Certara, Inc. (CERT) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call indicates strong financial performance, with improved net loss and cash reserves, and positive guidance on revenue and EBITDA margins. The Q&A section reveals confidence in software renewals and the potential of AI MIDD platform. Despite some unclear responses, the market opportunity in NAMs and regulatory support are positive drivers. The market cap suggests moderate stock sensitivity, leading to a positive stock price prediction.

Key Financial Performance

Total Revenue $104.6 million, representing year-over-year growth of 12% on a reported basis and 10% on a constant currency basis. Growth attributed to strong performance in both software and services.

Total Bookings $112 million, which increased 13% from the prior year period on a reported basis. Trailing 12-month bookings were $470.8 million, increasing 15% on a reported basis. Growth driven by strong demand across software and services.

Software Revenue $46.7 million, increased 22% over the prior year period on a reported basis and 20% on a constant currency basis. Organic growth was 9%, driven by strong growth from Simcyp and $5.1 million contribution from Chemaxon.

Services Revenue $57.9 million, up 5% versus the prior year period on a reported basis and 4% on a constant currency basis. Growth driven by strong performance from QSP and Simcyp services, partially offset by softness in regulatory services.

Adjusted EBITDA $31.9 million, an increase from $26.3 million in the second quarter of 2024. Adjusted EBITDA margin in the quarter was 31%. Growth attributed to higher revenue and operational efficiencies.

Net Loss $2 million compared to a net loss of $12.6 million in the second quarter of 2024. Improvement due to higher revenue and reduced operating expenses.

Adjusted Net Income $11.6 million compared to $11.4 million for the second quarter of 2024. Growth attributed to improved operational performance.

Diluted Loss Per Share $0.01 compared to a loss of $0.08 per share in the second quarter of last year. Improvement due to better financial performance.

Cash and Cash Equivalents $162.3 million as of June 30, 2025. Reflects strong cash management and operational performance.

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Operating Highlights

Simcyp software: Achieved European Medicines Agency (EMA) qualification for PBPK Modeling Platform, becoming the only software with this designation. This milestone demonstrates the value regulators place on modeling and simulation approaches.

CertaraIQ: An AI-enabled QSP software solution to be launched in the fourth quarter. It includes intuitive model building interfaces and prevalidated QSP models, aiming to democratize access to modeling capabilities.

Phoenix PK/PD platform: Released version 8.7 with improved speed, efficiency, and cloud-based performance, reducing IT costs for customers.

Pinnacle21 product suite: Integrated with Formedix data standardization capabilities, enhancing clinical data workflows. Collaboration with Merck expanded its use.

QSP and Simcyp services: Recognized bookings and revenue associated with replacing animal testing, with 50% of new QSP projects focused on monoclonal antibody therapies. This aligns with FDA guidance to phase out animal testing.

Regulatory services: Bookings grew mid-single digits, showcasing resilience despite geopolitical and macroeconomic uncertainties.

Revenue growth: Second quarter revenue reached $104.6 million, a 12% year-over-year growth. Software revenue grew 22%, driven by Simcyp and Chemaxon contributions.

Adjusted EBITDA: Increased to $31.9 million, with a margin of 31%, reflecting operational efficiency.

R&D investment: Continued investment in AI-enabled MIDD platform and hiring additional software developers to support growth.

Regulatory business review: Progressing discussions with external parties for potential strategic actions, though delayed due to geopolitical and macroeconomic uncertainties.

Share repurchase program: Repurchased $25 million in stock during the second quarter as part of a $100 million authorization.

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Risk or Challenges

Geopolitical and Macroeconomic Uncertainty: Large pharmaceutical companies are cautious due to a rapidly changing geopolitical and macroeconomic environment, which has affected decision-making timelines. This uncertainty could impact Certara's ability to secure timely contracts and revenue.

Proposed Pharmaceutical Tariffs and Pricing Algorithm: The introduction of pharmaceutical tariffs and a most favored nation pricing algorithm has created uncertainty in the market, potentially delaying customer decisions and impacting Certara's revenue growth.

Biotech Funding Environment: While slightly improved, the biotech funding environment remains below historical trends, which could limit the ability of smaller customers to invest in Certara's products and services.

Timing-Related Softness in Tier 1 Software Bookings: Certara experienced timing-related softness in Tier 1 software bookings, which could impact revenue if not normalized in the second half of the year.

Regulatory Business Strategic Review Delays: The strategic review of Certara's regulatory business has taken longer than expected due to geopolitical and macroeconomic uncertainty, potentially delaying strategic decisions and impacting profitability.

Dependence on Emerging AI and Biosimulation Technologies: Certara is heavily investing in AI-enabled platforms and biosimulation technologies. Delays or failures in these initiatives could impact the company's competitive positioning and growth.

