Certara Inc

Previous wording

Drug development is necessarily a highly regulated process involving the collection of vast amounts of laboratory, clinical and evidence data, and there are many failures at every step along the way which add to total cost. The pharmaceutical industry spends more than $260 billion annually on R&D. Generally, companies spend an average of $6.2 billion per US Food and Drug Administration ("FDA") approved drug. Our software and scientists incorporate modern advances in scientific understanding, drug development experience, data analysis, and AI resulting in significant opportunities to decrease the cost and increase the odds of new drug approval and commercial success.

Current wording

Drug development is necessarily a highly regulated process involving the collection of vast amounts of laboratory, clinical and evidence data, and there are many failures at every step along the way that add to the total cost. The pharmaceutical industry spends more than $260 billion annually on research and development (“R&D”). Generally, companies spend an average of $6.2 billion per US Food and Drug Administration ("FDA") approved drug. Our software and scientists incorporate modern advances in scientific understanding, drug development experience, data analysis, and artificial intelligence (“AI”) resulting in significant opportunities to decrease the cost and increase the odds of new drug approval and commercial success.

Previous wording

AI and machine learning technologies are being incorporated across our software and services portfolios providing opportunities to expand the number of data sources utilized, better predict outcomes, and streamline reporting. For example, we are using machine learning to automate and speed the process of biosimulation, and we have created an AI application to aid creating regulatory documents from scientific analyses and clinical data. We believe that AI predictive models will continue to enhance the accuracy and usefulness of biosimulation models and be utilized broadly across drug development.

Current wording

AI and machine learning technologies are being incorporated across our software and services portfolios, providing opportunities to expand the number of data sources utilized, better predict outcomes, and streamline reporting. For example, we are using machine learning to automate and speed the process of biosimulation, and we have created an AI application to aid in creating regulatory documents from scientific analyses and clinical data. We believe that AI predictive models will continue to enhance the accuracy and usefulness of biosimulation models and be utilized broadly across drug development.

Previous wording

Since 2014, customers who leverage our solutions have received more than 90% of all new drug approvals by FDA. We have worked with nearly 2,400 life sciences companies and academic institutions and have collaborated on more than 8,000 customer projects in the last decade across a wide variety of therapeutic areas ranging from cancer and hematology to diabetes and hundreds of rare diseases. Our software products are licensed by more than 57,000 users and are also used by 23 global drug regulatory agencies, including the U.S. FDA, Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”), and China Food and Drug Administration ("cFDA").

Current wording

Since 2014, customers who leverage our solutions have received more than 90% of all new drug approvals by the FDA. We have worked with nearly 2,400 life sciences companies and academic institutions and have collaborated on more than 8,000 customer projects in the last decade across a wide variety of therapeutic areas, ranging from cancer and hematology to diabetes and hundreds of rare diseases. Our software products are licensed by more than 57,000 users and are also used by 23 global drug regulatory agencies, including the U.S. FDA, Japan’s Pharmaceuticals and Medical Devices Agency, and the China Food and Drug Administration.

Previous wording

We believe that the growth of and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address to sustain our growth and improve results of operations.

Current wording

We believe that the growth and future success of our business depend on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address to sustain our growth and improve the results of our operations.

Previous wording

•Net Retention Rates: Our net retention rates measure the percentage of recurring revenue that is retained from existing software customers over a specific time period of time, inclusive of price increases and expansion.

Current wording

•Net Retention Rates: Our net retention rates measure the percentage of recurring revenue that is retained from existing software customers over a specific period of time, inclusive of price increases and expansion, excluding revenue from acquisitions occurred within the past 12 months.

Previous wording

The table below summarizes our quarterly bookings and net retention rate trends:

Current wording

The table below summarizes our quarterly bookings and net software retention rate trends:

Previous wording

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and international expansion. We expect to continue to invest (i) in scientific talent to expand our ability to deliver solutions across the drug development spectrum; (ii) in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies; (iii) in research and development to support existing solutions and innovate new technology; (iv) in other operational and administrative functions to support our expected growth; and (v) in complementary businesses. We expect that our headcount and our total operating expenses will continue to increase over time.

Current wording

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and international expansion. We expect to continue to invest in (i) scientific talent to expand our ability to deliver solutions across the drug development spectrum; (ii) sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies; (iii) research and development to support existing solutions and innovate new technology; (iv) other operational and administrative functions to support our expected growth; and (v) complementary businesses. We expect that our headcount and our total operating expenses will continue to increase over time.

