Summary of Certara (CERT) 2025 Conference Call Company Overview - Certara is a software and services company specializing in biosimulation and model-informed drug development, with approximately 45% of its business derived from software and the remaining from services [3][4] Key Financial Performance - The company performed in line with expectations in Q1, with software aided by the acquisition of Chemaxon in Q4 of the previous year [3][4] - The services business also met expectations, showing mid-single-digit growth, supported by a return to growth in regulatory services [3][4] Industry Dynamics - The FDA's recent announcement to reduce animal testing requirements positions Certara favorably, as it aligns with their existing products and services [5][6] - The directive is expected to drive incremental revenue, particularly in their SIMSIP and QSP product areas [6][22] Customer Engagement - Certara maintains a strong relationship with the FDA, which is a significant user of their software, and they continue to engage in constructive dialogue [8][9] - The company aims to deepen penetration within large pharmaceutical companies, focusing on expanding their footprint into the preclinical stage of drug development [10][11] Challenges and Opportunities - Tier three customers (biotechs) are facing a challenging funding environment, which could impact growth despite strong Q1 performance [13][14] - Certara is investing in R&D and enhancing AI capabilities to improve their software offerings, including the recent launch of Co Author for regulatory writing [16][19] Product Development - The Non-Animal Navigator was launched in response to the FDA's directive, aimed at helping customers transition away from animal testing [21][23] - The integration of Chemaxon is expected to expand Certara's capabilities into the discovery phase of drug development, enhancing their overall service offerings [27][28] Market Outlook - The company anticipates continued challenges in the end market environment, particularly with tier one customers, but remains optimistic about growth opportunities stemming from the FDA directive [52][53] - Certara's capital allocation strategy includes a focus on M&A to enhance their software capabilities, with a goal to increase the software revenue mix from 45% to 50% by year-end [48][49] Conclusion - Certara is well-positioned to capitalize on regulatory changes and expand its market presence through strategic investments and product development, despite facing headwinds in the biotech funding environment [52][53]

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $106 million, representing a 10% year-over-year growth [19] - Total bookings for the first quarter were $118.2 million, which is a 12% increase from the prior year [19] - Adjusted EBITDA for Q1 2025 was $34.8 million, up from $29.1 million in Q1 2024, with an adjusted EBITDA margin of 33% [24][25] - Net income for Q1 2025 was $4.7 million, compared to a net loss of $4.7 million in Q1 2024 [25][26] Business Line Data and Key Metrics Changes - Software revenue was $46.4 million in Q1 2025, an 18% increase year-over-year, driven by biosimulation software and Pinnacle 21 [20] - Services revenue was $59.6 million in Q1 2025, up 4% compared to the prior year [22] - Software bookings were $40.8 million, a 23% increase from the prior year, including $4.9 million from Chemaxon [21] - Regulatory services showed strong performance with double-digit growth in bookings year-over-year [22] Market Data and Key Metrics Changes - The current market has headwinds such as IRA price controls and a challenging capital raising environment for biotechs, but also tailwinds from FDA announcements regarding animal testing [8][9] - There is significant inbound interest from customers regarding the non-animal navigator product, indicating a broad market engagement [48] Company Strategy and Development Direction - The company is focusing on integrating AI into software solutions, expanding biosimulation model development, and enhancing drug development processes [9][10] - Certara aims to capitalize on the FDA's plan to phase out animal testing, which is expected to drive demand for their modeling and simulation tools [11][14] - The company is actively pursuing M&A opportunities and organic investments to drive long-term growth [16][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting commercial goals despite a muted end market environment [12][17] - The FDA's recent announcements are seen as long-term tailwinds for the adoption of modeling and simulation tools [11][14] - The company anticipates continued growth in revenue and adjusted EBITDA margins, with guidance for total revenue in the range of $415 million to $425 million for 2025 [27][28] Other Important Information - The company announced a $100 million share repurchase authorization, with $25 million already repurchased [26][27] - New leadership was welcomed in the services group, indicating a focus on enhancing capabilities [15] Q&A Session Summary Question: What common themes are seen in the inbound interest for the non-animal navigator? - Management