Certara Aktie

All right, folks. Thanks for joining us. Dave Windley with Jefferies Healthcare Equity Research. We're here at Jefferies 2026 Global Healthcare Conference. And on the Wednesday afternoon, glad to be joined by Certara and the team's Johns. Jon Resnick newly joined -- recently joined CEO; and John Gallagher, the company's CFO. So, thanks very much for being here. Glad to see you and great to have you.

Jon Resnick, I wanted to start us off with a question on the realignment of the company, which I thought was interesting and maybe intuitive for a guy like me after the fact, but I might not have thought of it myself. So, talk about your MID3 and your ACE, I think you're calling it, realignment of the segments and what implications that has.

Okay. Well, thank you, Dave, for having us here today. It's great to be with you. So organizationally, we did announce some changes. It's been a pretty active first few months within Certara. I started January 1. We've been very focused strategically on how we set ourselves up for broader growth opportunities. So, I spent a lot of time talking to customers around what's on top of their minds to regulators in terms of trends and growth trajectory and then did a fair amount of work with our internal teams trying to understand where some of the distinctive opportunities exist. So, in essence, our mission within the company is to disrupt clinical trials or transform clinical trials, clinical development for good.

And so, what we wanted to set up around was kind of these 2 kind of strategic growth engines that would provide a fair amount of runway to get going. So, the first one is ACE. ACE is around accelerating clinical evidence. And if we look at both the EMA and the FDA, and we look very squarely at what our clients are struggling with, it's how do they manage data from protocol to submission, how do they improve efficiency, how can they unlock data quicker with our Phoenix and our Pinnacle assets and CoAuthor and Global Summit.

We have a range of things that are already there in play. We're looking at a range of other transformative things that can help accelerate it. MID3 is a thing that we're probably best known for, which is model-informed drug development. And through this, we call out discovery as well, which is an area where we've made significant investment, and we think of an opportunity for growth. To simplify MID3 is really around kind of transforming the way clinical development is done. It's moving away from traditional approaches and using computational biology and biosimulation to accelerate the rate and pace of execution.

So, on the -- maybe you could help distinguish for me because for the time that I've known the company, Phoenix and Simcyp get talked about as pretty close brothers or sisters. But you're calling Phoenix more of an evidence asset and not a modeling asset. Maybe distinguish for me.

Yes. It's a well-studied question. So, Phoenix actually has 2 components to it. It's got a piece which is a computational engine, which is very tied to kind of PBPK analysis. I'm sorry, PK/PD analysis, PopPK, which is a computational engine. It also has a broader application suite, which has more to do with data management and computational mechanics. So, it actually plays both those apps. So, we are going to be linking the PopPK scientists and those teams more directly with one application, but the bulk of the Phoenix customers will be working through the data management side.

Got it. Okay.

But from a client standpoint, look, these are 2 growth engines for us. We also have taken steps to ensure that if you're a smaller company or a mid-sized company, you are looking more broadly to transform. These aren't 2 independent [threads]. These are 2 engagement paths, but we can look holistically and.

So, it wasn't that far off. It does have a leg in [indiscernible] it sounds like.

Both, it sounds like. Yes, there's 2 distinct applications.

Right. Okay. And then from an alignment standpoint, maybe we could drill into this a little bit on kind of an operational vector and a sales vector. So, operationally first, does much change in terms of -- you've aligned these businesses into these 2 categories? How much operationally changes as a result?

There's -- look, historically, this has been spread out among a number of different groups. But my biggest objective and goal was creating clarity, strategic growth and accountability. So, this should dramatically simplify our operations over time. There's some realignment of our go-to-market teams so that there could be more specialty-led engagement. There should be more subject matter expert or scientist engagement directly with our clients who are looking for that type of engagement as opposed to general engagement.

And from an operating flow standpoint, there should be a range of kinds of simplification. We're going directly to the businesses to talk about everything from sales execution to thought leadership and innovation to delivery execution. So, there's much more clarity in front. There's a little bit of change, a little bit of shift that happens any time you move an organization around, and that creates a little bit of dust, but we're certainly focused on how can we drive midterm significant growth in this business, and this should position us better for that.

And we view it -- just to add on to that, too, we view it as an opportunity to unify some of our disparate operations. So, we were able to take this as a chance to unify, which is also sort of the backbone of some of the operating metrics that we've been looking at that are going to help drive growth for the organization as we look toward the second half of this year.

Got it. Okay. I'm going to hold that and I'm going to place a hold on that. John, I may come back to that. On the sales alignment, Jon Resnick, you touched on this. Maybe let's drill in on that a little bit more and help us to understand in your efforts, the goal to stimulate midterm growth, do you think of that as new logos, new users within current accounts? -- same people, but using more products. This is kind of an esoteric space for a lot of us, and we don't understand exactly how biosimulation works and who does it. So, help us understand how you get more people to use your products.

Yes. It's a thread of a question. You've asked me a couple of times. Yes, yes, yes. So, look, there's a $230 billion addressable clinical trial market. It's a massive number. And if we think about the way clinical programs have been run, it hasn't fundamentally changed that much over the decades. We see huge tailwinds coming from regulators in terms of their openness to new approaches. We've seen things like drug-to-drug interaction and kind of dosing optimization become pretty standard in the pack for biosimulation.

We see significant opportunities to expand beyond things like drug-to-drug interaction and move into pediatrics and pregnancy and lactation and organ impairment, et cetera. There's lots of new applications that regulators are certainly open to, and we're partnering with regulators around shaping. To your specific question about how do we drive this? I think one of the key things here is going to be scientific to scientific engagement. When we lose, we don't necessarily lose to competitors. We don't necessarily lose on price. We lose because our clients opt to do traditional approaches.

So, for us, this highest single indicator of success is can I get our -- or can we get, I should say, our scientists out directly engaged with the decision-makers across different companies. And through our realignment, can we have those strategic conversations in a way in which the client brings the problem, and I'll take the MID3 example. We now have our PopPK teams, our QSP teams and our PBPK, all of our initials in one spot and our technology in one spot where we can say, look, there are multiple ways to help you.

So, we believe that it should lead to new use cases. We believe that it should eventually lead to handoffs within our organization to bring new offerings within those new logos and new opportunities as we continue to drive regulatory innovation.

And so practically speaking, does that show up as you put these scientists together in a room and a client clinical pharmacologist has an aha moment that they've known Simcyp and they're using Simcyp. But if I staple on that's kind of my layman's terms, but if I staple on something QSP or if I use your QSP consulting, that complements what I was already doing? I'm trying to bring to life how these conversations evolve.

Yes. So, depending on the product, depending on the therapeutic area, depending on the situation they're facing, their needs may change. And where our scientists were distributed throughout the organization, they had different kinds of go-to-market cycles. This will allow us to go in and engage directly in what's the challenges you're facing as you move forward. The problem might be a PBPK problem. It might be something that's more of a PopPK question or a QSP question.

There are different disciplines that now working together will be able to drive it. We're also, from an incentive standpoint, removed the barriers, which would keep the technology working independently and the services independently. And then we're now playing too much more of a flywheel effect where the scientists and the technologists will be working together hand in hand. So yes, it's going to be a client, what is your #1 challenge and then how do we bring the best of Certara to ensure that we provide you, whether it's a technology product or a service product or a different model, the best answer to meet your challenge.

John Gallagher, coming back to you as promised, you talked on the call about cost avoidance, cost outs or cost avoidance. And you mentioned a minute ago, these unifying disparate operations, which sound like those things could intersect. Can you elaborate on that a little bit?

Yes. One of the important things we want to do is keep the investment in R&D that we've talked about, and you saw show up in our Q1 expense numbers intact while we simultaneously get some cost out of the organization. So, to your point, Dave, we continue to go after about $10 million of cost out, and we believe that we can make the investment in R&D and take that cost out, mainly through some of the efforts that we're trying to find efficiencies in the organization that might be in the cost of sales, certainly in G&A. We've looked at sales and marketing. We've certainly had a lot of spend increase in sales and marketing over the last few years. And we see that more growing at the rate of sales at this point.

So, there is opportunity as we look at operating efficiencies and we look at commercial go-to-market and execution changes, what comes with that is some unification of some of the back-office functions.

Okay. Let's talk about AI a little bit. So, it's a big question. It's a kind of existential threat concern in investors' minds for some at least. It seems to me that through the consortia that you work with the history of the company, you have some access to and ownership of some pretty deep and valuable data assets that are supposedly the lifeblood for what AI needs to run on. How do you see Certara contributing to benefiting from operating in this kind of post-AI new world?

So, I think firstly, we agree with you. In terms of -- look, the frontier models are going to be excellent in terms of creating reasoning and logic. There is a whole lot of work that needs to be done within the vertical stack around the actual last mile of execution. And Certara's capabilities, data in part, but also 2-sided market penetration, workflow embeddedness, thousands of publications that we've done over time, domain expertise, the ability to make the connection between the scientists and experts all provide a very unique position to help reinforce that vertical stack.

So, we're incredibly focused on not only enhancing things that we have today, existing products that we have in terms of creating new modules and accelerating what we do to embed AI capabilities, but also thinking more broadly about native AI products and how we play into this kind of frontier ecosystem, whether it's through unification of our core products or through identification and APIs into broader work, we believe that there's a range of options open to us, and we're strategically pursuing a few of them.

Okay. You hit there at the end on where I wanted to go next, which is more specifically how AI kind of infiltrates your business model. We had a conversation with quantitative sciences person at a pharma not too long ago that really offered that using AI to, say, replicate a Simcyp didn't make a lot of sense. And instead, AI to perhaps organize the data or visualize the data on the back end, the output on the back end was more likely to be valued added to what existed. I guess does that comport with how you think about the world? Where does AI add quick value, I guess, I'll call it.

Yes. It's definitely consistent with the way we're looking at things. I think in the last earnings call, I told the story of Simcyp certification with the EMA. It was a 2-year journey. It's not only getting approval or certification through the EMA, you actually have to work with 25 member countries. You had to walk through 20 years of history. So, the execution model attached to it is not easily attainable. There's an awful lot of work.

So, I agree with that individual's assessment that it would be tough to replicate, and I think it would be inefficient for anyone to replicate. I think where we're focused and where clients are asking us to go is how do we take that know-how on the regulatory end of things and help to leverage that and unify it into other things that we're doing to help inform other decision-making at other decision points along that chain. So, how do we take the know-how that we have at the point of regulatory submission and inject that earlier and earlier into the life cycle so that we can help optimize the assets that are being developed.

Got it. You also touched on one of yours -- in your prior answer about identifying product areas. So, one of the early ones the company acquired, by Vyasa brought in some AI capabilities, I think quickly developed CoAuthor, which that's something I can actually -- I think most of us can wrap our heads around like I can take -- I can ask AI to write me a document or write me the draft of the document. That one I can understand. What other product area -- so kind of up, ground-up product creation with AI do you anticipate or are you looking at?

Yes. And that's going to become a harder and harder question to answer because it's very difficult to increasingly delineate between products that have kind of -- that don't have -- that have and don't have AI capability because it's being injected into everything that we do. So, to answer your question around kind of native AI products, we have Certara IQ, which we've talked about a lot, which is in the QSP space.

We have CODEx, which is a data component that we're using. We have D360, which is being replatformed. We have some cloud-based initiatives that are kind of native AI. Our existing products have -- like most software organizations, we've completely rethought the way we're building and engineering products. We've got huge acceleration in our roadmaps and huge acceleration in our software development.

So, Phoenix, as an example, has built a whole range of reporting capability, which is in our cloud version, which is AI-centric. So, increasingly, it's going to get harder and harder to pinpoint because it's being injected into everything we do. I think where you're going with it beyond is kind of the near term is also where does this go long term? And that's the existing play. The Vyasa play has been -- acquisition has been incredibly good in creating that entrepreneurial kind of AI-first mindset within the organization. We have asked him and we formally announced that Dr. Chris Bouton named the Chief AI Officer in the last earnings call. His mandate is not only to kind of transform the organization around kind of the AI native approach and more of this agile entrepreneurship, but also to work on what is kind of the biggest initiative we have, which is this kind of unifying asset that will allow our software products and our technology products to communicate with each other at the data layer more holistically.

So, tangible example, I mentioned Simcyp before. Simcyp, which has this regulatory kind of grade power for submissions, how do we get earlier indications into discovery? So, how you're making gate decisions whether to fund a product or not fund a product, do we get inputs from the PBPK analysis into things like Chemaxon? So, Chris is heading up an initiative that will be -- what's looking specifically at how do you optimize and unify across the data layer of our underlying technology products.

Interesting. Okay. Let's move into more typical questions on demand. How would you characterize what you're seeing from customers in the market and perhaps if they're different across tiers, highlight that?

Yes. I mean, look, the overall end markets are in good shape, right? The biotech funding environment with the exception of a little blip we saw yesterday has been positive. So, that's a tailwind. The overall spent environment by big pharma, we think, is also in a good spot. We have seen volatility in our results, right? We have -- we've seen software down in Q4, up in Q1 and vice versa with services.

So, the look-through on that is really to focus on TTM -- so you have got to look at trailing 12 months bookings, and that gives you a better sense of where are we seeing stabilization and where would we expect to see some acceleration. On the acceleration side, of course, through our Q1 results, we saw an increase in TTM software, and you saw that show up also on the revenue line with a 7% revenue growth in software in Q1, which was above our expectations and now has us thinking that the plan for the year is a bit better in software, as we said on the Q1 call.

On services, on the other hand, when you look at the TTM bookings on services, even though there's been a lot of volatility when Q4 way up Q1 was down. The look-through on that is low single digits. And we said that there'd be some choppiness in the first half of the year on services. And the way that we look at the plan right now, it continues to be playing out in line with our expectations.

Okay. Jon Resnick on the -- so you focused on the sales force instead of having one overarching sales force, you're pushing sales into the 2 segments that we talked about earlier. What indicators are you looking at to show that, that change is driving traction short of the bookings that you're going to tell us? And are you seeing movement in those indicators?

Yes. So, there's 2 metrics that I have the team predominantly focused on. One is ARR on software, which will be a much better predictor, which is something we are working on as a team to be able to provide externally as kind of a future indicator of where we are. So, I've got a team focused on new software and new software sales. We've changed the incentive structure to reinforce this. And we're -- Q1 obviously was a super strong result on that side of things. We have continued momentum on that side. So, that's been -- not beneficial, and we have [rallying cries] daily, weekly around that metric with internal targets around where we'd like to be by the end of the year.

On the services side, our focus is going back to a little bit of basics around kind of opportunity generation and pipeline generation. So, we've flipped it around, both broke the disincentives for teams across teams to work together. And secondly, have put a handful of programs in place to get the scientific teams back into market and directly engaging with subject matter experts from peer-to-peer level.

My dominant focus on that right now is pipeline generation opportunity assessment, which is where -- not a metric that we provide externally, but we're extremely pleased with what we've seen over the last 6 weeks since we started to roll that out. That won't be an immediate result. That's not a Q2 impact going back to opportunity generation, but it's the kind of thing that will lead to long-term sustained growth, and we'll maintain our focus on that side of things.

On the call -- on this last topic, on the call, you, I think, highlighted in general terms, some execution challenges that led to softer services bookings in 1Q. Can you describe what those were, what you've alleviated?

I can. And we're still -- these things don't get done overnight. They're cultural. And I kind of joke, it's always difficult. It's always easy to come into a company and to kind of point out things that have changed that you would have done differently. Look, I think kind of akin to what you said before, which is we broke unintentionally a lot of that peer-to-peer engagement from scientists to scientists, what leads to that innovation, what leads to that growth.

We launched a commercial model and kind of shifted commercial function and shifted responsibility for sales to that function alone. So, you had a sales side, a demand generation and a delivery side. I've been around here for a few decades now and have seen that model doesn't work long-term. So, what we've done is we've asked the business leaders, again, to get directly involved in opportunity generation, have equal accountability to the commercial team for that generation. We've got the scientists directly involved and are increasingly rolling out models that incentivize and encourage them to talk to clients and to work directly with their peers and folks they got their PhDs with and folks they see at conferences, which will help to kind of neutralize that. And also, some of the incentive programs themselves, we're making sure that those are market standard and reward the behaviors that we want to see.

And to get in front of your next question, the stuff doesn't happen in a day or a week. It takes a couple of quarters to burn through, but we're really happy with what we're seeing so far.

Good. Fantastic. Let's -- topically, let's move to kind of molecular modality as opposed to small molecules, large molecule pipeline is clearly moving toward large molecules. There's a bunch of biosimilar launches coming out as well. How do you view the product portfolio as positioned as the pipeline shifts to a more dominant large molecule environment?

So, you asked this to me in the last call, and I didn't have my answer, so I'm ready if you're interested.

Excellent.

So, look, I think the historical perception that Certara is a small molecule, I think, is less relevant today. These aren't -- it's hard to kind of pull apart definitively. But roughly speaking, about 60% of our business is small molecule, about 40% is large molecule. We have a range of products which are pretty agnostic to small or large, the Phoenixes and the Pinnacles and that suite of things is completely independent.

Simcyp, which historically, you think of as a small molecule is probably 30% large molecule today, 70% small molecule, things like QSP, which is something we've talked a lot about as a new emerging regulatory area and scientific discipline is almost exclusively, if not exclusively, a biologic area. Things like D360 and Chemaxon also have had a lot of innovation and have now certainly much more large molecule focused. The change in things like monoclonal antibodies and ADCs also has opened up a biologic is not a biologic. So, there's clear opportunities for us to execute and change modules and already have built functionality to address some of that in peptides, nucleotides.

Got it. Super. In terms of regulatory environment, guidance in March, FDA, guidance in March is encouraging faster biosimilar development through a number of mechanisms, including analytical modeling approaches that seem like they point in your direction. Are you seeing any engagement around that?

We are. Look, since I joined, announcement after announcement literally plays into Certara's strength, right? Whether they're industry setting bodies, EMA, FDA announcement after announcement is really encouraging and incentivizing increased adoption of these mechanisms. What we've noted over the last couple of months and years as the regulatory stance becomes clear is the frequency and the volume of inbound requests. There's always a little bit of a lag between inbound requests and people changing the way that their doing studies that they've always done. We outlined a little earlier all the areas from NAMs to pregnancy to pediatric where we see incremental opportunities.

We think as you move forward, the demand for this is only going to increase. I think us getting our scientists back in front of customers and kind of leading that direct peer-to-peer engagement is going to be critical in faster adoption as well as direct continued leadership and engagement with regulatory bodies.

I'm going to wrap it here. Coming back to you, John, Gallagher on operating costs. We touched on this a little bit. You started that answer with which we want to keep our R&D budget R&D commitment in place. I think we [sized] that at about 10% to 11% of sales now. Is that -- should we think of that as a percent of sales type commitment? And is that the right range to think about?

Yes. That range is in the right spot because if you think about it, yes, we're putting investment there, but we're also finding efficiencies. We talked about AI. AI can be used within our teams, not only within the R&D team, but in the finance team, the HR team, the IT team. So, we do believe we can find some productivity using AI tools ourselves as a partial offset to some of the investment that we've been putting into the R&D line item. So, I think what you described as 10% or 11% of sales is a good placeholder when we look at this year.

Okay. And then conceptually, Jon Resnick, the -- I mean, innovation for Certara has come through both R&D investment but also acquisition of capabilities. Certara has been pretty acquisitive. Is that a path that we should expect to continue?

That's not the near-term priority. The near-term priority is around getting the organic investment clean. I mean, I think as John noted, we've seen significant increase in our investment over the last couple of years. The question I had coming in here is what is the return. So, we've put a lot more discipline into the process, and we expect to get a lot more return. I've outlined a number of those concepts. There are a range of other ideas we haven't got into today are things that we're moving forward.

So, we think there's plenty of organic space to run. If something made sense, which was an opportunity to accelerate a near-adjacent market or to do something, we wouldn't not do it, but it's not the priority. The priority is getting our team cranking and as much return as we can possibly off the investments we already have.

Excellent. That brings us to time. Thanks to the audience for your attention and attendance of the conference, and I hope you have a good rest of the conference.

Thank you, David.

Thanks for joining us. My name is Ryan Halsted. I am the health care technology and distribution analyst with RBC's healthcare research team, and we have Certara up next. And I am pleased to be joined by Jon Resnik, CEO; and John Gallagher, CFO. Certara is a tech-enabled drug development company. So welcome.

Thank you, Ryan. Nice to be here. Thank you for the invite.

So John, I wanted to start with you. You've been in the CEO seat now for 5 months. And just wanted to get some perspectives from you on -- about the company since you joined, anything that surprised you or anything that's changed?

It really only been 5 months. So I don't know if anything surprised me per se. I think there are some areas where maybe I underestimated just how strong of a franchise it was. I mean, specifically around kind of scientific leadership, the deep kind of regulatory expertise, methodological leadership, the closeness between the relationship, between the companies and the work that they do with regulators. I knew that was a core part of the value proposition, but it's really truly in the DNA.

Maybe the second area, and maybe this is a little bit of a surprise is around the portfolio itself. But there are a number of things that the company is known for, a number of kind of market-leading assets. But as you dig a little bit deeper within the company, there is just this absolute set of jewels that exist built on the deep expertise that's been accumulated over the last few decades and the kind of unrivaled suite of capabilities. There are all of these opportunities to deploy our expertise in different ways with a little bit of nurture, a little bit of product development and a little bit of evolution. There's no shortage of areas to go.

Well, maybe following along with your background and joining Certara, I noted, come from a large CRO with experience with real-world evidence technology and integrating that within clinical research. Just curious, how are you kind of leveraging that experience and knowledge and expertise at Certara and bringing that to its opportunity set?

Yes. I spent over 2 decades at one of the larger CROs, had a range of roles over time. I think the real-world one is an interesting one. I think it's pretty intuitive for you to pick up on that.

On its face, trading and running a business on real-world evidence versus a business more in the model informed discovery and drug development space seemingly different. The similarities in the analogs between the 2 are pretty remarkable.

I ran the real-world business early 2010s. And I think the state of maturity, I'd say, both from a regulatory framework standpoint, regulatory acceptance from a technology standpoint and a democratization standpoint were a pretty similar situations.

Real world in the 2010s was a very new concept that was -- had a ton of promise. Regulators are asking a lot of questions about how they could get -- how they could deploy it more frequently and more accurately to save clinical trial expenditures to prove up to make trials smarter.

And the MIDD, MID 3 world is very similar. It's this unbelievable set of computational and biosimulation capabilities. And the regulatory frameworks and the regulatory agencies themselves are just catching up with the range of things that can be done.

The second thing, when I picked up the real-world business 15-plus years ago, it was a very isolated science that had very specific groups, epidemiology, biostat health economics, ups researchers, very specific groups that worked on it. And the value that was untapped over the course of a long period of time was kind of democratizing those capabilities in a different way and allowing the commercial teams and the early discovery teams and the clinical trial teams to take advantage of the full depth and breadth of real-world evidence within life sciences.

And I see the MIDD story is a very similar one, which is today, is a core power science used by a handful of pharmacoeconomics groups and PBPK groups and groups who are highly specialized. But the power of what the platform creates really can be democratized and it can be used early in discovery to make good decisions. It can be used in clinical trials to make good inclusion, exclusion decisions and there are a range of other applications. I see a ton of similarities in building off the set of experiences from that time.

