million, but the filing cautions that bookings and backlog are not reliable guarantees of future revenue. Software renewal rate was 92% for 2021; customer count with annual revenue of at least $100,000 rose to 299 from 261.
- Issued 4.5 million primary shares in September 2021, generating $134.1 million net proceeds. Other 2021 offerings were secondary sales by existing stockholders and generated no proceeds for Certara.
- Goodwill and other intangible assets increased materially, with total reported at $1.2 billion at year-end. The annual goodwill impairment test found no impairment.
Outlook, commentary, and risks
Management described demand for biosimulation and its integrated platform as expanding and expects continued investment in scientific talent, R&D, sales and marketing, and acquisitions. It expects operating expenses to rise, but at a slower rate than revenue. The filing provides no specific FY2022 revenue or earnings guidance.
Management characterized Omicron-related effects—including reduced employee and client capacity and delays in regulatory-services projects—as transitory, while acknowledging uncertainty from COVID-19. Principal risks include customer R&D spending and contract delays, competition and pricing pressure, customer concentration (the ten largest customers generated 29% of revenue), acquisition integration and valuation, foreign exchange exposure, data security and privacy compliance, and variable-rate debt and refinancing needs.
Controls and audit: Management and the independent auditor concluded internal control over financial reporting was ineffective at December 31, 2021 due to a material weakness in IT general controls over a cloud system used for project setup and time submissions. No financial-statement misstatements were identified. The auditor issued an adverse opinion on internal controls but an unqualified opinion on the consolidated financial statements. Management expected remediation by or before September 30, 2022.
Contingencies and capital allocation: Management reported no pending or threatened litigation expected to have a material adverse effect. The company did not expect to pay dividends in the foreseeable future and intends to use earnings for operations, growth, and debt reduction.
Investor verification priorities
- Track remediation and independent validation of the IT-control material weakness, including whether controls operate effectively after the stated target date.
- Assess Pinnacle’s post-acquisition contribution, integration progress, and final purchase-price allocation against the preliminary valuation assumptions.
- Review cash generation and liquidity after acquisition spending, alongside the $300.5 million variable-rate term loan and its 2026 maturity.
- Compare bookings and renewal trends with recognized revenue; bookings may be delayed, reduced, or cancelled.
- Examine the drivers and sustainability of the unusual 2021 tax expense and the company’s valuation allowances and tax-credit carryforwards.