Certara, Inc. Q2 FY2022 earnings

Certara grew second quarter revenue to $82.8 million, up $12.7 million, or 18%, from the year-earlier quarter. Constant currency revenue rose 21%, and the gap between the two figures shows how much foreign exchange rates worked against reported results. Software was the faster engine, up 43%, while services grew 8%. Pinnacle 21, acquired in late 2021, supplied much of the software lift. Excluding Pinnacle 21, reported revenue growth was 8% and constant currency growth was 11%. Revenue for the first half reached $164.3 million, up $27.5 million, or 20%, from the same stretch of 2021.

Profitability told a more mixed story. Operating income fell to $4.1 million, down 21.3% from a year earlier, and operating margin slipped to 5.0%, down 2.5 percentage points. First half operating income of $10.3 million was down 5.7%, with margin at 6.3%, down 1.7 percentage points. Costs grew faster than revenue. Total cost of revenue rose 28% on higher employee costs, intangible amortization and stock-based compensation, and total operating expenses also climbed on headcount growth and professional fees. The bottom line still improved. The second quarter net loss of $0.6 million was $2.3 million narrower than a year earlier, a 79% improvement. Diluted earnings per share came in at $0.00 for the quarter and $0.01 for the first half, both better than a year earlier. First half net income of $1.6 million replaced a year-earlier shortfall.

Cash generation was the strongest part of the release. Operating cash flow was $23.3 million in the quarter, up 59.1% from a year earlier, and $33.1 million for the first half, up 69.1%. Capital expenditures stayed modest at $0.35 million in the quarter, up 22.1%, and $0.9 million for the first half, up 68.1%. Deferred revenue, current portion, stood at $46.1 million on June 30, 2022, up 58.4% from a year earlier, which supports the case that signed work is converting into future billings. Bookings reached $100.3 million in the second quarter of 2022 against $75.1 million a year earlier, and the renewal rate was 92% compared with 90%.

Non-GAAP results show how much of the GAAP loss reflects non-cash charges. Adjusted EBITDA was $28.0 million, up 9%. Adjusted net income was $14.6 million and adjusted diluted earnings per share was $0.09, or $0.20 for the first half. Equity-based compensation and amortization of acquisition-related intangibles account for most of the gap between the reported and adjusted numbers. Interest expense also fell, which helped the bottom line.

Guidance for the full year 2022 was revised. Management now expects full year totals of $325 million to $335 million on the top line, $112 million to $117 million in adjusted EBITDA, and $0.43 to $0.48 in adjusted diluted earnings per share. The outlook assumes exchange rates stay close to those at June 30, 2022, continued strength in biosimulation and Pinnacle 21, and a slow recovery in the regulatory services market. Fully diluted shares for 2022 were guided to 159 million to 161 million, alongside a tax rate of 40% to 45% and a cash tax rate of 20% to 25%.

The risk set is clear. Foreign exchange pressure is expected to persist through the back half of the year, and the regulatory services market is recovering slowly. New COVID-19 variants have slowed clinical trial closeouts and delayed regulatory services projects, which management describes as transitory. Competition is fragmented, spanning in-house teams at biopharmaceutical companies, contract research organizations, academic groups and open source tools such as R and PK-Sim. The company also cites customer concentration, integration of the Pinnacle 21 acquisition, fixed-fee contract cost estimates, and reliance on third parties that host its software solutions.