That's great. Hopefully, we'll get -- gain some more insights on the regulatory pathway as we look further out kind of adoption and acceptance of that technology. Maybe transitioning to AI in drug discovery. Certainly, I think there's an appreciation of the opportunities there, but also there's a perceived threat of disruption that has passed a pall on many stocks that touch on this arena. But just curious, how are you thinking about Certara's competitive position against these new emerging AI technologies that may or may not be disruptive?

That's -- okay, where to start on this topic. So first of all, I'd say, look, we view AI as a huge enabler for the business across the board. This is something 3 and 5 years, 3 years from now, we will be known as a market leader in the space, and it will accelerate everything that we are doing.

The raw -- first of all, from an underlying fundamental standpoint, most of the money that's going in today is going in a little bit deeper into discovery, which is going to drive more compounds to market, which is going to help to accelerate the frequency and the volume by which MIDD itself will be demanded.

And as we think going forward about the opportunities that exist for us, we've got this long legacy, literally decades of working on successful products, hundreds of products that have included -- that have worked with Certara and have informed their label. We've got thousands of scientific publications, hundreds of PhDs that work within the company. We've got some of the leading software products in the world that are fully embedded.

And if you think about those core enablers, that's really a capability that we've created over time. That's one to build off in the AI space. It embeds us within workflows. We're working on billions of kind of data transactions. We have computational knowledge and kind of scientific depth of application that is second to none. You have this relationship between the technology, which is in the day-to-day workflow, not only of our clients and regulators, but also in us, in what we do.

So you have this kind of expert in the loop. All of that creates this amazing foundation to take the next step with this, which is to identify a bunch of the workflow that exists to help build new applications, to help create a powered future, which will do exactly what we were talking about earlier, which is kind of democratize the use across the full life cycle, accelerate the insights, power the way that this type of research can get done.

That's great. You mentioned AI, you think could have the impact of generating more new drug candidates and faster. That's certainly a conversation that I've been having with investors recently, this idea that could be seeing a much greater influx of clinical drug development and a pipeline of new candidates. Just curious, following up on that comment, where do you think we are? And what inning do you think we are in terms of AI and drug discovery that's going to drive volume?

Super early innings. I mean I think we're just scratching the surface for what can be deployed. You've seen an exponential increase over the last few years, but we're still doing super, super early days on this.

Look, as I said before, I'm encouraged. Most of the big press releases that are out there today are around kind of product identification and product early-stage discovery components, which to me will just accelerate the market. The more products that are developed, the more opportunity there is for us to bring kind of our domain expertise and knowledge around the way products computationally work in humans.

So we're super early in this. We're going to see explosion over the next 5 to 10 years. And as I said, it's going to be a huge accelerant for core MIDD, which is a perfect complement to a lot of the investments that's going on today.

Right. And maybe on the -- your investments in AI, I think you mentioned on your last call, investing in the next-generation platform. Can you talk about some of those strategic initiatives in terms of those investments? And how are you measuring success? Or how are you going to measure success?

Yes. I mean I think we're already investing. So it's not -- we're already adding AI functionality just like everything within our portfolio. In fact, the fastest-growing products within this quarter, our AI native products are very specific. So we're seeing huge acceleration.

We're working through the identification. A lot of our next-generation workflow, our QSP and PBPK road maps are loaded with this. We're already sitting in our clients' infrastructure and their workflow and our ability to kind of power them to do more quicker is core to what we do.

You mentioned the next-generation platform. I think what we see and what we've already kind of built and already actively engaging clients on is this opportunity to play the role. The big models will be fantastic at kind of creating foundations and no one is competing with the big model companies in terms of their ability to build out the general models. But the layer between, which is kind of this regulatory intelligence layer or what we're calling a clinical and scientific intelligence layer really needs someone with the deep expertise like a Certara.

I talked through the capabilities and the platform before, which creates a lot of distinctive capabilities. Just to give you kind of one example of why you need this kind of last mile and this AI infusion from this last mile. We have one product, Simcyp, which is a market leader in terms of helping to support label for things like drug-to-drug interaction, pediatric trials and increasingly in pregnancy and other things. It's the only product that's certified by regulators, we think, certainly in Europe and maybe in the world to do this type of task.

And if you think about the process to get this regulatory validated asset approved, it took 2 years. Not only did you have to get approved by the EMA, you had to get it approved by the 25 member countries as well. You had leading scientists out actively engaging. And this know-how is embedded into our workflow and increasingly will be into our kind of AI scientific and clinical discovery. It's a perfect complement to what exists out there in some of the structural models to bring that last mile into development and really make sure that regulated space gets the credibility, the validation, the transparency it needs.

Maybe just taking a step back, I wanted to touch on the broader customer demand landscape and environment. Would be curious what you're seeing in terms of just demand for either discovery or preclinical work more generally? And just any particular areas of strength that are worth highlighting amongst your customer segments or types of customers?

Yes. Look, I think overall, we see what others are reporting. We see market health. If I look at core things like funding, I look at biotech funding, I look at new trial starts, I look at -- we talked about some of the AI discovery and increasing kind of pipeline size, all those are really positive metrics that we track. I also look at regulator engagement.

And over the last few months, we've seen several regulator tailwinds from our standpoint, either pushing NAMs or accelerated clinical trial execution or clarifying some of the role for model-informed drug development. All of those are tailwinds as well.

So from a market standpoint, certainly, we see it after a couple of rough years over the last couple of years, certainly improving. And based on the volume of questions and engagements and inquiries we're getting from clients, we see robust market, which is just strengthening and increasing -- any time you do something that pushes regulatory boundaries or kind of changes -- that takes changes in current practice, it takes time. But the amount of questions we're getting about how to do things differently certainly incredibly encouraging demand signal.

That's great. Maybe before -- I wanted to get into the regulatory landscape in a second. But before we move on from this topic, just I think much has been made about the biotech funding environment. It's been pretty healthy. Companies able to access capital in various ways or realized exits that give other companies confidence and perhaps maybe spend.

How should investors think about how that funding can translate into your business spending in the areas that will drive your business from like a timing perspective? Is this something that is still a quarter -- a few quarters out in terms of trickling down into actual spend?

So historically, we've looked at that. So timing of positive funding and what the pull-through is on our customer tiers, especially Tier 2 and Tier 3 customers. And it generally takes about a quarter. By the time the funding -- so you see the funding environment get better, capital allocation decisions are happening inside of these biotechs. And of course, our commercial team is targeting those that are getting funding.

And now, as Jon was just saying, overall, it's a tailwind for our biotech customers, which will fall into that Tier 2 and Tier 3 category. We saw strong performance in Q1 in both of those categories in software. And we commented that there's some execution points that are going to help us on the services side and this overall market backdrop is going to be -- is going to aid that effort as well.

And the thing I'd add is that our business model itself is set up to be flexible based on the different segments. We have the ability to sell only software technology where clients are looking just to do the technology. We have the ability to sell technology with wraparound expert services, and we've realigned the business to ensure we fortified that. And then third, on the biotech side, where they won't have kind of large scientific teams and know-how, we have the integrated capability to run entire programs for them. So as that funding improves, those real full-service opportunities are very much what we're building towards.

Great. Okay. Well, I wanted to move on to the regulatory landscape. You mentioned wanting to see increased acceptance of things like NAMS. And obviously, there are some changes at the FDA, but I think we were talking a little bit about this earlier. I'd like to think that the FDA will continue to be a supporter of things like NAMS. So just wanted to get your thoughts. What are you looking for from the FDA in terms of that further support and acceptance of NAMS?

Yes. I think I've learned a long time not to kind of forecast regulatory agencies too much. It's a different -- it's certainly a difficult one to do. I don't see -- look, these are long-term trends. They make sense. As our computational capabilities, as our AI capabilities accelerate, our ability to understand the human body more and more, these are the right things to be building not only for -- there's a lot of drivers in NAMS, efficiency and speed and time and the time to market is a worldwide issue.

I know there's a lot today of U.S. positioning versus China. We've seen a lot of money moving to China. So there's lots of incentive for regulators in U.S. and Europe to accelerate time lines and speed to market. So I think these trends are somewhat immutable. The rate and pace at which they're accepted may vary from administration to administration and regulator to regulator, but I don't see the fundamental trend of accelerating. It just -- it makes too much sense.

I was talking to one of our toxicology leaders yesterday. I mean you see huge opportunity to do avoid a ton of bioequivalence trials and you do a lot of tox simulation. I mean there's just so many applications there as we push more into QSP and really mix in not only the understanding of the human biology, but real-world data and other things. It's just so much to know and there's so much inefficiency the way the trials are executed.

So I think the day-to-day kind of ups and downs of things are probably less relevant than the long-term trend, which will be to deploy these things more and more often.

Okay. Great. I think you set forth a goal of driving double-digit growth. So as you're thinking about the business plan for 2026, how should we think about the time frame to achieving the double-digit growth? And what are kind of the next key milestones to be on the lookout for?

Yes. So let me -- I'll do it strategically, and then I'll turn it to you, John, for some of the guidance on this. But look, we've taken -- in the first 100 days, we've done some pretty significant reorganization of the company. We set it up around 2 major growth hypothesis growth stories, one around what we call MID3, which is model-informed drug discovery, which every drug development, as you know, we've also added discovery to that as well to drive that kind of longitudinal connection across the pipeline. We've put all of our scientists and our technology systems together to create kind of that expert-based flywheel and really accelerate that business, both in terms of engagement with regulators, thought leadership, but also software build.

And then the other side, we created a new group called ACE, which is accelerated clinical evidence. And the way to think about that is truly around the digitization, particularly around data and acceleration of the data can be generated and can help accelerate from protocol all the way to submission.

So those are 2, we think, very nice growth platform, very consistent with what the regulatory bodies around the world are looking for in terms of accelerated execution, accelerated time to market. So we're excited about the room that, that creates for us.

We're also strategically also looking -- I mentioned the platform before that we've created with all these decades of experience and the know-how and the workflow and the IP and everything that sits on top of it. The other thing we're looking for is a whole range of growth areas. Those growth areas are things where we can deploy our core expertise like our drug-to-drug interaction capabilities. You can apply those to clinical trial simulation. You can apply those earlier into discovery. Is there opportunities to do something like that in the clinic? And there's a whole range of ways that you could go.

So we're pretty bullish about the long-term opportunities for growth, a combination of execution and kind of untapping some of these opportunities on [ that ACE ] front.

Yes. And so the building blocks to get there, if you look at the quarter, we did -- on the software side, we did 7% revenue growth on the quarter for software. So that was above our expectations. And then we said that software -- given the visibility that we have for software for the year, we think the software business will perform at the top or even above the top end of the range. And there are some execution changes as we described as well as just better visibility through the deferred revenue that we think will accelerate the ARR as we exit the year, and that's going to benefit the growth rates in 2027 as well. So on the software side, we feel good about that.

On services, we talked about execution. There's some operational, there's commercial changes, all of which are execution-oriented with a backdrop of favorability. The market is better than what we've seen. We talked about capital markets funding being better. Overall, we think the backdrop for pharma spending is better. And as we make these operational changes, then we're expecting to see some acceleration there.

So that's the setup for -- that's the setup is -- better visibility in software, exiting the year with a stronger ARR and making some operational changes to services, all under the backdrop of a better market environment.

Great. And sticking with you, John Gallagher, with the final question, just -- you've maintained healthy margins. So as you're thinking about accelerating growth, anything you would add in terms of how you're thinking about the margin profile?

I mean we're being disciplined, right? We've done that before. So we hit the top end of our margin guidance last year. And during a time where we were managing through some volatility, I'd say that if you look at the quarter, we put a 30% margin. It's at the bottom of our range. But we did cite some choppiness in the first half. We think that will resolve and accelerate into the second half. And we're taking cost actions, too. We just divested the regulatory business, which does come with some stranded costs that we're dealing with in the first half of this year. But we're taking costs out. We're seeing some revenue acceleration in the back half, and that's going to help us stay inside the range.

Great. Well, I think that does it for time. Thank you, Jon and John, for joining us.

Thank you for having us. Appreciate it.

Thanks.

Good day, and thank you for standing by. Welcome to the Certara First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to hand the conference over to your speaker today, David Deuchler of Certara. Please go ahead.

Good morning, everyone. Thank you all for participating in today's conference call. On [indiscernible], we have Jon Resnick, Chief Executive Officer; and John Gallagher, Chief Financial Officer. Earlier today, Certara released financial results for the quarter ended March 31, 2026. 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 the forward-looking statements. Please refer to Slide 2 in the accompanying 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. 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 [ accompanying ] materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 11, 2026. Certara disclaims any obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of information, future events or otherwise.

And with that, I will turn the call over to Jon.

Good morning. Thank you all for joining today's call. Since we last spoke, I have crossed over the 100-day mark at Certara, and I continue to be incredibly impressed by many things within the company. We are differentiated by our world-leading scientists, institutional knowledge, regulatory leadership and our fit-for-purpose technology that is embedded in customer and regulators workflows.

Our clinical intelligence capability is the logic built into our technology, [indiscernible] science and join on what our experts know our interactions with regulators over decades, and with thousands of drug development successes and failures have taught us. Certara products and services are integral to the drug development process and increasingly scalable to the use of AI technologies. Having exited the listening and learning phase, my attention is transitioned to helping Certara reach its full potential.

First quarter performance was in line with our expectations but does not reflect the company's potential. I am focused on driving long-term durable growth across the organization by reshaping our business and portfolio strategy, while instilling increased organizational and operational rigor. Today, we will discuss our markets and outline the steps we are taking to position the company for long-term success before wrapping up with our first quarter performance.

Let me start by updating you on our end markets. Across the board, customers are increasing investment in AI and tech-enabled drug discovery capabilities. Today, there are over 200 AI design molecules in clinical development, up from just a few 10 years ago. [ Eli Lilly ] has partnered with NVIDIA to build a dedicated AI lab, and Roche [indiscernible] is launching a hybrid cloud AI factory to scale their discovery and development efforts. Amazon has also announced the [ BioDiscovery ] product through AWS. Additionally, OpenAI and [indiscernible] have announced LLM for life science.

Expansion of the use case in AI is consistent with Certara's approach using analytical techniques, embedded in customers' workflow to accelerate the drug discovery and development processes, while reducing the reliance on living subjects. As AI-driven drug development helps the industry deliver more molecules and innovation, demand will increase for Certara's core business, model [ inform ] drug development or [indiscernible], as customers race to turn drug candidates into approved treatments for patients.

Accelerating data analytics processes becomes more important than ever, as the decades-long goal of reducing drug application time line comes within reach. In February, the ICH released [ ICH M15 ], providing guidance of the general principles for model-informed drug development, which establishes an overarching set of principles for the acceptance of MIDD applications by regulators globally. In March, the FDA published guidance on the general consideration for the use of new approach methodologies, or [ NAMS ] and drug development.

And more recently, in April, the FDA announced a major initiative to implement real-time clinical trials. A shift to eliminate the delays that have historically slowed regulatory decisions. As FDA leadership is set, the agency has been conducting clinical trials the same way for decades, where key data signals and lag time have delayed regulatory decisions unnecessarily, which has slowed down drug development time lines. These tailwinds present a clear opportunity for Certara to tackle historically arduous drug development processes.

Certara has an incredible legacy. We believe we are unrivaled in MIDD today because of what was required to build it. We have more than 2 decades of published scientific literature, 2,600 customers around the world have run over 10,000 projects, and have more than 160,000 users, our technology, including the FDA and Japan's Pharmaceutical and Medical Devices Agency. Pinnacle 21 has been used to validate more than 36 trillion data points in support of over 500 approved treatments. And we are a team of world-class scientists and are proud to have 10 scientists recognized in [indiscernible] top 2% of the world's most cited scientists.

This is not a position that can be replicated overnight. It is the product of decades of scientific rigor, regulatory trust and deep customer partnership that many underestimate. For example, the qualification of our Simcyp software for the prediction of drug-to-drug interactions and the EMA required 2 years of engagement with participants representing all 27 member states. Our most experienced [indiscernible] worked directly with EMA reviewers to evaluate 25 years with data, code and process documentation to gain approval from the EMA. To our knowledge, Simcyp is the only mechanistic modeling software qualified in Europe at this critical level.

Building on this legacy, we have developed and continue to invest in category-leading products that are truly distinguished in the market. Maximum Simcyp, Pinnacle 21 and Phoenix are purpose built, validated and deeply embedded in the workflows of the world's leading drug developers and regulators. What makes these valuable to our customers is the cutting-edge science, proprietary data, intellectual property, thousands of validated biological parameters, unmatched computational precision and auditable transparency that regulated science demands.

As we move the company forward, there is a window of opportunity for us to drive value from connectivity across our clinical intelligence capabilities. We are building an AI integrated platform that sits on top of and complements our existing portfolio. This next-generation platform will give researchers the ability to interrogate Certara's full body of knowledge across products, data sets and scientific expertise to get accurate, trusted answers to increasingly complex questions. We have created an AI-native team, allocated the investment resources needed for this effort and are engaging [indiscernible] customers.

Our annual Certainty Conference in Boston illustrate our scientific and technological leadership and provide clear evidence that our customers are looking for us to innovate. In front of more than 400 attendees, we showcased the latest in MIDD and AI-enabled technology capabilities for more than a dozen products, leveraging demos and user groups to collect valuable feedback.

Moving to delivery. Let me share a few highlights from the quarter. Our technology and scientific experts supported numerous drug approvals. One notable example was a complex generic of [ tazarotene ], a dermal product used in the treatment of acne and [ psoriasis ]. Certara's PBPK in silico modeling data was accepted in lieu of a clinical endpoint bioequivalent study. This is only the second time ever that PBBK modeling has been used to enable approval of a generic drug in lieu of running clinical trials.

In another example, Certara also demonstrated the real-world impact of MIDD and regulatory success for the leukemia therapy, [ asciminib ]. Simcyp supported the evidence generation journey and approval with the FDA accepting the PBPK modeling results in lieu of clinical studies for at least 10 human trials, significantly reducing development time and cost. Certara scientists published nearly 100 peer-reviewed papers this year, spanning dose optimization, pediatric development, virtual bioequivalence and next-generation MIDD frameworks, which align with the recently published [ ICM M15 ] guidance focused on the multidisciplinary principles of MIDD. [indiscernible], a publication co-authored with the FDA and [ MHRA ] scientists highlighted the expanding role of MIDD in pediatric drug development, showing PBPK as potential to reduce time lines and costs for pediatric trials by informing dosing, study design, extrapolation and label extension while reducing unnecessary studies in children.

In addition, one of Certara's leading scientists, or as the Editor and Chief, Clinical Pharmacology and Therapeutics Journal, a position she took over from another leading Certara scientist. We had several technology advancements in the quarter with AI increasing the productivity of our developers and the value of our technology. There were multiple new releases of our software, including a new version of D360 to help discovery scientists accelerate therapeutic peptide design and optimization, new functionality in Pinnacle 21 to accelerate clinical study start-up, and extended reporting functionality in Phoenix Cloud, and the release of Simcyp with expanded simulation and virtual bioequivalence capabilities.

To capitalize on these opportunities and prepare to scale we are taking several decisive actions. First, we're focusing our business and accelerating long-term growth by exiting medical rating. Second, we're reorganizing and aligning the company around two distinct growth areas. MIDD and discovery, which we call [ MID 3 ] and accelerated clinical evidence, which we call [ ACE ]. Third, we're creating a stronger center of gravity for AI across the company. formalizing leadership with a Chief AI Officer and increasing investment in our next-generation Certara platform. Fourth, we're extending our capabilities and reach with strategic collaborations and partnerships highlighted by NVIDIA and [indiscernible] Sciences. Fifth, we're reviewing opportunities to leverage our existing clinical intelligence capabilities into new use cases. And six, improving execution and efficiency.

Focusing on the first action. On Friday, we closed the divestiture of the regulatory writing and medical writing business to Veristat. This transaction allows us to sharpen our focus in areas we have defined competitive and scientific advantage, results in a nearly [indiscernible] alignment between our expert services and our technology, where our value proposition is the strongest, improves the predictability of our revenue and unlocks approximately 150 basis points of incremental growth in 2027 and beyond.

Second, we are reorganizing the company into two groups to accelerate growth and better service our customers. [ MID 3 ] and [ ACE ]. Within MID 3, we have merged our technology and expert services into one organization, creating a flywheel for technology, innovation and customer engagement. ACE's mission is to reduce data time lines doing the full life cycle from design through and beyond submission, while maintaining or improving quality at every step in the process. Both groups will be supported by a Chief Product Officer reporting to me, who will oversee product development across the organization. We are engaged in an active search for this position.

Third, we have appointed Dr. [ Chris Button ] as our Chief AI Officer, further evidence of our commitment to drive innovative solutions that turn decades of cross-program scientific and regulatory intelligence, in the market-leading AI integrated capabilities. Chris also serves as our Chief Technology Officer and led Certara's AI implementation efforts. In his expanded role, Chris will drive the acceleration of Certara's next-generation platform.

Fourth, we are taking [indiscernible] approach to partnerships. In April, we entered into a strategic collaboration with NVIDIA to apply accelerated computing and AI to Certara's next-generation platform. This partnership will reduce manual, time-intensive steps and ship biosimulation from sequential processes to parallel iterative workflows. This is particularly important for Certara's computationally intensive applications. We've been hard at work at this collaboration and we'll communicate more details soon.

We've also expanded our commercial collaborations, most notably through a new relationship with [ Alta Sciences ] of forward-thinking integrated [ CRO/CDMO ]. Together, we are advancing it model first fully integrated and resource-efficient approach to early drug development that accelerates the path to proof of concept for biotech innovators, investors and pharmaceutical companies across the globe. These collaborations will strengthen Certara's underlying technology and enable us to bring value to new customers.

Fifth, after completing a review of our portfolio and market opportunities, we've identified several new potential use cases that build up our clinical intelligence capabilities. For example, clinical trial simulation and asset evaluation to name just two. We are actively evaluating investment opportunities in these areas. There is excitement across the organization about these opportunities.

Finally, we are taking decisive steps on the operational side of the business to drive efficiency, accountability and growth. We have deployed focused SWAT teams to address needed cultural shifts, simplify processes, accelerate technology development and improve execution. We are aligning sales and marketing to our new structure to clarify accountability and drive customer centricity. We are taking a data-driven approach to leveraging AI to better target and identify opportunities.

Multiple efforts are underway to both review and optimize pricing, but also to explore more structural changes to how clients consume our solutions. We are also updating incentives to drive the right behaviors and encourage cross-functional collaboration. And we're also rationalizing internal spend to shore up our cost base and maximize investment efficiency.

Let me turn to the first quarter results. The team's focus on technology resulted in improved performance over the second half of 2025, particularly in MIDD. This is a good start for the year, but we need to see consistent performance. Services performance in the quarter was mixed, after an extremely strong Q4. The operational and commercial changes I outlined earlier are designed to address these gaps. It will take time to achieve our long-term operating goals and it's important that we make the right decision for Certara's long-term growth and success now.

With that, I will turn the call over to John Gallagher to walk you through our first quarter results and guidance.

Thank you, Jon, and hello, everyone. Total revenue for the 3 months ended March 31, 2026, was $106.9 million, representing year-over-year growth of 1% on a reported basis. Total bookings in the first quarter were $115.3 million, which declined 2% from the prior year period. Trailing 12-month bookings were $479.2 million, increasing 5%. Software revenue was $49.7 million in the first quarter, which increased 7% over the prior year period on a reported basis.

