Q1 2021 Certara Inc Earnings Call
At the time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need the press star one on your telephone. Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference for Richard.
Your speaker today, David <unk> Investor Relations. Please go ahead.
Should be considered estimates only and are not of guarantee of future performance.
Also in their remarks of responses to questions management May mentioned, some non-GAAP financial measures.
Reconciliations of adjusted EBITDA, adjusted net income adjusted EPS and certain other non-GAAP financial measures to the most directly comparable GAAP measures are available in the recent earnings press release available on the company's website.
The conference call contains time sensitive information is accurate only as of the live broadcast today may 6th 2021.
So Tara disclaims any intention or obligation except this required by law to update of revise any financial projections for forward looking statements for the because of new information future events or otherwise and.
With that I will turn the call over to William.
Thank you David good afternoon, everyone.
Thank you for joining surcharged first quarter earnings call.
Andrew and I will start with prepared remarks, and then we will take questions.
I am very pleased with how the sitar business performed overall in the first quarter of 2021 of our first for quarter of as a public company.
While we're turning the corner on the pandemic in some regions COVID-19 continues to impact many lives around the world.
Deeply proud of how are so tartine has remained focused on our customers developing innovative ways to further of the adoption of R and the end platform to accelerate the medicines to patients.
And this quarter, we continued to strengthen our position as of global leader and buy a simulation by delivering strong financial results and executing against our well defined strategic plan.
Revenue of the first quarter grew 16% compared with the first quarter of 2020, achieving another record quarter of revenue.
Adjusted EBITDA grew 20% in the first quarter of 2021 compared with the first quarter of 2020.
You saw very robust customer demand during the quarter across both software and services demonstrated by year over year total company bookings growth of 34%.
And the first quarter of 2021, we expanded our global footprint with revenue growth of 31% in Europe, and 69% in Asia Pacific fuelled by our continued momentum in China in both software and Tech enabled services.
Our team based in our new Shanghai Office is excited to participate in the drug information associations Conference later this month.
In Japan, the pharmaceutical and medical devices agency renewed more than 50 licenses of our Phoenix platform and since the of simulator.
The the majority of our new employees from the first quarter of based in Europe, and Asia support are strong worldwide expansion.
The needs of our customers continue to drive our passion for innovation and buy a simulation. We were excited to announce version of 20 of our since the simulator in the quarter.
This latest version expand the use cases of by a simulation with new and enhanced models for maternal health such as assessing drug performance during the pregnancy and lactation.
It also automates the assessment of virtual of bio equivalents to obtain bio waivers. This is the key advancement in the modernization of drug development.
Scientists at the FDA recently published the manuscript illustrating the fda's approval of of complex generic using the sense of simulator to achieve virtual bio equivalents instead of of compared to the clinical study and patients.
Furthermore, we surpassed 80 novel of drugs approved by the FDA that had drug labels informed by the sense of simulator for.
For these new therapies are simulator was used to address the critical decisions regarding dosing safety and guidance for use for special populations.
Another major update the Simpson platform is the newly expanded biologics module the censorship biologic simulator, which is now available to you the license as Standalone software.
With upgraded capabilities and protein development, we can further help our customers address dosing and safety questions using virtual patients and an important area of research where our customers are accelerating investment.
This information and conclusions generated by the same steps biologics simulator optimized dosing regimens and predict biologic behavior and special populations, such as children, the elderly or patients with comorbidities.
The Simpsons simulator is having a growing impact and biologics hollowing of path similar to small molecules, where the use of mechanistic by a simulation is now well established we believe the go to market strategy of licensing the Simpsons biologic simulator outside of the consortium potentially.
Opens up new customers and markets for bias simulation and software and tech enabled services.
Earlier this week, we announced another new software called secondary intelligence, which is the only software of it's kind of predicts off target safety issues earlier and faster.
Safety issues contribute to 25% of drug program failures and some of the safety issues arise from secondary pharmacology, which is the activity of of drive that is not related to its desired therapeutic target.
With this software safety pharmacologist, and toxicologists can automate streamline and standardized secondary pharmacology analysis and increased confidence and go no decisions in which compounds are decided to move forward adjusted or discontinue.
The introduction of the software plants, the seeds of innovation for future longer term growth, allowing us to tap into new markets.
Turning over the services are technology enabled services business continues to experience elevated growth due to the expansion of our work with existing customers and the acquisition of new biotechnology customers.
Our services offering powered by our proprietary technologies is highly differentiated and profitable the.
The majority of Sitars services business.
Corporate's the use of bias simulation software throughout the drug discovery and development continuum.
We are incredibly proud of our team of scientists who are well known in the industry of thought leaders and at the forefront of the science and technology of bias simulation.
Or solid total company performance supports our view of 2021 remains very well on track relative to our plan.
The impressive total company growth and bookings is driven by demand across all customer types and is reflective of higher levels of of activity at our customers as we begin to make our way out of the pandemic.
The first quarter is typically when many of our customers are making major budget decisions on their strategic programs and we're proud of that were often their first choice as thereby of simulation partner.
A remarkable achievements of this quarter.
Result of hard work by our dedicated and talented so Tara colleagues.
We continue to add to our expert team worldwide, increasing our employee base by more than 5% in the quarter.
Approximately 75% of our new.
Hires this quarter, where scientists and subject matter of experts and many of the remaining hires for business developers.
Our turnover remains very low.
As I mentioned earlier, while we are starting to recover from the pandemic in some parts of the world others are continuing of fierce battle with this disease.
Our colleagues in India are especially in our thoughts and we continue to provide support for our global team through these challenging times.
In summary.
So tired is widely recognized as one of the largest and leading by a simulation companies in the world.
With relationships across more than 1650 customers at the end of 2020.
We are enthusiastic about the continued success of our customers a good number of of whom had drugs approved of the FDA during the first quarter.
These customers use or tars and the end platform in their development programs covering a wide range of therapeutic areas, such as auto immune diseases infectious diseases and the oncology.
Today, So Tara is involved with thousands of programs annually throughout all stages of discovery and development across the very diverse and expanding customer base.
We are dedicated to innovating and delivering high quality science back the results for our customers and our opportunities are expanding every day.
I will now turn the call over to our CFO, Andrew to discuss our financial results for the first quarter.
Thank you William.
Hello, everyone.
As mentioned earlier total revenue for the three months ended March 31, 2021 was $66 $7 million.
Representing year over year growth of 16%.
Software revenue was $21.9 million, which increased 8% over the prior year period as a result of strong first quarter bookings and renewal rates.
Software bookings were 21, 9 million, which increased 22% from the prior year period, and the aggregate renewal rate was 92%.
We continue to see strong demand for our by a simulation software products.
Services revenue was $44 $8 million, which increased 21% over the prior year period.
The growth and services revenue was also driven by strong demand for our Biosimilars <unk> solutions.
The overall growth rate in services was very robust. Despite some lingering effects of clinical trial delays from last year, which may impact the timing of project startups for regulatory science engagements.
The installed base of satire customers continue to see the value of our highly technical consulting business, which has led to continued success of our land and expand strategy.
This can be seen in services bookings of $60 million, which increased 39% from the prior year period.
Total cost of revenue for the first quarter of 2021 was 26 million an increase from $22.2 million in the first quarter of 2020.
Primarily do two of $2.3 million increase an employee related costs.
And the zero point $8 million increase in stock based compensation costs.
Partially offset by decreases and travel related costs and retention expensive.
Total operating expenses for the first quarter of 2021 for 35.1 million an increase from $27.3 million in the first quarter of 2020.
Primarily due to a $3.9 million increase in stock based compensation expenses.
One $4 million increase an employee related costs.
And $1 million of ongoing public company costs.
The remaining increases were due to increases in secondary offering costs and acquisition related costs.
The components of operating expenses are as follows.
Sales and marketing expenses were three $8 million compared to $2.9 million for the first quarter of 2020.
The increase was primarily due.
Two zero point $5 million increase in the employee of related costs and 0.4 million increase in stock based compensation expenses.
Partly offset by lower travel.
R&D expenses for for $7 million compared to $2.9 million for the first quarter of 2020.
The increase was primarily due to 0.5 million increase an employee related costs.
Zero point $6 million reduction and capitalized research and development.
And zero point $4 million increase in stock based compensation expenses.
G&A expenses for $16 6 million compared to $11.5 million for the first quarter of 2020.
The increase was primarily due to a $3.1 million increase in stock based compensation expenses.
$1 million and ongoing public company costs and $2.3 million of transaction and M&A expenses.
Which were parts of the partially offset by lower cost and the number of of the line items.
