Reiterates Full Year 2023 Financial Guidance
PRINCETON, N.J.— November 8, 2023– Certara, Inc. (Nasdaq: CERT), a global leader in biosimulation, today reported its financial results for the third quarter of fiscal year 2023.
Third Quarter Highlights:
- Revenue was $85.6 million, compared to $84.7 million in the third quarter of 2022, representing growth of 1% over the third quarter of 2022.
- Broad based recovery in services bookings during the quarter.
- Net loss was $49.0 million, compared to a net income of $3.9 million in the third quarter of 2022.
- Net loss includes a $47.0 million goodwill impairment expense in the third quarter of 2023 related to the Regulatory business.
- Adjusted EBITDA was $28.8 million, compared to $32.7 million in the third quarter of 2022.
- Adjusted net income was $17.1 million compared to $16.6 million in the third quarter of 2022.
“During the third quarter we saw customer demand stabilize across the Certara platform. We continue to see strong interest from customers in Biosimulation, while our Regulatory business returned to growth in bookings,” said William F. Feehery, Chief Executive Officer. “Customer activity improved through the quarter and we believe the outlook for biosimulation remains strong. Our newly aligned commercial and services teams are showing signs of initial success, which we intend to build upon as we head into 2024.”
Third Quarter 2023 Results
“Certara’s third quarter performance reflects continued demand for biosimulation software and services across the platform. Our bookings returned to growth in services and the software bookings pipeline is strong looking forward. We are pleased with the business stabilization in the third quarter, and remain confident in the full year 2023 outlook,” said John Gallagher, Chief Financial Officer.
Total revenue for the third quarter of 2023 was $85.6 million, representing growth of 1% over the third quarter of 2022. The overall increase in revenue was primarily due to growth in our biosimulation technology-driven services and software portfolio. Strong demand from existing customers, new product introductions, and new client activity all contributed to the quarterly revenue performance which was offset by a decline in regulatory revenue.
On a constant currency basis, total revenue for the third quarter of 2023 was $84.6 million, relatively flat compared to the third quarter of 2022. Please see note (1) in the section A Note on Non-GAAP Financial Measures below for more information on constant currency revenue.
Total cost of revenue for the third quarter of 2023 was $35.9 million, an increase of $3.1 million from $32.8 million in the third quarter of 2022, primarily due to a $3.0 million increase in employee-related costs, including billable headcount growth, and a $0.4 million increase in intangible assets amortization, partially offset by a $0.4 million decrease in miscellaneous operating expense and other items.
Total operating expenses for the third quarter of 2023 were $102.5 million, which increased by $61.5 million from $41.0 million in the third quarter of 2022, primarily due to a $47.0 million increase in goodwill impairment expense related to charge-off of goodwill carrying balance over fair value of a reporting unit, a $8.8 million increase related to change in the fair value of contingent considerations related to recent acquisitions, a $3.8 million increase in employee-related costs including billable head count growth, and a $1.6 million increase in lease abandonment expense.
Net loss for the third quarter of 2023 was $49.0 million, compared to a net income of $3.9 million in the quarter of 2022. The $52.9 million decrease in net income was primarily due to a $47.0 million increase in goodwill impairment expense, an $8.8 million increase related to change in the fair value of contingent considerations, a $1.6 million increase in lease abandonment expense, a $4.1 million increase in other operating expenses, and a $3.1 million increase in cost of revenue, partially offset by a $9.2 million decrease in tax expense, and a $2.5 million increase in interest income.
Diluted earnings (loss) per share for the third quarter 2023 was $(0.31), as compared to $0.02 in the third quarter of 2022.
Adjusted EBITDA for the third quarter of 2023 was $28.8 million compared to $32.7 million for the third quarter of 2022, a decrease of $3.9 million. See note (2) in the section A Note on Non-GAAP Financial Measures below for more information on adjusted EBITDA.
Adjusted net income for the third quarter of 2023 was $17.1 million compared to $16.6 million for the third quarter of 2022, representing 3% growth. Adjusted diluted earnings per share for the third quarter 2023 was $0.11 compared to $0.10 for the third quarter of 2022. See note (3) in the section A Note on Non-GAAP Financial Measures below for more information on adjusted net income and adjusted diluted earnings per share.
2023 Financial Outlook
Certara is reiterating its previously reported guidance for full year 2023. We expect the following:
Full year 2023 revenue to be in the range of $345 million to $360 million.
Full year 2023 adjusted EBITDA to be in the range of $120 million to $128 million.
