Q1 2024 Certara Inc Earnings Call

Sometimes it's a torrid first quarter of 2024 earnings conference call. At this time, all participants are in a listen only mode.

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Speaker Change: I would now like they had the conference over to your first speaker today, David dye Claire.

David J. Deuchler: Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Certara are William Feehery, Chief Executive Officer, and John Gallagher, Chief Financial Officer. Earlier today, Certara released financial results for the quarter ended March 31, 2024.

Speaker Change: Good afternoon, everyone. Thank you all for participating in today's conference call on the call from sitar, Chief Executive Officer, and Shaun Gallagher Chief Financial Officer earlier today is to retire released financial results for the quarter ended March 31st 2024 copy of the press release is available on.

Speaker Change: On the company's website.

Speaker Change: Before we begin I would like to remind you that management will make statements. During this call that include forward looking statements and actual results may differ materially from those expressed or implied in the forward looking statements. Please refer to slide two of the accompanying materials for additional information, which you can find on the company's Investor Relations website.

David J. Deuchler: A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements, and actual results may differ materially from those expressed or implied in such forward-looking statements. Please refer to slide two in the company materials for additional information, which you can find on the company's investor relations website. In their remarks and responses to questions, management may mention some non-GAAP financial measures.

Speaker Change: And their remarks or responses to questions management may mention some non-GAAP financial measures reconciliations of these non-GAAP financial measures. The most directly comparable GAAP measures are available in our recent earnings press release available on the company's website.

David J. Deuchler: Reconciliations of these 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. Please refer to the reconciliation tables in the company materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 7, 2024. The Company disclaims any obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to us.

Speaker Change: Please refer to the reconciliation tables in the computer trails for additional information please.

Speaker Change: This call contains time sensitive information and is accurate only as of the live broadcast today may seven 2024.

Speaker Change: <unk> disclaims any obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

Speaker Change: With that I will turn the call over to us.

William F. Feehery: Thank you, David. Good afternoon, everyone.

Speaker Change: Thank you David Good afternoon, everyone. Thank you for joining surcharge first quarter earnings call.

David J. Deuchler: John and I will start with prepared remarks, and then we will take your questions.

William F. Feehery: Thank you for joining Certara's first quarter earnings call. John and I will start with prepared remarks, and then we will take your questions. Throughout the first quarter, Certara built upon the solid business momentum observed in the fourth quarter of 2023. We are pleased with our start to the year, delivering total revenue of $96.7 million, representing reported growth of 7% and constant currency growth of 6%. Customer demand for our biosimulation software and services has remained strong, while interest in our AI-enhanced products continues to grow following the acquisition of Viasa just over a year ago. As drug developers look for new and exciting ways to increase pipeline efficiency and accelerate project timelines, Citara's products and services remain top of mind.

David J. Deuchler: Throughout the first quarter.

David J. Deuchler: <unk> built upon the solid business momentum observed in the fourth quarter of 2023.

Speaker Change: Pleased with our start to the year delivery.

Speaker Change: Delivering total revenue of $96 $7 million, representing reported growth of 7% in constant currency growth of 6%.

Speaker Change: Customer demand for our bio simulation software and services has remained strong while interest and our AI enhanced products continues to grow following the acquisition of the assets just over a year ago.

Speaker Change: Drug developers look for new and exciting ways to increase pipeline efficiency and accelerate project timelines guitarist products and services remain top of mind.

William F. Feehery: We have been encouraged by positive trends in clinical trial activity and biotech funding so far this year. Sentiment around the industry is becoming more optimistic as capital raising has allowed smaller companies to shift their spending back towards R&D initiatives. Conversations around pipeline priorities and project type timelines have become more constructive across all three of our customer tiers. Considering recent developments, we're cautiously optimistic that our end markets will continue to recover throughout 2024. However, it will take time for funding to translate into bookings and sales at Certara, and we have not yet seen an inflection point in activity through the first several months of the year.

Speaker Change: We have been encouraged by positive trends in clinical trial activity in biotech funding so far this year.

Speaker Change: Sentiment around the industry is becoming more optimistic as capital raising has allowed smaller companies to shift their spending back towards R&D initiatives.

Speaker Change: Conversations around pipeline priorities and project type timelines.

Speaker Change: Some more constructive.

Speaker Change: Across all three of our customer tiers.

Speaker Change: Considering recent developments, we are cautiously optimistic that our end markets will continue to recover throughout 2024.

Speaker Change: However, it will take time for funding to translate into bookings and sales etcetera, and we have not yet seen an inflection point in activity through the first several months of the year.

William F. Feehery: Internally, our focus remains on several key initiatives that will drive Certara's next stage of growth. On our last earnings call, we highlighted the investments we are targeting in 2024, including improving our commercial infrastructure and expanding the reach of our biosimulation software capability. We are dedicated to unifying our organization, both internally and externally, which will drive commercial success alongside strong product improvement. Last month, we launched Certara Cloud, a unified platform that integrates access to our entire software suite of applications.

Speaker Change: Internally our focus remains on several key initiatives that will drive sitars next stage of growth.

Speaker Change: On our last earnings call, we highlighted the investments we are targeting in 2024, including improving our commercial infrastructure.

Speaker Change: Handing the reach of our Biosimilar <unk> software capabilities.

Speaker Change: We are dedicated a unifying our organization, both internally and externally, which will drive commercial success alongside strong product improvements.

Speaker Change: Last month, we launched our tower cloud.

Speaker Change: <unk> platform that integrates access to our entire software suite of applications.

William F. Feehery: The Cloud will make our software solutions easier to navigate across each user's organization and with external parties, enabling collaboration across different work areas. Certara Cloud already has 1,500 client-specific portals, and it's currently used by 15 of the top 30 biopharmaceutical companies.

Speaker Change: So tower cloud will make our software solutions easier to navigate across each user's organization and with external parties, enabling collaboration across different workflows.

Speaker Change: The tower cloud already has 500 clients specific portals and its currently used by 15 of the top 30 biopharmaceutical companies.

William F. Feehery: Investments like Certara Cloud and other initiatives underway are designed to ease access to the Certara platform, improve data and information security, and deliver enhanced capabilities to customers. I am proud of the work we have accomplished so far and look forward to updating you further on our progress throughout the year. Now, turning to the performance of the business, in the first quarter, we delivered software revenue of $39.3 million, representing 19% reported growth and 18% constant currency growth.

Speaker Change: Investments like the tower cloud and other initiatives underway are designed to ease excellent access to the sitar platform improved data and information security and deliver enhanced capabilities to customers.

Speaker Change: I am proud of the work we have accomplished so far and look forward to updating you further on our progress throughout the year.

Speaker Change: Now turning to the performance of the business in the first quarter, we delivered software revenue of $39 $3 million.

Speaker Change: I think 19% reported growth and 18% constant currency growth.

William F. Feehery: Growth in the quarter was driven by our industry-leading Simpsons, Phoenix, and Pinnacle 21 platform, which make up the majority of our software revenue. One area of focus during the quarter was converting customers from Phoenix licenses to Phoenix Hosted, which is a cloud-based version of the product. With cloud computing integrated into Phoenix, customers will have immediate access to upgrades, remote workflow processing, and improved performance and runtime.

Speaker Change: Growth in the quarter was driven by our industry, leading finfet Phoenix and clinical 'twenty, one platforms, which make up the majority of our software revenues.

Speaker Change: One area of focus during the quarter was converting customers from Phoenix licenses to Phoenix posted which is a cloud based version of the product with cloud computing integrated into Phoenix customers will have immediate access to upgrades remote workflow processing and improved performance and run times cut.

William F. Feehery: Customer uptake continued to progress nicely, and we are pleased by the feedback we have received to date. Throughout the quarter, our software team also began to accelerate the development of CoAuthor, a regulatory writing tool that uses AI and machine learning to draft regulatory submissions. The next version of CoAuthor will be officially launched at the end of the second quarter, and early versions are already in use by our internal regulatory writing team on customer projects.

Speaker Change: Customer uptake continued to progress nicely and we are pleased by the feedback we have received to date.

Speaker Change: Throughout the quarter. Our software team also began to accelerate the development of co author a regulatory writing tool that uses AI and machine learning to draft regulatory submissions.

