Q1 2025 Certara Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Certara First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. David Daigler, investor relations, please go ahead.
Speaker Change: Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Cretar, we have William Feehery, Chief Executive Officer, and John Gallagher, Chief Financial Officer. Related today, Cretar released financial results for the quarter in March 31st, 2025.
Speaker Change: A copy of the press release is available 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 we put forward with the statement, and actual results from a different material from those expressed or implied in the forward with the statement. Please refer to slide two of the accompanying materials for additional information, which can find on the company's investor relations website.
Speaker Change: In the remarks, responses to questions, minutes have been mentioned, so non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
Speaker Change: are available in recent earnings press release, available on the company's website. Thank you.
Speaker Change: Fisherford, the Reconciliation Tables, and the company materials for additional information.
Speaker Change: This conference called contains time-sensitive information, and Dechert only has a provided broadcast today, May 25th, 2025.
Sartorius: Chargers, things, any obligation except this required by law to update or revise any financial projections for what these statements, whether because of new information future events or otherwise. [inaudible] I'm sorry, I'm sorry, I'm sorry
William Feehery: and the stats I will turn the call over later.
Speaker Change: Thank you, David. Good afternoon, everyone. Thank you for joining Certara's first quarter earnings call. John and I will begin with prepared remarks and then we will take your questions.
Speaker Change: We are pleased with our start of the year, delivering financial results consistent with our expectations driven by strong commercial execution across both software and services.
We finished the first quarter with revenue of $106.0 million. [inaudible]
representing 10% reported growth versus the first quarter of 2024.
Speaker Change: Certara's first quarter bookings of $118.2 million represented 12% reported growth versus the prior year period driven by a software bookings growth of 23% and services bookings growth of 7%.
Speaker Change: Additionally, we continue to see good performance from Camaxon, which contributed $5.9 million of revenue, and $4.9 million of bookings in the quarter.
Speaker Change: The current market has both continued headwinds that we've been managing over the past couple of years, as well as some new and exciting tailwinds for Certara.
Speaker Change: Continued headwinds include the downstream effects of IRA price controls, an erratic capital-raising environment for biotechs, and a potential for new trade and healthcare policies from the current administration.
Speaker Change: Tailwinds include the recent FDA announcement about phasing out animal testing.
Speaker Change: A general willingness to expand the use of modeling in pharmaceutical development and increasing expanding on artificial intelligence solutions among our customers.
Speaker Change: In the long run, we expect most of the headwinds to resolve while the tailwinds are likely to remain in Certara's favor.
Speaker Change: With that in mind, we will continue to execute our Strategic Investment Plan, focusing on the integration of AI into our software solutions, building a more integrated software platform, increasing our investment in bi-assimulation model development, and expanding our solutions into the earlier stages of drug development.
Speaker Change: Certara's value proposition is multifaceted. We accelerate decision-making to drive more cost-effective development by making better use of scientific modeling and data analysis.
Speaker Change: Over the past several years, we've invested the build Cretar into the leading partner in biosimulation by creating new software products and features.
Speaker Change: Building a robust commercial infrastructure capable of selling to the large number of customers in our industry and executing strategic M&A to expand our capabilities.
Speaker Change: The FDA's recent announcement of a plan to phase out animal testing requirements from monoclonal antibodies and other drugs increases the relevance of Certara's capabilities.
Speaker Change: This new direction follows a framework outlined by Congress and the FDA Modernization Act 2.0 that was passed in late 2022 and aims to develop a clearer regulatory pathway to streamline the drug development process, including leveraging computer modeling and artificial intelligence to predict a drug's behavior.
Speaker Change: Certara has created a biosimulation solution called non-animal navigator for pre-clinical monoclonal antibody development, which uses our simpsip simulator and our QSP modeling group.
Speaker Change: The solution also leverages the extensive experiences of our services team in creating first-in-human study designs.
Speaker Change: In the weeks following the announcement, we have seen significant inbound interest from customers who would like to understand the role Certara can play in their preclinical development.
Speaker Change: Just last week we hosted an online webinar with over 400 attendees, outlining our approach to helping customers navigate alternatives to animal testing.
Speaker Change: We believe new regulatory initiatives at the FDA, including phasing out animal testing, are long-term tailwinds for the adoption of modeling and simulation tools across drug development phases.
Now turning to our commercial performance in the quarter.
Speaker Change: In software, we continue to see healthy bookings performance from our Tier 1 and Tier 3 customers, with higher neural rates and a modest upsell contributing to growth.