Previous wording

Uncertain macroeconomic conditions, including higher inflation, rising interest rates and instability in the financial system, geopolitical conflicts, and the residual effects of the COVID-19 pandemic, may pose challenges to our business. We believe that any impacts these conditions may have on our business would be transitory and that we are well-equipped to manage them going forward.

Current wording

Uncertain macroeconomic conditions, including higher inflation, rising interest rates and instability in the financial system, geopolitical conflicts, and pandemics or other infectious disease outbreaks, may pose challenges to our business. We believe that any impacts these conditions may have on our business would be transitory and we are well-equipped to manage them going forward.

Previous wording

Management uses various financial metrics, including total revenues, income from operations, net income, and certain metrics that are not required by, or presented in accordance with, GAAP, such as adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to measure and assess the performance of our business, to evaluate the effectiveness of our business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare our performance against that of other peer companies using similar measures. We believe that presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business.

Current wording

Management uses various financial metrics, including total revenues, income from operations, net income, and certain metrics that are not required by, or presented in accordance with, GAAP, such as adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, to measure and assess the performance of our business, to evaluate the effectiveness of our business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare our performance against that of other peer companies using similar measures. We believe that the presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business.

Previous wording

Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance. Management also measures operating performance based on adjusted net income defined for a particular period as net income (loss) excluding, equity-based compensation expense, amortization of acquisition-related intangible assets, goodwill impairment expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance. Further, management measures operating performance based on adjusted diluted earnings per share defined for a particular period as adjusted net income divided by the weighted-average diluted common shares outstanding.

Current wording

Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance. Management also measures operating performance based on adjusted net income defined for a particular period as net income (loss) excluding, equity-based compensation expense, amortization of acquisition-related intangible assets, acquisition and integration expense, and other items not indicative of our ongoing operating performance. Further, management measures operating performance based on adjusted diluted earnings per share defined for a particular period as adjusted net income divided by the weighted-average diluted common shares outstanding.

Previous wording

Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share are non-GAAP measures and are presented for supplemental purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations and comprehensive income (loss) that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures and may calculate both differently than as presented, limiting the usefulness as a comparative measure.

Current wording

Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share are non-GAAP measures and are presented for supplemental purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP. Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations and comprehensive income (loss) that are necessary to run our business. Other companies, including those in our industry, may not use these measures and may calculate them differently than those presented, limiting the usefulness as a comparative measure.

Previous wording

(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.

Current wording

(b)Represents expenses 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.

Previous wording

(g)Represents expense related to reorganization, including legal entity reorganization and lease abandonment cost associated with the evaluation of our office space footprint.

Current wording

(i)Represents expenses related to reorganization, including legal entity reorganization and lease abandonment costs associated with the evaluation of our office space footprint.

Previous wording

(h)Represents the gain/loss related to disposal of fixed assets.

Current wording

(j)Represents the gain or loss related to the disposal of fixed assets.

Previous wording

(i)Represents recruiting and relocation expenses related to hiring senior executives.

Current wording

(k)Represents recruiting and relocation expenses related to hiring senior executives.

Previous wording

(j)Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

Current wording

(l)Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

Previous wording

(k)Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding.

Current wording

(m)Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding.

Previous wording

Our business generates revenue from the sales of software products and delivery of consulting services.

Current wording

Our business generates revenue from the sales of software products and the delivery of consulting services.

Previous wording

•Services. Our services business generates revenues primarily from technology-driven services and professional services, which include software implementation services. Our service arrangements are time and materials, fixed fee, or prepaid. Revenues are recognized over the time services are performed for time and materials, and over time by estimating progress to completion for fixed fee and prepaid services.

Current wording

•Services. Our services business generates revenues primarily from technology-driven services and professional services, which include software implementation services. Our service arrangements are time and materials, a fixed fee, or prepaid. Revenues are recognized over the time as services are performed for time and materials, and over time by estimating progress to completion for fixed fee and prepaid services.

Previous wording

•Sales and Marketing. Sales and marketing expense consists primarily of employee-related expenses, equity-based compensation, sales commissions, brand development, advertising, travel-related expenses and industry conferences and events. We plan to continue to invest in sales and marketing to increase penetration of our existing client base and expand to new clients.

Current wording

•Sales and Marketing. Sales and marketing expenses consist primarily of employee-related expenses, equity-based compensation, sales commissions, brand development, advertising, travel-related expenses, and industry conferences and events. We plan to continue to invest in sales and marketing to increase penetration of our existing client base and expand to new clients.

Previous wording

•Research and Development. Research and development expense (“R&D”) consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits. We plan to continue to invest in our R&D efforts to enhance and scale our software product offerings by development of new features and increased functionality.

