10-Q 1 cert-20220930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission File Number: 001-39799

Certara, Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-2180925

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

100 Overlook Center

Suite 101

Princeton, New Jersey 08540

(Address of Principal Executive Offices)

(609) 716-7900

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of November 01, 2022, the registrant had 159,672,997 shares of common stock, par value $0.01 per share, outstanding.

Certara, Inc.

Unless otherwise indicated, references to the “Company,” “Certara,” “we,” “us,” and “our” refer to Certara, Inc. and its consolidated subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements (other than statements of historical facts) in this Quarterly Report regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “might,” “intend,” “will,” “estimate,” “anticipate,” “plan,” “believe,” “predict,” “potential,” “continue,” “suggest,” “project” or “target” or the negatives of these terms or variations of them or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot provide any assurance that these expectations will prove to be correct. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. The following factors are among those that may cause actual results to differ materially from the forward-looking statements:

our ability to compete within our market;
any deceleration in, or resistance to, the acceptance of model-informed biopharmaceutical discovery;
our ability to retain key personnel or recruit additional qualified personnel
our ability to successfully enter new markets, increase our customer base and expand our relationships with existing customers;
the occurrence of natural disasters and epidemic diseases, including the ongoing COVID 19 pandemic, which may result in delays or cancellations of customer contracts or decreased utilization by our employees;
changes or delays in government regulation relating to the biopharmaceutical industry;
increasing competition, regulation and other cost pressures within the pharmaceutical and biotechnology industries;
trends in research and development (“R&D”) spending and the use of third parties by biopharmaceutical companies;
the impact of macroeconomic trends including inflation and foreign currency exchange volatility;
consolidation within the biopharmaceutical industry;
reduction in the use of our products by academic institutions;
pricing pressures due to increased customer utilization of our products;
any delays or defects in our release of new or enhanced software or other biosimulation tools;
failure of our existing customers to renew their software licenses or any delays or terminations of contracts or reductions in scope of work by our existing customers;
our ability to accurately estimate costs associated with our fixed-fee contracts;
risks related to our contracts with government customers, including the ability of third parties to challenge our receipt of such contracts;
our ability to sustain recent growth rates;
the loss of more than one of our major customers;
any future acquisitions and our ability to successfully integrate such acquisitions;
the accuracy of our addressable market estimates;
the length and unpredictability of our software and service sales cycles;
our ability to successfully operate a global business;
our ability to comply with applicable anti-corruption, trade compliance and economic sanctions laws and regulations;
risks related to litigation against us;
the adequacy of our insurance coverage and our ability to obtain adequate insurance coverage in the future;
our ability to perform our services in accordance with contractual requirements, regulatory standards and ethical considerations;
the ability or inability of our bookings to accurately predict our future revenue and our ability to realize the anticipated revenue reflected in our backlog;

2

any disruption in the operations of the third-party providers who host our software solutions or any limitations on their capacity or interference with our use;
our ability to reliably meet our data storage and management requirements, or the experience of any failures or interruptions in the delivery of our services over the internet;
our ability to comply with the terms of any licenses governing our use of third-party open source software utilized in our software solutions;
any breach of our security measures or unauthorized access to customer data;
our ability to comply with applicable privacy and data security laws;
our future capital needs;
our ability to adequately enforce or defend our ownership and use of our intellectual property and other proprietary rights;
any allegations that we are infringing, misappropriating or otherwise violating a third party’s intellectual property rights;
our ability to meet the obligations under our current or future indebtedness as they become due and have sufficient capital to operate our business and react to changes in the economy or industry;
any limitations on our ability to pursue our business strategies due to restrictions under our current or future indebtedness or inability to comply with any restrictions under such indebtedness;
any impairment of goodwill or other intangible assets;
our ability to use our net operating loss (“NOLs”) and R&D tax credit carryforwards to offset future taxable income;
the accuracy of our estimates and judgments relating to our critical accounting policies and any changes in financial reporting standards or interpretations;
any inability to design, implement, and maintain effective internal controls when required by law, or inability to timely remediate internal controls that are deemed ineffective ; and
the other factors described elsewhere in this Quarterly Report, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Annual Report”), and in the other documents and reports we file with the Securities and Exchange Commission (the “SEC”).

