Summary
Certara reported revenue of $84.7 million for the quarter ended September 30, 2022, up 14.5% from the same quarter a year earlier. Nine-month revenue was $249.0 million, up 18.2%. The press release credits strong renewal rates, client expansion and new customers, with acquisitions also contributing. Foreign exchange worked against reported results. Management said total revenue on a constant currency basis grew 18% in the quarter and 21% for the nine months, with software the faster-growing line.
The profit picture improved sharply. Operating income was $10.9 million for the quarter and operating margin reached 12.8%, up 13.8 percentage points from the year-earlier quarter. Year to date, operating income was $21.1 million and operating margin was 8.5%, up 3.7 percentage points. Net income was $3.9 million in the quarter and $5.6 million for the nine months, both swings to profit from losses in the comparable 2021 periods. Diluted earnings per share came in at $0.02 for the quarter and $0.03 year to date.
Cash generation stayed solid. Operating cash flow was $24.0 million in the quarter, up 20.0%, and $57.1 million for the nine months, up 44.2%. Capital expenditures were $0.39 million in the quarter, down 19.4% year over year. On a non-GAAP basis, adjusted EBITDA was $32.7 million, up 25% from $26.1 million a year earlier. Adjusted net income was $16.6 million compared with $17.2 million a year earlier, and adjusted diluted earnings per share were $0.10 compared with $0.11. The gap between GAAP net income and adjusted net income reflects equity-based compensation, amortization of acquisition-related intangibles and currency gains. Deferred revenue, current portion only, was $40.4 million at September 30, 2022, up 44.5% from a year earlier.
Operational indicators were mixed. Bookings were $79.8 million in the third quarter, ahead of the $72.3 million booked in the third quarter of 2021 but below the $108.5 million and $100.3 million recorded in the first two quarters of 2022. The renewal rate improved to 93% from 87% a year earlier, which suggests the installed software base is sticky. Management reiterated its full year 2022 guidance for revenue, adjusted EBITDA and adjusted earnings per share, calling for adjusted EBITDA of $112 million to $117 million and adjusted diluted earnings per share of $0.43 to $0.48. The outlook assumes foreign currency rates remain close to the levels seen at September 30, 2022, and it relies on a fully diluted share count of 159 million to 161 million, a GAAP tax rate of 40% to 45% and a cash tax rate of 20% to 25%.
Several items temper the quarter. Interest expense rose with market rates on the term loan, and income tax expense jumped. The effective income tax rate was 54% for the quarter, lifted in part by $1.4 million of corporate income taxes and interest assessed by the Portuguese Tax Authority for 2012, 2014 and 2019. New COVID-19 variants have slowed clinical trial closeouts and delayed regulatory services projects, which management describes as transitory. Currency is a persistent swing factor. Reported revenue growth lagged the constant currency rate, and the reiterated guidance assumes exchange rates hold near the levels seen at September 30, 2022. The risk list covers competition from in-house teams, open source tools and contract research organizations, the loss of major customers, integration of the Pinnacle 21 acquisition, and macro items such as inflation, recession risk and the conflict between Russia and Ukraine.
Ownership changed shape during the period. Long-term shareholder Arsenal Investment Partners agreed to acquire EQT's remaining 30 million shares at $15 per share. Arsenal accepted a two-year lock-up on transacting in the acquired shares and will have the right to designate up to two board members, subject to certain ownership conditions. The transaction is expected to close in early December, after the HSR waiting period expires. The underlying franchise remains broad: more than 2,000 clients across 62 countries, including 38 of the top 40 biopharmaceutical companies by research and development spend, and 17 global regulatory authorities license the company's biosimulation software.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $84.7M | $82.8M | +2.3% | $73.9M | +14.5% |
| Gross profit | $51.9M | $47.6M | +9.1% | $45.2M | +14.9% |
| Gross margin | 61.3% | 57.5% | +3.8 pp | 61.1% | +0.2 pp |
| Research & development | $6.3M | $7.7M | -18.4% | $4.5M | +39.5% |
| Sales & marketing | $6.4M | $7.1M | -10.5% | $5.1M | +25.5% |
| General & administrative | $17.3M | $17.8M | -2.5% | $26.2M | -33.9% |
| Total operating expenses | $41.0M | $43.4M | -5.5% | $45.9M | -10.7% |
| Operating income (loss) | $10.9M | $4.1M | +161.7% | -$761.0K | +1526.9% |
| Operating margin | 12.8% | 5.0% | +7.8 pp | -1.0% | +13.8 pp |
| Net income (loss) | $3.9M | -$589.0K | +768.3% | -$1.8M | +323.4% |
| Net margin | 4.7% | -0.7% | +5.4 pp | -2.4% | +7.0 pp |
| Diluted EPS | $0.02 | $0.00 | +$0.02 | -$0.01 | +$0.03 |
| Customers | 2,014 | 2,014 | ±0.0% | 2,014 | ±0.0% |
Risks
New bookings vary significantly from quarter to quarter and year to year. The MD&A table shows bookings of $79.8 million in Q3 2022, compared with $100.3 million in Q2 2022 and $72.3 million in Q3 2021, which can create revenue volatility.
The biosimulation and technology-driven services market is competitive and highly fragmented. The company competes with scientific software providers, in-house biopharma development, open source solutions such as R and PK-Sim, and contract research organizations, some of which have greater resources or lower-cost offerings.
Demand depends on continued regulatory acceptance of model-informed biopharmaceutical discovery and development. A reversal in the trend toward reliance on in silico data, or regulatory changes that relax or complicate requirements, could decrease demand for the company's products or services.
Future operating results depend on retaining and expanding existing customers, monitored through new bookings and renewal rates. The Q3 2022 renewal rate was 93%, compared with 87% in Q3 2021, but renewal rates exclude price increases or expansions and can fluctuate.
The continued spread of COVID-19 and new variants may adversely impact the business. As of September 30, 2022, new variants caused a slowdown in closing out clinical trials and delays in regulatory services projects, though the company believes these are transitory impacts.
The company had $298.2 million of outstanding borrowings on its term loan as of September 30, 2022. Interest expense increased 59% to $5.2 million for the three months ended September 30, 2022 compared with the same period in 2021, primarily due to increased interest on term loan debt from market interest rate increases.
Income tax expense was $4.6 million for Q3 2022, with a 54% effective income tax rate, and included $1.4 million of corporate income taxes and interest assessed by the Portuguese Tax Authority for 2012, 2014, and 2019. The nine-month 2022 effective income tax rate was 63%.
The company completed the Pinnacle acquisition for $339.1 million and other acquisitions, and expects to continue investing through acquisitions. Intangible asset amortization expense increased 10% to $10.6 million for Q3 2022 compared with Q3 2021, primarily due to acquired intangible assets, and integration may not achieve expected benefits.
SaaS KPIs
All quarters →Renewal Rate
Bookings
Total clients
Adjusted EBITDA
Summary, forecast, risks and KPIs are extracted from Certara, Inc.'s SEC filings for Q3 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.