Current wording

•Research and Development. R&D expense consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs, and tax credits. We plan to continue to invest in our R&D efforts to enhance and scale our software product offerings by development of new features and increased functionality.

Previous wording

•General and Administrative. General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation. General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

Current wording

•General and Administrative. General and administrative expenses ("G&A") consist of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation. G&A expenses also include professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

Previous wording

•Depreciation and Amortization Expense. Depreciation and amortization expense consists of depreciation of property and equipment and amortization of leasehold improvements.

Current wording

•Depreciation and Amortization Expense. Depreciation and amortization expenses consist of depreciation of property and equipment and amortization of leasehold improvements.

Previous wording

On June 20, 2023, we entered into an asset purchase agreement with the University of Washington and completed the acquisition of DIDB, including the Drug Interaction Database and related products, from The University of Washington for a total estimated consideration of $8.3 million. The business combination was not significant to the Company’s consolidated financial statements.

Current wording

On June 20, 2023, we entered into an asset purchase agreement with the University of Washington and completed the acquisition of DIDB, including the Drug Interaction Database and related products, from The University of Washington for a total estimated consideration of $8.3 million. The business combination was not significant to the Company’s condensed consolidated financial statements.

Previous wording

Based on our purchase price allocation, approximately $0.3 million, $5.6 million, $0.4 million, and $2.3 million of the purchase price was assigned to trade names, database content/technology, customer relationships and goodwill, respectively. The total estimated consideration included a portion of contingent consideration that is payable over the next two years in cash, not to exceed $2.0 million. The fair value of the contingent consideration was estimated to be $0.8 million as of the acquisition date. At March 31, 2024, the contingent consideration was remeasured to $0.1 million, resulting in a fair value adjustment of $4 thousand and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Current wording

Based on our purchase price allocation, approximately $0.3 million, $5.6 million, $0.4 million, and $2.3 million of the purchase price was assigned to trademarks, database content/technology, customer relationships and goodwill, respectively. The total estimated consideration included a portion of contingent consideration that is payable over the next two years in cash, not to exceed $2.0 million. The fair value of the contingent consideration was estimated to be $0.8 million as of the acquisition date. At June 30, 2024, the contingent consideration was remeasured to $0.1 million, resulting in a fair value adjustment of $4 thousand and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Previous wording

The total estimated consideration included a portion of contingent consideration that is payable over two years in cash, not to exceed $9.0 million. The fair value of the contingent consideration related to revenue threshold was estimated to be $4.4 million as of the acquisition date. Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively. Additionally, another portion of the contingent consideration is based on the resolution of certain tax contingencies. In total, the fair value of the contingent consideration was estimated to be $5.2 million as of the acquisition date. At March 31, 2024 the contingent consideration related to revenues was remeasured to $3.2 million, resulting in a negative fair value remeasurement and adjustment of $0.5 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Current wording

The total estimated consideration included a portion of contingent consideration that is payable over two years in cash, not to exceed $9.0 million. The fair value of the contingent consideration related to the revenue threshold was estimated to be $4.4 million as of the acquisition date. Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively. Additionally, another portion of the contingent consideration is based on the resolution of certain tax contingencies. In total, the fair value of the contingent consideration was estimated to be $5.2 million as of the acquisition date. During the six months ended June 30, 2024, the Company made payments of $1.8 million on contingent consideration. At June 30, 2024 the contingent consideration related to revenues was remeasured to zero, resulting in a negative fair value remeasurement and adjustment of $1.9 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Previous wording

On December 12, 2023, we completed the acquisition of ABM, an industry-leader in providing model-informed drug discovery and development support to help accelerate and de-risk therapeutic research and development, for total estimated consideration of $36.6 million. The business combination was not material to our consolidated financial statements.

Current wording

On December 12, 2023, we completed the acquisition of ABM, an industry-leader in providing model-informed drug discovery and development support to help accelerate and de-risk therapeutic research and development, for a total estimated consideration of $36.6 million. The business combination was not material to our condensed consolidated financial statements.

Previous wording

The total estimated consideration includes a portion of contingent consideration that is payable over two years in cash, not to exceed $17.6 million. Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively. The fair value of the contingent consideration was estimated to be $5.4 million as of the acquisition date. At March 31, 2024, the contingent consideration was remeasured to $4.4 million, resulting in a negative fair value adjustment of $0.9 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Current wording

The total estimated consideration includes a portion of contingent consideration that is payable over two years in cash, not to exceed $17.6 million. Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively. The fair value of the contingent consideration was estimated to be $5.4 million as of the acquisition date. At June 30, 2024, the contingent consideration was remeasured to $4.7 million, resulting in a negative fair value adjustment of $0.7 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Previous wording

The contingent considerations for all acquisitions were classified as a liability and included in accrued expense and other long-term liabilities on our condensed consolidated balance sheet. The contingent consideration related with revenue threshold are remeasured on a recurring basis at fair value for each reporting period. Any changes in the fair value of these contingent liabilities are included in the earnings in the condensed consolidated statements of operations and comprehensive income (loss).