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements in this Quarterly Report are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report and in our 2021 Annual Report, that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make in this Quarterly Report. Such risk factors may be updated from time to time in our periodic filings with the SEC. Our periodic filings are accessible on the SEC’s website at www.sec.gov.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur.  The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

3

Channels for Disclosure of Information

Investors and others should note that we may announce material information to the public through filings with the SEC, our Investors Relations website (https://ir.certara.com), press releases, public conference calls and public webcasts. We use these channels to communicate with the public about the Company, our products, our services and other matters. We encourage our investors, the media and others to review the information disclosed through these channels as such information could be deemed to be material information. The information on such channels, including on our website, is not incorporated by reference in this Quarterly Report and shall not be deemed to be incorporated by reference into any other filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing. Please note that this list of disclosure channels may be updated from time to time.

4

CERTARA, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

Item

Page

PART I – FINANCIAL INFORMATION

1.

Financial Statements (Unaudited)

6

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

6

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021

7

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021

8

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

10

Notes to Condensed Consolidated Financial Statements

11

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

3.

Quantitative and Qualitative Disclosures About Market Risk

46

4.

Controls and Procedures

46

PART II – OTHER INFORMATION

1.

Legal Proceedings

47

1A.

Risk Factors

47

2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

3.

Defaults Upon Senior Securities

47

4.

Mine Safety Disclosures

47

5.

Other Information

47

6.

Exhibits

47

SIGNATURES

48

5

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CERTARA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

    

SEPTEMBER 30, 

DECEMBER 31, 

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

    

2022

    

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

210,509

$

185,797

Accounts receivable, net of allowance for credit losses of $692 and $262, respectively

 

74,806

 

69,555

Restricted cash

 

3,274

 

827

Prepaid expenses and other current assets

 

16,503

 

18,548

Total current assets

 

305,092

 

274,727

Other assets:

 

  

 

  

Property and equipment, net

 

2,609

 

2,935

Operating lease right-of-use assets

11,481

12,634

Goodwill

 

696,921

 

703,371

Intangible assets, net of accumulated amortization of $202,901 and $169,329, respectively

 

481,536

 

511,823

Deferred income taxes

4,158

4,073

Other long-term assets

 

6,896

 

2,167

Total assets

$

1,508,693

$

1,511,730

Liabilities and stockholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

3,002

$

7,458

Accrued expenses

 

26,552

 

29,830

Current portion of deferred revenue

 

40,434

 

45,496

Current portion of long-term debt

 

3,020

 

3,020

Current operating lease liabilities

3,422

5,040

Other current liabilities

 

100

 

1,381

Total current liabilities

 

76,530

 

92,225

Long-term liabilities:

 

  

 

  

Deferred revenue, net of current portion

 

1,884

 

1,531

Deferred income taxes

 

75,522

 

76,098

Operating lease liabilities, net of current portion

8,509

8,256

Long-term debt, net of current portion and debt discount

 

290,428

 

291,746

Other long-term liabilities

 

1,422

 

25

Total liabilities

 

454,295

 

469,881

Commitments and contingencies

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Common shares, $0.01 par value, 600,000,000 shares authorized, 159,921,814 and 159,660,048 shares issued as of September 30, 2022 and December 31, 2021, respectively; 159,781,270  and 159,658,948 shares outstanding as of September 30, 2022 and December 31, 2021, respectively

 

1,599

 

1,596

Additional paid-in capital

 

1,143,638

 

1,119,821

Accumulated deficit

 

(70,047)

 

(75,604)

Accumulated other comprehensive loss

 

(17,928)

 

(3,926)