Speaker Change: The next version of Coauthor will be officially launched at the end of the second quarter and early versions are in use by our internal regulatory writing team on customer projects.

William F. Feehery: Over time, Co-author will drive efficiencies across different regulatory writing processes, and we have received significant interest from customers. Our technology-driven services segment delivered revenue of $57.3 million in the first quarter, which was flat year over year on a reported basis and on a constant current. Our services business continues to recover following a period of cautious customer spending in 2020. In the first few months of the year, we have been encouraged by customer discussions across our services.

Speaker Change: Over time.

Speaker Change: Co author will drive efficiencies across different regulatory writing processes, and we have received significant interest from customers.

Speaker Change: Our technology driven services segment delivered revenue of $57 $3 million in the first quarter, which was flat year over year on a reported basis and on a constant currency basis.

Speaker Change: Our services business continues to recover following a period of cautious customer spending in 2023.

Speaker Change: And the first few months of the year, we have been encouraged by customer discussions across our services group.

William F. Feehery: Certara's ability to identify and close new deals has been enhanced by the organizational changes we made last August. Customer activity has remained stable, and we continue to have constructive conversations with prospective customers for both biosimulation and regulatory services projects.

Speaker Change: The charge the ability to identify and close new deals has been enhanced by the organizational changes we made last August.

Speaker Change: Customer activity has remained stable and we continue to have constructive conversations with prospective customers for both bio stimulant and regulatory services projects.

William F. Feehery: We believe that recent strength in biotech capital markets could be a leading indicator of improvement, but we remain patient as we approach new engagements. In conclusion, Certara is in a strong position to grow in 2024, headlined by continued strength in software and a recovery in our service. We are investing to expand our commercial footprint and uncover new capabilities for biosimulation while also making our products easier to use. I'm confident in our ability to meet our 2024 goals, and I look forward to updating you as we progress throughout the year. I will now turn things over to John to discuss our financial performance. Thank you, William. Hello everyone.

Speaker Change: We believe that recent strength in biotech capital markets could be a leading indicator of improvement, but we remain patient as we approach new engagements.

Speaker Change: In conclusion Rytary is in a strong position to grow in 2024.

Speaker Change: Headlined by continued strength in software and a recovery in our services business we.

Speaker Change: We are investing to expand our commercial footprint and uncover new capabilities for Biosimilar <unk>, while also making our products easier to use.

Speaker Change: I am confident in our ability to meet our 2024 goals and I look forward to updating you as we progress throughout the year.

Speaker Change: I will now turn things over to John to discuss our financial performance.

John E. Gallagher: Total revenue for the three months ended March 31, 2024 was $96.7 million, representing year over year growth of 7% on a recorded basis and 6% on a constant current basis. Software revenue was $39.3 million in the first quarter, which increased 19% over the prior year period on a reported basis and 18% on a constant current basis. The growth in the quarter was driven by biosimulation software and Pinnacle21.

John: Thank you William Hello, everyone total revenue for the three months ended March 31, 2024 was $96 $7 million.

John: Representing year over year growth of 7% on a reported basis.

John: 6% on a constant currency basis.

John: Software revenue was $39 $3 million in the first quarter, which increased 19% over the prior year period on a reported basis and 18% on a constant currency basis the growth in the quarter was driven by bio stimulation software and political 21.

John E. Gallagher: Radical and subscription revenue accounted for 61% of first quarter software revenue, up from 56% in the prior year period. Software bookings were $33.1 million in the first quarter, which increased 8% from the prior year period. Trailing 12-month software bookings were $139.5 million, up 11% year-over-year. In the first quarter, the software net retention rate was 114%, which is consistent with our long-term growth profile. Now turning to services revenue, which was $57.3 million in the first quarter, flat versus the prior year period on a reported basis and on a constant current basis. Our services business continues to recover following a period of cautious spending among our customers.

John: Ratable and subscription revenue accounted for 61% of first quarter software revenues up from 56% in the prior year period.

John: Software bookings were $33 $1 million in the first quarter, which increased 8% from the prior year period trailing 12 months software bookings were $139 $5 million up 11% year over year in.

John: In the first quarter the software in net retention rate was 114%, which is consistent with our long term growth profile.

John: Now turning to services revenue, which was $57 $3 million in the first quarter flat versus the prior year period on a reported basis and on a constant currency basis.

John: Our services business continues to recover following a period of cautious spending among our customers.

John E. Gallagher: Technology-driven services bookings for the first quarter were $72.7 million, which decreased 11% from the prior year period. Trailing 12-month services bookings were $256 million, also down 11% as compared to the prior year. Total cost of revenue for the first quarter of 2024 was $39.3 million, an increase from $34.9 million in the first quarter of 2023, primarily due to a $1.9 million increase in employee related expenses, a $1.2 million increase in stock base compensation, and the $0.8 million increase in software amortization. Total operating expenses for the first quarter of 2024 were $58.7 million, an increase from $48 million in the first quarter of 2023. The components of operating expenses are as follows.

John: Technology, driven services bookings for the first quarter were $72 $7 million, which decreased 11% from the prior year period.

John: Trailing 12 month services bookings were $256 million also down 11% as compared to the prior year.

John: Total cost of revenue for the first quarter of 2024 was $39 $3 million, an increase from $34 9 million in the first quarter of 2023.

John: Primarily due to a $1 $9 million increase in employee related expenses, a $1 $2 million increase in stock based compensation and the bureau of $8 million increase in software amortization.

John: Total operating expenses for the first quarter of 2024 were $58 $7 million, an increase from $48 million in the first quarter of 2023.

John: The components of operating expenses are as follows.

John E. Gallagher: Sales and marketing expenses were $10.7 million compared to $8 million in the first quarter of 2020. This increase is primarily due to a $1.7 million increase in employee-related expenses due to the expansion of the sales force. R&D expenses were $12 million compared to $9.3 million for the first quarter of 2023. R&D expenses were up primarily due to a $3 million increase in employee-related costs as we grew our team of software developers.

John: Sales and marketing expenses were $10 7 million compared to $8 million in the first quarter of 'twenty three.

John: This increase is primarily due to a $1 $7 million increase in employee related expenses due to the expansion of the sales force.

John: R&D expenses were $12 million compared to $9 3 million for the first quarter of 2023.

John: <unk> expenses were up primarily due to a $3 million increase in employee related costs as we grew our team of software developers.

John E. Gallagher: G&A expenses were $23 million compared to $19.8 million for the first quarter of 2023. The increase was due to a $1.6 million change in contingent consideration, primarily related to the acquisition of BIASA, and a $1.1 million increase in employee-related expenses, partially offset by a $0.9 million decrease in stock-based compensation. Intangible asset amortization was $12.6 million compared to $10.5 million in the first quarter of 2023.

John: G&A expenses were $23 million compared with $19 8 million for the first quarter of 2023.

John: The increase was due to a $1 $6 million change in contingent consideration primarily related to the acquisition of bias.

John: The $1 $1 million increase in employee related expenses.

John: Partially offset by a <unk> $9 million decrease in stock based compensation.

John: Intangible asset amortization was $12 6 million compared to $10 $5 million in the first quarter of 2023.

John E. Gallagher: Depreciation and amortization expense was $0.4 million, flat with last. Continuing down the P&L, interest expense was $5.8 million compared to $5.5 million for the first quarter of 2023. Due to higher interest on the floating rate portion of our term, miscellaneous income was $1.6 million compared to $0.5 million in the first quarter of 2023, primarily related to the return on our cash investment. Income tax was a benefit of $0.8 million compared to an expense of $1.1 million for the first quarter of 2023.

John: Depreciation and amortization expense was zero point $4 million flat with last year.

John: Continuing down the P&L interest expense was $5 $8 million compared to $5 5 million for the first quarter of 2023.

John: The higher interest on the floating rate portion of our term loan.

John: Miscellaneous income was $1 $6 million compared to zero point $5 million in the first quarter of 2023, primarily related to the return on our cash invested.

John: Income tax was a benefit of <unk> $8 million compared to an expense of $1 1 million for the first quarter of 2023.

John E. Gallagher: The net loss for the first quarter of 2024 was $4.7 million compared to net income of $1.4 million in the first quarter of 2023. Reported adjusted EBITDA for the first quarter of 2024 was $29.1 million compared to $32.3 million for the first quarter of 2023. Adjusted EBITDA margin was 30% for the first quarter of 2024. Reported adjusted net income for the first quarter of 2024 was $16.5 million compared to $19.3 million for the first quarter of 2023.

John: Net loss for the first quarter of 2024 was $4 7 million.

John: Compared to net income of $1 4 million in the first quarter of 2023.

John: Reported adjusted EBITDA for the first quarter of 2024 was $29 1 million <unk>.

John: Compared to $32 3 million for the first quarter of 2023 adjust.

John: Adjusted EBITDA margin was 30% for the first quarter of 2024.

John: Reported adjusted net income for the first quarter of 2024 was $16 $5 million compared to $19 3 million for the first quarter of 2023.

John E. Gallagher: Diluted loss per share for the first quarter of 2024 was three cents compared to earnings per share of one cent in the first quarter of 2023. Adjusted diluted earnings per share for the first quarter of 2024 were 10 cents compared to 12 cents for the first quarter of last year. Now moving to the balance sheet, we ended the quarter with $224.8 million of cash and cash equivalents. As of March 31, 2024, we had $287.8 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.

John: Diluted loss per share for the first quarter of 2024 was three.

John E. Gallagher: Compared to earnings per share of <unk> in the first quarter of 2023.

John: Adjusted diluted earnings per share for the first quarter of 2024 was 10%.

John: Compared to 12% for the first quarter of last year.

John: Now moving to the balance sheet, we ended the quarter with $224 $8 million of cash and cash equivalents.

John: As of March 31, 2024, we had $287 $8 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.

John E. Gallagher: We are reiterating our guidance for the full year 2024 as follows. We expect total revenue in the range of $385 to $400 million, representing growth of 9% to 13% compared with 2023. We expect to grow adjusted EBITDA on a dollar figure basis in 2024 and expect adjusted EBITDA margin in the range of 31 to 33 percent. We expect adjusted EPS in the range of $0.41 to $0.46 per share. Fully diluted shares in the range of $160 to $162 million and a tax rate in the range of 25 to 30 percent.

John: We are reiterating our guidance for the full year of 2024 as follow ups.

John: We expect total revenue in the range of $385 million to $400 million, representing growth of 9% to 13% compared with 2023.

John: We expect to grow adjusted EBITDA on a dollar figure basis in 2024, and expect adjusted EBITDA margin in the range of 31% to 33%.

John E. Gallagher: We expect adjusted EPS in the range of 41% to 46 per share fully diluted shares in the range of $160 million to $162 million and the tax rate in the range of 25% to 30%.

William F. Feehery: I will now turn the call back over to our CEO, William Feehery, for closing remarks. Thank you, John. To summarize our message today, we are pleased with our first quarter results, and we look forward to executing our 2024 goals. We have a lot to be excited about at Certara as we advance biosimulation forward with our innovative technology. We will now open the line for questions. Operator, can you open the line? Thank you.

William: I will now turn the call back over to our CEO William vary for closing remarks.

Speaker Change: Thank you John.

William F. Feehery: To summarize our message today, we are pleased with our first quarter results and we look forward to executing our 2020 core goals.

William: We have a lot to be excited about et cetera, as we advanced Biosimilar <unk> forward with our innovative technology.

Speaker Change: We will now open the line for questions. Operator can you open the line.

Operator: At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from David Windley at Jeffrey's.

William F. Feehery: Okay.

Operator: At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Operator: Yes.

Operator: Sure.

Operator: Okay.

Operator: Our first question comes from David Windley at Jefferies.

David Howard Windley: Hi, good evening. Thanks for taking my question. I wanted to start with a question on the cloud launch. Bill, I think you mentioned 1500 or something in the neighborhood client portals that you've already established in 15 of the top 30 biopharmas. I wondered if you could add a little more detail to that and then maybe describe, again, you mentioned those top biopharmacists, so I'm wondering whether the uptake is more skewed to your larger clients or smaller or across the board, and just basically how that uptake is proceeding and how it matches your expectations.

David Howard Windley: Hi, Good evening. Thanks for taking my question I wanted to start with a question on the cloud launch.

David Howard Windley: Bill I think you mentioned <unk>.

David Howard Windley: <unk> hundred <unk> or something in that neighborhood client portals that you've already established in 15 of the top 30 Biopharma is.

David Howard Windley: I wondered if you could add a little more detail to that and then maybe describe again you mentioned those top biopharma. So I'm I'm wondering whether the uptake is is more skewed to your larger clients or smaller or across the board and just basically how that uptake is proceeding and how it matches with your.

William F. Feehery: Great. Thanks, David.

David Howard Windley: Expectations.

Speaker Change: Great. Thanks, David I appreciate the question so as to <unk> cloud is our first step well, it's our next step I would say towards making.

William F. Feehery: I appreciate the question. So, Certara Cloud is our... first step. Well, it's our next step, I would say towards making the suite of Certara software products into a true platform. So what we're doing is setting this up so that when we launch new products, that is how you access them. And so you'll see, obviously, we have, as you pointed out, quite a number of customers who are starting to use it today, and that will naturally increase as we go forward.

William F. Feehery: The suite of <unk> software products into a true platform.

William F. Feehery: So what we're doing is we're setting this up so that our new launches of products that is how you access them and so youll see obviously, we have as you pointed out quite a number of customers who are starting to use it today and that will naturally increase as we go forward.

William F. Feehery: As new releases of products come out where that's really the only way to access the software.

William F. Feehery: And as new releases of products come out where that's really the only way to access the software, we started out with some smaller ones just to make sure that, you know, that everything was operational. And then we've been migrating to larger ones.

William F. Feehery: We started out to answer your question directly we started out with some smaller ones just to make sure that.

William F. Feehery: No.

William F. Feehery: That everything was operational and then we have been migrating to the larger ones, but it should accelerate as we go through the year.

William F. Feehery: But it should accelerate as we go through the year. We're pretty excited about this because it has a couple of advantages for us. One is it's a way to promote reuse of certain software modules across our platform. So instead of writing them for every piece of every product we have, we can write them once, and we can use the best in class functionality across all of our products.

David Howard Windley: We're pretty excited about this because it has a couple of a couple of advantages to US one is it's a way to promote reuse of certain.

William F. Feehery: Software modules across our platform. So instead of writing them for every piece of our every product. We have we can write the once that we can use the best in class functionality across all of our.

William F. Feehery: We're also getting to unite the look and feel of our products, and this also enables us to more easily share data between them. So, you know, it probably has some good marketing advantages in terms of, you know, when companies log in, they see which products they have and which products they could have. And we can have a good conversation with them from that standpoint. So we're pretty excited about it. It's kind of the next evolution of our software, and as you pointed out, it's got a good uptake from our customers.

William F. Feehery: Our products were also getting to unite the look and feel of our products and.

William F. Feehery: And also this enables us to more easily shared data between them. So.

William F. Feehery: Yes.

William F. Feehery: It is.

William F. Feehery: Also probably have some some some good marketing advantages in terms of.

William F. Feehery: When companies login, they see which come which products, they have and which products they could have.

William F. Feehery: We can have a good conversation with them from that standpoint, So we're pretty excited about it it's kind of a next evolution of our software and.

William F. Feehery: As you pointed out has got good uptake from our customers.

William F. Feehery: As a follow-up to that, I believe you've regularly versioned SimCip every year, and I believe that versioning, and you probably do that on other products, but just calling out SimCip, I believe that versioning drives economics for you in cloud-hosted products, or will that change? Yeah, so

William F. Feehery: As a follow up to that I believe you have regularly version Sim Sip every year.

Speaker Change: And I believe that that version and you probably do that on other products, but just calling out since it.

Speaker Change: I believe that version and drives the economics for you you add capabilities and maybe get a little bit more.

Speaker Change: If nothing else inflationary price are those types of economics going to be the same.

William F. Feehery: And the cloud hosted.

William F. Feehery: For example, Phoenix, we're moving to an every six month cycle. So, there's certainly an advantage to our economics in terms of each one having additional features, and there's a reason to upgrade. Not everybody, I think with the six-month cycle, we'll see, maybe people will, people might not do it every six months, but they'll sort of be under increasing pressure to do that. You know, in terms of the economics of this, I think a lot of this has to do with, you know, when we had desktop installations, a lot of our customers had to go through expensive software validation projects.