Growth in the quarter was driven by Simcyp, Phoenix and Chemaxon. Ratable and subscription revenue accounted for 57% of first quarter software revenues consistent with the prior year period. Software bookings were $48.7 million in the first quarter which increased 20% from the prior year period. Trailing 12-month software bookings were $192.2 million, up 8% year-on-year. The software net retention rate was 106 in the quarter. Looking at our software bookings performance by tier, we saw performance at or above plan across all 3 customer tiers, which was nice to see following a mixed fourth quarter performance.

Now turning to services revenue, which was $57.2 million in the first quarter, down 4% versus the prior year period on a reported basis. We saw mixed results in our MIDD services business in the quarter, reflecting the operational dynamics Jon mentioned earlier, which was compounded by softness in regulatory services. Services bookings in the first quarter were $66.6 million, which declined 14% from the prior year period. TTM services bookings were $286.9 million, up 2% compared to the prior year. After a strong fourth quarter, we saw softer performance from Tier 1 customers in MIDD services during the first quarter.

Total cost of revenue for the first quarter of 2026 was $41.6 million, a slight increase from $41.5 million in the first quarter of 2025. Total operating expenses for the first quarter of 2026 were $111.2 million, an increase from $98.4 million in the first quarter of 2025, primarily due to a $7.4 million increase in the change in fair value of the contingent consideration related to the [indiscernible] acquisition. Adjusted EBITDA for the first quarter of 2026 was $31.7 million, a decrease from $34.8 million in the first quarter of 2025. Adjusted EBITDA margin in the quarter was 30%.

Wrapping up the income statement. Note that GAAP net income and EPS are both impacted by nonrecurring items. Net loss for the first quarter of 2026 was $8.8 million, compared to net income of $4.7 million in the first quarter of 2025. Reported adjusted net income for the first quarter of 2026 was $14.5 million, compared to $22.2 million for the first quarter of 2025. Diluted loss per share for the first quarter of 2026 was $0.06, compared to earnings of $0.03 per share in the first quarter of 2025. Adjusted diluted earnings per share for the first quarter of 2026 were $0.09 compared to $0.14 per share in the first quarter of last year.

Moving to the balance sheet. We finished the quarter with $149.5 million in cash and cash equivalents. As of March 31, 2026, we had $294.8 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. 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.

Today, we announced the closing of the regulatory writing and Medical Writing Services divestiture. As a reminder, in 2025, these businesses generated $50 million of revenue and approximately $17 million of adjusted EBITDA, excluding unallocated overhead expenses. During the first quarter of 2026, they contributed approximately $13 million in revenue, and we expect to recognize approximately $5 million from them in the second quarter. Going forward, we anticipate our revenue mix to be approximately 50% software and 50% services.

With that in mind, we are updating our full year 2026 guidance to reflect the divestiture as follows. We now expect 2026 reported full year revenue to be in the range of $395 million to $405 million, including the $18 million I just referenced related to the divested business. This outlook reflects full year growth of 0% to 4%, excluding the divested business in both periods, and is consistent with our prior growth expectations from the call in February.

We expect first half revenue growth to be closer to the low end of the 0% to 4% range, while the second half is expected to be at or above the high end of the range. We anticipate full year software growth to be at or above the high end of the 0% to 4% range for the year, with first half closer to the midpoint and second half above the high end of the range. The software outlook contemplates higher visibility compared with last year, and we are optimistic about opportunities for newly introduced products.

In Services, we expect full year growth to be towards the low end of the 0% to 4% range with first half at or below the low end of the range, improving to the high end during the second half of the year. We see the Tier 2 and 3 end markets improving through the course of the year following a strong capital raising environment through April. Generally, compared to the guidance provided in late February, this more detailed revenue outlook reflects modestly improved software performance and modestly lower services outlook, which we attribute to some of the execution dynamics Jon referenced in his remarks.

We anticipate full year 2026 adjusted EBITDA margin to continue to be 30% to 32% range, including contribution from the regulatory writing and medical writing business. First half margins will be modestly below this range, and second half margins will be closer to the higher end of the range. Margin performance through the year reflect higher revenue growth in the second half of the year, as well as improved operating discipline across the organization following the divestiture. We expect adjusted EPS in the range of $0.35 to $0.41 per share for the full year. Fully diluted shares are expected to be in the range of $157 million to $159 million, and we are modeling effective tax rate of about 30%.

With that, we will open up the call for Q&A. Operator, can you please open the line?

[Operator Instructions] Our first question comes from Scott Schoenhaus with KeyBanc.

So Jon, you mentioned this next-generation AI platform that you guys are developing. Maybe walk us through the opportunity here, the monetization. Is it more a function of [indiscernible] drives engagement utilization on the software piece? Are you taking ASP up? Maybe walk us through the dynamics here to bridge us to this opportunity.

Thanks, Scott, for the question. Yes, we're extremely excited about what is ahead of us here. First of all, before I get into the detail on the platform itself, I mean, [ AM ] more broadly, we've taken a step change in terms of our readiness. We're focused on things like product development, which is the platform, scaling capabilities across the organization, people and talent, you saw the announcement about Chris, and overall kind of corporate governance of it.

Obviously, we talked historically about the great position we believe we have. And my comments a few minutes ago, I think you heard that foundation, those capabilities that we have over the decades, it's created a real exciting position in terms of embeddedness in client workflow, codification of science validation, auditability, transparency. In essence, closing that kind of last mile in a regulatory sciences market, our view and our expectation is that there's a spot in a place where Certara's capabilities, know-how and expertise will fit in very well as a complement to what's out there today.

So the platform -- and I don't want to go into too much detail on exactly what we're doing because I do know that there are others who are listening to this call as well. But it's, in essence, building on these exact capabilities, it is an effort for us to unify many of our products and our know-how under a single environment. It will allow us to take all the, kind of, independent know-how and the independent applications we have and answer questions across the life cycle. And it's going to create unique business models for us as we move forward.

In terms of your question around kind of guidance and how should we think about it. I think for 2026, as we indicated, we're out talking to [indiscernible] clients we're out engaging in this. This is a thing that's now in active discussions. So I wouldn't think too much about near-term modeling. I think what we'll do is provide more guidance towards the end of this year about how you should think about this relative to our conventional software portfolios, we think more on platform into '27 and beyond.

And then my follow-up is the strong software bookings you had this quarter. You mentioned a lot of new product releases. Maybe help us parse out where you're seeing the strongest demand into that bookings strength this quarter on the software side?

So I think software was strong pretty much across the board this quarter. We obviously, [ off ] the soft trailing 12-month number that we saw at the end of last year, we put a lot of focus on it. Really got underneath it with our sales teams, but the incentives and products and plans and have done a lot of work in Q1 really to [indiscernible] together. But it's pretty consistent in Phoenix Cloud, had a good quarter as a very good pipeline. We're extremely excited about the transition there and the growth.

Simcyp had a good quarter as well, core kind of PBPK offerings. Pinnacle, which is, as we said before, has ebbs and flows, a little bit when new trial starts, and it's going to be a little bit slower than it has been in the past years, actually slightly outperformed expectations in the quarter. So I think everything performs at or above expectations.

Our next question comes from Brendan Smith with TD Cowen.

Congrats on the progress. Maybe just a bit of a follow-up on one of the previous questions. But I guess can you speak a bit more specifically to the new customer mix you're seeing year-to-date? I know you mentioned pharma really leading more into AI, which we continue to see kind of across the board, but also maybe some impact on Tier 1 customers.

So I guess, first, just wondering how the new software adds within pharma compared to maybe new customer adds within smaller emerging biotech. Just any trends to call out in those relative buckets?

Yes. Brandon, we were pleased, obviously, with the rebound that we saw with software on the quarter. So to your point, across all customer tiers 1, 2 and 3. We saw pretty significant acceleration in the bookings. We saw a good achievement on the revenue with 7% software revenue growth on the quarter.

I'd say as it relates to specific within the tiers, we saw Tier 3 customers and Tier 2 customers leaning in on -- as John mentioned before, we saw a strong performance in Phoenix as well as in Chemaxon. I'd say in the Tier 1 category. We had another good quarter on Simcyp. So that's the overall highlights of the customer tiers in the quarters. But they came above expectations on the quarter, which was good on the heels of some choppiness we saw in Q4.

Okay. Got it. And then maybe just a quick follow-up. Just kind of talking about the [indiscernible] efficiencies you mentioned. I know it's being an internal target for kind of helping drive margins. But can you maybe help us understand kind of through that lens, the structure, even of the NVIDIA collaboration really what that looks like and how we should think about the impact over the next couple of quarters there?

So you mentioned execution first. Look, there's a range of initiatives in play. I mean, obviously, today, we're announcing. Well, some reorganization where we do have done the divestiture. There's also been some -- a lot of broader work on operational cadence and execution and cost base. So we're moving incredibly quickly, certainly at a rate in pace, which I'd expect to set up the business for a long term. So we can go through some of those mechanics, if you want later.

But the NVIDIA partnership, I think our general mindset on these things is let's not throw out splashy press releases [indiscernible] things, [indiscernible] of substance. We've been working with NVIDIA for the last couple of months through an MOU and through a signed partnership agreement really to define ways of scaling speed at which you can execute on particularly some of the more complicated simulations, allowing more democratization. The belief is if we can speed some of the core QSP and PBPK offering we can allow for much broader use with an organization we can get quicker, reads on what's going on earlier and kind of meet the expectation that discovery of preclinical users of the applications.

So we're excited about it. We'll come back with more details on how to think about it exactly in terms of product development and how to think about it in terms of kind of joint join efforts here and its impact in terms of our thinking about overall operational efficiencies.

Our next question comes from Luke Sergott with Barclays.

I just want to talk about the reorg there that you guys are talking about across the 2 segments. And is it more about just the consistency, or stability that we could see from software versus services? Because it seems like 1 quarter, one of the segments is really strong and then at the expense of the other and then vice versa? And just what you guys are doing to build in some consistency and more sustainability here going forward between the two?

Yes. I've had the same observation. There's been a lot of inconsistency in back and forth over the last few quarters that we clearly put a lot of focus on software this quarter. We got a strong software results. So I think our approach moving forward is, obviously, to try to get that balance right. So there's a number of things.

First of all, the exiting of the regulatory medical writing business will help. That's been an extremely lumpy business on the service side. A result and mix of business will be much more mixed between services and software on an ongoing basis, which will give much more predictability into what we do. The exit of the regulatory business, which wasn't really tied to our core software business. As I said last quarter, we do best when our technology and services are integrated, and what we've effectively done on the MIDD business here, [ MID 3 ], is we've brought together all of our kind of expert services and our technology to [indiscernible] that flywheel effect. So there should be more stability when those two businesses [indiscernible] able to [ route ] around it.

We're also taking some steps with our sales teams and our commercial organization to better align specialty engagement on that side that should drive more predictability. I wouldn't say we've completely solved the riddle, but we're -- we see the same pattern. And obviously, we're focused also on creating the incentives in the organization that [indiscernible] both of those segments moving at the same written pace.

Great. And then I guess with regards to that kind of -- when you think about the guidance and the back half step up here. You had a really big bookings -- bookings have pretty good on the services side. So like when is the timing of there when we see that flow through? And if you could just help us out with the pacing on that services ramp through the year?

Yes. So it -- services bookings take a couple of quarters to pull through. One of the focus areas that we've had over the last quarter has been on backlog conversion. And we saw good -- despite the choppiness and softness we saw on the bookings side for services, we did see very good backlog conversion, and we expect to be able to continue that through the course of the year.

So backlog is going to help support the revenue achievement, especially in the back half of the year here with the with the bookings that we posted in Q1, along with the bookings that we're posting now. What we're seeking to do is drive an inflection point through the execution on ensuring we're filling up that backlog, and that's some of the focus area that we have right now.

Our next question comes from David Windley with Jefferies.

I wanted to ask on the references to execution and go-to-market challenges that impacted the first quarter. Think you -- Jon, you touched on those as kind of a high level, but I wanted to understand better, was that caused by a lot of the realignment that you talked about and just kind of the intensity of that during the quarter? Or what, in more detail would you use to describe those execution and go-to-market challenges that impacted the first quarter?

Well, first of all, I'd say, David, there's a legacy model that was in place. So a lot of the changes that we're making, I think, are meant to enhance it. I'm pleased by the progress we made on the software side, there was a real focus there, and you could see the results of that focus on that side of things. I think overall, what we're looking to is just more consistency across the teams. And we're focused on that in a few areas.

One, how can we make sure we're optimizing expert-to-expert engagement across the business. A lot of these -- a lot of -- a lot of the engagement that happens here is scientists to scientists. We want to make sure we're putting that foot forward.

Second area that we're focused in on is extending partnerships. We mentioned [indiscernible] relationship. That really, I hope, signals and reflects a different approach to -- partnering in a different approach to go into it in different ways. Our offerings are incredibly strong in terms of being complementary to what a number of players have out in market. So there are a number of scale players, whether their venture capital players or whether they're CROs that we are very good potential partners for. So a renewed focus on partnership and how we can drive through.

We've leaned in much heavier on targeting approach, continuing to focus on Tier 1. There's a number of clients in the Tier 2 space that we're working on building out new relationships and extending where the overall integrated tech service proposition fits very well. We've layered in a number of kind of AI initiatives to help drum up more opportunities to drive more growth across the business.

So look, we're doing a number of things. I don't necessarily [indiscernible] create some churn as you'd expect. And we got Reg business in and Reg business out those. Things do have an impact. But our goal here is to set up a business that's going to be growing in line with our expectations and our shareholders' expectations over time. And that's going to be taking some short-term tougher decisions that are going to lead to that longer-term growth.

Got it. Appreciate that. My follow-up is around biologics, in particular, I think there's been some effort over multiple years to refine, or augment some of the software platforms, maybe in particular, Simcyp be amenable to or to better address the large molecule market. I wondered if you could comment on the progress there and what specific client traction the software in general, but again, thinking primarily Simcyp [indiscernible] getting on the biologics side?

Yes, it's a great question. The -- I don't have the data points in front of me, and I can provide them in a subsequent discussion. There's obviously been a lot of focus on that point internally as I've gotten ramped up. We are -- we do see not only in Simcyp but QSP, which is kind of the extension beyond that, which brings in more to biological components. We do see growing percentage of our business on outside of the oral components, which you get into peptides and a whole range of other things. There is a range of other things. There's a ton of need for both of these.

I don't -- I was actually asking over the weekend for quantification of a percentage of each of them. I don't have it to hand right now, but we're looking. There is strong growth as you look at the net new offerings that we're building. They are equally as relevant to the chemical and to the large molecule side. So I can provide a follow-up when we speak next with a little bit more color on it. But we are focused on extending the applications into that large molecule base.

Our next question comes from Michael Cherny with Leerink Partners.

Maybe if I can just circle back on the strategic AI expansion that you noted earlier. [ Jon, either John ], as you think about the investments you're making, the reorg you're doing internally, how are you balancing the need to ensure appropriate returns versus the spend levels? We hear so many stories about AI spending at [indiscernible] What is the risk -- the up-down dynamics that you're pursuing to make sure that the investments you're making are the right ones?

Yes. Yes, good question, Mike. We -- well, what we've undertaken this year, you've seen R&D spend in the quarter continued to increase, and we've said that we're deliberately making investments. What with Jon's onboarding one approach that we've changed to ensure that we're getting the return on that capital invested is starting to look at, we call it a portfolio view, or looking at business cases around what we're investing in and when the revenue is going to come on that.

So Jon talked about some changes to the organization. Jon talked about some of the platform investments that we're making. And -- but I'd tell you that we're taking a disciplined approach toward the investments that we're making this year in R&D and looking at when the return is going to come, i.e., when is the revenue going to start to show up for that? Which, as you understand, many of the investments that we've been making in 2026 will start to show up in 2027.

And I'd add just a little bit to -- the good news about this portfolio is that it's built on, what I described as kind of clinical and scientific intelligence already. If you think about the fundamental business, 10,000 projects, thousands of published articles, the regulatory know-how, the entrenched workflow, 160,000 users. I mean, there's a lot of, I think we said 36 trillion data points, in Pinnacle since record. There's a lot of know-how and unique data and unique applications that exist within our 4 walls.

So the investment itself doesn't have to be in building out that capability and the ability to create the infrastructure. Investment is on top of it in terms of turning that unique capability and that unique insight we have is something that's going to be broadly available on a more systematic basis to work within a client's ecosystem. So that's one.

Two, I'd also say that I think we signaled that -- I think we understand where our fit will be in here relative to some of the other model providers and other work phone agent providers in market. And so we're very comfortable with our perspective in terms of being able to partner with in this ecosystem. So NVIDIA is one good example of of kind of where we're going with some of that. We also have a number of other discussions going on around how [indiscernible] be as effective as possible and as target as possible, and do some of this in a [indiscernible] fashion so that we can get the return that we're expecting.

And just one quick additional question. I apologize if I missed this. With the divestiture now completed, what's the plans for use of capital raised?

Yes. So on capital allocation, I mentioned in the prepared remarks, we bought $40 million of shares against our authorization in Q1. So share buyback continues to be a focus and a capital allocation vector for us. What I'd also say though is we've got a good track record of tuck-in M&A and looking at the pipeline there is also something that we're evaluating. So we didn't specifically highlight Mike, that we would do one or the other. But both of those are now areas where we've been deploying capital successfully over the course of the last year.

Our next question comes from Jeff Garro with Stephens.

I wanted to ask about the new [ MID 3 ] and ACE categories. And just to start, if you could spell out in a little more detail the products that fit in each area, and what we should expect in terms of metrics or commentary on those categories going forward?

Sure, absolutely. So MID 3 is going to be our core model-informed drug development and discovery, applications that will house not only the technology assets, things like Simcyp and CertaraIQ, but also the full range of expert-based service capabilities that we have. [indiscernible], PBPK. So it would be, kind of a one touch up there. Accountable and responsible for building up the regulatory footprint and the scientific footprint, and offering development on that side. A good mix between that flywheel effect between technology and expert based services.

The other side ACE. ACE is going to be focused on solving a lot of the data problems that exist within -- which is probably underlying best [indiscernible] some of the recent FDA trial acceleration commentary. That will include things like Phoenix and Pinnacle, and [ co-op ] there and go to submit and some other things that we have within our 4 walls, which are really focused in on kind of solving the data on the flow problems and helping to accelerate the rate and pace at which data can be turning that into evidence for submission.

Excellent. I appreciate that. And the follow-up on that topic. Curious about how the going market evolves with these categories. Any way you can frame kind of, how big of a change is this going to be for your go-to-market teams? And then how should we think about the time line of making those operational changes? And finally, any expectation you would set on expected impact from these go-to-market changes?

So I've mentioned a couple of times. I think the predominant focus here from the management team is how are we going to build this business to get to that double-digit growth that everyone externally expecting, and that we believe is 100% possible. So as you're kind of making of all of these changes, you may have a little bit of churn in the near term, but these are being set up for long-term opportunity, maximization and long-term growth.

What -- the changes that we're making -- that we've announced today and that we're moving forward are really what I would characterize as more alignment based changes than kind of fundamental restructuring of our commercial organization. We've taken our -- we had historically had [indiscernible] last couple of years, there's been a centralized sales organization that operated independently from the businesses. One of the changes that we've made is basically to align the portfolio teams that are selling the products within MID 3 or ACE with the actual businesses. This will shorten feedback from clients. It will create more accountability within the business. It will help -- help us with the product innovation and ensure that we have focused hubs for sales and product execution.

So look, I don't think we're -- we've quantified near-term versus long-term churn attached to this. But again, our expectation is that this will set up this business to have the type of growth that you want over the midterm, and that's the goal of these changes and it's the goal of strategic moves that we're making.

Our next question comes from Craig Hattenback with Morgan Stanley.

Can you touch on just the visibility in the software business, the expectation for a stronger second half, including any differences you see by customer tier over the course of the year?

Yes, Craig. The visibility -- so we mentioned the visibility on software for a stronger second half is better this year than what we saw last year. The main reason for that is -- if you look at the deferred revenue, the deferred revenue balance is higher, meaning the ratable software business that we've sold is in hand and it's going to start to build as we as we move through the course of the year.

The other thing I'd point out on certainty for a second half ramp is it's more of a ramp in growth rate than it is in dollars. If you look at the actual dollars, and if you were to look at that at the top end of the range, then it's a pretty modest increase in the amount of revenue dollars, but the comps ease as we get into the second half of the year, and therefore, the growth rate at [indiscernible] will be reflected higher. Those are a couple of the key reasons why the first half, second half story on software. And of course, the performance in the quarter gave us some confidence as we move through the year.

And customer tier, you said was kind of broad-based in Q1. Is that the expectation as you move through the year? Or is there anything you would call out by customers here?

Yes. I think across the good growth, exceeded our plan expectations across the customer categories. I'd say that was most pronounced in Tier 2 and Tier 3. That [ outperformance ] Tier 1 was a strong contributor for sure. But we've got some tailwind from funding environment at this point. And we think that as we move through the year, that's going to help us in the Tier 2 and 3.

Great. And then just my follow-up question on, kind of, the AI dedicated team. Just as you're thinking about allocating capital in the business, are there parts of the organization where you're finding efficiencies in terms of where you're shifting spending? Can you give any color around that?

Yes. Yes. We are. You probably remember in the prior call, we mentioned cost avoidance. We're still working through that. And our margin guidance that we gave here today would be reflective of improvement as we move through the course of the year. So the answer is, yes, we are reallocating. We are making trade-off decisions and that's happening on the operating side as well as in R&D investments.

And I think unsurprisingly, similar to others, we're seeing massive acceleration improvement as well as productivity is way up. The amount of [indiscernible] teams are able to generate the productivity of what we're doing is dramatically increased. So quite pleased with the accelerated road maps and the acceleration of capabilities that comes along.

Our next question comes from Sean Dodge with BMO Capital Markets.

Maybe just the partnership you mentioned with [indiscernible]. Is this anything more you can share on how that works? [ With the opportunity ] is there anything about the economics of it? And then just is it just software you're providing there? Or is there going to be services that are part of the [ Alta Sciences ] partnership, too?

Yes, we're excited about this. So I mentioned before, I think as a company, our portfolio lends itself very well to a range of partnerships. We're highly complementary to a number of scale market players here, and I think this is something we'll continue to push on.

This relationship is [indiscernible] obviously just announced this past week, there is genuine alignment between the teams around acceleration of trial opportunities to completely rethink early-stage execution in different ways. [indiscernible] is a unique [ 1 or 2 ] who has a set of integrated lab, animal human CDMO capabilities. So they have the opportunity to come from an early stage. Really kind of connect a lot of the things that we do on the modeling side. Everything together, we'll also be able to do some disruptive things with data and help close some of the loops and data and accelerate data flows.

So we'll be working with them over the next couple of weeks and months in terms of defining not only kind of opportunities to engage customers with very high customer overlap already, which is the starting spot. But identifying opportunities to better integrate technology and service workflow across the two organizations to the benefit of our clients.

Okay. And then on the software side, and more specifically on the upsells you referenced in the quarter, can you give us an example or two around what is an upsell, would have been kind of some of the more common ones lately. Have those been pretty consistent across all client peers? Or have you seen kind of more one or the other?

Yes. We -- effectively, that's reflected in the net retention rate. So we did [indiscernible] on the quarter, which was an inflect higher than where we've been over the last few quarters, which was which is good. What does that mean? I mean in the Tier 1 customer category, those are all already our customers. So an upsell would basically be some kind of expansion. We're taking more seats. We're selling more functionality in the Tier 2 and Tier 3, and particularly in the Tier 3 category, then that's the opportunity to add some new names or some new logos.