Full year adjusted diluted earnings per share to be in the range of $0.44 – $0.48.
Fully diluted shares to be in the range of 159 million to 162 million.
Webcast and Conference Call Details
Certara will host a conference call today, November 8, 2023, at 5:00 p.m. ET to discuss its third quarter 2023 financial results. Investors interested in listening to the conference call are required to register online in advance of the call. A live and archived webcast of the event will be available on the “Investors” section of the Certara website at https://ir.certara.com.
About Certara
Certara accelerates medicines using proprietary biosimulation software, technology and services to transform traditional drug discovery and development. Its clients include more than 2,300 biopharmaceutical companies, academic institutions, and regulatory agencies across 70 countries.
Please visit our website at www.certara.com. We intend to use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD.
Such disclosures will be included in the Investor Relations section of our website at https://ir.certara.com. Accordingly, investors should monitor such portion of our website, in addition to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts.
Forward-Looking Statements
This press release contains certain statements that constitute forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, with respect to the Company’s full-year guidance and other statements about the Company’s future business and financial performance, revenue, margin, and bookings. These statements typically contain words such as “believe,” “may,” “potential,” “will,” “plan,” “could,” “estimate,” “expects” and “anticipates” or the negative of these words or other similar terms or expressions. Any statement in this press release that is not a statement of historical fact is a forward-looking statement and involves significant risks and uncertainties. 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. You should not rely upon forward-looking statements as predictions of future events and actual results, events, or circumstances. Actual results may differ materially from those described in the forward-looking statements and are subject to a variety of assumptions, uncertainties, risks and factors that are beyond our control, including the Company’s ability to compete within its market; any deceleration in, or resistance to, the acceptance of model-informed biopharmaceutical discovery; changes or delays in relevant government regulation; increasing competition, regulation and other cost pressures within the pharmaceutical and biotechnology industries; economic conditions, including inflation, recession, currency exchange fluctuation and adverse developments in the financial services industry; trends in research and development (R&D) spending; delays or cancellations in projects due to supply chain interruptions or disruptions or delays to pipeline development and clinical trials experienced by our customers; consolidation within the biopharmaceutical industry; reduction in the use of the Company’s products by academic institutions; pricing pressures; the Company’s ability to successfully enter new markets, increase its customer base and expand its relationships with existing customers; the impact of acquisitions and our ability to successfully integrate such acquisitions; the occurrence of natural disasters and epidemic diseases; any delays or defects in the 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 its existing customers; our ability to accurately estimate costs associated with its fixed-fee contracts; our ability to retain key personnel or recruit additional qualified personnel; lower utilization rates by our employees as a result of natural disasters and epidemic diseases; risks related to our contracts with government customers; our ability to sustain recent growth rates; our ability to successfully operate a global business; our ability to comply with applicable laws and regulations; risks related to litigation; the adequacy of its insurance coverage and ability to obtain adequate insurance coverage in the future; our ability to perform in accordance with contractual requirements, regulatory standards and ethical considerations; the loss of more than one of our major customers; future capital needs; the ability of our bookings to accurately predict future revenue and our ability to realize revenue on bookings; disruptions in the operations of the third-party providers who host our software solutions or any limitations on their capacity; our ability to reliably meet 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 use of third-party open source software; any breach of its security measures or unauthorized access to customer data; our ability to adequately enforce or defend ownership and use of our intellectual property and other proprietary rights; any allegations of infringement, misappropriation or violations of a third party’s intellectual property rights; our ability to meet obligations under indebtedness and have sufficient capital to operate our business; any limitations on our ability to pursue business strategies due to restrictions under our current or future indebtedness; any additional impairment of goodwill or other intangible assets; our ability to use our net operating losses and R&D tax credit carryforwards; the accuracy of management’s estimates and judgments relating to critical accounting policies and changes in financial reporting standards or interpretations; any inability to design, implement, and maintain effective internal controls or inability to remediate any internal controls deemed ineffective; the costs and management time associated with operating as a publicly traded company; and the other factors detailed under the captions “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and elsewhere in our Securities and Exchange Commission (“SEC”) filings, and reports, including the Form 10-K filed by the Company with the Securities and Exchange Commission on March 1, 2023, and subsequent reports filed with the SEC. Any forward-looking statements speak only as of the date of this release and, except to the extent required by applicable securities laws, we expressly disclaim any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. Factors that may materially affect our results and those risks listed in filings with the SEC.