Current wording

The contingent considerations for all acquisitions were classified as a liabilities and included in accrued expenses and other long-term liabilities on our condensed consolidated balance sheet. The contingent considerations related with revenue threshold are remeasured on a recurring basis at fair value for each reporting period. Any changes in the fair value of these contingent liabilities are included in the earnings in the condensed consolidated statements of operations and comprehensive income (loss).

Previous wording

We have included the results of operations of acquired companies in our condensed consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three months ended March 31, 2024 to the three months ended at March 31, 2023.

Current wording

We have included the results of operations of acquired companies in our condensed consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three and six months ended June 30, 2024 to the three and six months ended June 30, 2023, respectively.

Previous wording

Total revenues increased $6.4 million, or 7%, to $96.7 million for the three months ended March 31, 2024 as compared to the same period in 2023. The overall increase in revenues was primarily due to growth in our software product offerings from strong demand within existing customers, client expansions, and new customers.

Current wording

Total revenues increased $2.9 million, or 3%, to $93.3 million for the three months ended June 30, 2024 as compared to the same period in 2023. The overall increase in revenues was primarily due to growth in our software product offerings from strong demand within existing customers, client expansions, and new customers.

Previous wording

Software revenues increased $6.3 million, or 19%, to $39.3 million for the three months ended March 31, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers and expanding relationships with customers.

Current wording

Software revenues increased $4.5 million, or 13%, to $38.2 million for the three months ended June 30, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers and expanding relationships with customers.

Previous wording

Cost of revenues increased by $4.4 million, or 13%, to $39.3 million for the three months ended March 31, 2024 as compared to the same period in 2023. The increase was primarily due to a $1.9 million increase in employee-related costs resulting from billable head count growth, a $1.2 million increase in stock-based compensation costs, a $0.8 million increase in intangible assets amortization, a $0.5 million increase in equipment and software expenses.

Current wording

Cost of revenues increased by $3.6 million, or 10%, to $39.8 million for the three months ended June 30, 2024 as compared to the same period in 2023. The increase was primarily due to a $2.5 million increase in employee-related costs resulting from billable headcount growth, an $0.8 million increase in intangible assets amortization, a $0.5 million increase in stock-based compensation costs, and a $0.5 million increase in equipment and software expenses, partially offset by a $0.8 million decrease in consulting and professional costs.

Previous wording

Sales and marketing expenses increased by $2.7 million, or 34%, to $10.7 million for the three months ended March 31, 2024 as compared to the same period in 2023. Sales and marketing expenses increased primarily due to a $1.7 million increase in employee-related costs primarily resulting from head count growth, a $0.2 million increase in stock-based compensation costs, a $0.2 million increase in travel expenses, a $0.2 million increase in marketing expenses, and a $0.2 million increase in professional and consulting expenses.

Current wording

Sales and marketing expenses increased by $4.1 million, or 51%, to $12.2 million for the three months ended June 30, 2024 as compared to the same period in 2023. Sales and marketing expenses increased primarily due to a $1.6 million increase in employee-related costs mainly resulting from head count growth driven by acquisitions along with investment to build the commercial organization, a $1.1 million increase in commission expenses, a $0.5 million increase in stock-based compensation costs, a $0.5 million increase in marketing expenses, a $0.2 million increase in professional and consulting expenses, a $0.1 million increase in travel expense, and a $0.1 million increase in equipment and software expense.

Previous wording

Research and development expenses increased by $2.7 million, or 29%, to $12.0 million for the three months ended March 31, 2024, as compared to the same period in 2023. The change in research and development expenses was primarily due to a $3.0 million increase in employee-related costs primarily resulting from head count growth, and a $0.2 million increase in the cost of licenses, partially offset by a $0.5 million increase in capitalized cost in R&D.

Current wording

Research and development expenses increased by $1.2 million, or 15%, to $9.1 million for the three months ended June 30, 2024 as compared to the same period in 2023. The change in research and development expenses was primarily due to a $2.7 million increase in employee-related costs, mainly resulting from head count growth associated with investments in software development, including AI integration across our product portfolio, a $0.2 million increase in the equipment and software expense, and a $0.2 million increase in license expenses, partially offset by a $2.0 million increase in capitalized cost in R&D.