But we also have a huge 2,400 total customers -- customer base. So any kind of upsell is that land and expand strategy that you've heard us talk about in the past, which is really working the existing customer base and making sure they're aware of the breadth of product offerings that we have, and that would fall into that upsell category.

Yes. If you recall, in the last call, we talked a lot about price as particularly pricing discipline as a lever. And we've looked at this on 2 or 3 dimensions. We've looked at this on an operational level, which John just referred to look at our net contract values, look at our existing upgrade path and potential, which is a tactical plan we have in place and we've got a SWAT team who's looking at that. We've also looked more broadly set of strategic initiatives.

One of the pieces of feedback that I've received from some of our enterprise clients is that they're looking to consume more of our software that consume more of our technology in an integrated way. And sometimes the pricing structures are inhibiting to doing that. So how can we develop more enterprise-based pricing approaches that will be [ considered ] with our push more into platform engagement is another big initiative that we have as well. We think both of these will be -- will be net beneficial to our growth rates over the coming months.

Our next question comes from Matt Hewitt with Craig-Hallum Capital Group.

Just one for me. So Jon, you spoke about your partnerships, and there's been consortiums announced over the past few quarters. And you've got these relationships with NVIDIA and the new one with [ Ulta Sciences ]. I'm curious, as you look at the news flow regarding these partnerships, whether it's yours or others in the market, is the ultimate goal here to drive either adoption of simulation and modeling to accelerate that, which obviously would benefit you to create a wider moat, allowing you to not only retain but maybe grow that business even further? What is the ultimate goal? And when do you expect to see some benefits from these types of partnerships?

Good question. And maybe I can say yes and yes, you're -- I mean, I think those are both look true. Look, this -- we know success in this market is not one-offs. We live in a very connected ecosystem. There are a range of capabilities it's going to take to be successful and to grow at the written pace at which we believe we can. And so we're being focused in terms of what we think we're very, very good at, and we're doubling down and tripling down and what we're very good at, and we'll look for partnerships to fill in some of those gaps. Partnerships with technology with technology suppliers and with modeling.

Those things are complete accelerators to what we do. Commercial partnerships with at scale players like early-stage CROs in fact, perhaps others as you go along, who add scale, have large books of business as well and are working in the core kind of clinical side, which we don't have capabilities, we're not a CRO per se. Is it another -- if we can integrate that on behalf of our clients, it's win-win. It's a win-win-win. It's win for us, it's win for an [indiscernible] type partner. And it's a win for clients who will be working with because we can accelerate time lines and drive cost down for them and help disrupt conventional flows.

So look, I think it's a realization that it will help accelerate the market is also a realization that we know what we do very well and that we're comfortable in partnering with others and that they do well to help create winning scenario for our clients.

Our next question comes from Max Smock with William Blair.

Maybe just one for us quickly. You talked a lot about just interest and impact of AI on drug development. I'm curious to get your thoughts on how much interest is out there on the large pharma side from building out internal solutions actually, it seems like there's been a lot of focus on discovery. So do you expect these investments to result in solutions that are going to be competitive with your offerings in that space. And then in clinical, how should we think about the risk that large pharma [indiscernible] solutions that compete with your MIDD solutions here going forward?

Max, I just want to make sure I understand the second question. Can you just repeat that one more time?

Just around large pharma and their willingness and ability to build out solutions that compete with your offerings, whether that's in discovery or the clinical space?

Yes. Look, I generally think in the near term, where most of the productivity is happening and where most of the big splash press releases are is on the earlier stage discovery. And I think we mentioned, we see this as kind of a net positive to the market. More compounds means more demand for MIDD services.

And so look, I know there's a lot of press releases, a lot of uncertainty out there around how some of these things go. So what we are hearing on the other side of it is phone calls from a lot of these players and providers about how do we tap your capabilities into what we're building and doing started in the opening statements. And I think I reiterate again and we told the story about what it took to get Simcyp approved in the EMA, and we've been working with the 25 member companies in 2 years and the importance of transparency and important [indiscernible] in that.

We talked about the mechanics around Pinnacle and 36 trillion data points and mechanics of it. [ Talk ] about the legacy of the historical data and all the kind of unique IP that we have. It's pretty tough to replicate. I mean, this is not easy stuff. So I would see it as hugely inefficient for others to be building their own capabilities. I think it's a bit upon us to democratize it to the extent that we can make it broadly available within their 4 walls and partner with them in different ways so that the companies are getting broad application, the benefit of the capabilities that we bring.

I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good afternoon, everybody. I'm Luke Sergott. I cover life science tools and diagnostics. With me today, I have John Gallagher, CFO of Certara. Thanks again for making it.

Hi, Luke. Thank you for having me.

Under the bright lights here. So I guess to start off, can you just recap how the quarter from 4Q shook out versus what you guys were expecting? And this is more of just thinking about a jump-off point from kind of the lumpiness and the softer demand that we saw through '25. And how the first quarter as you guys are looking at it within your assumption there throughout '26 is going to progress, like puts and takes as you thought about it?

Yes, sure. Thanks, Luke. Glad to be here today. We finished the year in 2025 strong from a revenue and EBITDA perspective. I'll get into bookings in a second. But if you look at revenue, then organic software revenue, which was something that we were watching during the course of the year landed at 7% on a full year basis. That was right in the middle of our original guidance range of 6% to 8%. So that came in line with expectations. EBITDA, we had guided 30% to 32% adjusted EBITDA margin on the year, we came in at 32%. So we exceeded our own expectations as far as ability to invest in the business because you saw that, you saw R&D expense tick up during the quarters of 2025, yet we still hit the high end of the guidance, and that means we were disciplined about looking in other pockets of the P&L and making sure we could offset some of the investment that was coming in.

On bookings. Bookings were mixed in the fourth quarter. And to your point, there were some dynamics during the year where we saw spots of weakness and volatility in general. For example, in services, we saw weakness in Q3, we called that out on the November earnings call. And unexpectedly, to us in Q4, we saw a very, very strong month of December. So the month of December for services bookings came in at 17%. We think that there is an element of seasonality, some budget flush that came in. The over achievement there was broad-based. It was across customer tiers and it was across both biosim services as well as in regulatory.

So that played out a little differently than we thought. But as you look at services on a whole, though, it has been lumpy. Q3 was low. Q4 was high, some of that seasonality. And although we think that, that surge in discretionary spending in the fourth quarter is a good element as we look at stability in 2026, we still think and we've seen historically that services can be lumpy.

On the software side, our trailing 12-month organic software bookings were 1% on the year. They were down a decline year-on-year in the fourth quarter. So we did see some deceleration in software bookings and that all sets up the guidance as we look at 2026, where we said that the organization would be flat to up 4%.

Yes. And on that software, the booking side, is it -- are we even looking at the right metrics from that perspective, just when you're looking at the overall bookings? Because Is it like -- is there an ARR benefit? Or how do you guys view that internally? And does -- as you're thinking -- I understand it informed how you're thinking about the year. But just walk us through kind of what caused that step down as that only metric that we're looking at right now?

Yes. Yes. So good question. When you annualize it, it's not as acute as what you see in the fourth quarter on the TTM, which is probably the right way to think about 2025. But the fourth quarter did pull down that TTM number to only 1% on growth on the full year. So as we looked at 2026, then that's what's informing low single-digit growth across both software and services. Now why did that happen in the fourth quarter? We called out a couple of customer dynamics that we're influencing the fourth quarter bookings, not necessarily the full year, but in the fourth quarter, we saw that there was some reduction in seat licenses in Phoenix that was associated with customer reprioritization, some of big pharma reducing headcounts which invariably will hit some volume of our seat licenses in Phoenix, not totally unusual and a product of some of the headcount reductions in the Tier 1 because this softness was centered in Tier 1 customers.

But then on top of that too, we said that study counts. So our Pinnacle 21 platform is tied to study count, less so than annual seat license. And if you look back at clinical trial starts 18, 24 months ago, then there was some weakness there. By the time that gets all the way to submission, given the penetration that Pinnacle has, so Pinnacle is a broadly used software product, which is great and it provides a very sticky business for us with a very high renewal rate. But it will be impacted by study count increases and decreases over time on a time lag. So that was one of the other components that we saw impacting.

All right. And then on the Tier 1 customer base, you talked about like the lower seats there on the software side. But I feel like you earned through a lot of restructuring, the pipeline rationalization over the past like 4 or 5 years within pharma. So is this just kind of a catch-up from what we saw? Like I'm just trying to think out of the durability of like the snapback here or how you guys are thinking about that business recovery?

Yes. So yes. So as far as -- and you had asked to like what's the cadence of 2026. We had said on the call that we expect that Q1 will be on the lower end of that guidance range. So we do anticipate some trickle-through of the dynamics that we saw in Q4, but it's also related to a tough comparison. So Q1 is on a dollar revenue basis is our toughest compare of the year. So that's also a component of it.

But we do think that there's opportunity to accelerate software revenue growth during the course of the year. We launched 3 new software products in Q4 that we're very excited about with Certara IQ for QSP, we'll get into this. Certara IQ for QSP, the Phoenix cloud version and a Pinnacle product enhancement, all of which are going to -- are taking some traction to and will grow into the year. So we do see sequential increases during the course of 2026. So what you saw in Q4, we don't view that as permanent, but we did see it as a bit of a dislocation as we exited 2025.

All right. And on those launches, let's just dig in and start walking through some of them here, 3 big launches coming up. I guess from leveraging your existing sales force, are these new markets? Or are these just additional module add-ons -- modular add-ons to exactly what you have now, like break down where this -- the holes in your workflow that these are filling as you progress through the pipeline?

Well, a couple that we're really excited about that I'll talk to you about our Certara IQ, which is software for QSP and Phoenix Cloud, which is a cloud version of our Phoenix platform to get customers off the desktop and into the cloud. So the first of which Certara IQ is AI-enabled software for the QSP space. So that's quantitative systems pharmacology, which today is entirely a services practice. This is one of the fastest-growing areas, not only of Certara. It is the fastest-growing area of Certara, but it is also one of the more emerging and faster-growing areas of biosimulation in general.

And so we're very excited about having launched Certara IQ in the fourth quarter. The basis of Certara IQ is the Vyasa AI technology that we acquired back in 2022. We've been working to implement Vyasa technology throughout our software platforms. This is the first sort of [Technical Difficulty] would sort of add on. This is the first all new. This would be the first software offering in the QSP space. So we're very excited about that. And QSP, of course, is growing fast, as I mentioned, all services. So as we have that practice area at capacity, the Certara IQ software will not only help our own internal teams with the throughput and volume of projects that we can handle, but we can sell it to our customers as a software product as well.

So that's one we're very excited about. The other one I would mention is a cloud version of Phoenix. So we learned from prior versions and have added features and functionality to the cloud version of Phoenix that's out there now that includes also, again, putting in AI enhancements to induce our customers to shift from the on-premise or the desktop version and into the cloud. We launched it in Q4. We've seen very good receptivity from even our largest Tier 1 customers. So we're looking at 2026, as a year of starting to really pick up the conversion from desktop into cloud, mainly because of the features that we've added into Phoenix. So that falls more in the category of enhancement, one that we're very excited about given the conversion and the excitement that we're hearing from our customers about moving over.

Now you mentioned earlier, what's the right way to think about that software achievement. Interestingly, shifting from desktop to the cloud, there is a revenue recognition difference there, too, going from all at once revenue recognition on the desktop to ratable in the cloud version. So you'll hear us talk about the bookings and perhaps introduce ARR as a metric to start to look at how you look at the annualized progress we've made in Phoenix because a lot of the conversion that we would make this year from a revenue growth perspective will tend to show up more in 2027 than it will in [indiscernible].

Yes. I just have to ask kind of the timing there when you do these launches, you have, like you said, like the modular update on Phoenix Cloud versus the totally new market. Like how do you -- I guess from an investment standpoint on sales and marketing, how are you guys measuring the contribution here. I feel like the modular or the cloud opportunity is probably a little bit more near term where you have to actually with QSP, it's fast growing, but it's still going to take some market development time. Is that the right way to think about it?

It absolutely is. Yes. I mean, look, the Certara IQ QSP software is all new in its space. So it's going to -- it is going to take some market development, even though it's a high demand, fast-growing area of biosimulation, we still need to create the market and push adoption there, which we think is completely feasible. Like I said, we're super excited about Certara IQ software. But the cloud version of Phoenix is a little more straightforward as far as when a renewal comes due, we're in with the customer. We're having the discussion, we're showing the features and functionality, and we're already finding some early success in converting them.

Okay. You guided -- sort of the AI piece coming in. I always call it Vyasa but it's Vyasa. I think that from an overall market perspective, AI is probably going to be used as the efficiency tool. And John's predecessor, he was talking about -- William would talk about how you guys are using it. So talk about what clients are -- pharma and biotech want from an AI perspective from you guys. And how durable it is where -- or how realistic is it to think that pharma is going to run their own AI internally and ultimately displace you guys?

Yes. Yes. So we view AI as a unique opportunity for Certara, given everything that I said about some of the new products and the acquisition of Vyasa back in 2022 and the development and integration work that's happened since that time to really put that technology into the various software platforms that we just talked through really creates a competitive advantage for Certara. It's not likely -- because remember, our customers are buying our software models today based on the viability and the longevity and the data associated with the models, and they're not creating them on their own.

So as you think about moving forward into an AI area, then because of the regulatory acceptance as well as the scientific expertise, I think the scientists or human in the loop associated with AI. Then when you take the software products that have the AI built into them now as we've created the integration with Vyasa, when you take the subject matter expertise, remember, we have 400 PhD thought-leading scientists on our staff. That's the expert in the loop, if you will. And then you take the regulatory acceptance by regulatory agencies such as the FDA that have long been using Simcyp, Phoenix. They have a vast number of seat licenses. Now they're getting the new versions also, then that ecosystem is primed for our customers. It makes the ease of use with Certara rather than displacement.

Yes. Is there any part of your business that you feel like, okay, it's like that could totally be disrupted if somebody came in.

The only pocket that we've talked about that, that could see that kind of change would be in regulatory...

Regulatory...

Yes. Yes. So -- and I'm sure you're going to ask me what's the latest on that and I'll answer your question. But before we do, then -- that's one area of the business that's really right for generative AI to come in and create some secular change. Now we haven't seen that on a wholesale basis. I just got done mentioning that when you looked at services bookings performance in fourth quarter grew 17%. That was Reg, the reg business growing 17% and biosim services growing 17%. So I wouldn't say that secular change has really taken full grab quite yet. But at the same time, remember, we launched at the end of 2024, we launched CoAuthor which is generative AI for regulatory writing. And that product is continuing to ramp. And so we have offerings on both sides of it really when you look at it.

Okay. And then on the regulatory services piece, it's a great segue. So just talk about that have been under pressure for some time, and you're not the only one that had the issues there, but give us an update on how that's been progressing and what you guys have done or seeing from a demand side?

Yes. So of course, we had our new CEO, Jon Resnick, joined recently. He naturally, I think, wants to take an opportunity to evaluate what's the status is of the Reg business. And look, there are pros and cons to selling that business, we're moving that business from the portfolio. There's pros and cons to keeping that business. And I think that most importantly, he's taken the time as he should to evaluate what the best -- what the best shareholder value creation opportunity is given the pros and cons on both sides.

What are the pros to owning it?

The pros to owning it is very profit. It's a highly profitable business. So -- although we've seen revenue decline, strong bookings in Q4, we have seen revenue declines on a year-on-year basis. That's the con side. The pro side is we have shared publicly before that the regulatory writing business has a 20% to 30% profit margin. So that's a pretty rich profit margin for a Reg writing type business. And so it generates cash that's important for us to be able to invest in the organization.

Got you. Yes, that is...

As well as I just got on talking through CoAuthor too, you can envision partnerships that take place between an existing AI product that we have associated with the business and start to find synergies within the organization. So that would be the other pro to it.

Yes. And I think on -- it just kind of goes into the overall, as Jon is coming on, I talked about some of the investments that need to be made. I kind of took a little bit by surprise. I thought the bigger picture vision here was like you have all these Simcyp, you have like simulation software, some regulatory side, the writing, a lot of the onesies and twosies here of software across the clinical development pipeline, but like different markets that don't talk to each other. And I thought that bringing all this under one roof with some type of backbone was a pretty compelling story or vision over the long term. Like as Jon comes in and you guys are thinking about your portfolio, talk about ultimately, what the portfolio vision looks like and how you guys are going to either sell some stuff off or get leaner and meaner? Like just talk about what you guys think about what this should look like?

Yes. Yes. I mean the center and core to the focus is model-informed drug development or MIDD/biomulation. So we think that's the reason why people show up and are interested in Certara, and it's also the fastest-growing area of Certara. And it's -- and by the way, it's a blend of both software and services. it's both of those things, complementary to one another. And so the -- as we look forward and we think about investing, you painted a picture of various point solutions that are contracted separately. And one of the guiding principles that we have as we look forward in unifying the organization is how can we approach our customers in a manner in which they have the needs or the feedback that we receive from them.

And most often than not, it's not a contract over here, a contract over there. But there, it's that theme of unification that you were thinking of. So some of the investment that we have on the horizon here is how do you bring point solutions together into an overall solution that also enables Certara to increase the call points within our customer organizations, and can get the attention at the top of the house on how you can save time, save money and drug development, which truly is the value proposition of what Certara offers.

Yes. And I said when you talked about some of the investments, is that what you guys referring to becoming more customer-centric in the investment there? So like dig into what kind of investment you guys need to make? I feel like that, that's you have a pretty sizable sales force right now. Is this more about just [indiscernible] maybe some overlap or overlay of like some enterprise sales guys? Like just walk through what do you mean by that?

Right. Yes, the customer centricity. I mean, Jon Resnick brings with him a strong background of customer centricity. he spent a lot of his first 60 or so days at the organization, speaking directly to our customers across all tier categories, across software and services and gaining pretty good insight on what the themes and the feedback are with customers. And I think one of the key takeaways is that no 2 are alike. So our approach and how we offer our software and services in the combination of those to our customers is one of the things that we're thinking through.

Now what does that mean? And how does that translate? That we do not envision that is translating to an outsized amount of spend in sales and marketing. Remember, and we recognize we've made sizable investments in sales and marketing, it didn't catalyze the revenue growth. It's not showing up in the revenue growth yet. So we do look at that as an investment of how do we shift prioritization, how do we change incentives to align to the structure, as I described. How do we get better insights into discounting and make sure that our net pricing is working the way that we expect it to. Those are some of the operational nature of what we mentioned by investment.

Okay. And then as you think about tying that into the margin case, and you guys had pretty decent cash flow there. But from an investment standpoint, I agree [Technical Difficulty] going through this portfolio and thinking about where they should be, is the typical rule of 40 sticks with you guys? Or is that not is that not appropriate?

Yes. Yes, for sure, it is -- for sure, it is. And we view ourselves as a Rule of 40 organization. I think if you do the math and add it up, I think we're just short of that right now. And there's a reason for that, right? We've talked about investments that have brought the margin down from historic levels hovering in the low 30s rather than the mid-30s. And on top of that, we're talking about a year where we've got low single-digit growth versus where we really think the company should be in the high single digits and double-digit growth over the near to long term.

So absolutely a Rule of 40 company. I think what you're seeing right now is a product of -- we've got a bit of a transition year. We've set guidance that we think is appropriately conservative and also aligned with the trends that we saw exiting 2025. And we're making some investments that and continuing to make investments in the company that we think are really going to catalyze that long-term growth.

And on the guide, it assumes roughly about 100 basis points of contraction. Is that from the investment side? Or is that from more of a mix?

No, it's -- that's more from investment again. I guess what I'd tell you, too, is that on the call, we mentioned that we've already found $10 million of cost avoidance in the plan. So what we're indicating is that we're thinking, although we guided 30% to 32%. Last year, we guided 30% to 32%. We came out on the high end of that. We'll exercise the same kind of discipline as we march through 2026. And we do think there's cost opportunity there. So we wanted to signal that on the call.

Okay. That's great. Appreciate it. We got 10 seconds here, mostly we end up...

Thanks a lot Luke.

That's great. Thank you.

Appreciate it.

Great. Good morning, everyone. Welcome to the first session of Leerink Global Healthcare Conference. I'm Mike Cherny, the healthcare tech and distribution analyst. It's my pleasure to have with us, Certara. John Gallagher, CFO; David Deuchler, who does IR, sitting in the audience. John brought no slides, which makes me happy.

So let's just jump in. I mean, so you just reported and you had some interesting moving pieces, I would say, on your guidance and the outlook for '26. Can you talk a little bit about some of the assumptions that you have embedded both in terms of where you see the market right now and where you see Certara's execution within your client base?

Yes, sure. So we did. So we just reported on the -- at the end of February. And we were pleased with the fourth quarter when it comes to revenue and EBITDA. It was in line with our expectations, organic software revenue for 2025 came right in the middle of our original plan at 7%. So that was good on a profitability basis. We were at the high end of our original EBITDA margin guidance at 32%. So that too was in line or even above expectations as we ended the year. So all positive things. But as we looked at the bookings and some of the trends coming out of the year, there was some deceleration in software.

Our overall guide for revenue growth for 2026 is flat to 4%, and that's comprised of what we see as a -- there's an organic TTM software bookings business last year that was about 1%. There's a high correlation between bookings and forward revenue. Fourth quarter software bookings were a minus 6% year-on-year and we saw deceleration. We called out customer dynamics that were related to both the Phoenix product on some of the big pharma macro customer reprioritization that, that whole dynamic reduced some seat licenses in Phoenix. And then perhaps even more of a driver was the study count on Pinnacle 21. So study count is a lagging indicator. So slower clinical trial starts from 18 months ago. As they begin to finish, they're now hitting Pinnacle. And so those were a couple of the drivers of why software bookings were minus 6% on Q4. And that's one of the key reasons why we ended with an organic TTM software bookings of 1%.

So what that means is despite the strong finish to 2025 on a revenue and EBITDA perspective, as we looked forward, there was some -- the current trends that we were exiting the year from a bookings perspective would have the software number lower than you might otherwise expect. On the services side, we've been -- if you look at service revenue over the last 3 years, we've been a low-single-digit growth, about 3% revenue growth. Now we had a very strong month of December in services bookings, and that's good. That's actually going to be my response to your question on what the end market looks like. But -- but we have seen budget flush-type seasonality in years prior. And despite that, still end up with a low-single-digit services number.

So when you take those 2 things together, you've got a software business whose bookings and trending would indicate a low-single-digit number, and you've got a services business that's been in that range for a while now. And that, along with a little conservatism is what gets you to the 0% to 4% guide on the year. Now the end markets. So strong bookings in Q4 in services. And we view services as an area that does have more discretion by the customers. And so an uptick in services bookings is we believe it's a good indicator of at least stability in the market, if not a bit of a tailwind and we saw that with Q4 services bookings, not only in regulatory, regulatory was a spot where we saw that, but also in biosim services, which was good. So that's a positive.

But -- we also take a little bit of pause as we look at -- if you look at the quarters on services, we had a low quarter in Q3. We had a high quarter in Q4. It is lumpy when you look straight through that. TTM services bookings were about 5%. So that's important to keep in mind. So we do see -- as we look toward the remainder of 2026, we do see and expect a stable end market environment, maybe even some tailwind, and we think that there's opportunity. You touched on this, too, Mike. We think there's opportunity in execution also. So we've got a new CEO in Jon Resnick, who's come with a fresh look at the organization, and we called out for the first time that we think that not only are there end market dynamics that are impacting the organization, but there's also some things that we can change operationally and execution-oriented commercial approach, all of which are obviously within our control and something that we think we can inflect and drive change to the organization starting now.