Speaker Change: Products or will that change.

William F. Feehery: Yeah, so SimSip, as you pointed out, we launch a new version every year. Some other ones, it's a little bit different.

William F. Feehery: So as.

William F. Feehery: As you pointed out we launched we have a new version every year some other ones.

William F. Feehery: A little bit different for example, Phoenix, where we're moving to it and every six months cycle.

William F. Feehery: So there is certainly advantaged to our.

William F. Feehery: Or economics in terms of each one has it has additional features and there is a reason to upgrade.

William F. Feehery: Not everybody I think with a six month cycle, we'll see.

William F. Feehery: Maybe people will peak.

William F. Feehery: People might not do every six months, but the.

William F. Feehery: Sort of an increasing pressure to do that.

William F. Feehery: In terms of.

William F. Feehery: The economics of this I think a lot of this has to do with.

William F. Feehery: When we had desktop installations a lot of our customers have to go through expensive software validation projects.

William F. Feehery: And those become less onerous as we move to the cloud, partly because we can do a lot of the work ourselves and we can share that with them. And so we hope also that we'll get, you know, that'll also foster more frequent updates as well.

William F. Feehery: Those become less onerous as we move to the cloud.

William F. Feehery: Partly because we can do a lot of the work ourselves then we could share that with them.

William F. Feehery: And so we hope also that we will get that will also foster more frequent updates.

David Howard Windley: Got it, and if I could just ask one more question on your guidance for revenue. I believe at the midpoint, your guidance points to about 11% growth. And our modeling was that a little more than half of that was coming organically, a little less than half inorganically. I wondered if you could confirm that that's still your thinking. And could you break out the organic versus inorganic contribution in the first quarter? Thanks. That'll be it for me.

William F. Feehery: As well.

Speaker Change: Got it and if I could just ask one more on on your guidance on the revenue I believe at the midpoint your guidance points to about 11% growth.

David Howard Windley: And our modeling was that a little more than half of that was coming.

David Howard Windley: Organically.

David Howard Windley: A little less than half Inorganically I wondered if you could confirm that that's still your thinking and could you break out the organic versus inorganic contribution in the first quarter that will be it for me.

John E. Gallagher: Yeah, hi David. So, yeah, in the quarter, we put up 7% revenue growth. And as we said, when we first put out the guidance, and we're still confident in that guidance, by the way, but when we first put that out, we said that on the services side, there'd be a bit of a first half, second half story or ramp into the later part of the year related to that part of the business.

Speaker Change: Yes, Hi, David so.

John E. Gallagher: Yeah on the quarter, we put up 7% revenue growth.

John E. Gallagher: And as we said when we first put out the guidance and we're still confident in that guidance by the way, but when we first put that out we said that on the services side, there would be a bit of a first half second half story, our ramp into the later part of the year.

John E. Gallagher: <unk> to that part of the business. So we still anticipate that to be the case and so Q1.

John E. Gallagher: So we still anticipate that to be the case. And so Q1, you know, came in line with our expectations on an organic basis; the deals contributed a few hundred basis points to the growth for the quarter. Okay.

John E. Gallagher: Came in line with with our expectations on an organic basis the deals contributed.

John E. Gallagher: A few hundred basis points to the to the growth on the quarter.

Operator: Okay, great. Thank you. Thank you. One moment for our next.

Speaker Change: Okay, great. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from Jeff Garro at Stevens.

Speaker Change: Thank you one moment for our next question.

Jeff Garro: Our next question comes from Jeff Garrow at Stephens.

Jeff Garro: Hi, good afternoon. Thanks for taking the questions. Maybe a couple for me on the services bookings results and other trends there. You had cited some timing impact on services bookings in the quarter. So I want to ask if you had any comments on how visibility into services bookings has trended since the quarter closed to start.

Jeff Garro: Hi, good afternoon. Thanks for taking the questions maybe a couple for me on the services bookings results. Another trends. There you had cited some timing impact on services bookings in the quarter. So wanted to ask if you had any comments on how visibility into services bookings has <unk>.

Jeff Garro: Since the quarter close to start.

John E. Gallagher: Yeah, on services bookings, we did experience some timing issues with bookings, but it was actually on the software side more so than it was on the services side. So software bookings had some timing issues with some large pinnacle deals that were scheduled for March that ended up coming in April, and those have come in, and, you know, we don't have any concerns about them.

Speaker Change: Yeah on on services bookings.

John E. Gallagher: We did experience some timing on bookings, but it was actually on the software side more so than it was on the services side. So software bookings had some timing on some large clinical deals that were scheduled for March ended up coming in April and.

John E. Gallagher: Those have come in and we don't have any concerns about it on the services side, though to your question.

John E. Gallagher: On the services side, though, to answer your question, the story there is that for the tier ones, it's more of a tough compare. So if you look back at services bookings, then, you know, we have a very large Q1 of 2023 on the services side. And so there's a tough compare there.

John E. Gallagher: The story there.

John E. Gallagher: The tier ones, it's more of a of a <unk>.

John E. Gallagher: Compare so if you look back at.

John E. Gallagher: Services bookings.

John E. Gallagher: And then we haven't we have a very large Q1 of 2023 on the services side and so there is a tough compare there.

John E. Gallagher: As you look at the other tiers, though, the business is still recovering. So our recovery is still in place. So when you look at tier two and tier three bookings, then what we're seeing is sort of stability from where we were in the second half of last year. So if you look at Q3, and then look at Q4, and now Q1, services bookings are kind of in line on a dollar basis with what we were expecting to be the case there.

John E. Gallagher: As you look at the other tiers, though then the business is still recovering so our recovery is.

John E. Gallagher: Still.

John E. Gallagher: In place so when you look at tier two and tier three bookings than what we're seeing is sort of stability from where we were in the second half of last year. So if you look at Q3, and then look at Q4 and now Q1 services bookings are kind of in line on a dollar basis with with what we were expecting.

John E. Gallagher: So a little bit of a tough comp is one on pressuring the growth rate, but then from a dollar's perspective in terms of achievement, it's, you know, it's playing out as we expected with tier ones, or the tier two and tier threes, you know, still not back to their historic levels.

John E. Gallagher: To be the case, there so so a little bit of a tough comp is one on pressuring the growth rate, but then from a dollars perspective and achievement.

John E. Gallagher: It's playing out as we expected with tier one where the tier two and tier threes.

John E. Gallagher: Not back to their historic levels.

John E. Gallagher: I appreciate the granularity there on customer segmentation. And maybe I should probe a little bit deeper on your earlier comment on kind of a first half versus second half story on services revenue growth. How should we think about services bookings or backlog converting to revenue for the fiscal year? It looked like nice execution on that front in the first quarter. Should we expect more sequential improvement from here, or does the first quarter represent kind of the right velocity of conversion for looking at things from, say, a trailing 12-month services bookings to revenue conversion perspective? Right?

Speaker Change: I appreciate the granularity there.

John E. Gallagher: Customer segmentation.

John E. Gallagher: And maybe to probe a little bit deeper on your earlier comment on kind of a first half versus second half story on on services revenue growth.

John E. Gallagher: Should we think about services bookings or backlog converting to revenue for the fiscal year. It looked like nice execution on that front here in the first quarter should we expect more sequential improvement from here or does it does the first quarter represent kind of the right velocity of converging if we're looking at things from <unk>.

John E. Gallagher: <unk> trailing 12 month services bookings to revenue conversion perspective.

John E. Gallagher: Right, yeah. So, I mean, look, as far as conversion is concerned, then, you know, we're pleased with the conversion. It's on target with our expectations. So, backlog, I'd say there's not an unusual amount of backlog conversion, but it is playing out as we thought it would, meaning we have some bookings left over from last year. We're converting those, and, you know, the revenue plan played

Speaker Change: Right, Yeah. So I mean look as far as conversion then we're pleased with the conversion it's on our expectation so.

John E. Gallagher: Backlog I would say there is not an unusual amount of backlog conversion, but it is playing out as we thought it would with meaning we have some bookings leftover from last year, we're converting those in the revenue plan played out.

John E. Gallagher: Anticipated.