Speaker Change: We've also begun to realize some cross-selling benefits as we integrate Chemaxon into our broader commercial organization, leading to another strong quarter with $5.9 million of revenue.
Speaker Change: In services, we observe stable demand across both biosimulation services and regulatory services.
Speaker Change: And by assimilation services we continue to see some softness in the Tier 1 customer base, which was offset by solid growth across tiers 2 and 3.
and regulatory services. [inaudible]
Speaker Change: We saw revenue of bookings growth on a year-over-year basis with strong contribution across all three customer tiers.
Speaker Change: heading into the second quarter, we are encouraged by the underlying demand from customers and are confident in our ability to meet our commercial goals at this point in the year.
Speaker Change: In addition to strong commercial performance, our R&D teams continue to make progress in the software development front.
Speaker Change: On April 1st, we announced the 24th version of our Simpsons Simulator, which was the culmination of months of hard work from our team, paired with valuable feedback and insights from over 30 consortium members.
Speaker Change: This year, updates were focused on numerous new features, including an expanded library for drug drug interactions, additions to our biopharmaceutical and virtual bio-equivalence modules, enhancements to support modeling of special populations.
and an improved user interface. [inaudible]
Speaker Change: Today, since it has supported over 120 FDA-approved novel drug applications and over 300 label claims in addition to being granted numerous clinical trial waivers.
Speaker Change: As we expand the breadth and capability of our software platform,
Speaker Change: We look to say active in front of our customers.
Speaker Change: We are excited to host the second annual certainty conference in Philadelphia, beginning tomorrow.
Speaker Change: Last year's conference was a success and we were thrilled to host over 300 clients showcasing the advancements we've made in model informed drug development.
Speaker Change: Certainly has become an opportune time to showcase our capabilities in the preclinical area as our customers look for alternatives to animal testing.
Speaker Change: and there will be several presentations elaborating on how Certara can help drug developers implement new approach methodologies such as PVPK and QSP.
Speaker Change: During the quarter, we also had the pleasure of welcoming new leadership to our services group.
Speaker Change: We're pleased to welcome Dr. Adrian McKemmy as president of our drug development solutions business.
Speaker Change: Adrian, joined Certara with over 25 years of industry experience, having led business transformation, portfolio management, and R&D initiatives for a wide variety of clients in the biopharmor industry.
Speaker Change: As part of a plan leadership transition, Patrick Smith has moved into a new role as Senior Vice President of Translational Sciences.
Speaker Change: Patrick will continue to be a key member of our services group focusing on sweetheart scientific growth and innovation.
Speaker Change: Before wrapping up, I wanted to provide an update on some recent announcements.
Speaker Change: On April 14, we announced a $100 million share of a purchase authorization and provided an update on the strategic review of our regulatory business.
Speaker Change: The Board's decision to authorize a shared repurchase allows us to have more flexibility with the management of our capital to drive value for shareholders.
Speaker Change: This authorization for the board reflects their support and confidence in our investment in biosimulation, including AI, and in the strategic decisions we have made to drive long-term growth for the company.
Speaker Change: However, our primary use of capital remains the same as it has been since we came public, and we will continue to be active in looking at M&A opportunities and making organic strategic investments to drive long-term sustainable growth
Speaker Change: Also, as we announced, we have been proceeding with our review of the regulatory business and have received interest from external parties that we do not have more to announce at this time.
Speaker Change: To close, we are pleased with the first quote of results and we are excited by the evolving opportunities at the company.
Speaker Change: Our team is executing against our commercial plan, driving solid operational performance in light of more muted end markets.
Speaker Change: Our on-theate initiatives are progressing nicely and we are on track to launch several new products later this year.
Speaker Change: The secular tailwinds for biosimulation continue to drive adoption and we are excited to play a role in the evolution of drug development towards new methods and approaches. [inaudible]
Speaker Change: With that, I'd like now to hand things over to John Gallagher to discuss our financial result in more detail.
John Gallagher: Thank you, William. Hello, everyone. Total revenue for the three months ended March 31, 2025, was $106 million, representing year-over-year growth of 10% on a reported basis and on a constant currency basis.
John Gallagher: Total bookings for the first quarter were $118.2 million, which increased 12% from the prior year period on a reported basis.
John Gallagher: Trailing 12 month bookings were $457.7 million, increasing 16% on a reported basis.