And I definitely want to get to the new leadership dynamics. But maybe just turn back on the product side as you think through the end of the year into this year. You talked about Phoenix and Pinnacle seeing some softness. You did talk about Simcyp services being stronger. And so as you hear the demand dynamic from clients, it's no surprise that it's been a bit of a push and pull across the entire market, like how are you seeing prioritization on some solutions, knowing that, again, you did reference clearly on the call that Simcyp and regulatory services did see some nice acceleration. Is it just a matter of where the majority of your client base is in the various different prioritization? Is it a trial dynamic? Like what is it do you think that drove some of those levels of strength?

Yes. I mean customer demand for MIDD, Model-Informed Drug Development or biosimulation is strong. And you see that -- what I didn't call out as I was talking about some of the areas that drove us to a flat to 4% guide were -- the areas I hadn't called out were Simcyp or QSP or PBPK services. Those are -- Phoenix, when we look at the cloud version of Phoenix, which we've seen really strong demand for starts to bring in AI capabilities into it too as customers shift off-premise. These are all core biosimulation or MIDD offerings, where if you look at what's growing the fastest in the organization, it is QSP, Simcyp, PBPK services. So there's -- there's areas of both software and areas of services that are fast growing. And if you look at those 2 together, you would see a stronger growth profile than what you see on the company as a whole. And that's because within software, and within services, there are also some slower growers that are partially offsetting it.

So let's turn to the leadership change. You brought in Jon Resnick, aside from complicating the Johns in the organization. But brought a very different profile, commercial first, obviously, broad reach across the biopharma world. As you think about some of the initiatives that he's putting in place off the bat, how would you think about the commercial execution, call it, offensively versus defensely, i.e., where can you go and execute better versus where you had performed versus where are there opportunities where you're already building on strength within the commercial engine?

Yes. Yes, yes. So maybe the -- I'll start with the last 1 first, and then we'll come back to the operating one. What are the opportunities which are more closely linked together our software and services offerings for the customers. No 2 customers are the same. Even within big pharma. There's quite different ways that they utilize the software and the services and one of the opportunities that we see is taking a more customer-centric approach. So Jon Resnick brings with him a strong commercial background as well as a strong focus as he's joined Certara now on customer centricity. And we believe that bringing together both the software and the services in a more uniform way to address the customer feedback that we're hearing directly on an individual customer-by-customer basis is an opportunity to try to sell more of what Certara has to offer at the point where the customer wants and needs it.

So that sort of a lens as to how we're looking at it. Operationally, what does that mean? That means we need to align incentives. So the organization -- the organization's incentive programs, much like we report software and services. the reps -- including even the consultants inside the organization are mostly incentivized around wherever they happen to work and unifying the incentive structure so that there's a more seamless blend between the software offering and the subject matter expertise that goes along with it. We think is an operational opportunity for us. If you think about popular terms like human in the loop right now, Certara is a perfect example of an organization.

We are not a pure-play software company. We're not a pure-play services company. We offer software that requires a human in the loop in order to execute or deliver that software. And certain customers' needs, depending on scale, appetite, spend, profile of the organization has a different or a varying level of need when it comes to which software they need as well as which service they need to pair with it.

And then thinking about along those lines, the investments you're making, whether be it commercial, be it R&D oriented, your guidance assumed incremental investments, yet still a fairly similar EBITDA margin versus what you put up previously. So how are you thinking, especially with a new CEO about that balance of investing in the commercial organization, investing in the R&D infrastructure against still maintaining extremely healthy EBITDA margins.

Yes, yes, yes. We -- so you're right, Mike. The guide is the same as it was last year. So the EBITDA margin guide is 30% to 32%. Of course, last year, we came at the high end of that. So we have proven a track record of being able to navigate investing in R&D. You saw an increase in R&D spend last year, which was intentional as we were launching 3 different new software features or new software products in Q4 while we also maintain discipline around other pockets of the P&L to hit the high end of that guidance. Some of the prepared remarks that we made on the call were also a signal to appetite to do something similar this year. We do have to make investment. So the reason we just didn't guide 32% is we do have to make investment in the organization. It's in our -- it's primarily in R&D. It's in Model-informed Drug Development and biosimulation, to continue to roll out features and functionality. I think the AI features and functionality that we just included last year, Certara -- we'll get into these with Certara IQ, Phoenix Cloud. We got to do more of that, and that's part of the plan for this year.

So that spend that's going to go into R&D. And we're leaving room as a management team to be able to make those investments. But you can also see that there's a commitment that we're making. We said in the remarks that we've already found $10 million of cost avoidance as we look at the plan for 2026. What does that mean? That means we're making the investments that we need to make, but we're also -- just like we did last year, being disciplined about other areas of the P&L and making sure we have cost efficiencies to try to put us not only within that range, but hopefully toward the higher end of that range.

You mentioned AI. I mean I have to come back to, but it obviously wouldn't be a discussion or a conference without all things AI. So maybe just to level set for everyone because I know there's a lot of moving pieces. Where do you feel right now Certara is using AI appropriately within the MIDD world. And if you think about either your product pipeline or other planned investments, what comes next in terms of what Certara needs to be adopting within Phoenix Simcyp, any of the platforms. But maybe just walk us through the AI strategy for lack of a better question.

Yes. So the AI strategy. So we are -- we -- of course, we acquired a company called Vyasa all the way back in 2022. And we've been weaving Vyasa AI technology into Certara since that time, which we were very proud to be able to launch Certara IQ in Q4, which is that's a software, AI software for QSP or Quantitative Systems Pharmacology, which is the fastest-growing area of biosimulation. So that -- that's a very strong signal of the success that we've had in taking the Vyasa acquisition, the technology as well as now our Chief Technology Officer, was the founder of Vyasa and leading that technology through the organization. So a couple of proof points are Certara IQ, as I mentioned, for QSP, Phoenix, we have data visualization functionality within Phoenix Cloud now, and we think that's a really good inducement for customers to move off of the desktop and into the cloud version. And we've seen -- we've seen strong interest from customers.

So we feel optimistic about the conversion from on-prem to cloud for Phoenix, and that's going to bring the AI technology with it.

So if I can stop you just for a second. So can you give us a real-world example. I'm not asking for a pharma company name. But for a client that you're engaging with on Certara IQ and Phoenix Cloud, what does their spend look like before and after a sale and how much of the before was with Certara versus some other solutions versus...

Cloud as an example. So the functionality that you can get in Phoenix Cloud that's not on the desktop version are, as I mentioned, data visualization, which is basically plotting and tables that can happen instead of doing them manually. They're happening in an automated way as you would expect with AI functionality. So what customers what a customer spend profile would look like as they're buying seat licenses for the Phoenix product, and they were maybe getting it on a desktop version previously shifting to cloud. Of course, since Certara is hosting it, then we do get some price opportunity because there's more value for the customer there. And so their spend profile would tend to go up overall but the value that they're receiving is really that's what's enticing people to come over.

And why for Certara IQ was QSP the right area to invest to grow in? What about that part of your market because I've always been impressed that Certara just touches a lot of different parts of the R&D process. Was there a strategic reason you decided to expand there beyond the Vyasa acquisition? Like, how do you think about that being the right area to further build your AI platform?

Yes. Good question. So Quantitative Systems Pharmacology or QSP, as I mentioned before, it's the fastest-growing area of biosimulation. And Certara has the leading practice there. So remember, you might remember back, we acquired a company called Applied Biomath in 2023. We combined it with Certara's existing QSP practices, all services. So these are subject matter expert scientists, we combine together to create the world's largest QSP practice. So all of these consultants are delivering QSP services to our customers. But there was no software associated with QSP unlike PBPK services that have a Simcyp associated with them, there was no associated software with QSP, and so it naturally became an area to find efficiency with this world-class QSP practice area that we have to try to put software in place using AI to speed up and streamline the work that our QSP consultants can do themselves for higher throughput inside of our organization and also to be able to sell it to customers, too. So it was naturally an area given the high growth in QSP, this was naturally an area we want to invest in.

And as you think going forward, how much of what comes next in AI, stuff that you want to build yourself versus potentially partner with knowing as well that part of your value add over time has been that you have this extremely rigorous scientific knowledge base with your people. I remember joking it was Dave told me the first time we spoke, like you have people that run software because we're not smart enough to do it. So like how much of the process over time becomes that you have bots' agentic capabilities that can help complement and/or replicate those people?

Yes, yes. Yes, yes. It's -- you heard me use the term human in the loop before. I think Certara is a very good example of that because it is true that the software that Certara sells to our customers does require a high degree of scientific expertise as well as not only acceptance by the customers themselves, but acceptance within the regulatory bodies, too. So the key value proposition that we offer is that we have the software. We have the expert in the loop scientist experts to be able to help operate that software. And then there's also regulatory acceptance on the other side of that, meaning the FDA uses our software, and they understand it. And it's the combination of those things together that really creates the competitive advantage for Certara to be in a market-leading space here.

So we tend to build on the model. So not so much partnership, you really haven't seen as much partnership. That being said, given how active the market is and how fast technology moves, we're obviously looking at forging important partnerships with leading tech organizations, and you'll hear more from us on that. But generally, the strategy for us has been the software, the subject matter expert scientists in the loop and then the regulatory acceptance on the other side.

So maybe sticking on slightly different term of market evolution is the whole concept of animal model studies and the future of animal model studies. How do you view the role of biosimulation in a world where animal model studies might become less focused on, less relevant or I know there's been some pushes to potentially get rid of them, in certain cases, where does Certara fit in, in that evolving world?

Yes. I mean we're in a leadership position there. So this is -- it's a tremendous opportunity for the whole practice of modeling and biosimulation and of course, Certara is the market leader in biosimulation. So we're well positioned for this. We're very excited about the future. We think it's absolutely the right thing to do. When you think about the failure rate of drugs and the amount of R&D dollars that are spent to bring drugs all the way through clinical studies and fail slowly and the ability for biosimulation to help biopharma companies fail faster, understand what's happening faster, make adjustments, save money, save time. We're well positioned for that.

Now the counterbalance to it is that the pharma industry thinks in decades, right? There's -- it's a long cycle time. There's risk aversion naturally. We've said that nobody is going to get fired for running a typical clinical study. And so what we're up against really is just the adoption curve here. And so it's not going to move as quickly as Certara would like it to. I think that -- but -- but clearly, the industry is going to move toward more modeling. It only makes sense to use this type of technology to shift away from animal testing. Animal testing doesn't really inform the clinical study as well as computer models do.

Is that an active part of the strategy, basically positioning biosimulation for a world where an models don't exist?

Yes, yes. And in fact, we just had a good discussion on QSP. So the areas within Certara that are most ripe to help this shift using NAMs would be would be Simcyp, PBPK services and most predominantly QSP, so we just talked a lot about how we've grown the QSP practice. We put in software associated with QSP, that area of the business is going to be the biggest benefactor of the early signs. And so some of the early signs are there. We're seeing our fastest-growing areas of the company are the areas of the company that are associated with NAMs. So there's some optimism, but we don't want to -- we don't want to suggest that this shift is all going to happen inside of a year, though, either.

I think that's probably the right assumption. Coming back to the market and your position in the market, I mean you gave some great color on product demand relative to the bookings. What are you seeing from a end-state demand from disease categories. It's been some of the prioritizations that we've seen market-wide have been on categories that like cardiometabolic where people may have gotten too far ahead of themselves and the amount of trials. Some of it is just natural failures that come to the market. As you think about the push and pull, is there anything you can call out on the end disease state that has been a point of either strength or a point of challenge?

Well, the good news for Certara is we -- our work goes where the customer goes. So like to your point, Mike, there's been shifts in focus by biopharma companies, and that happens iteratively over time. And the good news for Certara is that we do the work where the work exists. And so because of the long-standing history of the models that we have, so there's multiple organ models and then the scientific expertise that we have on our teams are diverse then wherever the focus is of the biopharma company is where Certara meets them.

And so along those lines, as you think -- you work with so many pharma companies. And as you think about what they're telling you from the prioritization side, where do you see the level of visibility on your end, given that it's a translational approach. And obviously, if your customers are uncertain that leaves uncertainty for you, like you talked about the potential for green shoots this year. I obviously don't want to get ahead of ourselves, but like how are the real-time discussions occurring there after the bookings performance? And what is -- if there were green shoots, what do those green shoots look like?

Yes. Yes. Well, we do see the market as being stable this year. I talked about some of the some of the customer dynamics in the large biopharmas are the Tier 1 customers being basically the key causal factor for some of the weakness we saw in Q4 bookings. The flip side to that is we've seen Tier 3 or the biotechs perform really, really well throughout last year. Some of that was related to the funding environment easing and some tailwinds there. We've seen recent results would suggest that's continuing, if not accelerating. So -- that's certainly a positive sign that will continue to have a tailwind as it relates to Tier 3 customers. And as it relates to Tier 1, we see stability there. We think that a lot of the volatility that have caused some of the reprioritization, headcount reductions, even the study counts that I mentioned before, is really in the past.

Now does it -- does it affect our near-term revenues associated with slower bookings? Yes, we talked through that. But overall, as we look at 2026, and we look at this year, the most notable comments we can make about the end market is that we see it as being stable, if not getting better.

We talked a bit about the commercial strategy under new CEO, Jon Resnick. You've also sprinkled in some of your M&A history. This has been a company that has been fairly successful at bolting on new technologies, new services. As you think about where you stand right now, how much appetite is there for further M&A against the backdrop, too, of the ongoing regulatory writing strategic review?

Yes. I mean we have a strong balance sheet, good cash position, low leverage. As you mentioned, Mike, we've certainly proven a good track record of doing tuck-in type deals for the organization. And we continue to scan the environment to see what potentially could be a good fit. You mentioned Reg. Obviously, Reg is still under discussion with a new CEO. Obviously, it's worth taking a look at that. So more news to come there. But that process does not stop us from looking at M&A opportunities. The other thing I'd say capital allocation-wise, too, is last year, for the first time, we added share repurchase. We have a share repurchase authorization. We executed on it, on a piece of it last year, but not all of it. We still have that outstanding. As we look at the stock price and where it sits today, then it's -- that's also a meaningful vector for capital allocation, particularly at today's levels.

Anything I didn't ask about that you think is particularly important to people. I mean, it's interesting that you guided below where the consensus expectations were, yet I think it was also setting an appropriate level to build off of. So I mean you talked about the level of conservatism, like how do you feel Certara positioned right now heading into '26 with stabilizing markets? Where are you most excited about the business?

Yes. What I'm most excited about this year is that we are making changes inside the organization related to how we operate, how we work together, how we want to incent the organization, where we're pointing it, what results we expect to get on the other side of that. And those are all things that as you listen to us speak as a company that we control. And it doesn't take a multiyear effort to inflect change there. And so I'm excited about some of the execution and operational initiatives that we have in place inside the organization that I think can hopefully set us up for a good year this year, but that being said, you have to look at the trending and you have to look at the actuals of the business. So we guided the way we did based on what those TTM bookings were telling us.

Makes sense to me. John, all right. Thank you so much for joining us.

All right. I think we're going to get started. Welcome back to the 42nd Annual TD Cowen Healthcare Conference. I'm Brendan Smith, one of the tools DX analyst here. And I am joined today on stage by management team from Certara. So to my left is the CEO, Jon Resnick. Jon.

Welcome. Thank you, Brendan.

And to my left is CFO, John Gallagher.

Hi, Brendan.

Good to see you guys. Thanks for joining us. So as with all of our other fireside chat sessions today, if you've got a question or anything, do feel free to kind of flag me or you can send me an e-mail at [email protected] and we'll try to weave it into the conversation here, but obviously no shortage of topics to discuss today.

So Jon, maybe I'll just kind of hand it to you upfront to kind of give you a chance to introduce yourself to folks from your seat, I know you stepped into the seat January 1 of this year. So you all reported last week as well. So maybe give us 10,000-foot view of how it's been so far and maybe kind of honing in the conversation, feedback to the print last week.

Yes. Sure. Thanks for inviting us here today. I appreciate it. And I'd also reiterate if there are questions, I'm happy to take them and make this dynamic. I'm on day, I think it's 61 or 62. So still new, but I think we're moving from the fact finding and asking question standpoint much more into the solutioning and how do we move this business forward. So I think March 1 is a transition in terms of the way we're approaching it.

We got through the print. And I'd say, overall, the team has been incredibly accommodating. They've been incredibly thoughtful in terms of working with me and helping me to get to understand the business in very quick speed.

What I hear from them is not only great pride around what they do day in and day out, but also an appetite to do things differently and appetite to kind of what I refer to as kind of stepping up the bar internally on our operations and our execution. And I have a team who's highly engaged and ready for the journey. We -- I think my kind of initial observation from looking on the business was what a phenomenal set of tools and gems and people kind of knew that in a sense coming in that there were all these kind of market-leading products. But as you kind of sift through the organization, you have one-off conversations.

There's just so many great nuggets of expertise and potential and capability. So I come in extremely kind of optimistic and clear eyed in terms of what where the business sits, the opportunity in front of it and what it's going to take to help move us to the next step.

Great. So maybe we can kind of start with the platform itself, right? So I think looking at all the different kind of product offerings, Certara has really put together over the past few years. What would you kind of say and point us to as kind of a couple of the ones that are the most important growth drivers for the software business, really maybe over kind of the next 2- to 3-year time horizon. And help us understand what's some of the thinking that goes behind your selection there?

Sure. So I'd point to -- there's a handful of things. Like there's a world-class team. We've got a handful of market-leading products that are well established in market with both growth potential and great capability. We have a ton of opportunity to connect assets in a different way and to really to drive a lot of innovation through it. And when I kind of step back and look at the business, we kind of contort ourselves externally to report what's the software and what's the service. What I really see is a business that performs extraordinarily well against the key thesis that I think most people are most interested in, which is that intersect between technology and expert service-based pull-through, particularly on the MIDD side, so the MIDD side of the business and the biosim side, somewhere around 2/3 of the business is in very, very good kind of financial shape has a great runway in terms of market capability, thrilled with not only the quality of the products, the quality of innovation, but also the experts that wrap around that capability.

I kind of intentionally said the service first stack, because I think this is reinforcing in execution. And I think as you think about businesses moving forward, suddenly, no one wants to be in a pure software business anymore. I don't think this has definitely a SaaS profile to it, and we're happy to sell the SaaS pieces, but what makes this business very distinct is the intersect between market-leading products and world's leading teams in terms of scientific expertise.

So I mean you mentioned earlier, as you've kind of been meeting the team broadly, you kind of felt it like probable energy to innovate here and to kind of keep things moving forward. And so I guess now stepping into the seat, really, what are your really key strategic priorities as kind of a new CEO here? And how are you planning to kind of do things differently to really maximize the opportunity for Certara?

Yes. So look, I think companies go through a cycle and Certara has done very well historically, I think getting to this point. I think one of the reasons where I was brought in is because my expertise and where I've led business in the past is probably at a different level of scale. So what I've been focused on is how can I take the different pieces and I intentionally use that word of this company with a great legacy and really start to think about it as a platform for growth on an ongoing basis. So how can I bring kind of management, scale, expertise, how can I bring a bar for operations, which is very high to the next level to help drive this company into that next phase of rapid growth.

I think, what I called out in the initial call, and I'll reemphasize here, probably 3 areas: one, strategic clarity in terms of where we're going to be investing in on an ongoing basis. We've got a robust platform of existing products and products in development. Lining up resources against those investments and where they're going to go more on the MIDD side of the business, helping to build out a more disciplined product management culture, injecting customer centricity, helping to bring that common footprint to partner, not only with the power users on the client side who are the key users, but to bring those capabilities more broadly to fit into clients need to disrupt the $260 billion of spend and 96% failure rate, some clinical trial execution, how do we bring those capabilities more centrally.

And an operating cadence and an operating management that will allow us to pull that through in a consistent measured basis.

All right. Great. So I guess while we're on the topic of kind of maximizing the platform opportunity here, let me kind of just get this out of the way and ask you about the regulatory services business. Give us a sense. Okay, so where are you at kind of in the process of understanding the future of that business? And how should we kind of think about the cadence of updates for this moving forward?

Yes. So you're not the first person to ask me that question. This is, as I understand it, day 512 since the process was announced. Look, I've been at it for 60 days. I think I came in and took a fresh look at the opportunity. And I've kind of been careful the way first of all, I'd say every banker called me when they -- December 15 when they saw the press release and said, you have to sell this business, you have to sell this business. That was the clearer refrain from everybody in the space. The entire market, all your investors want to do it. So as I said to a couple of people today, my immediate instinct is, well, they're all telling me to sell it. I'm going to keep it because that's -- everyone like to be a little bit contrary in the way that we think and the way that we challenge people. But like, I came with fresh eye.

On the pro side of the business, it is a business that delivers high profit to us despite the commoditization pressures that exist in the generative AI side of the world and some of the revenue compression, it continues to perform. We had a 1.5 book-to-bill in December in that business. So for a business that everyone says this, disappearing, it faired, I'd say, reasonably well in the quarter. The flip side is -- look, it's on the wrong side of AI-generated trend, although we're not seeing that evidence quite in clients.

I think it's more moving with cycles in the market. And as a compressor over the last couple of years, it's held back our top line growth rates, which I also know a lot of investors are looking for, I'd also echo kind of point 3, that there seems to be a message out there that it would help prove the point of strategic focus.

I don't know if you need to do it to prove strategic focus, you can redeploy the resources in a different way. All that said, at the right -- what I need to ensure and what I've been working through over the last couple of weeks is to make sure that the economic value received through any strategic review process would be commensurate with the value, I think that it provides to our business. And we hope to wind down that process in the next couple of weeks. So I said nothing in 2 minutes.

No. But, I mean, I think a lot of the running commentary around this, obviously, last year was just tough for the sector overall, right? It's not exactly an ideal seller's market in many, many capacities, right? So it feels like -- is it fair to kind of say that as some of the biotech pharma funding environment starts to at least equilibrate, stabilize a little bit this year that you have a little bit more leveraging power in some of those negotiations and conversations you're having?

I think it's coming off a 1.5 book-to-bill. I think it's subject to some of the broader rebalancing components that happened in broader pharma. I also think that it's proven itself to be more resilient to the generative AI thesis, which is dominating so much of the narrative out there than one I would have anticipated. So I do think, and it produces a fair amount of gross profit. So all those things considered, yes, we will be judicious in what we do, and I do believe it is worth a fair amount.

Okay. So maybe now pivoting to kind of the remaining core aspects of the actual software platform itself. You guys put out a press release this morning, talking about essentially Assembly, right? So maybe talk us through, first of all, what the real kind of impetus behind putting that out this morning was and what -- how we should think about that as representative of the value add that you see for the platform itself for the customers?

Yes. I've been here all morning. It was the Simcyp press release that went out today. Thank you. I'm glad you can break the news to me. So look, Simcyp continues to be a core component of our strategy. It's core to the MIDD component, working hand and fist with our PBPK services capabilities continues to, we believe, to be the market-leading product in that space.

Release cycle is periodic. This was one of the major releases, the functionality in here is very consistent with what our consortium members are asking for. So we believe it adds incremental value, incremental investment, again, in the area, which I see higher growth and higher potential, which is that core kind of biosim MIDD space. And I think what you'll see from us in terms of communication over the next weeks and months is us explaining a lot more about our portfolio, explaining a lot more about our ability to kind of scale, not only AI, but the broader biosim MIDD thesis.