John E. Gallagher: As you look forward on bookings then.

John E. Gallagher: We are excited about what we're seeing and as Bill mentioned in the prepared remarks, we're excited about the biotech funding environment and the fact that.

John E. Gallagher: Some of our customers or.

John E. Gallagher: But it's really important to note that, you know, we haven't reached the inflection point. We don't see that in the bookings in Q1. We don't see it in the bookings to date in Q2. And so, you know, if that's going to play out for us, it's definitely going to be more in the back half of the year. And we haven't seen it yet.

John E. Gallagher: Our potential customers are getting funded but it's really important to note that we haven't reached the inflection point, we don't see that in the bookings in Q1, we don't see it in the bookings to date in Q2 and so.

John E. Gallagher: If that's going to play out for us, it's definitely going to be more in the back half of the year.

John E. Gallagher: And we haven't seen it yet.

Jeff Garro: Fair enough. I'll stop there and jump back in the queue. Thank you.

Speaker Change: Fair enough I'll stop there and jump back in the queue.

Operator: Thank you. One moment for our next question. The next question comes from Luke Sergott at Barclays.

Speaker Change: Thank you one moment for our next question.

Luke England Sergott: Our next question comes from <unk> <unk> at Barclays.

Luke England Sergott: Great, thanks. I just want to follow up on that M&A and kind of get a little bit more specific there and, you know, what the contribution was to each segment in the quarter. And then, as David talked about, what's embedded in guidance, any changes to those, to what you're expecting for the year?

Luke England Sergott: Great. Thanks, I just wanted to follow up on that M&A and kind of get a little bit more specific there.

Luke England Sergott: What the contribution was to each segment in the quarter and then.

Luke England Sergott: As David talked about.

Luke England Sergott: What's embedded in guidance any changes to those to what youre expecting for the year.

John E. Gallagher: No, the guidance, no changes there. You know, we're confident in the range that we have, and Q1 played out in line with our expectations. The M&A contribution, you know, when you look at bookings, less than 2% of bookings were related to M&A, so it's really not a material amount. And then, as I mentioned earlier, when you look at our 7% reported revenue growth, then there was a contribution of a few hundred basis points, but we haven't split that out on a software service.

Speaker Change: No the guidance.

John E. Gallagher: No changes there.

John E. Gallagher: We're confident in the range that we have in Q1 played out in line with our expectations.

John E. Gallagher: M&A contribution.

John E. Gallagher: When you look at bookings, it's less than 2% of bookings was related to M&A. So it's really not a material amount.

John E. Gallagher: And then as I mentioned earlier when you look at our 7% reported revenue growth and there was a contribution of a few hundred basis points, but we haven't split that out on a software services basis.

Speaker Change: Okay. Thanks.

John E. Gallagher: And then I guess.

John E. Gallagher: Thinking about the guidance I understand the first half second half catch up.

John E. Gallagher: second half catch up. But on the services piece, we've seen the regulatory business be softer for quite a while. And then you're talking about, you had a little softer bookings here in the first quarter. I'm just trying to figure out when that, what kind of visibility you have on the services side to bake in that kind of second half ramp recovery.

John E. Gallagher: But on the on the services piece, we've seen the regulatory business be softer for quite a while.

John E. Gallagher: And then Youre talking about you had a little softer bookings here in the first quarter I'm, just trying to figure out when that what kind of visibility you have on the services side does that bake in that kind of second half ramp recovery.

John E. Gallagher: Well, I mean, you know, the key aspect of that is that we put together the guidance with the notion of stability, which is what we saw play out in the quarter. And that was what we saw in the bookings results for the second half of last year. To get to the higher end of the range, then, you know, we would need to see that inflection point due to any biotech funding that might be out there.

Speaker Change: Well I mean.

John E. Gallagher: A key aspect of that as we put together the guidance with the notion of stability, which is what we saw play out on the quarter and that's what we saw in the bookings results for the second half of last year.

John E. Gallagher: To get to the higher end of the range, then we would need to see that inflection point due to any biotech funding that that might be out there and by the way. We are targeting those companies that are gaining funding in those capital markets, we're targeting them from a commercial basis, but again in any.

John E. Gallagher: And by the way, we are targeting those companies that are gaining funding in those capital markets. We are targeting them on a commercial basis. But again, any activities are really going to be in the second half of the year. Services. The regulatory business, in the meantime, as well as our biosim services, especially in the tier two and tier three customer categories, continue to be impacted by the same dynamics that we saw last year. Do we see any stability? Yes, we do. We're happy about that. We don't see continued decline, but we also don't see acceleration and haven't hit that inflection point yet.

John E. Gallagher: Activities are really going to be in the second half of the year.

John E. Gallagher: Services, so the regulatory business in the Meanwhile, as.

John E. Gallagher: As well as our Biosimilars services.

John E. Gallagher: Especially in the tier two and tier three customer categories continue to be impacted by the same dynamics that we saw last year do we see stability.

John E. Gallagher: We're happy about that we don't see continued decline.

John E. Gallagher: Yes.

John E. Gallagher: But we also don't see acceleration and haven't hit that inflection point yet.

Luke England Sergott: Okay, that's helpful. Thank you. Thank you. One moment for our next question.

Speaker Change: Okay. That's helpful. Thank you.

Luke England Sergott: Thank you one moment for our next question.

Operator: Our next question comes from Michael Ryskin at

Luke England Sergott: Our next question comes from Michael <unk>.

Michael Leonidovich Ryskin: Both of them.

Michael Leonidovich Ryskin: Right. Thanks for taking the question.

Operator: Great.

Michael Leonidovich Ryskin: Thanks for taking the question.

Michael Leonidovich Ryskin: I want to go back to the bookings for the quarter. I know you called out a couple of times the strong or the elevated comp in services bookings. I mean, I think it's elevated on a dollars basis, but on a percent basis, it was only up 4% last year. So just trying to parse out a little bit on, you know, is the seasonality on that expected to be a little bit different? Or put another way, if I look at services bookings, you know, last year, it was, you know, $82 million in one queue and then $50,000, $57,000, $75,000 the rest of the year.

Michael Leonidovich Ryskin: I want to go back to the bookings in the quarter I know you've called out a couple of times, the the strong or the elevated comps in services bookings.

Michael Leonidovich Ryskin: I mean, I think it's elevated on a dollars basis, but on a percent basis. It was only up 4% last year. So just trying to parse out a little bit on.

Michael Leonidovich Ryskin: Is the seasonality on that expected to be a little bit different or put another way if I look at.

Michael Leonidovich Ryskin: Services bookings last year, it's $82 million in <unk>, and then 50 $57 75 for the rest of the year, so sort of a big step down and then ramping up through the rest of the year are you expecting a little bit of a.

Michael Leonidovich Ryskin: So sort of a big step down and then ramping up through the rest of the year. Are you expecting a little bit of a more spread out seasonality there? You know, I know it's tough to talk about bookings ahead of time, but just trying to reconcile that. Trailing 12-Month Bookings Growth and, 1.1 booked a bill with, like you said, some expectations were pretty steady revenue.

Michael Leonidovich Ryskin: More spread out seasonality there I know, it's tough to talk about bookings ahead of time, but just trying to reconcile that.

Michael Leonidovich Ryskin: Hum.

Michael Leonidovich Ryskin: Trailing 12 month bookings growth and the one one book to Bill with what you said some expectations.

Michael Leonidovich Ryskin: Our expectations were pretty steady revenue growth this year.

John E. Gallagher: Yeah, hi, Mike. So what we typically see is that we do typically see a Q2 that's lower than Q1. So to your point, that seasonality and that typical seasonality, there's no reason to think that that typical seasonality wouldn't continue to play out the way that it has. So that's, that's probably the best indication that we can.

Speaker Change: Yes, Hi, Mike so.

John E. Gallagher: What we typically see as we do typically see Q2, that's lower than Q1.

John E. Gallagher: So to your point that seasonality in that typical seasonality there is not especially given that the end market environment.

John E. Gallagher: Not not changed then there's no reason to think that that typical seasonality wouldn't continue to play out.

John E. Gallagher: That it has.

John E. Gallagher: That's probably the best indication.

John E. Gallagher: That we can get.