Intangible assets amortization was nine $5 million for the first quarter and depreciation and amortization expense was the airplanes $6 million during the period.
The Rideau significant changes in Idaho line item.
Continuing down the P&L interest expense during the first quarter was $3.9 million compared to $6 $9 million for the first quarter of 2021.
The reduction in interest expense is due to the repayment of our Holdco alone in the fourth quarter of last year.
Adjusted diluted earnings per share for the first quarter was <unk> <unk> compared to <unk> for the first quarter of 2020.
Now moving to the balance sheet.
We ended the quarter with $273 million of cash and cash equivalents.
One timing difference that I would like to point out is that we paid our annual bonuses to employees in the first quarter of this year compared to the second quarter last year.
Our total debt outstanding was $298 4 million net of deferred financing fees of $4 9 million as of March 31 2021.
The current ex debt structure does not include any significant maturity until 2024.
Regarding the financial outlook, we are updating our previously reported guidance for full year 2021 revenue adjusted EBITDA and effective annual tax rate.
Revenues to be in the range of $277 million to $285 million.
Adjusted EBITDA to be in the range of 100 to 100 $102 million.
Adjusted EPS to be in the range of 20 to 24 per share the.
The cash tax rate to be in the range of 25% to 30%.
A slight revision to our effective tax rate guidance to be between 40% and 45%.
Fully diluted shares to range between $153 million and 155 million at year end.
Thank you.
Now I'll turn it back to our CEO William theory.
Thank you Andrew.
In summary, <unk> had a successful start to our year on our first full quarter of the public.
The <unk> team continues to focus on our commitments to customers.
<unk> delivered strong growth growth for our shareholders we.
We believe that our end to end platform is well positioned to continue benefiting from solid market trends.
We expect to capture a larger share of over.
All of biopharmaceutical R&D spend as we continue to innovate acquire and add new solutions to our end to end platform.
At this point, we'll open the call for questions. Operator can you open up the line.
Yeah.
As a reminder, task of question you will need to press star one of your telephone.
Withdraw your question price per pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Luke sort of got from Barclays. Your line is now for them.
Hey, guys just a couple of just quick one here on guidance so.
I'm just trying to get a sense of you had a really strong bookings quarter of things seem to be opening up.
And of decent beat on the on the top line. So on a modest guidance raise is this just.
As we think about conservatism is it I know you have 85% visibility into your business.
Is there something with those bookings out there that they're going to flow through later on most likely 'twenty two or just how to think about that from us.
As things seem to be opening up it seems like we should be expecting a little bit more.
Yes, Thanks Luke.
Andrew once you take that okay sure so the.
The year over year growth rates have been stronger than we had anticipated I would say that in terms of conservatism give more of a new public company.
The those bookings results make us very comfortable with our guidance, but we'd like to see another quarter of two before making any adjustments.
Certainly reassess it at that time of the way that I look at this is.
Not just in the quarter, but also.
Looking back in the trailing 12 months and on the <unk>.
Trailing 12 month basis, the bookings growth was a little bit over 20% 22%.
Which is highly supportive of achieving the mid to high teens revenue growth with another quarter of of activity.
We'd be in a better position to assess the guidance.
Alright, that's fair, Yeah, I, clearly get that and so.
When I think about the the margin trajectory here and the pacing through the year.
Between services and.
And the software piece of any any dynamic that you want to call out in the end from a modeling perspective.
Yeah.
So the.
We talked about it briefly.
The last call. So so the the first quarter and the fourth quarter are high high quarters for software bookings given the renewal cycles in software. The services, we expect the kind of growth sequentially throughout the year.
Given the kind of profile of the bookings that are coming in.
Historically, if you kind of normalize for one time items or movements is about 49% of the at the EBITDA is generated in the first half of the year of 51% in the second half of the year.
The.
The margin trajectory will pace with the revenue growth, so targeting that kind of mid teens.
Revenue growth with the with the with the cash.
Maintaining our EBITDA margin outlook.
Okay, great if I could sneak one last one in on the the Shanghai Office I know that you guys are opening that one.
Where are you on the on that being open and when can we start expecting more of a meaningful contribution from from that area.
Thanks Luke.
As the open it opened at the very end of last year.
And we.
Started hiring them so the.
Have a small but growing team there.
And so you would expect we've got some some growing to do as we go forward.
Do have.
A nicely growing business in Asia Pacific and in China, partly due to.
The fact that we get some sales that were coming in even before we opened that office. So I think it's a good sign for the future, but we've got some.
The building to do as we go through the year here.
There are people.
Alright sounds great. Thanks.
The cede the floor.
Thanks, a lot of Luke.
Thank you. Our next question comes from the line of Dave Windley from Jefferies. Your line is now open.
Hi, good afternoon, thanks for taking my questions.
William I wanted to ask around the biologic stimulator description that you gave in.
And my curiosity is weather.
You as the management team have visibility into either.
For your clients are applying your software between biologics and small molecule and the applications or.
If you could comment perhaps on how this expanded biologic stimulator opens up new markets for you just trying to get an understanding of how that.
No could accelerate growth in the biologic side.
Yeah. So.
If you go way back since it started focus on <unk>.
Of all molecules and we've been adding functionality related the biologics over the last I don't know of five years or so so in some ways. The the latest releases is the culmination of that.
Not the.
The final state.
So we will continue to innovate we are doing a lot of work in biologics today.
Sure.
Quite a quite a lot of our of our customers are working on biologics there are somewhat different.
Questions that get asked around biologics versus small molecule, which is why the.
The the software is different what we've announced is that.
We've decided to make the biologics module of the Standalone module.
Because.
We have.
We have some customers of work on both small molecule and biologics, but theres a large group of customers. The only working on biologics sort of lets us address them a little bit more and.
And more straightforward way for that product.
Got it that's helpful. Thank you and then I guess kind of similar questions about the secondary intelligence product that you announced this week.
It sounds like that's very unique in the market.
Newly newly launched is that something that you expect to have rapid uptake or is that something that you need to kind of seed the market and make.
Make your customers familiar with how would you expect that to evolve in and do you expect that.
Your clients maybe on both of these are they likely to license. The software from you on these or engage you through tech enabled service to get out these capabilities.
Yes, great predominantly.
Great. Thanks for that question.
So we believe that the secondary intelligence product is the.
The only software we're aware of its kind of that predicts what it does is it predicts safety issues.
Our derived from secondary of pharmacology. So this would be the action of the drug on targets that were sort of unintended.
So there isn't an existing market for this we are credit to your point I think where we're creating the market.
And we're out there.
Announcing this or that we're starting to the customer feedback over the next six to 12 months when we've announced right now is the first version of the product.
Have about let's say about a dozen receptors right now by the summer we'll have more than 40 in the product.
And I think that as we as we add more and more we're going to find that.
Theres a fairly large group of.
Safety pharmacology and toxicology is that true.
The companies that were claiming to be of very useful product.
As a new category, we do need to go out and.
And do our introduction.
And demonstrates that we're kicking off right now.
Got it and then the.
You think clients will license the software or or Ingalls signs of I apologize, yes, sorry didn't get out of your whole question. The answers both of you can license the software.
And we will also provide the service through tech enabled services as well it depends on.
As I think we've said in previous calls it really depends on the client.
Larger clients with the internal groups a lot of times, they prefer to license the software directly and the other ones.
Prefer to use our services groups to do the work the basically use our software and do the work for them. So both of them are valid.
Valid I guess you'd call it delivery mechanisms for the technology to our customers.
Got it I'll leave it at that thank you very much.
Thank you David.
Okay.
Thank you. Our next question comes from the line of Michael Kim from Bank of America. Your line is now open.
Oh, Hey, guys. Thanks for taking the question.
Andrew volume of first of all of the I think of it.
The prepared remarks, you had an interesting comment in there.
The clinical trial delays from last year and some of the lingering impact on the services business. I was wondering if you could expand on that a little bit sort of how should we think about that impacting the business. If you go through the rest of the year are you sort of hinting that there could be a nice little tailwind as some of those delays worked their way through the system and sort of if we go back to the operating at normal specific.
On the on the Tech enabled services side of things I was wondering if you could clarify that a little bit.
Yes, great question.
As the.
We pointed out the market is somewhat disrupted.
Due to COVID-19 and the fact that.
There were delays in clinical trials in 2020 for parts of the 2020.
We are still working their way through the drug development cycle.
And have resulted in the delays of certain projects that we have.
We haven't lost in projects, where we have we have seen in some cases they're.
The projects are delayed they are waiting for their data to come in.
As you as you pointed out.
That will mean that has some implications around the potential of that will have.
Multiple projects cash.