So I think you're seeing a little bit of the beginning of a pattern of us getting clear messaging around the growth engines that we have within the business.

Can I ask about also because we had a pharma R&D investments panel just yesterday afternoon. And I think this conversation around kind of buy-in from FDA from regulators overall to a lot of these software platforms is increasingly kind of boiling up to the top of the conversation too, right? Just as more biotech and pharma companies in general are leaning into some of these frankly, with their own, I'd say, limited experience in many capacities, it feels that kind of buy-in from regulators is pretty critical point of differentiation that not many folks in the space actually have. So can you maybe just speak a little bit to kind of the relationship with the FDA that you have through some of your offerings? And how -- first of all, does that come up in conversations with customers? But how you're planning to kind of leverage that moving forward as a whole new kind of cadre of folks come into the space?

So, first of all, I think if you look at the environment and the general secular tailwinds in the space, I think they're very positive overall. I think if we look at the FDA Commissioners' comments over the -- both in the week of JPM and New England Journal of Medicine and NAM discussion from last year, all are very positive to what we knew. One of the questions I get a lot is rate and pace on that side of things. Like if you're putting out these big proclamations, when do we see it burn through, and pull through the business. You got to remember that I'm sure the panel up here strategically interesting, but it takes a while for change. No one -- it's difficult to break. It's break the model in which people execute. So it takes time and energy.

If I look at forward indicators like our QSP business and some of those businesses that would directly be on the innovative front. We're seeing a huge uptake on that side of the business, which to me is proof that some of this innovation is pulling through, and is kind of booming that segment of the business, which I discussed before. In terms of regulator assets and regulator relationship, we're, I think, very blessed and pleased to have relationships deep with more than 20 regulators around the world.

I think having the fact that there's trust at all levels really helps facilitate the conversation, not only between ourselves, but between the biopharma customers and the regulators. It helps also make our products to be preferred products within the 4 walls of the biopharma customers. So I don't want to speculate against -- around others in market and others, I don't think it's appropriate. But I think we're very proud of the relationships we've built over time. We think that they're distinctive. We think that they're incredibly helpful in ensuring that our clients are successful and that the easy communication between our software assets and our people and that kind of virtuous cycle is very helpful in enabling the best science to carry the day.

Okay. So maybe let's now kind of pivot to the actual earnings print and outlook for 2026, right? So on the Q4 earnings call, you kind of highlighted expectations for roughly flat to 4% growth top line revenues for 2026. Help us kind of unpack what some of the assumptions are kind of underpinning that and really contextualize this as we come out of 2025, right? What are you kind of watching for to help guide some of those assumptions?

Yes, sure. Thanks, Brendan. So we were pleased with the way that the year ended when you looked at revenue and EBITDA, then we had good revenue growth came out at the high end of the EBITDA margin guidance at 32%. So those were all positive. As we looked ahead at the guide, one thing that was notable is we did -- we saw some deceleration in the software bookings. That was due to some customer dynamics with big pharma. We talked about some seat license reduction in Phoenix. There was some flatness in Pinnacle related to the study counts. Those were a couple of the key drivers.

In addition to execution, we talked a little bit about execution, too, where we think there's opportunity to do more and do a bit better. So -- but we did see some deceleration in software. So that was one angle to look at how do we approach in 2026, TTM software booking is about 1%, that would lead you down a path that would get you to low single digits for 2026. Despite all of the good initiatives that we've got underway, and with Jon's presence here, there's some execution oriented topics that we're going to work through.

On the services side, if you look back at the last several years, then it's basically been about a 3% grower in revenue growth on a year-over-year basis, we had very strong bookings exiting the year. So Q4 services bookings were 17%. That was across both biosim services and in REG. So we were pleased to see that acceleration that happened really in the month of December, and we think that it's a good signal of discretionary spend at our customers.

And we also saw it come across customer tiers, including Tier 1, where we've had some challenges during the course of last year, but at the same time, it was a seasonal Q4, which is typical for the business. And so as we looked ahead, looking at low single digits for both software and services made the most sense.

Can I also ask, I know around this time-ish last year, the FDA puts out the conversation around NAMS. Brands is kind of left, right and center amongst you guys and a lot of your colleagues for a lot of last year. And I think there's -- to your point, it takes time to move the direction of the ship in many respects, right? But you had mentioned that you had started to feel a number of new inbounds from customers directly related to some of these NAMS initiatives. So help us understand like, first of all, what's kind of the status of a lot of those conversations? Are you still continuing to see a steady kind of cadence of new inbounds tied to that? And then how should we think about potential inflections in revenue tied specifically to some of those initiatives?

Yes. So maybe I'll start. And the -- so what we said when that came out, a couple of the key areas to look at that we pointed to areas of Certara that we already had in place would be Simcyp, performance on Simcyp as well as the QSP business, or Quantitative Systems Pharmacology. Both of the -- both Simcyp and QSP had really strong years. So despite what I just said about some of the bookings exiting the year and how that leads us to a low single-digit growth led by a couple of other products, Simcyp and QSP really had great years. QSP is the fastest-growing area of our business right now. And so the undercurrent of what's happening related to NAMs, albeit we'll have a longer tail to it, I think, than anybody really wanted. We are seeing the areas of our business that are touched by NAMs are growing the fastest, including last year and expectations as we look ahead in '26.

And I'd also point out additionally, look, that's not the only area of regulatory expansion. By that, I mean, I think there's a lot of core use cases around things like lactation and pregnancy and organ impairment and pediatrics, which also create a lot of potential opportunities for us to do things differently as being the biopharma segment to do things differently and to drive evidence in different ways. So it's not just the NAM piece. So I'm equally as bullish on some of those opportunities.

Okay. So maybe kind of moving back just to my questions on guidance for this year, too. So you also guided to 30% to 32%, I think, adjusted EBITDA margin, right, which kind of does imply a potential step down a little bit from FY '25 margins of about 32% or roughly in that same vicinity. So how should we kind of think about the margin profile of the business over the near term? And is this something that there's potential inflection points as kind of the broader market starts to recover a little bit more in the back half of the year? Like how should we just kind of think about the evolution of that for the business.

Yes, yes, yes. Yes. So -- last year, we were pleased. We were 30% to 32% last year. That's also this year's guide. As you pointed out, it does imply a little bit of a step down since we ended the year at the high end of that range at 32%. We were pleased with the ability last year to be able to invest, yet also still manage through some of the cost structure and find efficiencies. You heard us in the prepared remarks last week, say that there was $10 million of cost avoidance outside of the 2026 plan that Jon and I are already looking at. So I guess what I'd say is this is another investment year, meaning we need to put more money into MIDD to catalyze the growth into the future, and those investments need to happen.

If you just looked at it on the surface, that would imply a step down. But we have a track record of being able to manage to the higher end of that, and we're already looking at cost measures that in the form of the avoidance that we mentioned in the prepared remarks, to try to manage through both investing in the pockets of the business where we need to invest, but also recognizing that some of those investments hadn't paid off in the way that we would expect them to and look to get some of the cost out of the structure, too.

Got it. And I think maybe tied to this, I wanted to ask a little bit more about kind of the AI fold into a lot of the existing platform offerings, right? So how should we kind of think about the impact of some of the new AI-powered launches, whether that's Certara IQ, AIDD, Phoenix Cloud. On kind of near-term revenue opportunity there? And maybe what are some of the levers to really drive that kind of through pricing increases? Is it kind of through wider customer adoption maybe for folks who are looking for that to kind of get over the finish line? Like what's that kind of look like now over the next 12, 18 months?

The well -- so we can talk AI. But just in general, we think that there are a number of opportunities both on existing products and new products. AI being a core capability. So look, overall, there's a couple of things we're super excited about Phoenix Cloud, which really launched last year, saw a number of kind of Tier 1 clients go. We have a good healthy pipeline into this year. So I think extension, the Phoenix team has also been very innovative in terms of embedding AI into its core functionality.

You mentioned Certara IQ, which is a QSP technology, which is an AI-based technology as well, which is going to help accelerate growth and whether that bleeds through on the tech side or the service side in the first full year, we'll see. My gut is that it's going to probably drive faster on the service side before it pulls through to technology in the next 12 months, but it will be embedded. Across the range of our other assets, there's large-scale AI investment. It's not something that we've talked about. And I'd say more Horizon 2, there's a range of integration platforms and broader capabilities, which I think you'll be hearing a lot more from us in the coming weeks and coming months about the role that those can play.

Now impact on 2026 versus impact on the out years, a lot of what's already been in the hopper is going to influence 2026. So I'm thinking less about revenue and more about kind of AAR impact in net new sales in the second half of this year into '27 on that side of things. But I think we remain super positive thinking that this is a very big opportunity for us to accelerate growth.

So maybe just in the last few minutes here. John, I'd love to kind of get your thoughts now, maybe zooming out just a little bit. We've talked a lot about kind of operational side of this and like growth drivers and guidance impact here. But again, we have this Pharma R&D panel discussion yesterday. And it's a type of the conversation we have quite a bit like pharma and biotech are deploying more and more money into their AI budgets. Realistically what that means can be a topic for another day, but ultimately, what the impact of that will be on their kind of willingness and interest to partner externally and to kind of leverage some of these licenses from folks such as yourself. So can you kind of speak to how you envision some of this playing out over the next couple of years as they start to feel some of the impact of their own internal investments and what that ultimately kind of means for stand-alone guys who have been here doing the work?

Yes. It's -- yes, it's a great question. So it's a slightly different spin than the question that's being asked over and over again around just AI disruption. The -- first of all, the first thing I did was not talk to the investor community. I kind of said this to you the other day as well.

I literally spent time with as many clients as I possibly could. That's what I did in my first 2 months. I talked to demo and got deep into all of our products. I talked to our product team, I talked to our product teams, I talked to our operating teams, and I talked to our clients. And I asked this exact question. How do you anticipate us being used? How do you anticipate this changing in the future?

The uniform example -- the uniform answer I got from clients was we are looking for you to help us innovate on top of your stack. That was the uniform answer. We're not looking for incremental pieces or bringing -- we're looking for you to help identify and help bring more capability into what you do. Now, that said, you can couple that comment with, okay, but Lilly just announced a massive deal with NVIDIA over the last couple of days that they're going to spend billions of dollars building out chips and do everything else.

Now I can -- I'm not going to speak specifically about Lilly, but I can assure you that when those announcements are happening, there are phone calls -- when there are announcements like that, there are phone calls to Certara happening at the same time, which is how do we take advantage of the technology and the innovation that you have and all the know-how that you have and help plug it into our new investments. And if you think about kind of the continuum of where the majority of these investment dollars are going, it's really in the earlier-stage discovery components, which is not an area that we have a high amount of exposure to. It's a little bit more on the needle in the haystack, which we welcome, because we feel like we're really good at kind of optimizing those assets as it moves closer to preclinical and helping to ensure that it gets to human quicker and through the regulatory process faster.

So we believe that we'll be an important stakeholder in those discussions as they make their own investments. I've also been around this market long enough. I'm now 30 years in this space to see enough in-sourcing and outsourcing trends and capabilities. It's great that they're building up their own capabilities. It doesn't make sense for the entire industry to build up their own distinctive capabilities. They still rely on external experts who can scale and know-how can look cross-sectionally, across it. We need to make some operational changes to be able to play both at the power user standpoint and to tap into those conversations at scale, but that's what we're prepared to do. .

All right. So maybe just in the last minute then. When you -- as you're kind of looking now ahead to '26 -- back half of '26 into 2027, how should we think about kind of the most important, lack of a better phrase, kind of catalyst for Certara, whether that's kind of new offering launches, new rollouts, updates in between earnings prints that we should be kind of paying attention to, to get a sense of like the trajectory of the business now.

Let's take first stab and post.

Yes, yes. Yes. So a couple of areas to focus on there. One would be, Jon mentioned it before, it's the cloud version of Phoenix. So we're excited about the conversion in front of us on taking our Tier 1 customers and then ultimately, our Tier 2 and Tier 3s also, but it's really being led by Tier 1 customers converting to the cloud version of Phoenix. And that is -- that's an area, where we've already seen good customer engagement. We get a few of our key customers on board, which we have, and we're expecting that during the year, we're going to see strong conversion there.

The other area I'd highlight too would be QSP, so look for us to talk about developments in QSP, both in the services that we deliver, but then also the Certara IQ software, AI-enabled QSP software, and we expect both our consultants to be able to use that, but also be able to sell it to our customers. Those are a couple of the areas that we're expecting to be catalysts of growth during the year, and moving into next year as well.

So I agree with everything John said. The only thing I would say is that we're currently benchmarking KPIs and metrics that other companies print on and what they communicate. I don't think the service versus software, bookings and revenue number is the best indicator of what we do and how we're growing. So we're looking at a range of other metrics that will get us, I think, more clarity. So I think we'll be able to answer your question a little bit better. Our software business probably should be looking at ARR over time. We've kind of done discussion today around the growth in the Biosim and the MIDD business for some of the others. There's other ways to be thinking about this business, I think, which will box us -- will stop this kind of box into the service for software.

There's a number of new more nuanced way. So we look forward to kind of socializing some of those over the next couple of months and finding new ways to communicate the value and growth.

Awesome. Okay. Well, with that, I think we are at time. So thank you all for listening in, and thank you guys for joining us. It's always a pleasure.

That's great. Thank you so much for having us.

Good day, and thank you for standing by. Welcome to Certara Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Deuchler, Investor Relations. Please go ahead.

Good morning, everyone. Thank you all for participating in today's conference call. On the call from Certara, we have Jon Resnick, Chief Executive Officer; and John Gallagher, Chief Financial Officer.

Earlier today Certara released financial results for the full year ended December 31, 2025. 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 the forward-looking statements. Please refer to Slide 2 in the accompanying 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-financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the recent earnings press release available on our company's website. Please refer to the reconciliation tables and the accompanying materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 26, 2026. Certara 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 Jon Resnick for opening remarks.

Good morning, and thank you all for joining today's call. I want to begin by thanking the Certara team for the warm welcome to the organization. I am also grateful to the Board of Directors for their trust and support. I've spent the last 30 years working at the intersection of health care policy, science and technology. where I've built and transform data technology and services businesses within the life science industry.

Joining Certara on January 1, I am genuinely excited by the opportunity ahead. As the new CEO coming in with fresh eyes, I've approached the first 50 days plus with 1 priority, listening intently and learning from our stakeholders. I have spent most of my time speaking with customers and engaging directly with employees at all levels. These discussions have been invaluable. The conversations have reinforced the inherent strength of this organization and also highlighted where we must operate differently to unlock our full potential. Everything I have seen and heard of firms 3 things. First, there is a compelling market opportunity to transform how the life science industry drives innovation across research and development.

Second, regulators worldwide are actively embracing technological solutions to accelerate drug development, reduce costs and shorten time lines. And third, Certara is uniquely positioned to lead in this evolving market. With our AI-enabled technology, data and our motto informed drug development platforms, which are deeply embedded in industry workflows and utilized by regulatory bodies. This presents an extraordinary opportunity. To capture it, we must sharpen how we operate, focus our investments and execute with greater discipline and urgency. Our historic performance does not reflect the full potential of our market.

Later in this call, I will outline our plans to improve. My conversations with our customers have made one thing clear to me. Our customers want us to drive innovation and play a larger, more strategic role. The pharmaceutical industry is spending more than $200 billion per year developing drugs with overall time lines now hitting 10 to 15 years. Now more than ever, our customers are looking for partners who can reduce total development costs, accelerate time lines, improve decision-making and respond to new regulatory requirements.

AI, biosimulation and other in silicon methodologies are expanding the relevance of Certara's offerings, validating our value proposition and opening new opportunities for us. Regulators are more favorably disposed to the use of new methodologies today than at any point in our history. Agencies are providing clear guidance and advances model informed and computational approaches and are actively encouraging the use of new approach methodologies to modernize drug development. Just recently, Dr. Martin Makary, the United States FDA Commissioner noted that computational modeling can provide more insightful perspectives on experimental design and animal testing alone. In his words, now a computer can look at a drug and actually make better predictions.

Additionally, in a recent New England Journal of Medicine article, the commissioner outlined a framework where only 1 pivotal trial would be required for approval. This creates an opportunity for developers to rethink and improve clinical trial designs and reduce overall time lines. This is what Certara is built for. It underscores the relevance of our platforms and services. Certara's credibility has been built over decades. Our 430 PhDs and MDs have directly contributed to hundreds of drug approvals. Worldwide, we have more than 2,600 customers and 23 agencies using our technologies. I see this foundation of one of Certara's greatest strengths and a powerful platform for which to lead in this expanding market.

At the same time, we have not sufficiently converted that credibility into the level of growth, the opportunity warrants and that I believe we should and can deliver. In fact, over time, Certara's business should be able to drive double-digit growth. There are 3 potential explanations for this disconnect. First, the true potential and market acceptance of AI-enabled technology data model inform drug development has yet to be achieved.

Second, external market conditions created market headwinds and/or third, internal execution gaps have impacted results. There are probably elements of all 3 of these at play. Let me address the market acceptance point, and then I'll return to discuss planned operational improvements. Through our work, we are seeing accelerated adoption of MIDD use cases earlier in research, expanded use cases across preclinical development and strategic applications in clinical and regulatory settings. Allow me to highlight a few recent examples that have delivered measurable impact for our clients.

First, a top 10 pharma company use millions of quantitative systems pharmacology simulations or QSP, to prioritize 28 drug candidates against 26 unique targets. This predicted the drug target combinations with the highest likelihood of clinical success, demonstrating how our QSP technology has the ability to drive dramatic productivity gains in the R&D workflow. Second, an innovative biotech company use model-informed approaches to justify a first-in-human dose, 50 to 100x higher than what would be supported by standard methodologies. This change enabled the earlier selection of a more clinically relevant dose, which was the basis for a successful Phase I trial.

Ultimately, this molecule was acquired. And in rare disease, MIDD opens up new avenues for developers to reach underserved populations. For example, in Pompe disease, we created virtual populations to evaluate the efficacy of a novel compound versus the standard of care and predictive clinical outcomes in these virtual patients. These examples illustrate the broader point that aligns with our mission and the opportunity ahead of us. MIDD is growing.

Now let me turn to our broader technology and services offerings and share a few perspectives. While Certara continues to benefit from a strong legacy as a market-leading software provider, it is clear that we must sharpen our execution to fully capture the opportunity ahead of us. Our 4 core franchises remain highly differentiated, deeply embedded in customer workflow and integral to decision-making across the development life cycle. Importantly, clients affirm to me that there's a limited risk of AI-driven disintermediation. Instead, they are looking to Certara for leadership to advance AI model inform development, creating new avenues for us to add value and strengthen our strategic position. At the same time, despite stepping up our R&D investment and product enhancements and new products, we have not yet converted that investment into sustained organic growth. To address this, we are taking targeted actions to accelerate our sales and strengthen our go-to-market approach and to focus our portfolio with greater discipline.

Now moving to our services business. I've been impressed by the caliber and depth of our scientific expertise and the longevity of our relationships. Our specialized services address our customers' needs and advance their goals delivering value both independently and in combination with our software. Certara's tech-enabled services continue to be a core part of our growth strategy and a critical enabler of MIDD adoption. When our consultants deploy our software and customer engagement, it surfaces new use cases and build stickier customer relationships.

This expert in the loop helps to create an innovation flywheel. Certara grows faster when our software products are integrated with our scientific expertise. As with our software business, our services execution has room for improvement. Ultimately, we need to enhance our engagement with customers and more proactively match the right solution to our customers' needs.

Lastly, we are in the final stages of the strategic review of our regulatory writing and operations business and expect to conclude that process in the near term. Coming in, it was important that I take the time to thoroughly evaluate all the options and ensure we are pursuing the course that best maximizes long-term shareholder value.

Moving on to operations. Over the last several weeks, I conducted structured reviews with business leaders, reviewed P&Ls and go-to-market plans and met with nearly 100 employees. I went deep into our product portfolio. The talent and scientific capability inside Certara is exceptional. But as I've alluded to above, I am equally clear-eyed about the opportunity to grow and to improve. We want to operate with greater focus. We must build with clear priorities and reliable execution. We must engage customers more proactively, and we must create a culture of accountability and financial discipline.

Simply put, to grow faster Certara must run differently. And as CEO, I intend to lead that change with urgency and clarity. We are moving forward with 3 strategic priorities. First, we are developing a more focused corporate strategy and product portfolio, anchored in customer needs, scientific rigor, innovation and disciplined investment. We will accelerate AI integration and double down on core R&D technologies and MIDD.

Second, we will continue to put customers at the center with deeper engagement and greater senior level involvement. We will leverage our feedback from our customers to inform product road maps, AI initiatives and service priorities. This will lead to improved commercial performance and improved revenue growth. Third, we are raising the bar operationally sharpening pricing, improving delivery and driving higher returns from our investments in sales and marketing and R&D. We will leverage AI to increase efficiency and scale our operations more effectively. Already, we have identified a path to approximately $10 million in cost avoidance relative to the initial 2026 plan.

Our team will hold one another accountable for delivering on these improvements. We believe that these changes will reposition Certara for sustainable, faster growth, and I look forward to updating you on our progress. 2026 will be a transition year as we bring change to the organization and strengthen our focus. In this context, we are guiding to flat to low single-digit revenue growth, which reflects both market conditions and the operational improvements we plan to implement. Our balance sheet and cash flow generation remains strong. We intend to be strategic with capital deployment, including executing against our existing share repurchase authorization which we view as a compelling long-term investment at current levels. Our focus will be to reinvigorate growth at Certara and drive shareholder value. With a sharper strategy a customer-centric operating model and unflinching execution discipline, we would expect a faster growing, more predictable, mission-oriented and more valuable company.

With that, I'll turn the call over to John Gallagher to walk you through the 2025 results and our 2026 guidance.

Thank you, Jon. Hello, everyone. Total revenue for the 3 months ended December 31, 2025, was $103.6 million, representing year-over-year growth of 3% on a reported basis and 2% on a constant currency basis. For the full year of 2025, total revenue was $418.8 million, representing year-over-year growth of 9% on a reported basis and 8% on a constant currency basis. Total bookings in the fourth quarter were $155.2 million, which increased 7% from the prior year period on a reported basis. Trailing 12-month bookings were $482.1 million, increasing 8% on a reported basis. Software revenue was $46.4 million in the fourth quarter, which increased 10% over the prior year period on a reported basis and on a constant currency basis.

Growth in the quarter was driven by MIDD software and Pinnacle 21. Ratable and subscription revenue accounted for 61% of fourth quarter software revenues, down from 63% in the prior year period. For the full year, software revenue was $183.3 million, which grew 18% on a reported basis and on a constant currency basis. Chemaxon contributed 2.9 million to reported software revenue in 2025, making full year organic software growth 7%, which was in line with our plan. Ratable and subscription revenue accounted for 61% of 2025 software revenues, down from 65% in 2024 due to the impact from Chemaxon, which is mostly term license software.

Software bookings were $56.1 million in the fourth quarter, down 6% from the prior year period. Fourth quarter software bookings were lower than our expectations compounded by both external factors and execution challenges. Customer reorganization and reprioritization, slower clinical trial completions and weaker pipeline conversion of new and renewal software contributed to the bookings result. Trailing 12-month software bookings were $184.3 million, up 9% year-over-year. The software net retention rate was 107% in the quarter and 105% on the year, consistent with our plan.