Treasury stock at cost, 140,544 and 1,100 shares at September 30, 2022 and December 31, 2021, respectively

(2,864)

(38)

Total stockholders’ equity

 

1,054,398

 

1,041,849

Total liabilities and stockholders’ equity

$

1,508,693

$

1,511,730

The accompanying notes are an integral part of the condensed consolidated financial statements

6

CERTARA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

THREE MONTHS ENDED SEPTEMBER 30, 

    

NINE MONTHS ENDED SEPTEMBER 30, 

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

    

2022

    

2021

    

2022

    

2021

    

Revenues

$

84,700

$

73,944

$

249,011

$

210,758

Cost of revenues

 

32,812

 

28,769

 

100,795

 

82,327

Operating expenses:

 

 

 

 

Sales and marketing

 

6,376

 

5,082

 

19,608

 

13,423

Research and development

 

6,318

 

4,530

 

21,607

 

13,862

General and administrative

 

17,327

 

26,199

 

53,444

 

60,795

Intangible asset amortization

 

10,591

 

9,592

 

31,095

 

28,527

Depreciation and amortization expense

 

417

 

533

 

1,321

 

1,687

Total operating expenses

 

41,029

 

45,936

 

127,075

 

118,294

Income (loss) from operations

 

10,859

 

(761)

 

21,141

 

10,137

Other income (expenses):

 

 

 

 

Interest expense

 

(5,221)

 

(3,289)

 

(12,328)

 

(13,549)

Other, net

 

2,855

 

657

 

6,217

 

194

Total other expenses

 

(2,366)

 

(2,632)

 

(6,111)

 

(13,355)

Income (loss) before income taxes

 

8,493

 

(3,393)

 

15,030

 

(3,218)

Provision for (benefit from) income taxes

 

4,557

 

(1,631)

 

9,473

 

349

Net income (loss)

 

3,936

 

(1,762)

 

5,557

 

(3,567)

Other comprehensive loss:

 

 

 

 

Foreign currency translation adjustment

 

(9,489)

 

(2,798)

 

(20,193)

 

(4,041)

Change in fair value from interest rate swap, net of tax of $1,716, $(16), $2,137, $145, respectively

5,279

(47)

6,191

430

Reclassification of fair value of interest rate swap, net of tax of $0,$0,0,$(765)

 

 

2,268

Total other comprehensive loss

 

(4,210)

 

(2,845)

 

(14,002)

 

(1,343)

Comprehensive loss

$

(274)

$

(4,607)

$

(8,445)

$

(4,910)

Net income (loss) per share attributable to common stockholders:

Basic

$

0.03

$

(0.01)

$

0.04

$

(0.02)

Diluted

$

0.02

$

(0.01)

$

0.03

$

(0.02)

Weighted average common shares outstanding:

Basic

157,140,166

149,016,609

156,523,022

147,894,227

Diluted

 

159,587,645

 

149,016,609

 

159,392,534

 

147,894,227

The accompanying notes are an integral part of the condensed consolidated financial statements

7

CERTARA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

ACCUMULATED 

ADDITIONAL 

OTHER 

TOTAL 

(IN THOUSANDS,

COMMON STOCK

PAID-IN 

ACCUMULATED 

COMPREHENSIVE 

TREASURY STOCK

STOCKHOLDERS' 

EXCEPT SHARE DATA)

  

SHARES

  

AMOUNT

  

CAPITAL

  

DEFICIT

  

LOSS

  

SHARES

  

AMOUNT

  

EQUITY

Balance as of June 30, 2021

152,864,921

$

1,529

$

897,209

$

(64,143)

$

(85)

$

$

834,510

Equity-based compensation expense

8,165

8,165

Common stock offerings

4,500,000

45

133,306

133,351

Restricted stock forfeiture

(11,730)

Restricted stock withheld for tax liability

(99)

(99)

Change in fair value from interest rate swap, net of tax

(47)

(47)

Net loss

(1,762)

(1,762)

Foreign currency translation adjustment

(2,798)