John Gallagher: Excluding Camaxon, total company organic bookings growth was 7% compared with the first quarter of last year.
John Gallagher: Software Revenue with $46.4 million in the first quarter, which increased 18% over the prior year period on a reported basis in 19% on a constant currency basis.
John Gallagher: Organic Growth in the Quarter was driven by Bio-Simulation Software and Pinnacle 21.
John Gallagher: Additionally, Kamaxon contributed $5.9 million to our reported revenue, which came in ahead of our expectations.
John Gallagher: Radible and Subdescription Revenue accounted for 57% of first quarter software revenues.
John Gallagher: or 62% when excluding Kamakhton, up from 61% in the prior year period.
John Gallagher: Software bookings were $40.8 million in the first quarter, which increased 23% from the prior year period.
First-quarter bookings include $4.9 million of Kamaxan bookings.
Trailing 12-month software bookings were $177.3 million, up 27% year-over-year.
The software net retention ratio was 102% in the quarter. [inaudible]
John Gallagher: With organic software revenue growth at 4% in Q1, consistent with our plan, this NRR is below the historic average based on expected timing of software revenue achievement during 2025.
John Gallagher: Looking at our software bookings performance by Tier, we saw very strong performance in both Tier 1 and Tier 3 customers in the first quarter driven by continued adoption of our software.
John Gallagher: We saw strong performance from our regulatory services business in the quarter, delivering a second consecutive quarter of year on year grow.
John Gallagher: Technology-driven services bookings in the first quarter were $77.4 million, which increased 7% from the prior year period.
John Gallagher: TTM Services' bookings were $280.4 million, up 10% as compared to the prior year.
John Gallagher: In the quarter, we saw stable demand for our biosimulation services with softness in Tier 1, offset by strong bookings growth in Tier 2 and 3. Regulatory writing bookings grew double digits versus the first quarter of 2024.
John Gallagher: Total cost of revenue for the first quarter of 2025 was $41.5 million and increase from $39.3 million in the first quarter of 2024, primarily due to higher software and their amortization expense.
John Gallagher: Total operating expenses for the first quarter of 2025 were $56.9 million, a slight decrease from $58.7 million in the first quarter of 2024, primarily due to a $3.1 million decrease in the change in fair value of a contingent consideration.
John Gallagher: which was offset by higher sales and marketing expense and intangible asset amortization.
John Gallagher: Adjusted EBITDA for the first quarter of 2025 was $34.8 million, an increase from $29.1 million in the first quarter of 2024. Adjusted EBITDA margin in the quarter was 33%, which came in ahead of our expectations.
John Gallagher: As I discussed last quarter, we plan to continue investing in R&D in 2025 to drive new product development and further integrate our software.
John Gallagher: In the first quarter, we saw some benefit to EBITDA from slower than expected hiring, which contributed about 200 basis points to our EBITDA margin.
John Gallagher: We expect hiring to pick up through the middle of the year, which will align margins more closely with our guidance expectations over the next several quarters.
John Gallagher: Wrapping up the income statement, net income for the first quarter of 2025 was $4.7 million dollars.
John Gallagher: Compared to a net loss of $4.7 million in the first quarter of 2024. Reported adjusted net income for the first quarter of 2025 was $22.4 million compared to $16.5 million for the first quarter of 2024.
John Gallagher: Deluted earnings per share for the first quarter of 2025 was three cents compared to a loss of three cents per share in the first quarter of 2024.
John Gallagher: Adjusted deluded earnings per share for the first quarter of 2025 with 14 cents compared to 10 cents for the first quarter of last year.
John Gallagher: Moving to the ballot sheet, we finished the quarter with $179.1 million in cash and cash
John Gallagher: As of March 31st, 2025, we had $294.8 million about standing borrowings on our term loan and full availability under our revolving credit facility.
William Feehery: As William mentioned earlier, the board authorized a $100 million repurchased program in mid-April. Following the announcement, we have repurchased approximately $25 million of that authorization to date.
William Feehery: We are reiterating our guidance today as follows. We expect total revenue in the range of $415 to $425 million representing growth of 8 to 10% compared with 2024.
William Feehery: Similar to our guidance last year, we anticipate a higher EBITDA margin at the lower end of the revenue guidance and the lower EBITDA margin at the higher end of our revenue guidance.
William Feehery: This will be driven by discretionary investments in research and development which will be managed based on our commercial performance as we progress through the year.