Previous wording

Intangible asset amortization expense increased by $2.1 million, or 20%, to $12.6 million for the three months ended March 31, 2024, as compared to the same period in 2023. The increase in intangible asset amortization expense was primarily due to $1.3 million increase in amortization in acquired intangible assets and $0.8 million increase in amortization in capitalized software.

Current wording

Intangible asset amortization expense increased by $2.2 million, or 20%, to $12.7 million for the three months ended June 30, 2024 as compared to the same period in 2023. The increase in intangible asset amortization expense was primarily due to a $1.3 million increase in amortization in acquired intangible assets and a $0.9 million increase in amortization in capitalized software.

Previous wording

Our income tax benefit was $0.8 million, resulting in an effective income tax rate of 14% for the three months ended March 31, 2024 as compared to an income tax expense of $1.1 million, or an effective income tax rate of 45%, for the same period in 2023. Our income tax expense for the three months ended March 31, 2024 and 2023 was primarily due to the tax effects of U.S. pre-tax income, the relative mix of domestic and international earnings, the impact of non-deductible items, adjustments to the valuation allowances, the effects of tax elections made for U.K. earnings, and discrete tax items.

Current wording

Our income tax expense was $0.3 million, resulting in an effective income tax rate of (2)% for the three months ended June 30, 2024 as compared to an income tax expense of $3.7 million, or an effective income tax rate of 44%, for the same period in 2023. Our income tax expense for the three months ended June 30, 2024 and 2023 was primarily due to the tax effects of U.S. pre-tax income, the relative mix of domestic and international earnings, the impact of non-deductible items, adjustments to the valuation allowances, the effects of tax elections made for United Kingdom earnings, and discrete tax items.

Previous wording

Net loss was $4.7 million representing a $6.0 million change in net income for the three months ended March 31, 2024 as compared to a net income of $1.4 million for the same period of 2023. The decrease in net income was primarily due to a $10.7 million increase in operating expense, a $4.4 million increase in cost of revenue, partially offset by a $6.4 million increase in revenue, a $1.9 million decrease in tax expense, and a $0.8 million increase in total other income.

Current wording

Net loss was $12.6 million representing a $17.3 million change in net income for the three months ended June 30, 2024 as compared to a net income of $4.7 million for the same period of 2023. The decrease in net income was primarily due to a $21.4 million increase in operating expense, a $3.6 million increase in cost of revenue, partially offset by a $2.9 million increase in revenue, a $3.4 million decrease in tax expense, and a $1.3 million increase in total other income.

Previous wording

General and administrative expenses increased by $3.2 million, or 16%, to $23.0 million for the three months ended March 31, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was primarily due to a $1.6 million increase related to change in the fair value of contingent consideration, a $1.1 million increase in employee-related costs primarily resulting from head count growth, a $0.5 million increase in merger and acquisition expenses, a $0.2 million increase in equipment and software expenses, a $0.2 million increase in executive recruiting expense, and a $0.2 million increase in credit allowance provision expense, partially offset by a $0.9 million decrease in stock-based compensation costs.

Current wording

General and administrative expenses increased by $17.0 million, or 50%, to $51.1 million for the six months ended June 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was primarily due to a $2.1 million increase in employee-related costs primarily resulting from head count growth, a $4.1 million increase in stock-based compensation costs, a $3.1 million increase related to remeasurement changes in the fair value of contingent consideration, a $2.6 million increase in transaction expense primarily related to refinancing of our term loan and revolving line of credit, a $2.3 million increase in reorganization expense, a $1.0 million increase in provision for credit allowance, a $0.8 million increase in merger and acquisition expenses, a $0.6 million increase in professional and consulting expenses, and a $0.2 million increase in public company-related expenses.

Previous wording

Interest expense increased by $0.3 million, or 5%, to $5.8 million for the three months ended March 31, 2024 as compared to the same period in 2023. The increase in interest expense was primarily due to an $0.8 million increase in our floating rate term loan debt, driven by the uptick in market interest rates. The increase in interest expense was partially offset by a $0.5 million increase in gain from our interest swap hedge activities.

Current wording

Interest expense increased by $0.2 million, or 2%, to $11.3 million for the six months ended June 30, 2024 as compared to the same period in 2023. The increase in interest expense was primarily due to a $1.1 million increase in our floating rate term loan debt, driven by the uptick in market interest rates. The increase in interest expense was partially offset by a $0.8 million increase in gain from our interest swap hedge activities.