A Note on Non-GAAP Financial Measures
This press release contains “non-GAAP measures” which are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Specifically, the Company makes use of the non-GAAP financial measures adjusted EBITDA, adjusted net income (loss), adjusted diluted earnings per share, and constant currency (“CC”) revenue, which are not recognized terms under GAAP. These measures should not be considered as alternatives to net income (loss) or GAAP diluted earnings per share or revenue as measures of financial performance or any other performance measure derived in accordance with GAAP and should not be considered a measure of discretionary cash available to the Company to invest in the growth of its business. The presentation of these measures has limitations as an analytical tool and should not be considered in isolation, or as a substitute for the Company’s results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
You should refer to the footnotes below as well as the “Non-GAAP Financial Measures” section in this press release below for a further explanation of these measures and reconciliations of these non-GAAP measures in specific periods to their most directly comparable financial measure calculated and presented in accordance with GAAP for those periods.
Management uses various financial metrics, including total revenues, income (loss) from operations, net income (loss), and certain non-GAAP measures, including those discussed above, to measure and assess the performance of the Company’s business, to evaluate the effectiveness of its business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare the Company’s performance against that of other peer companies using similar measures. In addition, management believes these metrics provide useful measures for period-to-period comparisons of the Company’s business, as they remove the effect of certain non-cash expenses and other items not indicative of its ongoing operating performance.
Management believes that adjusted EBITDA, adjusted net income (loss), adjusted diluted earnings per share, and CC revenue are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical periods. In addition, each of these measures is frequently used by analysts, investors, and other interested parties to evaluate and assess performance. Furthermore, our business has operations outside the United States that are conducted in local currencies. As a result, the comparability of the financial results reported in U.S. dollars is affected by changes in foreign currency exchange rates. We adjust revenues for constant currency to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations and we believe it is helpful for investors to present operating results on a comparable basis period over period to evaluate its underlying performance.
Please note that the Company has not reconciled the adjusted EBITDA or adjusted diluted earnings per share forward-looking guidance included in this press release to the most directly comparable GAAP measures because this cannot be done without unreasonable effort due to the variability and low visibility with respect to costs related to acquisitions, financings, and employee stock compensation programs, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.
(1) CC revenue excludes the effects of foreign currency exchange rate fluctuations by assuming constant foreign currency exchange rates used for translation. Current periods revenue reported in currencies other than U.S. Dollars are converted into U.S. Dollars at the average exchange rates in effect for the comparable prior periods.
(2) Adjusted EBITDA represents net income excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, goodwill impairment, change in fair value of contingent consideration, acquisition and integration expense and other items not indicative of our ongoing operating performance.
(3) Adjusted net income and adjusted diluted earnings per share exclude the effect of equity-based compensation expense, amortization of acquisition-related intangible assets, goodwill impairment, change in fair value of contingent consideration, acquisition and integration expense, and other items not indicative of our ongoing operating performance as well as income tax provision adjustment for such charges.
In evaluating adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, you should be aware that in the future the Company may incur expenses similar to those eliminated in this presentation and this presentation should not be construed as an inference that future results will be unaffected by unusual items.
Contacts:
Investor Relations Contact:
David Deuchler
Gilmartin Group
ir@certara.com
Media Contact:
Daniel Yunger
Kekst CNC
daniel.yunger@kekstcnc.com
CERTARA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
CERTARA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(a) Represents amounts as determined under GAAP.
(b) Represents expense related to equity-based compensation. Equity-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.
(c) Represents amortization costs associated with acquired intangible assets in connection with business acquisitions.
(d) Represents expense associated with remeasuring fair value of contingent consideration of business acquisition.
(e) Represents expense associated with goodwill impairment charge.
(f) Represents costs associated with mergers and acquisitions and any retention bonuses pursuant to the acquisitions.
(g) Represents integration costs related to post – acquisition integration activities.
(h) Represents costs associated with our public offerings that are not capitalized.
(i) Represents charges for severance provided to former executives.
(j) Represents expense related to reorganization, including legal entity reorganization and lease abandonment cost associated with the evaluation of our office space footprint.
(k) Represents the gain/loss related to disposal of fixed assets.
(l) Represents recruiting and relocation expenses related to hiring senior executives.
(m) Represents the first-year Sarbanes-Oxley costs for accounting and consulting fees related to the Company’s preparation to comply with Section 404 of the Sarbanes-Oxley Act, as well as implementation cost of adopting ASC 842.
(n) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.
(o) Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding.