Certara, Inc. (CERT) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong demand across software bookings, successful partnerships like NVIDIA and Altasciences, and strategic focus on AI and large molecule markets. Despite some execution challenges, the company is addressing them with expert engagement and a disciplined approach to AI investments. The capital from divestiture for share buybacks and M&A opportunities, combined with expected revenue support from backlog conversion, suggests positive stock movement. The market cap indicates moderate sensitivity, aligning with a positive sentiment.
Key Financial Performance
Total Revenue $106.9 million for Q1 2026, representing a year-over-year growth of 1%. The growth was driven by improved performance in MIDD and software revenue, but offset by mixed results in services.
Total Bookings $115.3 million for Q1 2026, a decline of 2% year-over-year. This decline was attributed to mixed performance in services and operational dynamics.
Software Revenue $49.7 million for Q1 2026, an increase of 7% year-over-year. Growth was driven by products like Simcyp, Phoenix, and Chemaxon.
Software Bookings $48.7 million for Q1 2026, an increase of 20% year-over-year. This growth reflects strong performance across all customer tiers.
Services Revenue $57.2 million for Q1 2026, a decrease of 4% year-over-year. The decline was due to mixed results in MIDD services and softness in regulatory services.
Services Bookings $66.6 million for Q1 2026, a decline of 14% year-over-year. This was attributed to softer performance from Tier 1 customers in MIDD services.
Total Operating Expenses $111.2 million for Q1 2026, an increase from $98.4 million in Q1 2025. The increase was primarily due to a $7.4 million rise in the change in fair value of contingent consideration related to the Vyasa acquisition.
Adjusted EBITDA $31.7 million for Q1 2026, a decrease from $34.8 million in Q1 2025. The adjusted EBITDA margin was 30%, reflecting operational challenges.
Net Loss $8.8 million for Q1 2026, compared to net income of $4.7 million in Q1 2025. This was impacted by nonrecurring items.
Adjusted Net Income $14.5 million for Q1 2026, compared to $22.2 million in Q1 2025. The decline reflects operational and market challenges.
Cash and Cash Equivalents $149.5 million as of March 31, 2026. This reflects the company's liquidity position.
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Operating Highlights
AI Integrated Platform: Certara is building an AI integrated platform to complement its existing portfolio, enabling researchers to access Certara's full body of knowledge for complex questions. Investments and resources have been allocated, and lighthouse customers are engaged.
New Software Releases: Certara released new versions of D360, Pinnacle 21, Phoenix Cloud, and Simcyp, enhancing functionalities like therapeutic peptide design, clinical study start-up, and virtual bioequivalence capabilities.
AI in Drug Development: The market is seeing increased investment in AI-driven drug discovery, with over 200 AI-designed molecules in clinical development. Companies like Eli Lilly, Roche Genentech, and Amazon are advancing AI initiatives, aligning with Certara's focus on AI-enabled drug development.
Strategic Collaborations: Certara entered into a strategic collaboration with NVIDIA to enhance its next-generation platform and partnered with Altasciences to accelerate early drug development.
Divestiture of Medical Writing Business: Certara divested its regulatory and medical writing business to Veristat, sharpening its focus on core areas and unlocking incremental growth potential.
Reorganization into Two Groups: Certara reorganized into two groups: MID3 (MIDD and Discovery) and ACE (Accelerated Clinical Evidence), aligning technology and services for better customer engagement.
Operational Efficiency Initiatives: Certara is optimizing pricing, leveraging AI for targeting opportunities, and rationalizing internal spend to improve execution and efficiency.
Focus on AI Leadership: Certara appointed a Chief AI Officer to drive AI innovation and accelerate the development of its next-generation platform.
Portfolio Expansion: Certara is exploring new use cases like clinical trial simulation and asset evaluation to leverage its clinical intelligence capabilities.