(2,798)

Balance as of September 30, 2021

157,353,191

$

1,574

$

1,038,581

$

(65,905)

$

(2,930)

$

$

971,320

Balance as of December 31, 2020

152,979,479

$

1,529

$

884,528

$

(62,338)

$

(1,587)

$

$

822,132

Equity-based compensation expense

20,846

20,846

Common stock offerings

4,500,000

45

133,306

133,351

Common shares issued for employee share-based compensation

14,769

Restricted stock forfeiture

(141,057)

Restricted stock withheld for tax liability

(99)

(99)

Change in fair value from interest rate swap, net of tax

430

430

Reclassification of fair value of interest rate swap, net of tax

2,268

2,268

Net loss

(3,567)

(3,567)

Foreign currency translation adjustment

(4,041)

(4,041)

Balance as of September 30, 2021

157,353,191

$

1,574

$

1,038,581

$

(65,905)

$

(2,930)

$

$

971,320

The accompanying notes are an integral part of the condensed consolidated financial statements

8

CERTARA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

ACCUMULATED 

ADDITIONAL 

OTHER 

TOTAL 

(IN THOUSANDS,

COMMON STOCK

PAID-IN 

ACCUMULATED 

COMPREHENSIVE 

TREASURY STOCK

STOCKHOLDERS' 

EXCEPT SHARE DATA)

  

SHARES

  

AMOUNT

  

CAPITAL

  

DEFICIT

  

LOSS

  

SHARES

  

AMOUNT

  

EQUITY

Balance as of June 30, 2022

 

159,991,357

$

1,600

$

1,136,831

$

(73,983)

$

(13,718)

108,995

$

(2,349)

$

1,048,381

Equity-based compensation expense

 

6,804

6,804

Restricted stock units withheld for tax liability

1

29,845

(481)

(480)

Common shares issued for employee share-based compensation

94,091

Restricted stock withheld for tax liability

1,704

(34)

(34)

Restricted stock forfeiture

(163,634)

(1)

2

1

Change in fair value from interest rate swap, net of tax

5,279

5,279

Net income

 

3,936

3,936

Foreign currency translation adjustment, net of tax

 

(9,489)

(9,489)

Balance as of September 30, 2022

159,921,814

$

1,599

$

1,143,638

$

(70,047)

$

(17,928)

140,544

$

(2,864)

$

1,054,398

Balance as of December 31, 2021

159,660,048

$

1,596

$

1,119,821

$

(75,604)

$

(3,926)

1,100

$

(38)

$

1,041,849

Equity-based compensation expense

23,818

23,818

Restricted stock units withheld for tax liability

1

134,262

(2,710)

(2,709)

Common shares issued for employee share-based compensation

425,400

4

(4)

Restricted stock withheld for tax liability

5,182

(116)

(116)

Restricted stock forfeiture

(163,634)

(1)

2

1

Change in fair value from interest rate swap, net of tax

6,191

6,191

Net income

5,557

5,557

Foreign currency translation adjustment, net of tax

(20,193)

  

(20,193)

Balance as of September 30, 2022

159,921,814

$

1,599

$

1,143,638

$

(70,047)

$

(17,928)

140,544

$

(2,864)

$

1,054,398

The accompanying notes are an integral part of the condensed consolidated financial statements

9

CERTARA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 

(IN THOUSANDS)

    

2022

    

2021

    

Cash flows from operating activities:

 

  

  

Net income (loss)

$

5,557

$

(3,567)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Depreciation and amortization of property and equipment

 

1,321

 

1,687

Amortization of intangible assets

 

38,007

 

30,435

Amortization of debt issuance costs

 

1,156

 

1,144

Provision for credit losses

 

468

 

39

Loss on retirement of assets

 

56

 

304

Equity-based compensation expense

 

23,818

 

20,846

Unrealized loss on interest rate swap

1,750

Deferred income taxes

 

(3,209)

 

1,796

Changes in assets and liabilities

 

