Certara (NasdaqGS:CERT) FY Conference Transcript

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.