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Risk or Challenges
First Quarter Performance: The first quarter performance was in line with expectations but did not reflect the company's full potential. Mixed results in MIDD services and softness in regulatory services were noted, indicating operational and commercial challenges.
Divestiture of Regulatory and Medical Writing Business: The company divested its regulatory and medical writing business to focus on areas with competitive and scientific advantages. This move aims to improve revenue predictability and unlock incremental growth but may pose transitional challenges.
Reorganization and Operational Changes: Certara is reorganizing into two growth areas (MID3 and ACE) and aligning sales and marketing to improve execution and efficiency. These changes aim to address operational gaps but may involve risks related to execution and cultural shifts.
AI Integration and Platform Development: The company is investing in an AI-integrated platform and has appointed a Chief AI Officer. While this presents growth opportunities, it also involves risks related to execution, resource allocation, and market adoption.
Partnerships and Collaborations: Certara has entered into partnerships with NVIDIA and Altasciences to enhance its technology and expand its customer base. However, the success of these collaborations depends on effective execution and alignment of goals.
Services Revenue Decline: Services revenue declined by 4% year-over-year in the first quarter, with mixed results in MIDD services and softness in regulatory services, highlighting challenges in maintaining consistent performance.
Cost and Efficiency Measures: The company is rationalizing internal spend and optimizing pricing to improve cost efficiency. These measures may face challenges in implementation and achieving desired outcomes.
Economic and Market Conditions: The company noted a strong capital-raising environment through April but faces uncertainties in Tier 2 and 3 end markets, which could impact services growth.
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Guidance & Outlook
Revenue Guidance: Certara expects 2026 reported full-year revenue to be in the range of $395 million to $405 million, reflecting full-year growth of 0% to 4%, excluding the divested business. First-half revenue growth is expected to be closer to the low end of the range, while the second half is expected to be at or above the high end of the range.
Software Growth: Full-year software growth is anticipated to be at or above the high end of the 0% to 4% range, with first-half growth closer to the midpoint and second-half growth above the high end of the range.
Services Growth: Full-year services growth is expected to be towards the low end of the 0% to 4% range, with first-half growth at or below the low end and improving to the high end during the second half of the year.
Adjusted EBITDA Margin: The full-year 2026 adjusted EBITDA margin is expected to be in the 30% to 32% range. First-half margins will be modestly below this range, while second-half margins will be closer to the higher end of the range.
Adjusted EPS: Adjusted EPS for the full year is expected to be in the range of $0.35 to $0.41 per share.
Market Trends and Demand: Certara anticipates increased demand for its core business, Model-informed drug development (MIDD), driven by the expansion of AI-driven drug development and regulatory initiatives such as the FDA's real-time clinical trials and ICH M15 guidance.
Strategic Focus Areas: Certara is reorganizing into two growth areas: MIDD and Accelerated Clinical Evidence (ACE). The company is also focusing on AI integration, partnerships (e.g., NVIDIA), and new use cases like clinical trial simulation and asset evaluation.
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Shareholder Return Plan
Share Repurchase Program: Last year, our Board authorized a $100 million share repurchase program. We have repurchased approximately $82.6 million of stock since that authorization, including $40 million during the first quarter of 2026.
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Key Q&A
Q:What is the opportunity and monetization strategy for the next-generation AI platform being developed?
A:The platform aims to unify many products and know-how under a single environment, allowing for unique business models. It is not expected to impact near-term modeling, with more guidance to be provided towards the end of the year for 2027 and beyond.
Q:Where is the strongest demand in software bookings this quarter?
A:Software bookings were strong across the board, with Phoenix Cloud and Simcyp performing well. Pinnacle slightly outperformed expectations despite being slower than in past years.
Q:What trends are observed in new customer mix year-to-date?
A:There was significant acceleration in bookings across all customer tiers. Tier 3 and Tier 2 customers leaned into Phoenix and Chemaxon, while Tier 1 customers had strong performance in Simcyp.
Q:What is the structure and expected impact of the NVIDIA collaboration?