Looking at our software bookings performance by tier, we saw strong performance among Tier 3 customers in the fourth quarter and throughout the full year. Tiers 1 and 2 were slower in the fourth quarter, offsetting strength in Tier 3.

Now turning to services revenue, which was $57.3 million in the fourth quarter, down 1% versus the prior year period on a reported basis and on a constant currency basis. For the full year, services revenue was $235.6 million, which grew 3% on a reported basis and on a constant currency basis. Services revenue in 2025 includes regulatory writing revenue of $50.4 million, which compares to $54.7 million in 2024. Technology-driven services bookings in the fourth quarter were $99.1 million, which increased 17% from the prior year period. TTM services bookings were $297.8 million, up 8% as compared to the prior year. In the quarter, we saw double-digit growth in MIDD services bookings with growth led by Tiers 2 and 3. For the full year, MIDD services bookings grew 8%. Regulatory writing bookings grew in the high teens versus the fourth quarter of 2024, driven by solid bookings across all customer tiers.

For the full year, regulatory bookings grew in the mid-single digits. I would like to point out that we did experience better-than-expected spending commitments from our customers during the month of December, which helped drive higher-than-expected overall services bookings for the quarter. Total cost of revenue for the fourth quarter of 2025 was $39.2 million, an increase from $38.3 million in the fourth quarter of 2024, primarily due to higher employee-related costs and an increase in capitalized software amortization.

Total operating expenses for the fourth quarter of 2025 were $63.6 million, an increase from $56.1 million in the fourth quarter of 2024, primarily due to higher employee-related expenses due to our investments in research and development. In 2026, our operating plan contemplates discretionary investments in research and development, related to product development initiatives as well as minor investments in G&A and cost of sales. As Jon mentioned in his remarks, we have identified upwards of $10 million in cost avoidance in 2026 versus the prior planning.

Adjusted EBITDA in the fourth quarter of 2025 was $32.5 million, a decrease from $33.5 million in the fourth quarter of 2024. Adjusted EBITDA margin in the quarter was 31%, in line with our expectations. For the full year of 2025, adjusted EBITDA was $134.5 million, an increase from $122 million in the prior year. Adjusted EBITDA margin was 32%, consistent with 2024. Wrapping up the income statement. Net loss for the fourth quarter of 2025 was $5.9 million compared to net income of $6.6 million in the fourth quarter of 2024. Reported adjusted net income in the fourth quarter of 2025 was $14.9 million compared to $24.7 million in the fourth quarter of 2024.

Diluted loss per share for the fourth quarter of 2025 was $0.04 compared to earnings of $0.04 per share in the fourth quarter of 2024. Adjusted diluted earnings per share for the fourth quarter of 2025 was $0.09 compared to $0.15 for the fourth quarter of last year. During 2025, Certara repurchased approximately 3.3 million shares for $43 million.

Moving to the balance sheet. We finished the quarter with $189.4 million in cash and cash equivalents. As of December 31, 2025, we had $295.5 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.

Now I would like to walk you through our guidance for 2026. We expect total revenue to be in the range of flat to 4% compared with 2025. We anticipate our end markets will remain stable and better execution will drive improving revenue growth throughout the year. We expect Q1 to be closer to the low end of the revenue range related to a tough comparison to the prior year and subsequent quarter acceleration related to new initiatives during 2026 as well as easing compares to year-over-year.

We expect to achieve adjusted EBITDA margin in the range of 30% to 32%. As I mentioned earlier, our 2026 operating plan contemplates discretionary investments, which will be managed according to our commercial performance throughout the year. Adjusted EBITDA margin is expected to be lower in the first half of the year and will increase during the second half. We expect adjusted EPS in the range of $0.44 to $0.48 per share for the full year. Fully diluted shares are expected to be in the range of $160 million to $162 million, and we are modeling an effective tax rate of about 30%.

With that, we will open up the call for Q&A. Operator, can you please open the line for questions.

[Operator Instructions] Our first question comes from the line of Jeff Garro from Stephens.

Maybe start with one for Jon with your first call here. And I appreciate all of the remarks in the prepared comments about your approach going forward and a strategy for the company. I was hoping you could share a little more of your external perspective on what attracted you to Certara? And maybe more in particular, how you view the differentiation of Certara's software products and talent on the services side as something that can really be leveraged going forward?

Great. Thanks, Jeff, very much for the question. Yes, as I said before, it is great to be here. As you commented, it's been a pretty intensive 56, 57 days. I've gone as deep as I possibly could go capacity-wise, a couple of months really trying to understand pretty much exactly what you're asking about here, gone deep into kind of each of our products, probably 100 conversations, I talked to dozens of customers really trying to get a good feel for exactly how we do stand back here as a business.

I was attracted to come here pretty simply. I look at it and I look at the external marketplace, the amount of opportunity that this here, this company sits on the right side of kind of every trend, performance $250 billion per year. And and what I'll call inefficient allocation of R&D spend and they're driving demand for efficiency, regulator acceptance, and you have this company that sits there with so many assets and so many tools and such a phenomenal track record. It just struck me as an undervalued gem in this space. With tons of potential upsides and tons of potential opportunity to grow and to build that this market continues to evolve.

As I go through some of the different products, you said services, with services and software, I'd say that, first of all, on the software side, the software, I found the products to be incredibly differentiated. As you talk to customers, it's amazing how deeply embedded each of our major assets are in their workflow. These are -- there's decades of team who've grown up using Phoenix and using the capabilities that exist to do their job every day. There's a high degree of dependence on the asset. So they're not only market-leading, but just incredibly well entrenched. Equally, I think our relationships exist with 20 regulators around the world who are also using the assets. So you have this highly entrenched set of workflow used by regulators and used by the life science industry and in this kind of highly scrutinized space where documentation and validation and transparency are essential areas where they have incredibly high track record of.

So a very strong proposition. And the services side, IC is incredibly reinforcing. As I noted in my opening remarks, -- we're strongest when the technology software products and the services work hand-in-hand. This ability not only to have market-leading computational capability and work capability, but to be able to wrap the world's leading scientists in QSP and PBPK and QSS around those capabilities makes it an enduring proposition.

Excellent. Really appreciate that. And to follow up, I want to ask how a platform approach, cross-selling, integrating and automating workflows between software products factor into more customer-centric go-forward strategy. I thought those were kind of prior focus items. And maybe didn't hear as much of those in the script, but you're also speaking at a high level. So I want to you hear more on whether or not those are kind of encompassed or to what extent those are encompassed in the go-forward strategy or whether there's some kind of deeper shift.

No, I don't think you heard a radical shift in strategy. You have to kind of operate at the rate and pace at which your customers operate here as well. There's kind of -- as you look at the industry, there's kind of twofold here. There's kind of the power users who are sitting levels of organizations who we serve with distinction and pride every day, and at the levels of the organization, they're looking to drive kind of more innovation and more cross section, but that's a slow process. So our focus is going to be twofold. -- continue to serve the users who use this every day, who sit here and rely on this to do their function, and to build out a range of functionality and engagement at that more senior levels to start to work through some of those more longitudinal approaches to accelerate first in human, to accelerate regulatory time lines.

We feel like we can tap into both of these with distinction. And no, our strategy won't change. It's both going to be to develop those product enhancements that the core expert teams are looking for and to look to stitch together a lot of the assets in differentiated ways to play to ensure that the same capabilities that are happening late in clinical development can move into preclinical and into development itself.

Our next call from is coming from Michael Cheney from Leerink Partners.

Jon Resnick, welcome to the company. Maybe if I can just get into the guidance a little bit. Obviously, we all saw the bookings dynamics, and then the revenue guidance, in particular coming in below where your trend rate has been. As you think about the 0% to 4%, can you kind of give us a little breakdown of how much of it is, what you're seeing in the market? How much of it is flow through to bookings? And is there any -- at least in terms of the prioritization of revenue, strategic pullback on anything that's embedded in the specific '26 revenue guidance?

Mike, yes, as it relates to the guidance, I think about it in 2 components. One is services. Last several years, services revenue has been in low single-digit growth. Although we had a very strong fourth quarter on services, which came with a surge in the pipeline in the month of December, which wasn't necessarily expected, but it's certainly a good indication of health in the end markets, and we do expect stable end markets as we approach the guide. But nonetheless, services performance has been low single digit. And then when you combine that with a software business that had some deceleration in bookings in the fourth quarter, remind you, Software revenue in the fourth quarter grew 10%. Full year organic revenue was 7% right in the middle of the plan for the year.

So we were pleased with that performance. But we did see some deceleration in the software bookings in the fourth quarter. And so when you take that combined -- and the tight correlation between bookings and the revenue going forward, combined with the services in the low single digits, but total company expectations for 2026 in the low single digits, hence the flat to 4% growth.

And along those lines relative to the software bookings, it seems like data points around all things type of clinical trials have been at least from a qualitative perspective more positively than negatively skewed. You talked about some dynamics on decision-making, but also some dynamics on execution. Can you dive a little bit more into what encompassed the composition of the software Tier 1 bookings and the arrow that got in the deck specifically tied to what was, call it, on your side versus what was market-oriented?

Yes. Yes. So I mean on the market side, you saw big pharma reprioritizing head count reductions, slowness, as you said, those customer dynamics have an impact on, for example, Phoenix licenses. We also saw study counts down a bit, which when you look at a product like Pinnacle 21, which is which is certainly penetrated the market very fully. The studies are down, we're going to see a little bit of softness there. So those are a couple of the the points around market -- but execution also is, like you said, is a key component here, too, where we have pipeline visibility, and we didn't convert as much as we should have. in the fourth quarter. And so that's why we did call out the element of execution.

And Michael, thanks for the welcome. It's John Reznik. I again, it's wonderful to kind of look at things as very kind of fresh is and cleanup. First of all, in general, I think our view on the market is that it is strengthening, I think, consistent with what others are reporting. I was pretty encouraged by the December services bookings. From my standpoint, services tend to be a more discretionary item, which ebbs and flows over time. And independent of some of the slowdown that we saw last year or 2 years ago, that seemed to be a really good indicator for us of some opening and perhaps a leading indicator of more spend into '26.

The other thing I'd say on licensing, in particular, for things like with Pinnacle, there tends to be a little bit of a lag. You're still going to pay for the reduction in studies from a couple of years ago. I think we're all looking at the same data that licenses starting to come back up. And as that starts to rise, you'll start to see some improvement in Pinnacle as well tied to studies -- sorry, type of study. So as a number of studies that starts to late-startlift, you'll start to see stronger performance, but there's a little bit of a lag time between the 2. So look, I think as we enter 2016, I think we're cautiously optimistic similar to what I heard other peer companies and observers talk about things, a lot of the trends seem to be moving in the right direction in that December discretionary spend number is one certainly I maintain on and asking the team to work hard on the execution side.

Our next question comes from the line of Luke Sergott from Barclay's.

this is Anna Kruszenski, on for Luke. It would be great to hear more about which areas you see the most opportunity on AI enablement? And specifically, how are you thinking about the balance of investing in AI capabilities to support a more innovative portfolio versus leveraging the productivity gains to drive more near-term margin expansion?

This is -- I missed the name upfront.

This is Anna Kazinski.

So look, I think that's a great question. So AI, in general, is a huge change agent here internally. And I think we think about it in a couple of different dimensions. If we think about our software side of the business, AI is being actively embedded into all of our core assets. A good example would be Phoenix, where a bunch of bunch of modules and increased functionality are all AI-driven consistent with the way we're approaching like the other businesses. We have a handful of products that have been launched in the last -- end of last year and will be launched early this year, which also are highly kind of AI-driven products, which we're excited about, one, which was launched last year, it was Satari, which is in the QSP space, which is a very fast driving area for us, heavy kind of AI backbone to it. We're really optimistic about not only the product side there over time, but also the intersection between that and our services. We also have a number of things. There was an earlier question about pitching together. We have a number of stuff that aren't exactly offerings, but things that help stitch together stuff and more of a true kind of AI native way, which a groundbreaking and innovative.

So there's a lot of things happening on the core kind of product side, which we'll be taking a close look at and accelerating as you'd imagine, there's equally as much going on opportunities on the core execution side. So on the software development side, huge push over the last 6 weeks, 8 weeks really to make sure we're using best-in-class process running out tools, accelerating our internal time lines. That will be an ongoing effort and initiative this year to accelerate our internal bills and to ensure that we're moving at rate and speed and with a high degree of efficiency.

More broadly, on the AI side, there's a range of opportunities we see to enable our services business to help fix some of our operations infrastructure. So it will be a major push internally that we believe will drive both short-term and midterm productivity and efficiency enhancements.

That was so helpful color. And then 1 follow-up. You talked about the efforts underway to revamp the commercial organization. Just curious what do you see as the lowest hanging fruit here? And then any initiatives that will require a heavier lift.

Yes. Great. Thanks. So the look -- on the portfolio side and the go-to-market side areas and some of the typical team looking at the same data that you guys are looking at, which is our investments over the last couple of years have gone up pretty steadily, and the translation organic revenue growth hasn't materialized. So as a new leader in this business, you start to ask a bunch of questions about the shape of those investments and how you can start to optimize them, we will be focused both on the portfolio and go to market. On go to market, I think there's a couple of different dimensions of it. we talked about customer centricity, 1 key piece. How do we optimize the relationships that we have and really bring the best of the issues that they're facing into our organization so we can respond to them most effectively.

There's elements of pricing and contracting and kind of just core kind of operational elements that we have. There's an organizational focus around getting a number of our executives out in front of in front of the clients and having kind of that second order, second level nature conversation. I'm a big believer in in targeting and AI-driven productivity around kind of sales initiatives and sales efforts. And so how are we doing in terms of kind of automating our initiatives and making sure we're having the right conversations with the right people at the right time. Obviously, then there's a range of other questions in terms of do we have the right people in the right places. -- we've got a diverse portfolio with a combination of services and kind of tech services and pure SaaS offerings, which all have slightly different service offerings.

So how do you kind of rationalize across those 3 to make sure that you're you're optimizing it directly with customer. low-hanging fruit will be things like pricing and customer centricity initiative and targeting and incentives, things that you'd expect. And then more medium term, really looking to transform some of the types of relationships we can have with those clients.

Our next question comes from the line of Scott Schoenhaus from KeyBanc.

Welcome Jon Resnick. I guess a follow-up to that question in fourth quarter software bookings as you look to sort of automate the process and put these price incentives in, how much of that pipeline is very can be converted over the next 90 days? And then when can we see a bookings reacceleration on the software side?

Scott, so the pipeline conversion piece on the execution side here, we don't -- you heard in the prepared remarks, we don't necessarily see that coming back in Q1. We indicated that Q1, we expect to be at the lower end of the overall flat to 4% revenue growth guidance range. Some of that's due to a tough compare to the prior year. And then we're expecting to see some acceleration in the subsequent quarters. Some of it due to increased conversion and visibility and then some of it because the comps get a bit easier as we move through the year, too.

And as a follow-up on the regulatory writing business grew nicely in the quarter. just your thoughts there on the divestiture, the timing of it and maybe what's embedded in your services growth guidance under the goals for rating side?

Yes. Let me tackle the first question. So I appreciate a number of you have been asking about this for a long period of time. I have the luxury of 50 days or so to take a look at it. It's a -- it's a bit of a riddle here, right? So you have business has clearly been compressing year-over-year, which you'd expect, I guess, along with market trends or you kind of saw some of the dislocation in pipeline or an IRA and some that rebalancing over the last couple of years, you'd expect that business to decline. You saw that sharp increase in book-to-bill, 1.5 book-to-bill in Q4. And you have to remember, at its core, it's a pretty profitable offering.

So the first thing I did when I joined and we were active in strategic review was really look at the options on the table to ensure that we were, a, fully evaluating, for example, the contribution to that profit margin, those paid dividends in terms of our ability to invest in MIDD and invest in some of the other areas of high growth. So I wanted to make sure we had a a good hard look at that and that any potential options that we have take into consideration, not only the strengthening of that underlying business but the contributions that it makes on a bottom line basis. That said, I think we're in the final stretches here, we should have a resolution answer for you in the near term. it's something that I think everyone on this side wants to move forward with, and we're well on our way to have a clear answer for you very quickly.

Our next question comes from the line of David Windley from Jefferies.

Jon Resnickd, good to talk to you, Live and John Gallagher to you again. On the software sales, the software bookings, is the pipeline conversion there a reflection at all of customers perhaps hitting the pause button as they evaluate how AI might influence how they use tools like this? David, good to talk to you. And I have an answer t

David, good to talk to you. And I have an answer to the question you asked me on my first day here, when we talked directly. The -- look, I don't hear that. As I said, I spent a lot of time talking to talking to customers. And I asked this question very directly to every single one. And I tried to get to all of our major accounts in multiple levels in terms of the way that they were they're thinking about their technology stacks and the role that we see as Yes, is there an industry-wide set of questions about where they're going to make investments, how are they going to make investments as it does cause some paralysis on the client side.

Yes, clearly, we see that across segments and across different components. I don't think that's the issue here. nobody who I spoke to is it's thinking within that context. I think what you ended up having here is just a little bit of issues around that lag on the Pinnacle side with studies the newness of some of the new products that we have and the time it's going to take to get those to market some dynamics around the conversion as we start to convert clients to cloud, by the way, which we're very excited about, the newness of the CertaraIQ offering, which had a soft launch, which we expect to continue to accelerate in the year. So I think you've got a little bit more of a function of timing, a little bit of market events. I don't hear and I didn't hear AI as being the driver. There was -- every sales rep, every client I spoke to, there's no indication that, that that's the driver of that slowdown in Q4.

Got it. And John, or Jon R, it's maybe a little unfair given what did you say, 56 or 57 days still. But as you come into the business and kind of evaluate where do you aim sales efforts? And where do you aim innovation investments? It seems like there's -- there have been a trade-off between like later-stage clinical development and opportunities to streamline there have perhaps bigger bang for the client and bigger TAM for Certara versus some of the recent maybe acquisitions or discussion and strategy at the company has aimed at early development, say, maybe not discovery, but kind of late discovery preclinical stage in more of a capture the molecule mindset? How do you weigh those 2 options and which One do you lean into?

So that's not the question. I thought you're going to ask me that you're going to ask me the TAM vers execution question. There's definitely -- the market exists to the question you've asked me directly before. Where that was to...

If you like...

I mean I think we addressed that in the prepared remarks pretty clearly. There is a -- this market is ripe for growth. And as I said in my opening remarks, I think there's a lot more opportunity for us to drive execution here. Look, I -- whether it's on the debt side, later on in the debt side earlier in discovery, there's trade-offs of those different markets. price point side, fragmentation. There's a lot of different things that are going to play. So I think we'll be a little bit selective around how we're choosing what to do.

I think John Gallagher alluded to this in his remarks, kind of look at the core MIDD portfolio that we have. It grew in those double-digit numbers that I think, David, you'd be expecting from this franchise. So the core kind of where we're doing the biosimulation and the computational work that is 10%. Now there's a range of places you can deploy that. You can deploy that at the point of regulatory submission, you can deploy that in trial optimization and trial design from some of the case studies and examples that we're highlighting. We were intentionally pointing you earlier things use of QST that pick targets and as we kind of integrate Chamaxone and some of the different offerings that we have that are closer to the discovery stage, we think there's going to be a lot more value by integrating PBPK and QSP earlier into that cycle. So I don't know if the trade up is much around do you play in discovery to play in that as much as how can we focus around those kind of core growth areas with our strong legacy and strong differentiation. And I think those are the types of things that you'll be seeing from us over the next couple of weeks and months.

Our next question comes from the line of Brendan Smith from TD Cohen.

I wanted to follow up actually on your commentary in the prepared remarks, I know you just expanded a little bit on this, but where you said Certara would be able to drive double-digit growth over time. Can you maybe just expand a bit more on what you kind of mean there? And over what time frame do you think this is feasible? Are there maybe certain benchmarks over the next couple of years? Do you think the company needs to hit to derisk that ramp to 10%-plus growth? And maybe just related to that, Curious how you're thinking about software growth specifically over the next couple of years, just given that I think some of your peers are in the space are benchmarking about 10% to 15% there. So wondering how we should interpret that in your kind of blended flat to 4% guidance.

Let me -- John, I'm going to take a quick stab and then I'll turn to you for some of the thinking. So First of all, I think you definitely kind of picked up on the points that we were there. Look, I don't know why our expectation was to be any different than anyone else in this peer group. There are no shortage of opportunities out there. We're not going to provide a multiyear path today. We will certainly get that to you over the course of this year. We're in the process of kind of updating those LRPs and those processes, and I will give you a very clear answer to timing of our expectation at that point.

The commentary that we had today is very clearly. If you look at the opportunity, look at the potential for that as you look at the range of use cases that this can be deployed into and you look at what alluded to around some of the opportunities around just execution. There's huge windows for improvement in what we do. But we will get you those answers over the course of the year, if not the next set of calls early into Q3, we'll be providing that multiyear guidance and a clear direction and path for you. you want to add anything?

Yes. Yes. I think maybe just to add on to that, the view to double digits, of course, is predicated on all the things that John just said some help from the end markets, which we seem to be getting like when you look at the performance of the services business, as John was saying earlier, perhaps a good leading indicator on discretionary spend that we could be entering a time of at least some stability, maybe even some tailwind from the end market, combined with some of the execution points that we've discussed here would set us on that path. And we look forward to giving an update in the coming quarters on just what that time line looks like. But when you look at adoption of MIDDversus versus where we are today and the growth rates that we have today versus the market-leading position that Certara has in this space, then we feel very optimistic about the future.

Our next question comes from the line of Sean Dodge from BMO Capital Markets.

This is Thomas Keller on for Sean. And welcome, John. Maybe going back to pricing, how would you characterize the pricing environment across the different solutions and customer tours? Are there more specific areas you'd call out, we're seeing a bit more pressure? Or we're on the flip side of that. Do you see some areas where you have an opportunity to maybe better align purchase with value.

Yes. Thanks, Thomas. It's a good question. I want to answer your question directly without necessarily communicating the entire world what our pricing strategy is going to be in some of these dimensions. Look, I think there's a handful of ways to think about it. There's some core products in the portfolio. that probably should be thinking in a little bit more disciplined way around how to -- for pricing for opportunity. So there's a segment of products that fit right into that category, where I think that there is more pricing potential.

And I think it's fair and commensurate with the value of the product and the level of investments that we're putting into the products and the value that it's adding to the organization. I mean I think 1 of the question behind your question, I presume is also how has the pricing environment changing as you start to extend the SaaS model and start to extend some of what you're doing internally at offerings that we bring, we believe, add a tremendous amount of value when you -- if you look at some of the case studies that we provided today or even other things in in the public domain or on impact.

So we're having -- whether it's trial avoidance or optimize trial or the ability to meta-analysis on things considerable money, I think we think we're bringing considerable value to the -- to our clients. And we certainly are looking at how do we better align things that we do to ensure that we're participants in some of that value creation. I think the world of flat picking the world about user fees and seat licenses and other things, I think it's going to considerably over the next few years. And I think we sit in a nice spot where we can partner with clients in a more longitudinal way and kind of demonstrate areas in which we're helping them avoid cost, accelerate time line, derisk trials in a way that we can tap into a little bit more value. So that's the focus that will be going on. I'm trying not to give you the 100% detail on it, but I think we -- we have a good forward approach here, which we think will align nicely to where our clients want to go as well.