William Feehery: We expect adjusted EPS in the range of 42-46 cents per share, fully diluted shares in the range of 162 to 164 million, and a tax rate in the range of 25 to 30 percent.
William Feehery: I will now turn the call back over to our CEO , William Feehery, for closing remarks.
Thank you, John .
William Feehery: To summarize our message today, we are pleased with many exciting developments at Tatar in the first quarter and remain focused on executing our growth and profitability goals in 2025.
William Feehery: including the recently announced phase-out of animal testing for monoclonal antibodies. And we have begun to repurchase shares under the new Share Purchase Authorization.
William Feehery: I am proud of the work of our team and I look forward to providing additional color as the year progresses.
Operator, can you please open the line for questions?
Speaker Change: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.
Speaker Change: And our first question comes from Michael Cherny of Lerink Partners, your line is open.
Speaker Change: You're non-animal navigator thus far. Are there any common themes for companies or tears of customers that are particularly interested? And then as a second question, what do you kind of think the right? What do you think?
NRR is for Certara in this business environment. Thank you.
Speaker Change: We've had a tremendous amount of interest of customers coming to our webinar or calling about it. I think a lot of...
A lot of the market is trying to understand. [inaudible]
Todd. [inaudible]
Speaker Change: You know, what, what the FDA wants and what the possibilities are and how fast this is going to happen. I think in general, you know, companies have been, you know
Speaker Change: Interested and excited about potential change in the way drugs are developed and using...
Speaker Change: Feehery Animals, and trying to figure out how far is the FDA long in their thinking and when would they make a switch in drug development? So those are the kind of questions we're getting
Speaker Change: And also I'd say also just sort of how, you know, how far along is the technology? [inaudible]
Speaker Change: and what can be replaced with animals? Which animal usage can be replaced today?
John Gallagher: And then for the second question, I'll turn it over to John.
John Gallagher: Yeah, thanks Bill. So on the NRR, this quarter at 102% is lower than what you've typically seen for us. And that's driven by a couple of things. One is the organic.
John Gallagher: Software Growth at 4% is lower than our implied guidance range at 6% to 8%, but it was on our expectations. So there was some expected timing.
John Gallagher: related to the achievement of software revenues that we would expect to play out and increase over the remaining course of 2025.
John Gallagher: In addition to that, the portion of ratable software is increasing. In fact, in Q4, excluding Camaxon, we had 70% ratable. That tends to be our high point in a Q4. Here in Q1, we had 62% ratable.
John Gallagher: which was growth year-on-year. And so the more radical that we achieved, the more-
John Gallagher: that the software growth is going to roll out during the quarters of 2025. So...
John Gallagher: I think in relation to what you should expect, I think it's important to look at a measure like NRR over a multi-quarter basis. So last year we had an average of about 110. This year what we're saying is the 102 came in on plan.
and we'd expect it to increase the software revenue increases.
Thank you.
David Windley, John Gallagher, John Gallagher, John Gallagher, John Gallagher, John Gallagher,
Speaker Change: And our next question comes from Joseph Vruwink of Baird, Irlangus Open.
Jov Ruink: Great. Thanks for taking my questions. Similar, I want to follow up on just those reaching out to you.
Jov Ruink: Our customers wanting to get more scientists under a license agreement, is there talk about equiting users with stuff they don't use right now?
Jov Ruink: I think one of the things that's maybe coming up a bit more often is that QST modeling could really inflect higher I guess what what kind of the initial fee alone commercially how your business might evolve. . . .
Yeah, thanks, Joe.
The...
Speaker Change: Well, so the questions are out, everybody's questions are around what can be replaced today and then what's more aspirational. So I think that it would be very difficult to replace all animal models today, given what's used, but a good deal of usage could be replaced.
Thank you. Bye-bye.
Speaker Change: So we've launched a product called Non-Animal Navigator, which combines both our QSP capabilities and our
Speaker Change: Drug Development Capabilities, with the idea that we can use QSP models to inform dosing on things like monoclonal antibodies.
Speaker Change: and eliminated a lot of the preclinical use of animal models.
Speaker Change: You know, in a longer run. Well, as I said, the other piece of this is around toxicology. We have, you know, QSP and some of our toxicology models can...
Speaker Change: and form the decisions that need to be made there and preclinical. As you get into like longer run studies, you know, those could be hard to eliminate right away, but those are not really the focus of everybody right now. So hopefully that gives you a little bit of color there.
Speaker Change: Yeah, that's great. And then obviously the question that's coming up is, you know, how big of a dollar opportunity could this ultimately be for the biosimulation space?
Speaker Change: It might just be too soon to say, but maybe I'll ask, I think about how Certara has traditionally framed the growth in their business and kind of the parameters of 10 to 15% over time.
Speaker Change: Would you kind of view the recent roadmap as increasing the confidence on sustaining 10 to 15% or do you really think this could be a shift up entirely? And so it results in a number above the 10 to 15% range?
Speaker Change: Yeah, I think it's probably a little bit too early to make that call. You know, the FTA made an announcement that
He's very encouraging, and I think very... [inaudible]
you know.
Speaker Change: Complementary in terms of the value that Certara can bring to something like this, but it's going to take some time to implement it and want to see how fast that goes, I think that's the key variable there. As we said, we're already getting, we got a lot of early interest. [inaudible]
But, you know, we're talking about a significant change in-
Speaker Change: in a regulatory process, in a, you know, drug development process that can take years. So, you know, those will have to roll out as we go forward. I would say overall, you know, it will be, you know, helpful to our growth rate, but I think it's probably too early to kind of give you a number right now.
Okay, all right, I'll leave it there. Thank you [inaudible]
Thank you.
Speaker Change: Our next question comes from Scott Show and House of Keybank. Your line is open.
Scott Schoenhaus: Hey, Gene, thanks for taking my question. My first question relates to the potential pharmacist. Are you having conversations with your customers on this? Are they saying that it's going to be impacting or they're being more cautious with their budgets going forward? Any color around this potential?
Scott Schoenhaus: Ed Wind, or Tail Wind in your view. And then secondly, as a follow up to the FDA, phase out of...
Scott Schoenhaus: Animal Models, is it more centered around smaller biotechs that are coming to you around monoclonal antibody preclinical studies or is it larger in terms of your larger, sorry, broader in terms of your larger customer base? Thanks.
Scott Schoenhaus: So, let me take the second. Let's take on the add-on allowance first. I'll take the second question first. So, we had a webinar last week.
Scott Schoenhaus: We had, I think, over 800 people responded, and the mixture was, as we tracked it, was...
Scott Schoenhaus: Everything from biotechs to large pharma companies, to even people with government agencies as well. So the interest has been quite broad and using the technology to eliminate animal models.
Scott Schoenhaus: You know, we had already seen slowness and decision making as it relates to like Q1 performance and you'd see that show up in our tier one biocin services.
Scott Schoenhaus: But I wouldn't say that we'd call out anything specific, any specific difference in customer behavior than what we've seen to date, at least not yet.
Speaker Change: Yeah, so Certara is isolated directly from the tariffs, but nothing we sell would be subject to a tariff. We're selling generally into an R&D market.
Speaker Change: So, terrorists don't directly affect that. So, you know, not saying there won't be an effect across the broader markets, but it'll be some indirect, you know, if it happens and our customers haven't really been talking about that enough.
Scott Schoenhaus: Okay, that's helpful. Yeah, it was more of the derivative impact on R&D budgets and what it could mean. So that's really helpful. I appreciate all the color there. Thanks, guys.
Thank you. Thank you.
Speaker Change: And our next question comes from David Windley of Jeffrey Sergott is open.
David Winley: All right, thanks for taking my questions. Good afternoon. Bill, you talked a fair amount in the past about.
David Winley: It would kind of be inertia in pharma drug development and in the way they do things it sounds like.
David Winley: The FDA announcement is both, I guess, the initial Phidoma II approval and then this more recent announcement are a nice shot in the arm to try to break some of that inertia. My understanding is that maybe the FDA is reaching out to a, I'm not sure how long the list, but a pilot list of...
to kind of move Farma off its perch. [inaudible]
David Winley: and get confident and comfortable in the regulators' willingness to truly accept this stuff. Does it take an approval of a drug that is gone through a, you know, a no animal or an animal light? [inaudible]
Drug Development Cycle.
David Winley: to in terms of kind of the evolution or the replacement of an IND-enabling package, like what do you think that looks like in the future, and where does...
David Winley: and Certara software. What parts of that package can you insert yourself into and replace what is currently answered through animal data? Thanks.
Speaker Change: Okay. All right, so several parts of that question. So the first one I heard was what's key to move formal office current perch. And I think that there are two things. One is, you know, the FDA is continuing to.
