Summary of Certara FY Conference Call (November 18, 2025) Company Overview - **Company**: Certara (NasdaqGS:CERT) - **Industry**: Biopharmaceutical services and software Key Points Demand Environment - **Tier 3 Customers**: Strong performance noted in Tier 3 (biotech companies) with double-digit growth in biosim services, driven by a focus on well-funded biotech firms [3][4] - **Tier 1 Customers**: Weakness observed in Tier 1 (large pharma) customers due to delays in decision-making and project slowdowns, particularly in regulatory and biosim services [4][12] - **Q4 Expectations**: Anticipation of a strong Q4 with expected sequential increase in bookings, although not as pronounced as in previous years due to Tier 1 customer delays [5][10] Software vs. Services - **Software Stability**: Software business remains stable with high renewal rates and organic revenue growth of 6% year-to-date [7][27] - **Service Volatility**: Services are more volatile, influenced by broader market conditions, with a noted deceleration in bookings but solid revenue conversion from backlog [8][39] Regulatory Environment - **Impact on Business**: Mixed regulatory backdrop with fewer drug approvals impacting regulatory services, but positive sentiment from FDA directives on non-animal testing methodologies providing a tailwind [13][14] Cloud Strategy - **Certara Cloud Adoption**: Strong adoption of Certara Cloud, enhancing cross-sell opportunities as customers transition from desktop to cloud versions of software [15][16] - **Phoenix Cloud Launch**: Transitioning customers to the cloud version of Phoenix, which includes AI enhancements, is expected to drive growth [17][18] Financial Performance - **EBITDA Margins**: EBITDA margins stable to improving, with year-to-date gross margins near record levels. R&D expenses increased by 24% due to software investments [41][42] - **Net Revenue Retention (NRR)**: NRR at the lower end of expectations, driven by organic software revenue growth and pricing strategies [27][28] AI Integration - **AI in Products**: Certara has embedded AI into various software offerings, including Coauthor for regulatory writing and Certara IQ for quantitative systems pharmacology [30][31] - **Monetization of AI**: AI capabilities are being monetized through new product offerings and pricing strategies, with paying customers for AI products already in place [33] Services Demand - **Growth Areas**: QSP services are a highlight, with traditional PKPD services also growing. Regulatory consulting has seen weakness due to FDA uncertainties [36][37] - **Utilization Rates**: High utilization rates in the services team are expected to continue, providing revenue visibility despite booking volatility [39] M&A and Capital Deployment - **Acquisition Strategy**: Successful integration of Comaxon and Applied BioMath, with a focus on expanding capabilities in the biosimulation space [51][52] - **Future M&A Plans**: Certara aims to continue pursuing strategic acquisitions in software, balancing between M&A and share repurchase as capital deployment strategies [48][49] Long-term Outlook - **Growth Projections**: Expectation of double-digit growth in both software and services, with potential for margin expansion as growth rates increase [46] Customer Insights - **Insourcing vs. Outsourcing**: Customers are increasingly using AI internally, which may influence their decisions on outsourcing services to Certara [56][57] This summary encapsulates the key insights and developments discussed during the Certara FY Conference Call, highlighting the company's performance, market dynamics, and strategic initiatives.