Accounts receivable

 

(7,895)

 

(6,148)

Prepaid expenses and other assets

 

4,209

 

(5,504)

Accounts payable and other liabilities

 

(3,404)

 

(1,650)

Deferred revenue

(1,727)

(1,575)

Other current liabilities

(1,088)

216

Changes in operating lease assets and liabilities, net

(211)

(216)

Net cash provided by operating activities

 

57,058

 

39,557

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(1,249)

 

(995)

Capitalized development costs

(8,106)

 

(5,490)

Business acquisitions, net of cash acquired

 

(5,883)

 

(14,114)

Net cash used in investing activities

 

(15,238)

 

(20,599)

Cash flows from financing activities:

 

  

 

  

Net proceeds from public offering of common stock

133,351

Proceeds from borrowings on long-term debt

 

89

Payments on long-term debt and finance lease obligations

(2,483)

(3,147)

Payment of debt issuance costs

(2,942)

Payments on financing component of interest rate swap

 

(1,085)

(216)

Payment of taxes on shares withheld for employee taxes

 

(2,827)

(100)

Net cash (used) provided by financing activities

 

(6,395)

 

127,035

Effect of foreign exchange rate changes on cash and cash equivalents, and restricted cash

 

(8,266)

 

(1,326)

Net increase in cash and cash equivalents, and restricted cash

 

27,159

 

144,667

Cash and cash equivalents, and restricted cash, at beginning of period

 

186,624

 

273,291

Cash and cash equivalents, and restricted cash, at end of period

$

213,783

$

417,958

Supplemental disclosures of cash flow information

 

  

 

  

Cash paid for interest

$

12,310

$

10,671

Cash paid for taxes

$

7,784

$

6,744

Supplemental schedule of non-cash investing and financing activities

 

 

Liabilities assumed in connection with business acquisition

$

$

1,912

The accompanying notes are an integral part of the condensed consolidated financial statements

10

CERTARA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

1.

Description of Business

Certara, Inc. and its wholly-owned subsidiaries (together, the “Company”) deliver software products and technology-driven services to customers to efficiently carry out and realize the full benefits of biosimulation in drug discovery, preclinical and clinical research, regulatory submissions and market access. The Company is a global leader in biosimulation. The Company’s biosimulation software and technology-driven services help optimize, streamline, or even waive certain clinical trials to accelerate programs, reduce costs, and increase the probability of success. The Company’s regulatory science and market access software and services are underpinned by technologies such as regulatory submissions software, natural language processing, and Bayesian analytics. When combined, these solutions allow the Company to offer customers end-to-end support across the entire product life cycle.

The Company has operations in the United States, Canada, Spain, Luxembourg, Portugal, United Kingdom, Germany, France, Netherlands, Denmark, Switzerland, Italy, Poland, Japan, Philippines, India, Australia and China.

2.

Summary of Significant Accounting Policies

There have been no changes other than what is discussed herein to the Company’s significant accounting policies as compared to the significant accounting policies described in Note 2 to the Company’s audited consolidated financial statements included in our 2021 Annual Report. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes as of and for the year ended December 31, 2021.

(a)

Basis of Presentation and Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of  progress of completion on fixed-price service contracts, the determination of fair values and useful lives of long-lived assets as well as intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, value of interest rate swaps, determination of fair value of equity-based awards and assumptions used in testing for impairment of long-lived assets. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements.

(b)   Unaudited Interim Financial Statements

The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, and the related interim disclosures are unaudited.

11

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Certain amounts reported in prior periods have been reclassified to conform with the current presentation. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s 2021 audited consolidated financial statements and notes thereto. The information as of December 31, 2021 in the Company’s condensed consolidated balance sheet included herein is derived from the Company’s audited consolidated financial statements included in the Company’s 2021 Annual Report.

