Certara, Inc.CERT
Certara, Inc. Income Taxes Disclosure
Income Taxes
The components of income (loss) before income taxes were as follows:
| YEAR ENDED DECEMBER 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Domestic | $ | 7,491 | $ | (15,443) | $ | (60,587) | |||||||||||
| Foreign | 125 | (1,741) | 5,444 | ||||||||||||||
| Total | $ | 7,616 | $ | (17,184) | $ | (55,143) | |||||||||||
The components of provision for (benefit from) income taxes were as follows:
| DECEMBER 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current tax provision | |||||||||||||||||
| Federal | $ | 5,706 | $ | (1,675) | $ | 3,986 | |||||||||||
| State and local | 2,216 | 2,169 | 3,976 | ||||||||||||||
| Foreign | 9,610 | 7,068 | 8,775 | ||||||||||||||
| Total current | 17,532 | 7,562 | 16,737 | ||||||||||||||
| Deferred tax benefit | |||||||||||||||||
| Federal | (4,429) | (6,977) | (10,957) | ||||||||||||||
| State and local | 123 | (2,934) | (2,835) | ||||||||||||||
| Foreign | (4,015) | (2,784) | (2,731) | ||||||||||||||
| Total deferred | (8,321) | (12,695) | (16,523) | ||||||||||||||
| Total provision (benefit) | $ | 9,211 | $ | (5,133) | $ | 214 | |||||||||||
The Company adopted ASU 2023-09 prospectively for the year ended December 31, 2025. Following is the reconciliation of the tax provision at the U.S. federal statutory rate to income tax expense.
| Year Ended December 31, 2025 | |||||||||||
| (In thousands, except for percentage) | |||||||||||
| Earnings from continuing operations, before income tax expense | $ | 7,616 | |||||||||
| U.S. Federal Statutory Tax Rate | $ | 1,599 | 21.0 | % | |||||||
| United States | |||||||||||
| State and Local Income Taxes* | 1,689 | 22.2 | % | ||||||||
| Federal | |||||||||||
| Effect of Cross-Border Tax Laws | |||||||||||
| FDII | (1,028) | (13.5) | % | ||||||||
| GILTI | 271 | 3.6 | % | ||||||||
| Tax Credits | |||||||||||
| R&D credit | (1,296) | (17.0) | % | ||||||||
| Foreign Tax Credit | (9,159) | (120.3) | % | ||||||||
| Changes in Valuation Allowances | 4,217 | 55.4 | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Equity Compensation | 2,823 | 37.1 | % | ||||||||
| Officers Compensation | 1,315 | 17.3 | % | ||||||||
| Other Nontaxable or Nondeductible Items | 2,935 | 38.5 | % | ||||||||
| Other Permanent Differences | 97 | 1.3 | % | ||||||||
| Other Adjustments | (338) | (4.5) | % | ||||||||
| Canada | |||||||||||
| Investment tax credit | (1,153) | (15.1) | % | ||||||||
| Other | (55) | (0.7) | % | ||||||||
| Hungary | |||||||||||
| Effect of Rates Different than Statutory | 832 | 10.9 | % | ||||||||
| Other | (43) | (0.6) | % | ||||||||
| United Kingdom | |||||||||||
| Effect of Rates Different than Statutory | 7,551 | 99.1 | % | ||||||||
| Other Nontaxable or Nondeductible Items | (2,068) | (27.2) | % | ||||||||
| Other | (109) | (1.4) | % | ||||||||
| Other Foreign Jurisdictions | 613 | 8.0 | % | ||||||||
| Changes in Unrecognized Tax Benefits | 518 | 6.8 | % | ||||||||
| Income Tax Expense | $ | 9,211 | 120.9 | % | |||||||
* State taxes in California, Maryland, Massachusetts, New Jersey, Pennsylvania made up the majority of the tax effect in this category.