noted that companies are eager to understand FDA expectations and the potential for reduced animal usage in drug development [33] Question: What is the expected net retention ratio (NRR) for Certara? - The current NRR is 102%, which is lower than historical averages, but expected to improve as software revenue increases [34][36] Question: What is the scope of commercial engagement regarding the non-animal navigator? - Customers are inquiring about what can be replaced today and the potential for future applications [40] Question: How are potential pharma tariffs impacting customer behavior? - Management indicated that while there is slowness in decision-making, Certara is insulated from direct tariff impacts [49] Question: What is the key to moving pharma off its current practices? - The FDA's clear signals and potential discouragement of animal model usage are crucial for industry adoption [55] Question: How does the FDA's recent announcement compare to previous regulatory changes? - The current FDA announcements have generated more industry interest compared to the past, where the FDA was less proactive [66] Question: What is the timeline for the financial impact of the non-animal navigator product? - It is too early to determine specific timelines for financial impact, but interest is building [70] Question: How is the company leveraging AI in its products? - The company has launched AI products that enhance regulatory reporting and attract customer interest [72][74]

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $106 million, representing a 10% year-over-year growth [19] - Total bookings for the first quarter were $118.2 million, an increase of 12% from the prior year [19] - Adjusted EBITDA for Q1 2025 was $34.8 million, up from $29.1 million in Q1 2024, with an adjusted EBITDA margin of 33% [23][24] - Net income for Q1 2025 was $4.7 million, compared to a net loss of $4.7 million in Q1 2024 [25] Business Line Data and Key Metrics Changes - Software revenue was $46.4 million, an 18% increase year-over-year, driven by biosimulation software and Pinnacle 21 [20] - Services revenue was $59.6 million, up 4% year-over-year, with strong performance in regulatory services [22] - Software bookings were $40.8 million, a 23% increase from the prior year, including $4.9 million from Chemaxon [21] Market Data and Key Metrics Changes - Chemaxon contributed $5.9 million in revenue and $4.9 million in bookings during the quarter [7] - The company experienced stable demand across biosimulation services, with growth in Tiers two and three offsetting softness in Tier one [22] Company Strategy and Development Direction - The company is focusing on integrating AI into software solutions, expanding biosimulation model development, and enhancing solutions for earlier stages of drug development [8] - Certara aims to capitalize on the FDA's announcement to phase out animal testing, which is expected to drive demand for modeling and simulation tools [10][17] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing headwinds from IRA price controls and a challenging capital raising environment for biotechs, but also highlighted new tailwinds from regulatory changes and increased AI spending [7][8] - The company is optimistic about meeting commercial goals and sees strong underlying demand from customers [11] Other Important Information - The Board authorized a $100 million share repurchase program, with approximately $25 million repurchased to date [26] - The company is actively reviewing its regulatory business and has received interest from external parties [17] Q&A Session Summary Question: Interest in Non-Animal Navigator - The company has received significant interest from various tiers of customers regarding the Non-Animal Navigator, with inquiries focused on FDA expectations and technology capabilities [30][31] Question: Net Retention Ratio (NRR) - The NRR for the quarter was 102%, lower than historical averages, attributed to timing in organic software revenue achievement [33][34] Question: Commercial Engagement Scope - Customers are interested in understanding what can be replaced with non-animal models and the potential for QSP modeling [38][39] Question: Impact of FDA Announcement - The FDA's recent announcements are expected to positively influence growth rates, but it is too early to quantify the impact [42][43] Question: Regulatory Services Performance - Regulatory services have shown strong performance due to a fully built-out commercial team and easier year-over-year comparisons [62] Question: Certara Cloud Update - The take rate on Certara Cloud is strong, with customers accessing a broader product portfolio during license renewals [87][88] Question: Preclinical Applications Penetration - The company has not disclosed specific revenue proportions from preclinical versus clinical applications but is expanding its footprint in preclinical offerings [78] Question: Future Software Additions - The company is considering additional software investments to enhance the Non-Animal Navigator product but has not made specific announcements yet [98]