(c)

Accounting Pronouncements Not Yet Adopted

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)  2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”. The ASU requires that entities increase disclosures about government assistance received relating to accounting policy, nature of the assistance, and the effect of the assistance on the financial statements. The ASU is effective for annual periods beginning after December 15, 2021. Early application of the ASU is permitted. The Company is currently evaluating the impact of these amendments on its condensed consolidated financial statements.

(d)   Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(e)

Cash and Cash Equivalents, and Restricted Cash

Cash equivalents include highly liquid investments with maturities of three months or less from the date purchased.

Restricted cash represents cash that is reserved to provide for a Company credit card program and unexpended restricted grant funds. The restricted cash balance was $3,274 and $827 at September 30, 2022 and December 31, 2021, respectively.

The following table provides a reconciliation of cash and cash equivalents and restricted cash to the amounts presented in the condensed consolidated statements of cash flows:

    

SEPTEMBER 30, 

DECEMBER 31, 

    

           2022           

    

           2021           

Cash and cash equivalents

$

210,509

$

185,797

Restricted cash, current

 

3,274

 

827

Total cash and cash equivalents and restricted cash

$

213,783

$

186,624

(f)

Derivative Instruments

Effective May 31, 2022, the Company has a pay-fixed, receive-variable interest rate swap agreement to modify the interest rate characteristics of term loan debt from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. The swap agreement has a notional amount of $230,000, a fixed rate of 2.8% and a termination date of August 31, 2025. At September 30, 2022, the interest swap had a fair value of $8,385 and the fair value recognized in accumulated other comprehensive income was $8,385. During the three and nine months ended September 30, 2022, the amounts recognized as interest expense on the condensed consolidated statements of operations and comprehensive loss on the derivative were $355 and $700.

12

The Company also had an interest rate swap agreement for a notional amount of $230,000 that fixed the interest rate at 2.1%, non-inclusive of the fixed credit spread through May 31, 2022. On August 31, 2021, the Company entered into an amendment to the interest rate swap agreement. The amended interest rate swap agreement does not in its entirety meet the definition of a derivative instrument because of its off market fixed rate at inception and is deemed to be a hybrid instrument with a financing component and an embedded at-the-market derivative. Such embedded derivative is bifurcated and accounted for separately. At inception, the financing component of $1,966 was recorded at amortized cost. The embedded at-the-market derivative was designated and qualified as a cash flow hedge of interest rate risk for a notional amount of $230,000 that fixed the interest rate at 1.2757%, non-inclusive of the fixed credit spread. Due to an other-than-insignificant financing element on a portion of such hybrid instrument, the cash flows associated with this hybrid instrument were classified as financing activities in the condensed consolidated statements of cash flows. The interest rate swap matured on May 31, 2022. At September 30, 2022, the Company did not record any amounts for the financing component and fair value of the interest rate swap in the condensed consolidated balance sheets. The Company reclassified $3,033 of accumulated comprehensive loss to interest expense in the condensed consolidated statements of comprehensive loss in the second quarter of 2021 due to hedge ineffectiveness. Excluding the amount reclassified, the interest expense recognized on the derivative was $0, $29, $(179), $690 for the three and nine months ended September 30, 2022 and 2021, respectively.

The Company uses derivatives to manage certain interest exposures and designated all the derivatives as cash flow hedges. The Company records derivatives at fair value on its condensed consolidated balance sheets. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss). Those amounts are reclassified into interest expenses in the same period during which the hedged transactions impact earnings.

The following table sets forth the assets that are measured at fair value on a recurring basis by the levels in the fair value hierarchy at September 30, 2022:

    

LEVEL 1

    

LEVEL 2

    

LEVEL 3

    

TOTAL

Asset

 

  

 

  

 

  

 

  

Interest rate swap asset

$

$

8,385

$

$

8,385

Total

$

$

8,385

$

$

8,385

The following table sets forth the assets that were measured at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2021:

    

LEVEL 1

    

LEVEL 2

    

LEVEL 3

    

TOTAL

Asset

 

  

 

  

 

  

 

  

Interest rate swap asset

$

$

57

$

$