The effective income tax rate was 29.87% and (0.39)% for the years ended December 31, 2024 and 2023, respectively. The primary reconciling items between the statutory income tax rate of 21% and the effective income tax rate were as a result of the following:
| DECEMBER 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In thousands, except for percentage) | |||||||||||||||||||||||
| Tax at U.S. federal statutory rate | $ | (3,611) | 21.00 | % | $ | (11,580) | 21.00 | % | |||||||||||||||
| State taxes, net of federal benefit | (1,201) | 6.98 | % | 136 | (0.25) | % | |||||||||||||||||
| Foreign rate differential | 4,940 | (28.73) | % | 4,552 | (8.26) | % | |||||||||||||||||
| Permanent items | (1,944) | 11.31 | % | 5,205 | (9.44) | % | |||||||||||||||||
| Equity compensation | 2,738 | (15.91) | % | 1,582 | (2.87) | % | |||||||||||||||||
| GIL TI inclusion | 1,442 | (8.38) | % | 2,374 | (4.30) | % | |||||||||||||||||
| Tax credits | (7,969) | 46.34 | % | (10,031) | 18.19 | % | |||||||||||||||||
| Rate change | — | — | % | (237) | 0.43 | % | |||||||||||||||||
| Other adjustments | 2,304 | (13.40) | % | 4,148 | (7.52) | % | |||||||||||||||||
| Return to provision adjustments | 820 | (4.76) | % | (1,288) | 2.34 | % | |||||||||||||||||
| Valuation allowance | (2,652) | 15.42 | % | 5,353 | (9.71) | % | |||||||||||||||||
| Effective tax rate | $ | (5,133) | 29.87 | % | $ | 214 | (0.39) | % | |||||||||||||||
Below is a summary of income taxes paid by jurisdiction for the year ended December 31, 2025:
| Year Ended December 31, 2025 | |||||
| (Dollars in thousands) | |||||
| Income tax payments( net of refunds) | |||||
| United States: | |||||
| U.S. Federal | $ | (1,079) | |||
| U.S. State: | |||||
| Massachusetts | 1,300 | ||||
| Other states | 1,823 | ||||
| Total U.S. State | 3,123 | ||||
| Total United States | 2,044 | ||||
| Foreign: | |||||
| United Kingdom | 8,853 | ||||
| Other | 1,322 | ||||
| Total Foreign | 10,175 | ||||
| Total tax payment | $ | 12,219 | |||
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:
| DECEMBER 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets | |||||||||||
| Accounts receivable | $ | 570 | $ | 570 | |||||||
| Accrued compensation | 4,990 | 4,191 | |||||||||
| Accrued expenses | 399 | 15 | |||||||||
| Deferred revenue | — | 286 | |||||||||
| Net operating loss carryforwards | 13,517 | 12,448 | |||||||||
| R&D credit carryforward | 5,476 | 4,171 | |||||||||
| Foreign tax credits | 15,684 | 12,045 | |||||||||
| Equity based compensation | 4,433 | 4,366 | |||||||||
| Other assets | 2,340 | 1,303 | |||||||||
| Interest expense | 418 | 1,080 | |||||||||
| Lease liability | 2,692 | 3,362 | |||||||||
| Interest rate hedge | 574 | — | |||||||||
| Section 174 | 20,106 | 16,975 | |||||||||
| Total gross deferred tax asset | 71,199 | 60,812 | |||||||||
| Less: Valuation allowance | (29,425) | (24,023) | |||||||||
| Net deferred tax asset | 41,774 | 36,789 | |||||||||
| Deferred tax liabilities | |||||||||||
| Property, equipment, and other long-lived assets | (93) | (146) | |||||||||
| Goodwill and intangible assets | (67,238) | (68,314) | |||||||||
| Prepaid expenses | (956) | (1,352) | |||||||||
| Interest rate hedge | — | (567) | |||||||||
| Right-of-use (ROU) Asset | (2,333) | (2,643) | |||||||||
| Deferred revenue | (34) | — | |||||||||
| Other liabilities | (243) | (226) | |||||||||
| Total gross deferred tax liability | (70,897) | (73,248) | |||||||||
| Net deferred tax liability | $ | (29,123) | $ | (36,459) | |||||||
The net change in the total valuation allowance resulted in an increase of $5,402 in 2025 compared to a decrease of $7,477 in 2024. The valuation allowance is determined separately for each jurisdiction. A U.S. valuation allowance was required against the foreign tax credit carryforward. At the foreign subsidiaries, the valuation allowance was primarily related to foreign net operating losses that, in the judgment of management, are not more likely than not to be realized.