<unk> up with us in the later part of the year, but.
The COVID-19 the post I don't know if we I don't know if its fair to call. It the post COVID-19 situation, but as we come out of COVID-19, we're in kind of the.
A unique situation and wants to keep an eye on that.
Okay, Alright, Thats there and then followed up on the last couple of questions on some of the new product introduction of secondary intelligence the.
The new Simpson of Nacho.
I'm wondering.
How should we think about the cadence of new.
The new software introductions of new solutions going forward is this.
A couple of the launch of the year of couple of new launches of quarter and are these more sort of complementary to the business or are there any or should we should anticipate.
Any.
Material introductions on their own sort of of complementary package of probably about expanding the portfolio.
Yes, I think it would be it would be.
The challenge for any software company to do a couple of products of quarter. So I guess I guess, you should think more around a couple of years is something that I think we can be proud of.
These products are.
Extensions of our existing business, but pretty sophisticated extensions, particularly of the secondary intelligence product. We're very excited about that moves us into.
Really the entirely what we think will be an entirely new market.
And the new way to help our customers out.
But at the same time it is an extension of.
Logical extension of what we've been doing since it and.
How do I put it you should expect there will be others as we as we go forward.
Okay, and then one last one one last quick one for me.
Andrew I think you mentioned of 5% increase the head count in the quarter.
Is that just sort of early early in the year.
Bump up or are you anticipating sort of a similar cadence through the rest of the year. How do you think about SG&A and sort of head count additions as we go forward.
Yeah.
Yes, I think that's a similar I think the best for to look at the similar cadence for the rest of the year.
Okay, great. Thanks.
Thank you as a reminder, the question you will need the press star one on your telephone.
Draw your question breath of the bound Keene.
Our next question comes from the line of John Kreger from William Blair. Your line is now open.
Thanks, guys.
I have a couple of questions about mix I think in the past you've talked about your revenue mix being mainly in clinical.
With much smaller chunks and discovery preclinical and post market.
Assuming I got that right. If you look at your recent bookings are you seeing any shift in that mix should we expect that to be fairly typical of what im getting out of sort of where you're seeing the biggest changes in how clients are using your software.
Andrew I'm going to address net for sure sure I can start.
The the mix is consistent with the with the previously discussed mix and no changes there.
Yeah.
Great Thanks, Andrew and maybe a similar one.
How about mix between large and small clients is that fairly stable or are you seeing any change.
What we see.
I can answer that what we're seeing is.
Yeah.
Growth in both areas.
We're seeing growth in more of the mid teens.
In large clients and higher growth rates, an uptick with the with the small clients. We had a record number of new logos for the first quarter.
Alright, Thanks, and then maybe one Marc can you just talk a little bit about how you guys have played a role in.
COVID-19 work.
Should we view that as at all the material contributor if you think back to the last couple of quarters, and therefore would you expect it to be of headwind or a tailwind as you move through 'twenty one.
Yeah. Thanks, John.
The way I think about this is the the business was really resilient throughout the COVID-19. So I'm really proud that we were able to continue serving our clients without skipping a beat we did work on I forget what we said last year.
Uh huh.
More than 30 COVID-19 projects last year.
But.
No.
A lot of the had to do with the customers move to work on COVID-19 and we moved with them and then when they move back over kind of the things we're moving back with them. So from a financial standpoint, we don't believe this debt.
That will really be.
The significant event.
Obviously.
The operations of the company. We did we worked on somewhat different projects last year.
And we're managing.
The disruptions than the.
The disruptions that to some extent happened in the pharmaceutical.
Pipeline as we go into the first quarter, but.
We have a very deep.
The diverse.
And broad business across pharma and so.
So that's kind of what's the.
Basically makes us pretty stable throughout the whole of things I wouldn't I wouldn't expect it to be either of really.
Or a tailwind as we go into this year.
Okay. Thank you.
Yeah.
Thank you at this time I am showing no further questions I would like to turn the call back over to William theory, CEO for closing remarks.
I wanted to thank everybody for joining us this was our first.
Quarter as a public company I believe the CCAR.
Performed very well I'm very proud of our team.
We are.
The team.
So that with the very good solid plan I believe we've delivered on that throughout the quarter and I think we are quite well set up as we go forward for the rest of the year.
We'll look forward to updating everybody.
In the coming quarters, Thank you very much and.
With that.
Wrap up thank you.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.
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