A:The NVIDIA partnership focuses on scaling execution speed for complex simulations and democratizing usage. Details on product development and operational efficiencies will be shared later.
Q:How is the company addressing consistency and stability between software and services segments?
A:The company is exiting the regulatory and medical writing business to reduce lumpiness and improve predictability. They are aligning sales teams and creating incentives to balance growth between software and services.
Q:What is the timeline for services bookings to impact revenue?
A:Services bookings take a couple of quarters to pull through. Backlog conversion has been strong and is expected to support revenue achievement, especially in the back half of the year.
Q:What caused execution and go-to-market challenges in the first quarter?
A:Challenges stemmed from legacy models and organizational changes. The company is focusing on expert-to-expert engagement, partnerships, and targeting Tier 1 and Tier 2 clients to improve consistency.
Q:What progress has been made in addressing the large molecule market with software platforms?
A:The company is extending applications like Simcyp and QSP into the large molecule space, with strong growth observed. Specific data points will be provided in future discussions.
Q:How is the company balancing AI investments with ensuring appropriate returns?
A:The company is taking a disciplined approach by evaluating business cases and expected revenue timelines. Investments are focused on leveraging existing capabilities and unique data.
Q:What are the plans for capital raised from the recent divestiture?
A:Capital will be allocated to share buybacks and evaluating tuck-in M&A opportunities.
Q:What are the new MID3 and ACE categories, and what do they include?
A:MID3 includes model-informed drug development and discovery applications like Simcyp and Certara IQ. ACE focuses on solving data problems with products like Phoenix, Pinnacle, CoAuthor, and GlobalSubmit.
Q:How will the go-to-market strategy evolve with the new categories?
A:The strategy involves aligning sales teams with portfolio teams for better accountability and feedback. This is expected to drive long-term growth and consistency.
Q:What is the visibility for software business growth in the second half of the year?
A:Deferred revenue balances provide better visibility, with growth rates expected to increase due to easier comps in the second half. Tier 2 and Tier 3 customers are expected to contribute significantly.
Q:How is the company reallocating resources for AI initiatives?
A:Resources are being reallocated through cost avoidance and productivity improvements, with a focus on accelerating roadmaps and capabilities.
Q:What is the Altasciences partnership, and what does it involve?
A:The partnership aims to integrate modeling capabilities with Altasciences' lab and CDMO capabilities to accelerate trials and improve data workflows. Details on joint opportunities and integration will be developed.
Q:What are common upsell opportunities in the software business?
A:Upsells include expanding seats, adding functionality, and introducing new logos. The company is also exploring enterprise-based pricing to encourage broader software adoption.
Q:What is the goal of partnerships like NVIDIA and Altasciences?
A:Partnerships aim to accelerate market adoption, create a wider moat, and integrate complementary capabilities to benefit clients and drive growth.
Q:What is the risk of large pharma building competing solutions in AI and clinical spaces?
A:The company believes its unique capabilities, data, and regulatory know-how create a strong moat, making it inefficient for large pharma to replicate. Partnerships and democratization of capabilities are key strategies.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the NVIDIA collaboration's product development and operational efficiencies, as well as quantifying the impact of AI investments and large molecule market penetration. They also did not provide exact data points for biologics progress or the percentage of business growth in that area.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
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Altasciences
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CERT Transcript
Certara, Inc. (CERT) Q1 2026 Earnings Call Transcript
Positive5-11
The earnings call indicates strong demand across software bookings, successful partnerships like NVIDIA and Altasciences, and strategic focus on AI and large molecule markets. Despite some execution challenges, the company is addressing them with expert engagement and a disciplined approach to AI investments. The capital from divestiture for share buybacks and M&A opportunities, combined with expected revenue support from backlog conversion, suggests positive stock movement. The market cap indicates moderate sensitivity, aligning with a positive sentiment.
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Frequently Asked Questions
Where does this earnings call transcript come from?
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