John E. Gallagher: No, I was going to say, just to clarify, yes, there's usually a step down. But last year, there was a very sharp 82 to 50. I think this year, it's safe to say that you should expect less of a step down. And then last year, one key was just elevated in dollar terms. I'm just trying to think about service.

Speaker Change: Sorry go ahead.

Speaker Change: No I was going to say just to clarify, yes, theres, usually a step down but last year. There was a very sharp step down from 82% to 50 I think this year is it safe to say that you expect a less of a step down in that last year <unk> was elevated in dollar terms I'm just trying to think about sorry, yes, yes. The answer to that is the answer to that is yes.

John E. Gallagher: Yeah, yeah, the answer to that is yes. The step down last year was unusual. And then, from that point forward, we saw some recovery and stability. And so even though we do, you know, we do anticipate some level of seasonality, what I would say happened last year versus what you saw in other years was an unusually large step down. And, you know, sitting here in May, we don't anticipate that we'd see that level because, you know, once we stepped down there, then we started to see recovery into Q3, we saw some acceleration into Q4, and now Q1 of 2024 has played out in line with our expectations.

John E. Gallagher: The step down.

John E. Gallagher: Last year was unusual.

John E. Gallagher: And then from that point forward, we saw some recovery and stability and so even though we do we do anticipate some level of seasonality at what I would say happened last year.

John E. Gallagher: Versus what you saw in other years was unusually large of a step down and sitting here in may.

John E. Gallagher: We don't anticipate that.

John E. Gallagher: That we'd see that level because we once we step down. There then we started to see recovery into Q3, we saw some acceleration into Q4 and now Q1 of 2024 has played out in line with our expectations.

John E. Gallagher: Okay, and then the other, the other thing to add to that, I guess is that really, if you look at the year, if you look at the years before 2023, look at 2021 or 2022, then that's what we would point to as more sort of typical seasonality. Okay, all right, fair enough. And then I guess sort of the second part of that question would be on the book to bill, you know, using the trail and 12 months.

Speaker Change: Okay, and then just sort of the others the others. The other thing to add to that I guess is really if you look at the year. If you look at the years before 2023, if you look at 2021 or 2022 then.

John E. Gallagher: What we would point to is more sort of typical seasonality.

John E. Gallagher: Okay, Alright fair enough and then I guess the second part of that question would be on.

John E. Gallagher: The book to Bill.

John E. Gallagher: Using a trailing 12 months I.

John E. Gallagher: I think it's one one this quarter for most of the loss share. It was in sort of like the 115 and then prior years. It was more of a 1.812, so a little bit lower than it's been in prior years is that just sort of like catching up to the softer bookings you saw last year. I mean is it fair to say that you expect that to Reaccelerate.

John E. Gallagher: , , , , , , , , , , , , , , software bookings you saw last year. I mean, is it fair to say that you expect that to re-accelerate back into the 1.2 range as we exit the year?

John E. Gallagher: Back into the one two range as we exit the year.

John E. Gallagher: Yeah, we do expect acceleration over time, but we need to see some of the customer and end market behavior recover as well. We have to keep in mind, you know, we exited the year at 1.1, and in Q3 of last year, we were at 1.1. So we continue to be at 1.1 as a spot where we haven't yet seen an inflection point in the end market customers. So, Michael, I think you're talking about software a little bit, and Q1 our software bookings were a little bit less than we expected because we had some uh some bookings move into April, but we did actually get those, so we're feeling pretty confident that the bookings are appropriate for what we're what we're uh what we're giving you in our outlook for now.

John E. Gallagher: Yes, we do expect acceleration over time, but we need to see some of the customer and end market behavior Recut.

John E. Gallagher: Recover as well we have keep in mind, we exited the year at $1 one were.

John E. Gallagher: And in Q3 of last year, we were at one one so we continue to be at one one.

John E. Gallagher: Spot that.

John E. Gallagher: We haven't yet seen an inflection point in the end market customers.

John E. Gallagher: No.

John E. Gallagher: I think youre talking about software a little bit so.

John E. Gallagher: In Q1, our software.

John E. Gallagher: Bookings were a little bit less than we expected because we had some.

John E. Gallagher: Some bookings move into April.

John E. Gallagher: We did actually get those so.

John E. Gallagher: We're feeling pretty confident that the bookings are appropriate for what we are.

John E. Gallagher: What we are.

Michael: Well, we're giving you on our outlook for the no.

Michael Leonidovich Ryskin: Okay, all right. Thank you. Thank you. One moment for

John E. Gallagher: Okay.

Operator: Thank you. One moment for our next question. The next question comes from Max Smock at William Blair.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Operator: Our next question comes from Max Smock of William Blair.

Maxwell Andrew Smock: Hey, good afternoon, guys. Thanks for taking our questions. I wanted to follow up on the question earlier about inorganic bookings. And I might have misheard, but I think you said in total that inorganic bookings are around 2% of total bookings, which implies something about $2 million in total for the quarter here. And coming into this year, you talked about those two recently acquired businesses contributing mid-single digits to growth, which I think, based on our model, implies around $18 million in revenues in 2024 in total.

Maxwell Andrew Smock: Hey, good afternoon, guys. Thanks for taking my questions I wanted to follow up on Lukes question earlier about inorganic bookings and I might've misheard, but I think you said in total and organic bookings are around 2% of total bookings, which implies something about $2 million in total for the quarter here and.

Maxwell Andrew Smock: Coming into this year you talked about those two recently acquired businesses contributed mid single digits to growth, which I think implies based on our model around $18 million in revenue in.

Maxwell Andrew Smock: In 2024 in total so I guess my follow up would be was it $2 million in bookings from the recent acquisitions in line with your expectations and then given that small bookings number are you still as confident in that mid single digit organic contribution in 2024 as you were earlier this year.

Maxwell Andrew Smock: So I guess my follow-up question would be, was the $2 million in bookings from the recent acquisitions in line with your expectations? And then, given that small number of bookings, are you still as confident in that mid-single digit organic contribution in 2024 as you were earlier this year?

John E. Gallagher: Hi Max. Yes. Yeah, so we are, you know, the first quarter to your question did play out as we expected it to. So not a huge contribution in bookings from the acquired companies from the Q4 closure of the deal. We'd expect that to accelerate as we move a year ahead. So I'd say that Q1 played out as we thought, and we're still confident in, the guidance message that we gave with both the reported and then the organic range.

Speaker Change: IMAX, yes, yes, so we are.

John E. Gallagher: The first quarter to your question did play out as we expected it to so not a huge contribution in bookings from the acquired companies from the queue for a closure of the deal we would expect that to accelerate as we move the year. So I would say that Q1 played out as we thought and we're still confident in.

John E. Gallagher: In the guidance message that we gave with both the reported and then the organic ranges.

Maxwell Andrew Smock: understood. Thank you.

Max: Understood. Thank you and then maybe one on budget flush here. So last year you had some clients that came to you had necessarily cut their budget that hadn't spent their budget either so you had some benefit at the end of the year just wondering based on your conversation. So far this year. It sounds like things are getting better, but not necessarily translating into orders.

Speaker Change: How do you think about the potential for that budget flush to occur at the very end of this year similar to what you saw last year and what would that mean for your results relative to the 2024 guide that you've reiterated today.

Maxwell Andrew Smock: Well.

Maxwell Andrew Smock: In our guide we did anticipate some seasonality and I think that part of that seasonality is.

Maxwell Andrew Smock: And then maybe one on budget flush here. So last year, you had some clients that came to you hadn't necessarily cut their budget, but they hadn't spent their budget either. So you had some benefit there at the end of the year. Just wondering, based on your conversation so far this year, it sounds like things are getting better, but not necessarily translating to orders. How do you think about the potential for that budget flush to occur at the very end of this year, similar to what you saw last year? And what would that mean for your results relative to the 2024 guide that you've reiterated?

Maxwell Andrew Smock: Budget flush dynamic, which typically makes our Q4 is stronger bookings than than the other quarters of the year I would tell you that as we put together our plan. We did anticipate that that would be the case, we saw that be the case in Q4 of last year as we did in years prior as well so.