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and carryforward attributes can be utilized. Management considered the reversal of deferred tax liabilities in making this assessment. Management believes it is more likely than not that the
Company will realize the benefits of the deferred tax assets, net of the existing valuation allowance, at December 31, 2025.
At December 31, 2025, the Company had net operating loss carryforwards for federal income tax purposes of approximately $4,191, some of which will expire if unused in years 2035 through 2036. Additionally, the Company had net operating loss carryforwards for state income tax purposes of approximately $3,475, which will expire if unused in years 2029 through 2041. The Company had foreign net operating loss carryforwards of $87,341 which will expire if unused starting in tax year 2025.
December 31, 2025, the Company also had $148 of federal research and development credits that will expire if unused in years 2027 through 2028 and $250 of foreign research and development credits that will expire if unused by 2029. Additionally, the Company had $20 of state research and development credits that will expire if unused by 2040. The Company also had foreign tax credits of $14,617 that will expire if unused in years 2027 through 2035, and Canadian investment tax credits of $5,226, which will expire if unused in years 2034 through 2044.
The Company has net operating losses and tax credits that are subject to limitation under Internal Revenue Code Section 382 and Section 383 due to changes in ownership. The Company has analyzed the realizability of these tax attributes carried forward and has recorded deferred tax assets for the attributes that meet the more-likely-than-not realizability threshold.
Foreign undistributed earnings were considered permanently invested, therefore no provision for US income taxes was accrued as of December 31, 2025 and 2024, with the exception of the withholding tax liability of $168 on the potential repatriation from Certara Canada Corporation.
The Company assessed its uncertain tax positions and determined that a liability of $8,534 and $7,411 was required to be recorded for uncertain tax positions as of December 31, 2025 and 2024, respectively. Uncertain tax positions relate primarily to federal and state R&D credits and certain net operating losses. The Company's policy is to recognize interest and penalties as a component of the provision for income taxes. For December 31, 2025 and 2024, the Company recognized interest of $0.1 million and $0.1 million, respectively and no penalties. The Company does not anticipate any significant changes to its uncertain tax positions during the next twelve months.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:
| (In thousands) | |||||
| Balance at December 31, 2023 | $ | 2,708 | |||
| Additions for tax positions related to the current year | 509 | ||||
| Additions for tax positions of prior years | $ | 5,312 | |||
| Reductions for tax positions of prior years | (14) | ||||
| Reductions related to settlements with taxing authorities | (1,104) | ||||
| Balance at December 31, 2024 | $ | 7,411 | |||
| Additions for tax positions related to the current year | 547 | ||||
| Additions for tax positions of prior years | 623 | ||||
| Reductions for tax positions of prior years | (47) | ||||
| Balance at December 31, 2025 | $ | 8,534 | |||
The uncertain tax positions, inclusive of interest and exclusive penalties, were $8,534 and $7,411 as of December 31, 2025 and December 31, 2024, respectively, which also represents potential tax benefits that if recognized, would impact the effective tax rate.
U.S. federal income tax returns are generally subject to examination for a period of three years after the filing of the return. However, the Internal Revenue Service can audit the NOLs generated in respective years in the years that the NOLs are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions.
The Company is subject to tax on Global Intangible Low-Taxed Income (“GILTI”) and has elected to account for GILTI as a current period expense.
The Organization for Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax by January 1, 2025. The Company does not expect this to apply until the Company meets the minimum global revenue threshold.
On July 4, 2025, the United States enacted the One Big Beautiful Bill Act (the “OBBBA”), which includes changes to U.S. tax law such as significant amendments to the U.S. federal income tax code. Key provisions include the permanent reinstatement of immediate expensing for domestic research expenditures, the restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing international tax provisions.The Company is continuing to evaluate the impact of OBBBA.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.