Speaker Change: You know, expound upon their original announcement and they've been you know, they've talked about how they would both encourage the use of alternative technologies and potentially. Thank you very much.
Speaker Change: Discourage people who didn't move. So I think the industry is looking for some more information about how that will play out.
FDA specifically called out monoclonal antibodies and other drugs.
Speaker Change: I think monoclonal antibodies are one area in which the use of animal models has been highly questioned, and the technology is fairly advanced in using alternatives.
Speaker Change: So that's a good thing. There are drugs that have gone to the FDA that effectively, if that used animals, not monoclonal, anybody's, but you know, things like...
You know, if you know, often. [inaudible]
Speaker Change: You know, if you take a gene therapy into an IND right now, it really doesn't make a lot of sense to use an animal model on on on the technology like that. And so there are examples where the FDA has effectively used.
Speaker Change: He used modeling in lieu of animals because it just didn't make any sense to use animals. So I think that's some early signs of which way things may go for as this expands. And...
Speaker Change: In terms of the evolution of the IND package, my thinking on this is that...
Speaker Change: Broadly speaking, animal models are used in really in three ways.
Speaker Change: as the IND goes through. So one is in the basic, you know, first, you know, first in human dosing.
Speaker Change: Make a good argument to our customers that we've got technology there that continue to use animals that the FDA is going to discourage that is more than feasible and you can go faster and everybody will be more efficient and lower cost.
Second piece is on.
Talks Ecology, so he has things like liver talks.
Cardiotox, things like that. For those, the models exist.
Speaker Change: Probably, they can be improved over time, now that people have gotten a lot more interest in this area, they can be tied into, if you look at the FTAs. [inaudible]
Speaker Change: Announcement, they talk about organ on a chip technology so we can tie into the companies that are working on that. And so what I'd say on that is we have, you know, we have pretty good modeling capabilities in those areas but you know. So, um.
Speaker Change: Talks is a big area and we could probably make bigger investments and expand on that since this will be a big new area. And I'd say the third part, which is probably the longest part out is the.
Speaker Change: Time to long-term study things like, you know, you're looking for, you know, long-term cancer or something like that. Those are the hardest to replace all the animals just because, you know, by almost by definition you're looking for something that nobody has modeled. [inaudible]
Speaker Change: But they're also not the largest use of the animal, so I'm guessing I don't know how the FDA is going to think about that, but my guesses they're going to probably put that part of it off. [inaudible]
Speaker Change: as new technologies become available. So, we know they're looking for modeling, they're looking on, they specifically mention things like organ on a chip.
Speaker Change: and you know, they're looking for new modeling, new technologies that can replace this and they're generally favoring.
Speaker Change: You know, making a change in that way. So long answer, David, but hopefully you've got a lot of parts of your question there. Great. I really appreciate it. I'll yield. Thank you.
Thank you.
Speaker Change: And our next question comes from Dan Lennon with UBS Touline, it's open.
Dan Lenwick: Thank you. First, a cleanup question on the services business. It sounds like regulatory is now a good guy in comparison to biosimulation services. And I'm wondering why that would be.
Well, a couple of things there, most importantly. [inaudible]
Dan Lenwick: We've fully built out our commercial team. The commercial team is executing very well across the board, including in regulatory, so we've been very pleased with the performance there. And then when you look at what?
Dan Lenwick: When you look at last year, then it's important to keep in mind that we were hitting some low spots last year and so the comparison we have are easier as well.
Speaker Change: Thank you for that. And then just to follow up again on this FDA bit, is it possible at all to compare and contrast your inbound activity and interest following the passage of the FDA Modernization Act 2.0 a few years ago with what you're experiencing today following the most recent updated FDA discussion?
Speaker Change: Yeah, what I would say is the FDA Modernization Act was passed by Congress, but the...
Speaker Change: Industry didn't do very much because the FDA didn't save very much.
Speaker Change: So the difference now is that the FDA has sent a very clear signal about what they are really intending to do and they're sending it to the market and I guess to their examiners, which isn't really the situation we had a couple of years ago.
Speaker Change: So a couple of years ago, I would have characterized as Congress said the FDA could do something, but they didn't move.
At that time, to do it. [inaudible]
Got it. Thank you.
Thank you.
Speaker Change: And our next question comes from Jeff Garro of Steven's Your Line is Open. [inaudible]
Yeah, good afternoon. Thanks for taking the question. Thank you very much.