Regulatory Services Softness: There was softness in regulatory services revenue, which could impact overall financial performance if not addressed.

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Guidance & Outlook

Full Year Revenue Guidance: Certara expects total revenue in the range of $415 million to $425 million, representing growth of 8% to 10% compared to 2024.

Adjusted EBITDA Margin: The company anticipates adjusted EBITDA margins between 30% to 32%, with higher margins at the lower end of revenue guidance and lower margins at the higher end.

Adjusted EPS Guidance: Certara projects adjusted EPS in the range of $0.42 to $0.46 per share.

Software Revenue Contribution from Chemaxon: Chemaxon is expected to contribute software revenue of $23 million to $25 million in 2025.

R&D Investments: Certara is increasing R&D investments, particularly in AI-enabled Model Informed Drug Development (MIDD) platforms, with new product launches expected in the fall and next year.

CertaraIQ Launch: Certara plans to launch CertaraIQ, an AI-enabled QSP software solution, in the fourth quarter of 2025. The product is currently in early access with several customers.

Market Opportunity for NAM: Certara views the replacement of animal testing with new approach methodologies (NAM) as a multibillion-dollar addressable market over the next 10 years.

Regulatory Business Strategic Review: Certara continues to evaluate strategic options for its regulatory business, with updates expected before the end of 2025.

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Shareholder Return Plan

Share Repurchase Program: Earlier this year, our Board authorized a $100 million share repurchase program. As of today, we have purchased a total of $25 million in stock, all of which was during the second quarter.

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Key Q&A

Q:Is the multibillion-dollar addressable market opportunity for NAMs incremental to the low single-digit billion TAM for biosimulation software?

A:Yes, it is considered an additional opportunity based on the long-term potential of NAM.

Q:Why is the QSP response rate lower than expected in a recent webinar, and does Certara need to do more marketing to educate customers?

A:QSP is a growing area and a bright spot for Certara. The combination of existing practices and applied biomass makes Certara a market leader in QSP. The response rate is not concerning as QSP and PD/PK are closely linked, and up to 70% of respondents are using technologies Certara excels in.

Q:What are the demand drivers for software versus services bookings?

A:Software is driven by its necessity in R&D infrastructure and new product developments. Services have seen high demand, particularly for QSP services, and are closely linked to software sales, often driving each other.

Q:What are the dynamics between Tier 1 and Tier 3 customer behavior, particularly on the software side?

A:Tier 1 software was impacted by timing of renewals, but there is high confidence in achieving these renewals in the second half. Tier 3 has shown strong performance in both software and services despite funding challenges.

Q:Can you provide details on the new AI MIDD platform and its potential impact?

A:The platform aims to unite various software solutions into one, optimizing drug development decisions. It is not expected to delay current customer demand and will be launched over the next year, with the first part available in Q4.

Q:Are product launches sufficient to drive organic growth, or is a better macro environment needed?

A:Product launches are expected to drive growth without relying on a better macro environment. The company is positioned well due to technology maturity, industry acceptance, and regulatory support.

Q:What is the significance of the EMA qualification for Simcyp?

A:The EMA qualification prequalifies Simcyp, reducing time and uncertainty in drug applications. It signifies regulatory confidence and ensures consistent results during the review process.

Q:What are the early framing thoughts on 2026 growth considering potential headwinds and regulatory pushes?

A:Growth is expected to be driven by R&D investments and product launches, independent of market recovery. The company is focused on expanding its product suite and leveraging regulatory acceptance.

Q:How does Certara aim to get regulators comfortable with incorporating AI into MIDD?

A:Certara focuses on explainability, ensuring models are transparent and backed by data. AI is used to improve the efficiency of creating models without compromising their explainability.

Q:What is the expected impact of FDA's push for non-animal testing on Certara's business?

A:The FDA's push has increased interest in QSP and Simcyp, with 50% of new licenses tied to non-animal testing. The impact is expected to grow as the market gains confidence in the FDA's guidance.

Q:What caused the decline in Tier 1 software bookings, and what is the profitability of QSP?

A:The decline was due to the timing of renewals, with high confidence in achieving them in the second half. QSP, currently a services business, has a typical services profitability profile.

Q:What are the signs of clients adopting NAMs, and how does Certara's software fit into this?

A:Clients often start with services and move to software as confidence grows. NAMs adoption is driven by FDA guidance, with companies exploring modeling to reduce animal testing.

Q:How does the FDA's guidance on non-animal testing influence the use of Simcyp?

A:Simcyp is used in parallel with animal testing to provide better data for drug development. The FDA's guidance has encouraged more companies to adopt modeling, benefiting Certara's business.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific profitability of QSP software versus services and provided limited details on the exact timeline for broader adoption of NAMs by the industry.

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Earnings Word Cloud

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