John E. Gallagher: Well, you know, in our guide, we did anticipate some seasonality, and I think that part of that seasonality is the budget flush dynamic, which typically makes our Q4s stronger on bookings than the other quarters of the year. I'd tell you that as we put together our plan, we did anticipate that that would be the case. We saw that in Q4 of last year, as we did in years prior as well. So what's cooked into the guidance range is the anticipation that we will see a somewhat typical seasonality that we've seen in the business in the past.

John E. Gallagher: What's cooked into the into the guidance range is the anticipation that we see somewhat typical analogy that we've seen in the business in the past.

Maxwell Andrew Smock: Got it. Thank you both again for taking our questions. Thanks, Max.

Speaker Change: Got it. Thank you both again for taking our questions.

Operator: Thank you. One moment for our next question. Our next question comes from Steve Deckard at KeyBank. Hey guys, thanks for taking our questions.

Speaker Change: Thanks Max.

Speaker Change: Thank you one moment for our next question.

Steve Deckard: Our next question comes from Steve Decker at Keybanc.

Steve Deckard: Hey, guys. Thanks for taking my questions.

Steve Deckard: The ninth increasing software revenues in the first quarter is there a certain reason you didn't see more of an expansion in your margins given software those are higher margin business and then can you provide more color on the strength youre seeing in your software bookings and revenues.

Steve Deckard: Yeah, sure. So yeah, we're pleased. Software growth for the quarter was 19%. The net retention ratio was 114%.

Steve Deckard: Yes sure so.

Steve Deckard: We are pleased that software growth on the quarter was 19%.

Steve Deckard: Net retention ratio was 114% so.

Steve Deckard: We're pleased with the continued.

Steve Deckard: Execution by the software team as we exited last year, we were in a good spot and we saw that continue and accelerate.

John E. Gallagher: So we're pleased with the continued execution by the software team. As we exited last year, we were in a good spot. We saw that continue and accelerate into Q1. As far as the margin is concerned, for the quarter, we had a 30.2% adjusted EBITDA margin. And while that margin was below our full-year guidance range of 31% to 33%, it was impacted by about 200 basis points by the newly acquired companies that we just closed in Q4, including one in December.

John E. Gallagher: Into Q1.

John E. Gallagher: As far as the margin is concerned on the quarter, we had a 32% EBIT adjusted EBITDA margin.

John E. Gallagher: And while that margin was below.

John E. Gallagher: Our full year guidance range of 31% to 33%.

John E. Gallagher: It was impacted about 200 basis points by the newly acquired companies that we just closed in Q4, including one in December so as we work through that then we are expecting.

John E. Gallagher: So as we work through that, then we're expecting some margin lift. But what I'd tell you is the software achievement during the quarter fell through with the typical margin. And then that would have been partially offset by some of the dynamics that I just described.

John E. Gallagher: Some margin lift, but what I'd tell you is the software achievement.

John E. Gallagher: During the quarter fell through with a typical margin.

John E. Gallagher: And then that one.

John E. Gallagher: That would have been partially offset by some of the dynamics that I just described.

Kyle Andrew Crews: One moment for the next question. Our next question comes from Kyle Crews at UBS. Hello, thank you for taking the questions. Maybe if we could,

Speaker Change: One moment for next question.

Kyle Andrew Crews: Sure.

Kyle Andrew Crews: Our next.

Kyle Andrew Crews: Question comes from Calix crews at UBS.

Kyle Andrew Crews: Hello, Thank you for taking the questions maybe if we could.

Kyle Andrew Crews: I have a little bit more into the margins it sounded like a lot of the increase in cost was also associated with additional employee expenses. So maybe if you could provide more detail on how we should think about margins playing out throughout the rest of the year keeping in mind, the impact of acquisitions and hiring.

John E. Gallagher: Right. So full year margin guidance is 31 to 33% for the quarter, and as I just mentioned, it is 30.2%. So it's below the full year range, primarily because, well, two things. One, you saw that expenses were up. I'll come to that in a moment. But two is, you know, we're still integrating the deals that we just closed in Q4. So that pressured the margin a bit in Q1. And we think that'll resolve itself as we continue and finalize integrations there.

Kyle Andrew Crews: Right, so full year margin guidance of 31% to 33% on the quarter as I. Just mentioned is 32%. So it's below the full year range, primarily because well two things. One you saw the expenses were up I'll come to that in a moment, but two as we're still integrating.

John E. Gallagher: Deals that we just closed in Q4, so that pressured.

John E. Gallagher: The margin a bit in Q1, and we think that will resolve as we can.

John E. Gallagher: The other thing, though, is you're asking about investments, or you're asking about cost increases, what they are as investments. So we laid out our plan for investing in the business during 2024. And of course, we're executing on that plan. As a reminder, it was centered on two areas. It was investments in sales and marketing and expanding the sales force. And it was investments in R&D, which was adding software developers to our team to continue to enhance our software programs, including embedding AI in all of our product offerings.

John E. Gallagher: Continue and finalize the integration there the other thing those youre asking about investments or you asked about cost increases, but they are as investments. So we laid out our plan around investing in the business during 2024 and of course, we're executing on that plan. As a reminder, that was centered in two areas. It was investments in sales and <unk>.

John E. Gallagher: <unk>.

John E. Gallagher: And expanding the sales force and it was the investments in R&D, which was adding software developers to our team to continue to enhance our software programs, including.

John E. Gallagher: Including embedding AI in all of our product offerings so that.

John E. Gallagher: That is what you see playing out in the quarter.

John E. Gallagher: So that is what you see playing out in the quarter, and you'll continue to see those investments during the course of the year. You asked about margin progression. We do anticipate, as I mentioned earlier, some dynamics that will drive revenue to be higher in the second half than in the first half, which is typical for the company when you look back at prior year periods. And that will help margin acceleration and accretion to that margin as well as finalize the integration on the deal.

John E. Gallagher: You'll continue to see.

John E. Gallagher: Those investments during the course of the year you asked about margin progression, we do anticipate as I mentioned earlier some.

John E. Gallagher: Dynamic that will drive.

John E. Gallagher: Revenue to be higher in the second half than in the first half which is typical for the company when you look back.

John E. Gallagher: At prior year periods, and that will help margin acceleration in accretion to that margin as well as finalizing the integration on the deal.

Speaker Change: Thank you.

John E. Gallagher: Yes.

Operator: One moment for our next question. Konstantin Davides at Citizens JMP.

John E. Gallagher: While many blend.

Speaker Change: One moment for our next question.

Konstantin Davides: Good morning.

Konstantin Davides: Perhaps between David ease as citizens JMP.

Konstantin Davides: Thanks. I just wanted to double click quickly on the funding backdrop. We saw a pretty, fairly significant spike in first quarter funding activity. I'm just wondering, are you surprised you aren't seeing that inflection yet, or is this? I guess, relative to prior cycles, you've experienced pretty normal in terms of what you think the timing will be between when funding picks up and when it might translate into bookings.

Konstantin Davides: Thanks, I just wanted to double click.

Konstantin Davides: Quickly into the funding backdrop.

Konstantin Davides: We saw a pretty fairly significant spike in the first quarter funding activity I'm. Just wondering are you surprised you aren't seeing that inflection yet or is this.

Konstantin Davides: I guess relative to prior cycles, you've experienced very fairly normal in terms of what you think the timing will be between when funding picks up and when it might translate into bookings.

William F. Feehery: Yeah, thanks, good question. Yeah, no; we didn't expect to see an immediate increase in bookings from the funding. It really, you know, started a few years ago, from what we read, kind of started in February and moved into March. You know, we think it takes typically several months before that tip that will typically start to get through to us, which is why we've indicated that we're a little bit more optimistic for the second half and the first half. But to be clear, too, any tailwinds related to the funding environment are not included in the guidance. We guided from a stability standpoint for the year.

Speaker Change: Yeah. Thanks for the question.

Konstantin Davides: Got it. Thanks.

Speaker Change: Yes, no we didnt expect to see an immediate.

Konstantin Davides: Increase in bookings from funding it really.

Konstantin Davides: It started.

Konstantin Davides: From what we read kind of started in February and moved into March.

Konstantin Davides: We think it takes typically several months before that that will typically you start to get through to US which is why we have.

Konstantin Davides: <unk> indicated that were a little bit more optimistic for the second half than the first half.

Speaker Change: But do you think.

Konstantin Davides: To be clear to any any.