Speaker Change: Maybe one more on the non-animal navigator product. You know, I recognize it's very early and you have a big event this week and that will be a key topic there. But wanted to ask further about how the pipeline has been building for that offering. And if you could put a timeline on potential financial impact. And that's it for today.
Speaker Change: such as the first contract booking related to that product. Thanks.
Speaker Change: Yeah, hi Jeff. So, I'll take the last part first and Bill can fill in if there's something I missed there but...
Speaker Change: As far as, you know, when and how much it's, you know, it's early for us to tell, you know, the key areas of the products that we're focused on are obviously our QSP offerings and the SIMSIP offering and we're getting a lot of inbound interest as Bill said earlier but it's really too early to tell.
Speaker Change: and it feels like something that we look beyond Q2. But stay tuned, we need to see it in the performance, and then we'll be able to give you an update.
Speaker Change: Well, makes sense. And none of the prepared remarks you, you mentioned client AI spend as a tailwind. So with hoping you could elaborate on your continued effort to infuse your products with AI and whether your investments there are being recognized as a differentiator in the market. Thanks.
Um,
Speaker Change: Wants a couple of AI products. One of the major ones was our co-author product, which was used in basically writing regulatory reports, but we'll eventually write other reports as well across our.
Speaker Change: Salford Portfolio, and we have some other products we put out last year, and there's a couple coming up this year. The ones we launched last year.
Speaker Change: We have meaningful revenues, so we're pleased that the growth rate there. They also, as I kind of referenced in my talk,
Speaker Change: I figure out what AI means, and they're really good for getting in to have conversations with customers who want to see the latest, the greatest.
Speaker Change: So, and then General, we can often move on to, you know, a more comprehensive discussion around our whole portfolio as well. So I think.
Speaker Change: You know, it's all good for Certara. I think, you know, you always have to remember that a couple of years ago, you know, none of us really were thinking, I mean.
Nobody was really thinking about. [inaudible]
Speaker Change: GPT-based AI, you know, and then the world kind of woke up very quickly and so there's just a tremendous amount of experimentation and you know fairly large budgets being devoted to that.
as that.
Kind of experimentation phase. [inaudible]
Speaker Change: Shapes out, there's going to be a set of cost of companies and products that, you know, could generate money. And that's really what we're focused on doing. So we're not trying to be, you know, a general AI company, but we are intending to really, you know,
and has the growth of biosimulation. [inaudible]
Speaker Change: By bringing AI to the technology we already have, and we think if we do that, then there's plenty of value to be generated for our customers, and that'll be good for the car as well.
Understood. Thanks for taking the questions.
Thank you.
Speaker Change: And our next question comes from Max Smock of William Blair, your line is open.
Max Mock: Just hoping you can comment on what percentage of your current both small and large pharma customers.
Max Mock: Utilize your software and services for preclinical applications today, just trying to give an idea of where penetration is versus your clinical offerings and what you think is a reasonable trajectory over the coming few years.
Max Mock: So we hadn't broken out the proportion of revenue by preclinical versus clinical but we have said that you know historically the majority of our revenue was coming in the clinical phases so. .
Max Mock: You know, obviously with with Kamaxon, we're expanding our footprint into discovery and a portion of the legacy of Certara Business was in preclinical, all of this would expand that.
Max Mock: Great, thanks. And then, relatedly, can you talk about any additional plan investments that you're making or planning to make in building out your pre-clinical offerings and in what areas?
Max Mock: and relatedly, how should we think about your newly launched the non-annual navigator solution? Is it more of a re-packaging of your existing software and services that are mostly applicable to the pre-clinical space? Or is there anything in the solution that you previously did not offer?
Max Mock: Well, we have been investing pretty aggressively in the development of our QSP group and technology and software. A lot of that is tied to pre-clinical and effectively directly falls into the category of what we're talking about and not at all.
Max Mock: Some of our drug development strategists who basically can explain new customers, you know, what is the new, and also our regulatory experts too. We can explain to customers exactly what is the situation, you know, how do you come up with a plan.
Max Mock: for your pre-clinical development, leading it into IMD under the new thinking with the FDA, and then how do you implement that using software like our QSP team? So, I don't know.
Max Mock: You know, I would say that we moved quickly to put...
Max Mock: several of the key pieces that you need for this that were already available and satirized together. And I think that will be a winning combination.