Konstantin Davides: Any tailwind as it related to the funding environment are not in the not included in the guidance, we guided from a stability standpoint.

Konstantin Davides: For the year.

William F. Feehery: And then I guess just to follow up on some of the investments. Can you give us a sense of what? on the sales force where it stands currently and kind of how much you want to scale that this year. And then I know you made some changes last year in terms of how you structure and organize the sales force. I'm wondering what some of the early returns are on those measures, whether it's win rates or attach rates or anything else you'd like to call out. Thank you.

Speaker Change: Got it thanks, and then I guess, just a follow up on that.

William F. Feehery: Sort of some of the investments can you can you give us a sense of.

William F. Feehery: On the sales force, where it stands currently and kind of how how much do you want to scale that this year and then I know you made some changes last year in terms of how you structure and organize the Salesforce I'm wondering what some of the early returns are.

William F. Feehery: With those measures whether it's.

William F. Feehery: Win rates or attach rates or.

William F. Feehery: Anything else you'd like to call out thank you.

William F. Feehery: So last year we, yeah, we made some changes to unify our Commercial Organization so that we could sell products from across all of Certara to our customers, who are typically buying more than one. So it was a more efficient way of reaching them.

William F. Feehery: So last year, we yes, we made some changes to our.

William F. Feehery: Commercial organization.

William F. Feehery: So that we could sell products from across all of <unk> to our customers who are typically buying more than one so it was a more efficient way of reaching them and.

William F. Feehery: And our belief was that we would see more cross-selling, effectively what you'd call cross-selling, but in terms of, you know, more customers buying a bigger range of products, and also that we would become more efficient over time as well, because we were, particularly in services, we still had a lot of the seller-doer model, where we were taking, you know, fairly expensive, you know, technical people away from billable work and, So, I would say that we're very pleased with how far we've gotten on this, but there's still more to go.

William F. Feehery: And our belief was that we would see more cross effectively.

William F. Feehery: What you call cross sell it but in terms of more customers buying a bigger range of products.

William F. Feehery: And also that we would.

William F. Feehery: And become more efficient over time as well because we were particularly in services. We still have a lot of lot of the seller doer model, where we're taking fairly expensive.

William F. Feehery: Technical people away from from billable work and tasking them with with with the sales process.

William F. Feehery: So I would say that we're very pleased with how far we've gotten on this but there is still more to go.

William F. Feehery: We're probably a bit farther ahead in terms of what we've done on the software side, just because we started that earlier. And, you know, there's an there's been an opportunity, I think, that we've taken into account over the last, you know, two quarters to really do some solid training of the salesforce of the entire range of Certara's products. We've done a lot to professionalize, uh just how we're covering the world in terms of sales territories and and uh and uh signing uh you know key accounts to to the appropriate sales people uh and we started to see some benefits of that in the first quarter but like i said i don't think we're fully you know at full strength there so we were you know we'll we'll see some further benefits as we move through the year and and uh kind of uh pull that team together even more than it is right now.

William F. Feehery: We're probably a bit further ahead in terms of what we've done on the software side, just because we started that earlier.

William F. Feehery: And.

William F. Feehery: There is there has been an opportunity I think.

William F. Feehery: That we've taken into account over the last.

William F. Feehery: Two quarters to really do some solid training of the sales force.

William F. Feehery: Higher range of <unk> products.

William F. Feehery: We've done a lot to professionalize.

William F. Feehery: Just how recovery in the world in terms of sales territories in.

William F. Feehery: And assigning.

William F. Feehery: Our key accounts to the appropriate salespeople.

William F. Feehery: And we started to see some benefits of that in the first quarter, but like I said I don't think we're fully.

William F. Feehery: Full strength there so.

William F. Feehery: Well, we'll see some further benefits as we move through the year end.

William F. Feehery: Kind of pull that team together, even more than it is right now.

Operator: One moment for our next question. Our next question comes from Vikram Purohit at Morgan Stanley. Hi, everyone. This is the Gospel for Virkin. We have...

Speaker Change: One moment for our next question.

Vikram Purohit: Our next question comes from Vikram <unk> as Morgan Stanley.

Vikram Purohit: Hi, everyone just as the Gospel Encore, we have one question now so that is where the <unk> behind you now what do you think drives to bookend of revenue and EPS guidance for 2024.

Vikram Purohit: So the guidance on the air remains the same. Q1 played out in line with our expectations and our plan. So, you know, the guidance that we had laid out before, which was reported revenue growth of nine to 13% on an organic basis, mid single digits remains intact. The other piece of that, of course, we've talked about the margin a bit, is that we're committed to growing EBITDA dollars for the year, and the margin would land in the 31 to 33% range.

Vikram Purohit: So the guidance on the year remains.

Vikram Purohit: It remains the same.

Vikram Purohit: Q1 played out in line with with our expectations.

Vikram Purohit: Our plan.

Vikram Purohit: So the guidance that we had laid out before which was reported revenue.

Vikram Purohit: <unk> of 9% to 13% on an organic basis mid single digit is.

Vikram Purohit: Remains intact.

Vikram Purohit: The other piece of that of course, we've talked about the margin a bit is that we're.

Vikram Purohit: We are committed to growing EBITDA dollars on the year.

Vikram Purohit: And the margin would land in the 31% to 33% range.

Vikram Purohit: So, nothing has really changed that from this point. If we were, I think what you're saying is what takes you to the higher, what takes you to the low end, you know, to get to the lower end here, we would need some deterioration in the end market, uh which we're not seeing to be clear so you know we we talk about stability a lot in q3 q4 of last year and now through q1 of 2024 we've continued to see that so we're not really seeing that as uh as playing out but to get to the bottom end of the range that's what would need to happen is we'd need to see some deterioration from the spot where we are now uh meaning in tier two and tier threes and and and and tier ones for that matter as well we're not seeing that uh to get to the high end of the range then uh we would need to see some acceleration you know as i mentioned we have not baked into our guidance the notion that uh of any benefit related to the biotech funding environment that's not in our guidance so obviously if we start to get some benefit there it would start to to take us to the higher end uh end of our range and if we continue to see acceleration with the software performance has been been really solid we've been very pleased with it if we continue to see acceleration thanks to the many new products that we're offering on the software side that too would would start to take us more to the higher end of the range

John E. Gallagher: I am showing no further questions at this time. I would now like to turn the call over to Bill for closing remarks. Thank you, everybody.

Vikram Purohit: So nothing has really changed that from from this point.

John E. Gallagher: If we were I think what you are saying is what takes you to the higher what takes you to low end.

John E. Gallagher: To get to the to the lower end here, we would need some deterioration in the end markets.

Bill: Which we're not seeing to be clear. So we talk about stability a lot in Q3 Q4 of last year and now through Q1 of 2024, we've continued to see that so we're not really seeing that as playing out but to get to the bottom end of the range Thats what would need to happen is we would need to see some deterioration from.

Bill: The spot where we are now meeting.

Bill: Meaning in tier two and tier threes.

Bill: And tier ones for that matter as well, we're not seeing that to get to the high end of the range then.

Bill: We would need to see some acceleration as I mentioned, we have not baked into our guidance the notion that.

Bill: Any benefit related to the biotech funding environment, that's not in our guidance. So obviously, if we start to get some benefit there it would start to take us to the higher end.

Bill: End of our range and if we continue to see acceleration with the software performance has been been really solid we've been very pleased with it.

Bill: If we continue to see acceleration thanks to the many new product that were offering on the software side that too it would start to take us more to the higher end of the range.

Bill: Oh, Thank you very much.

John E. Gallagher: I am showing no further questions at this time I would now like to turn it back the call over to Bill for closing remarks.

William F. Feehery: Thank you everybody for joining us tonight. We, as we said, remain very optimistic for the rest of the year. We had a lot of good things happen in the quarter, and we'll look forward to reporting at the end of this quarter. Back same time, same place. Thanks.

Bill: Thank you everybody for joining us Tonight.

Bill: As we said we remain very optimistic for the rest of the year.

William F. Feehery: Ed.

Bill: Good things happened in the quarter and we will look forward to reporting at the end of this quarter.

Bill: At the same time same place thanks.

William F. Feehery: Yes.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Operator: Okay.

Operator: [music].

Operator: Okay.

Operator: Right.