Max Mock: In one point I might add as well, too, is the addition of applied biomass at the tail end of 2023 really gave Certara, so the combination of our existing QSP practice
Max Mock: Plus, applied by OMAF and having been together for more than a year now, position Certara with a market leading stance in QSP which as Bill just said is going to be a key component to capitalizing on the opportunity in front of us.
Great, that makes sense. Thanks for the caller.
Thank you.
Speaker Change: And our next question comes from Constantine Davides of Citizens Your Line is Open.
Constantine Devitis: Thanks. Just changing gears a little bit. Just, one of you can give us a-
Constantine Devitis: A little bit of an update now on Certara Cloud. It's been a few quarters since you've rolled that out and just give us some sense for how that's scaling and and what kind of engagement or behavior you're starting to see that spur. Thank you very much.
Constantine Devitis: The take rate on cloud. In fact, it's really just a component of pushing the software.
Constantine Devitis: Their new logins are accessing Certara Cloud, which is providing them obviously access to the software they've already purchased but all of the software that we offer and so the value proposition of Certara Cloud is...
Constantine Devitis: is giving the opportunity to see the breadth of the product portfolio and given the. [inaudible]
Constantine Devitis: The many, many customers we have for a product like Phoenix that's, you know, that's turning over on an annual renewal basis, then, you know, we have a pretty strong presence in, in Certara Cloud as we sit here now.
Speaker Change: And I guess just follow up there on the Phoenix. I know you're trying to move a little bit more of that base to a hosted solution. Where does that kind of sit now and how should we think about how that's going to trend over the next few years.
Speaker Change: We're still in the earlier innings of the of the conversion and so the good news there is part of the R&D investment that we're making in the software portfolio during this year is putting in enhancements and added functionality to the Phoenix hosted product that will be attractive. Thank you.
Speaker Change: to our customers. And so we're expecting that the the take rate on shifting the hosted will increase, but it's still going to take some time.
Thank you.
Thank you.
Speaker Change: And our next question comes from Brandon Smith of TD Cowan. Your line is open.
Speaker Change: Hi, this is Jacqueline on for Brendan. Thanks for the question. Given the reiterated guidance, where specifically do you see the opportunity for potential upside within the software business in fiscal year 25 as well as within services?
Speaker Change: Yeah, I mean, so the upside opportunity are all the good things that we've been talking about here related to. [inaudible]
Speaker Change: The shift away from animal testing, we just talked about some of the investments in the software.
Speaker Change: Product platforms that are going to drive additional adoption by customers. So there's a lot of optimism and excitement. We need to see, you know, one of the key questions here of course has been what's the timing that this will play out and it's early but. [inaudible]
Speaker Change: We have a lot of inbound interest, and that's really what drives the upside, but the counterbalance to that, which is important, is that we continue to operate in an end market environment that's significantly challenged.
Speaker Change: So, you know, while we're optimistic, we're executing very well, which we saw evidence of in the bookings in Q1, but the counterbalance to that is
Speaker Change: The end market environment, think of biotech funding, think of tier one, pharma.
Speaker Change: Slowness and decision making, all of which is a carryover from what we experienced in 2024 and was a component of our guidance as we moved into this year that we expected more of the same in the end market. .
Speaker Change: from 2024, carrying over into 2025. And that's exactly what we've experienced so far.
Speaker Change: That's great. And I'll just hop on the bandwagon here for just a quick follow-up on the FDA announcement. Do you have any thoughts on how the FDA will select platforms to include in their upcoming pilot studies?
Well, I heard. [inaudible]
Speaker Change: I think it's too hard to talk for the FDA. I think that will be coming out. They're obviously very interested in this and they're talking with a lot of companies, so let's see what they do.
Excellent. Thank you.
Thank you.
Speaker Change: And our next question comes from Vikram Purohit of Morton Stanley. Your line is open.
Speaker Change: Hi guys, this is Parathon for Vikram. Thanks for taking our question. Just on the FDA announcement, do you guys contemplate on adding additional types of software programs to kind of...
Speaker Change: As time goes on to kind of help push out this non animal navigator product. [inaudible]
Speaker Change: Yeah, thanks for the question. It was only a couple of weeks out, so we are...
Uh, uh, I don't know, I don't know.
You know.
Speaker Change: We're thinking a lot about that. There's an opportunity here for Certara, there's an opportunity to make certain types of investments but we haven't announced anything yet so we'll let you know when we're ready.
Speaker Change: Thank you. This concludes our question and answer session and today's conference call. Thank you for participating and you may all disconnect.