I totally appreciate some of the sensitivity there. maybe going back to the Tier 1 bookings, there's kind of a disconnect between software and services should we think about that is demand for maybe some of the regulatory services, for example, could those be potential leading indicator on the software side of the business as well? Any color there would be helpful.

Yes. Yes. Yes. The strength in the services bookings in Q4 is a good indicator of the overall market, we think, as John was saying before, it's probably a good indication of the appetite for discretionary spend. And we thought not only in the reg business, we did -- we had a strong Q4 bookings number in REG but also in BioSim services. So on both sides of that, we -- and as we approached the year looking at 2026, we enter the year with a bit more optimism and a view toward a more stable end market environment as a result of that.

Our next question comes from the line of Max Smock from William Blair.

It's Christine Rains on for Max. Hoping you can walk through the relative magnitude of the factors driving your expected stepped out in adjusted EBITDA margin in 2026. Just if it's predominantly revenue driven, maybe any head count growth expected innovation investments you discussed or other strategic or commercial change programs you've put in place?

Christine, yes. So the margin guidance of 30% to 32% is in line with the guide we provided last year, and we had noted that it was a year of investment. -- you certainly saw that show up in our R&D expense during the course of 2025. 2026 is similar in the sense that we've guided a similar margin range. It is a step down, as you pointed out, from where we exited the year, and we did a full year of 32% last year. And that's because we do have further investments in R&D related to MIDD and unifying our platforms. And these are investments that we're going to continue to make. We launched 4 new software -- or sorry, 3 new software products in Q4 of last year. We intend to continue that path of launching new software and enhancements to our existing software during 2026.

And so that's where we're at. Now I balance that with the fact that, yes, we put 30% to 32% out. Last year, I think we did -- I'd like to say we did a good job of managing the investments that clearly we were making, you see show up R&D. We find operational efficiencies and still coming at the high end of that guide. As we look at this year, we're already starting to look at how we can make the investment this year while also looking at the cost structure, and you heard John mention cost avoidance that we've looked at already in the 26 plan of $10 million.

So hopefully, that gives you a sense of how we're thinking about it. We are investing this year. You're going to see that in R&D and hence, the guide of 30% to 32%.

That's super helpful. Given this innovation ramp, hoping you can discuss your CapEx and free cash flow assumptions for this year.

Yes. We don't guide those particular metrics. But I think that what you've seen is like if you're looking at capitalized expense, then that's largely due to the R&D investments. If you think about what it is we're doing, we're investing in R&D, we're developing new software products or enhancements to our platforms, we're unifying our tech architecture, all of which are capitalizable. And as a result of that, you've seen us capitalize a bit more. So the trend that you saw in 2025 or the levels of capitalization that we saw in 2025 would be similar based on the earlier comments that I made would be similar in 2026.

Our next question comes from the line of John Park from Morgan Stanley.

I'm on for Craig. Earlier in the prepared remarks, you talked about matching the right solution for clients. Do you think you have all the pieces together when it comes to personnel or IP? Personnel or IP, is that the question? Yes. Or like what -- do you think you have all the pieces together to really find the right solution for clients.

look, I think anyone would say they never have all the right answers. I mean that's the honest answer. This is a dynamic space with a range of rent things. But I think we feel pretty done good about our ability to respond to a range of questions. I think strategically, we always kind of have our eye on what else is out there with complementary capabilities to what we do. But there's no shortage of ability for us match kind of client demand, you take the toughest questions that our clients have about trial trial design, execution, chemical entity business design, we can answer a range -- a massive range of things. So I have no concern about the fitness of the current portfolio to execute. Obviously, we'll always continue to look for things to complement us as things continue to out, let's create scale and grow as a business and run out our offering. But on the whole, we have more than enough in the current portfolio to very actively work with a client on any number of challenges that are facing.

I know you mentioned a lot of the FDA remarks up top in the prepared remarks. Have your clients seen any changes in the FDA in other statements? I know it's probably way too early for drug approval rates change, but are they optimistic when it comes to maybe going 1 phase to another? So I think -- look, I think I would answer the question is fairly different, if you don't mind.

So I think -- look, I think I would answer the question is fairly different, if you don't mind. The way I tend to think bout it is, are we seeing a shift towards more of our services at the FDA starts to push people to more computational and modeling base pressures. And I think the answer is certainly, yes, the FDA and the life sciences industry does not move quickly. These cycles are long. So you get change the regulatory guidance, you have in-flight trials, you'll have a whole range of other things that take time to move. But if you look at underneath the growth in our QSP business and the core growth in our PPP business, those are reflective of these alternative approaches being used and during acceptance.

So look, as we kind of look -- if we look at the direction of travel to the FDA, we certainly think that the huge talent for our offerings, we're starting certainly to see the leading indicators in some of our core service offerings and good technology that underpins them. So we're optimistic about the way those guidelines and the direction of travel for the regulatory bodies and how that plays into our ability to support clients in a broader and more helpful.

Thank you for your participation in today's conference. This does conclude the question-and-answer session and concludes the program.

I think we're at the top of the hour, so we'll kick it off. A big thank you to John Gallagher, CFO of Certara, for joining us today at the Stephens Investment Conference in Nashville.

Thanks, Jeff.

Appreciate the time, John, and we'll just jump right into the questions from there. So hoping we could start by revisiting a key topic from Q3 on the difference in the demand environment between Tier 1 large pharma customers and other midsized and small customer tiers. What do you see in Q3? And why will it persist or not going forward?

Yes. Thank you, Jeff. Glad to be here today. Yes, so T3 -- so the Tier 3 customer category or biotech companies were a highlight in the quarter where we saw strong performance, particularly in biosim services, which were double-digit growers. And we see that in thanks to the commercial team with a strong focus on working with the biotech companies that are best positioned from a funding perspective as well as a skill set perspective to do work with Certara. And so that was a good part of the results as we looked at the quarter and even on a year-to-date basis.

So T3 has been a highlight that has partially been offsetting some weakness that we saw in the quarter on the Tier 1 customers. So that's the large pharma customers. And what we're seeing there is some delays, some slowness in decision-making, some program or project delays, most pronounced in the regulatory business and -- but still also and to a lesser extent, but also in the biosim services business. So that was what we're seeing. We did see some of that weakness carry over into Q4, which prompted us to make some of the comments we made on the call. So through October, we saw some of that weakness continue. Although most recently, we have seen close rates improve a bit as we get deeper into November and we approach the end of the year.

Great. Maybe a quick follow-up there. Any comments to help inform investors on how we should think of bookings seasonality and how we should think about the relative importance of November and December versus the rest of the year?

Yes. So we typically see a strong Q4. And in fact, we continue to expect Q4 to be one of our stronger quarters of the year and expect a sequential increase from Q3 bookings moving into Q4. And that's what we've seen historically in the business. Because of some of the slower decision-making with the Tier 1 customers, we don't expect that seasonality to be quite as pronounced as we've seen in prior years. But we do still expect to see a sequential increase in bookings from Q3 into Q4.

Excellent. That helps. A fairly tough comparable versus Q4 last year. I also want to dive into the pretty different demand environment that you've discussed for software versus services throughout the course of the year. What's driven that divergent behavior? And more importantly, what needs to happen to turn around services bookings?

Yes. Yes. So we have seen some divergence there, which is not totally uncommon. The services side of the business does tend to be a bit more volatile and performance is sort of in line with some of the broader market conditions that we've seen. The software business is very sticky. So that business across the customer tiers -- once the software is in place, we have very high renewal rates and customers tend to keep the software, and we don't see as much volatility in software performance. And that's including this year. So the organic software revenues for 2025 year-to-date have performed in line with our plan expectations. So that's been -- that kind of consistency is what you'd expect from software revenue achievement and a little less volatility.

Now services, on the other hand, we do see more movement. And remember, it takes about a couple of quarters for revenue to pull through from the time that we post a booking. So we've seen from the time that we convert a booking, it takes a couple of quarters for that to turn to revenue. And overall market conditions and what we've seen in the behavior of our customers, most notably in Q3 when we looked at Tier 1 customers is overall sentiment will drive a bit of volatility or a pullback or acceleration in better market conditions of the services bookings.

Got it. That helps. And just beyond the customer types or software versus services, any other comments on your perception of the end market or how general end market conditions need to evolve to positively translate into pipeline bookings and then conversion of backlog into revenue for Certara. And maybe with this one, you could also hit on some of the -- I think the commentary from CROs have been a little bit more positive and how we should think about the timing of the market turnaround for CROs versus seeing more of a quantitative impact for Certara from just that better sentiment from your biopharma customers?

Yes, sure. So a couple of things that are going really well, which is the overall pipeline or the sales funnel is full and intact. So the pipeline itself is strong. So that's notable. And then our conversion of existing bookings to revenue, so really converting the backlog has also been a bright spot. You saw that in the quarter when we delivered Q3 revenues and services were on plan at a period in time where bookings had seen some deceleration. So those are a couple of things that are working well.

Now the conversion of that pipeline to bookings is what we're calling out as one of the spots that we're keeping our eye on as we proceed through November and into December. And then your question about what CRO commentary is versus what we're seeing. And we have seen that historically, Certara's performance, particularly in services would come on a bit of a lag. Maybe it might be a 1- to 2-quarter lag on where we see some increase or decrease in performance. So the fact that there's a call for a better overall market backdrop is certainly going to be a positive to us in the future that will become a tailwind. But our Certara achievement of bookings and revenue has tended to be on a bit of a lag. So to the extent that we're seeing or we're hearing and we're seeing other companies talk about a recovery in the end markets, that's going to -- overall, that's going to end up being a tailwind to Certara.

Excellent. I appreciate that. I want to hit on the intersection of demand and the regulatory environment. Has the regulatory environment impacted customer purchasing decisions this year? And what has you excited or concerned around regulatory policy going forward? Is there a greater focus you think on implementing items like the nonanimal methodologies of testing announced earlier this year? Or is the focus more on what the next policy announcement to come is? Or is it just kind of the incremental work that you guys have always pushed for of incremental use cases of biosimulation that kind of super sees whatever leadership is at the FDA or what their current policy focus is?

Yes. The regulatory backdrop has certainly been mixed this year. We -- because of some of the there's -- at the FDA, at least there's employment uncertainty. There have been fewer drugs approved year-to-date this year than what we saw last year. And so it's certainly indicative of some slowness within the FDA, given all the uncertainty that we've seen there. And we think that shows up in our regulatory business and to some extent, in our biosimilar services business. So that's one aspect.

But on the other hand, though, of course, there was the directive by the FDA back in April on NAMs and moving away from animal testing, and that certainly provided a tailwind to the business and the overall sentiment toward marketing or modeling rather, and Certara's market-leading position in modeling it certainly is a good tailwind to the business. But what we're -- I think what we're all waiting on at this point now is some further guidance in addition to what was said back in April that will further support that overall tailwind to the business in achieving a higher growth rate, specifically related to moving away from animal testing. Of course, a couple of the bright spots for growth in Certara during this year, of course, has been Simcyp and Quantitative Systems Pharmacology or QSP business, both of which would be beneficiaries of further guidances from the FDA related to NAMs.

Got it. Appreciate that. Maybe transition a bit, talk a little bit more specifically about some elements of the software business. Want to start with the Certara Cloud and kind of broader platform strategy. Any milestones that you've hit so far in FY '25 worth noting? And how would you describe how the shift to this cloud and platform strategy is changing cross-sell for the business?

Yes. So Certara Cloud, really good adoption this year. Remember, Certara Cloud is a single sign-on opportunity that as customers are renewing their software licenses, Phoenix being the highest volume one here. As Phoenix customers are renewing, they're being ported over to a single sign-on environment that's showing them not only the Phoenix product, but all of the other software products that Certara offers. It's -- the conversion to cloud as people renew has -- we've been very pleased with the adoption.

And this comes at a time when we're launching new products, too. So very importantly, this adoption of Certara Cloud to raise the awareness of the software products to increase the cross-sell opportunities is coming at a moment in time when we just launched 3 new software products to Certara IQ, I'm referring to, Phoenix Cloud as well as Pinnacle Enterprise.

Want to ask maybe a little bit more specifically on Phoenix, knowing that it's one of the most long-standing Certara products, really great market share. Anything specific you'd call out on retention trends on that product? And also any new capabilities that you call out that you think customers are particularly excited about that's driving customer behavior?

Yes. We're excited about this launch. This is the cloud version of Phoenix. And this is, as you pointed out, Jeff, this is a long-time high-volume product for the company. And predominantly today, it's a desktop version. So most of our customers are on a desktop version. And so the goal here is to get them onto this cloud version, which, of course, is hosted by Certara and allows us to put some of the features and functionality that you can't get on a desktop version into this cloud version.

Think AI enablement for search and other enhancements within the product that we're able to put into the cloud environment that customers won't be able to get in the desktop version. So we're very optimistic that, that's going to be a good lure to bring customers over and begin a transition from the desktop version over to cloud. And of course, we have some pricing power there. And that's one of the key launches that we've just done recently that as we look toward 2026 should be a good growth catalyst for software overall.

Follow-up there. Any time frame that investors should keep in mind on customers transitioning from that desktop version of Phoenix to the cloud version? Is the strategy just to make the cloud version have more and more compelling. And in that way, evolve the customer migration rather than setting some type of sunset date and enforcing customers' hands?

That's exactly right. Yes, it's the compelling nature of it. And we think that the version that we have of Phoenix Cloud out there right now is going to be that kind of compelling. We're not going to put pressure on sunsetting the desktop version. And we do think that the overall conversion from desktop to cloud will take some time. And as customers renew, there's going to be a significant opportunity to transition over. But the goal there is to put the features and the functionality, including AI enablement into that cloud version that will really compel people to want to make that change more so than push them over due to a sunset.

Are there any revenue recognition headwinds...

Inherently, so we do recognize revenue all at once with the desktop version, which I think you understand based on the question. When we shift to cloud, it will become ratable. So it will be month-over-month or a quarter at a time of revenue recognition. That would typically present a headwind, but there's a couple of things with it why we really haven't called that out. One is pricing. So we're able to price for the cloud version at a higher rate than we are the desktop version, which helps to offset some of that headwind. And then also, it's the cadence of the renewals. So they're staggered throughout the year. So we don't have any particular month or quarter where all of our customers are renewing. So instead, we view this conversion would take certainly the course of the year, if not even into '27 to convert customers over. And for that reason, then it kind of smooths out what that headwind would otherwise be.

With that, we'll move to Simcyp. You had some efforts to have some kind of Simcyp offshoot products like Simcyp Discovery, Simcyp that's more focused for biotech customers. So I want to follow up on the momentum and success there. And then more broadly, any particular therapeutic areas, use cases that you'd call out driving continued adoption and momentum for the broader Simcyp universe? Could you define that product...

Yes. So Simcyp is what I would call our core biosimulation software. So this is like think of this as organ models to replicate how a molecule impacts the body or how the body impacts the molecule. So -- and it's one of the fastest-growing products in Certara. So -- and this year, too, is no exception. So we've seen really strong growth from Simcyp during 2025. Jeff, as you pointed out, we have a number of modules that are seeking to expand the use cases or the user bases for Simcyp. And we're seeing good growth across each of those areas. So really happy with the growth in Simcyp, and we don't expect that to slow down as we approach next year.

Excellent. Excellent. I appreciate that. We'll move to Chemaxon, which you're over a year post acquisition on that one. So maybe an update on what capabilities are kind of live and fully integrated now? What's been the customer response over the last year or so to Chemaxon and maybe a broader growth outlook for preclinical solutions that might center around Chemaxon?

Yes. The acquisition of Chemaxon has definitely proven to be a good one. They've performed on plan through this year, and the integration has gone really well. In fact, we said we'd exit this year with Chemaxon having a margin in line with Certara's corporate average EBITDA margin. And we're only -- in Q3, we're only 40 basis points away from that. So we're well on track to be able to hit that target by the end of the year.

On the revenue side, the organization has been performing on plan. And I'd say that, that was an aggressive plan. So to be in line with expectations there, then that means a few different things are happening. One is we're able to take the Chemaxon product and introduce the Chemaxon portfolio of products to Certara to the Certara customer base, which is a wider and broader customer base than Chemaxon had independently. Then two, we've also been able to make significant progress in combining. We talked about the legacy Certara Discovery product was D360 and being able to combine D360 with Chemaxon is a compelling sales opportunity for us because what we had seen is that many customers were independently buying these 2 solutions. And so to combine them both together under Certara's leadership has also been a good opportunity for us.

So I'd say everything with Chemaxon is going on track. And whether it's the integration or whether it's the sales opportunities or even the combination of our products, then everything has been going according to plan.

Any time frame we should keep in mind for the kind of Chemaxon, D360 broader preclinical platform combination?

Yes. I think -- so as I mentioned, we're making progress on it. It won't be inside of this year, but certainly can look to next year for that.

Great. I want to ask more broadly about net revenue retention trends. I think you've generally been on plan this year, but a little bit off peak for what we've seen from the last several years. So how should we think about go-forward NRR trends exiting Q3? And what's been the biggest driver of the NRR results year-to-date? And I guess on a go-forward basis between -- and I think the 3 big buckets between seat expansion, cross-sell and the pricing lever.

Yes. So as you said, Jeff, the NRR is in line with plan, but it's at the lower end of the plan. And as a reminder, the NRR is a product of our organic software revenue growth. And so like on Q3, as an example, we grew organic software revenue 6%. How does that yield a 104% NRR? Well, it's basically -- it's about 200 basis points of new biotechs that we're working with and bringing on, which is about consistent with what we usually do, 200 to 300 basis points of new biotechs coming on and then 4% of the mixed bag of everything that you just described, Jeff, in the sense of a combination of price expansion and new business in there with existing customers.

And so what we've seen is we raised price consistently in software, and so we've continued to do so. And it does imply that we've had a little bit of headwind or a reduction in seat licenses. We called out Phoenix before for some of that. As you think about that, that's a higher volume product. We've seen layoffs in pharma. So it's not unusual to see some pullback in seat license in that kind of environment. In addition to -- we believe there's some pent-up demand as we are just now launching the cloud version of Phoenix too. So we think that's what's driving a piece of it. But overall, coming back to the NRR, it is coming in line with plan. It's driven by organic software revenue growth, which is coming in plan, but on the lower end of the plan.

On the software side of things, I certainly want to ask about AI as we do in every investor conversation, every company conversation that we have these days. You guys have certainly been kind of ahead of the game on artificial intelligence, probably one of the first companies on my coverage list fully embedding AI into one of your products. And since you embedded AI into more of your products, even more to come, maybe a broad update from you on kind of where you are in the progression through the product development road map with embedding AI and any framework how investors should think about your monetization of AI?

Yes. Yes. So I appreciate you bringing that up. We do like to think that we're ahead of the curve on that. We acquired Vyasa in 2022 and have been embedding AI into our various software offerings and creating new software offerings since that time. So where are we in the cycle? Well, we've rolled out new products. CoAuthor is a great example of that. CoAuthor is an AI product that's Generative AI for regulatory writing. And that we launched that last year. So we're seeing -- certainly seeing customer interest in being able to automate some of the regulatory writing. And that was the first product offering that we have.

Of course, just recently, we've launched Certara IQ, which is QSP software leveraging our AI technology as the foundation for developing software around QSP, what that's going to allow us to do. Remember, QSP at Certara and anywhere actually is all service-based business today. So we're the first to market with some software that seeks to automate and speed some of the processes that the subject matter experts are working on when they're working through QSP projects. So that's the latest development.

So -- and we're not done there. Where are we in the cycle? There's still more work to be done as far as embedding AI into the software. In fact, I mentioned earlier, one of the lowers on the Phoenix Cloud version to lower customers over from the desktop is to embed some AI features into the modules of Phoenix as well. So we're continuing to do that work with it's each iteration of software, whether it's new software or an enhancement to our existing platforms, we're putting the AI technology and functionality in there that our customers are really going to appreciate as users.

And in terms of monetization, is it adding new capabilities, including AI and being able to garner pricing increases every year? Or is it a step function of you're paying an additional fee to gain access to some of these AI capabilities?

Yes, it's a little bit of both. And it's providing some efficiency inside of our organization as well. So first of all, we have paying customers for AI. As I mentioned, we have the CoAuthor product out on the market since last year. Certara IQ just recently launched. So we have paying customers for the software itself. Then we're also using it, as I mentioned, on Phoenix Cloud as an inducement to get off a desktop. Obviously, we're charging for that also because there is a price difference between the desktop version of Phoenix and the cloud version. So that's another way that we monetize it. And then importantly, too, inside of the organization, using our own tools then we're able to get higher throughput on, say, as an example, software development, we were just able to launch 3 new software applications over the last quarter, and that's in part, thanks to efficiencies that we're finding in software development, which we expect to continue into 2026.

Understood. I appreciate that. And I want to transition to services more broadly, but maybe we'll start with just an AI follow-up there. As part of the internal efficiencies from AI as your internal thought leaders in various parts of biosimulation being able to use these latest versions of your software to deliver deliverables or outcomes for clients at faster levels? And how has it impacted overall services utilization and the lot of potential there?

Yes. Yes, good question. So absolutely, a good case in point for the -- through the efficiencies that we find internally would be QSP. So QSP is a services business that has been capacity constrained mainly because of the growth. So the demand for QSP services has been very high, one of the highlights of growth during the course of 2025. And therefore, of course, that team is somewhat capacity constrained. With the introduction of Certara IQ, again, AI-enabled, it is allowing for us to be able to take on more projects than we otherwise would with the existing team. So it's a good example of how we're finding efficiencies and able to do more work for our customers with the use of the AI tool.

Excellent. And just more broadly on services demand, any kind of subverticals or categories within services other than QSP that you'd call out as being areas with momentum in 2025? Is kind of more traditional biosim, has that been cannibalized at all by QSP? And then maybe comments on the regulatory consulting bucket as well would be helpful.

Yes. So QSP is definitely a highlight in services, but more traditional PK/PD type services work has also been growing pretty strongly. And so I wouldn't say one is cannibalizing the other. I'd say more so that we've seen the weakness in some pockets of services, most pronounced in regulatory, where I mentioned earlier that when you look at the FDA this year, and some of the uncertainties, some of the employment reductions, they're approving fewer drugs, then that's certainly going to impact a business like the regulatory business, and we've seen that. So some of the positives are the QSP and sort of traditional biosim services related to PK/PD. But then alternatively, we've seen some of that weakness in regulatory, which I called out earlier.

Understood. And continuing on the services side, part of the discussion earlier, was that pipeline is strong, backlog is strong. Pipeline to bookings conversion could be a little bit better. But again, backlog to revenue conversion has been solid. So maybe you could speak a little bit more about staffing utilization and just about the durability of the backlog to continue revenue visibility even when you see a little bit of volatility on services bookings.

Yes. Yes, that's an important point because as I mentioned, Q3 was an example of the services team being highly utilized, achieving revenue expectations in an environment where bookings were decelerating as we talked about. We expect that to be able to continue not only in Q4, but even into next year. And that's why our revenue guidance for the remainder of 2025, we had narrowed the range there, but to a large extent, had kept the bottom part of that range intact, mainly because we do have visibility to the backlog of services bookings that had already been put up and converting those bookings. And so the services team is working hard on and the utilization rate is high on converting existing bookings. We did that in Q3. It's going to continue to happen during Q4 and into next year.

Excellent. Maybe I'll try to tie some of it together. How should we think about the intersection of software and services. As you add breadth and depth to the software portfolio, does that create greater opportunities for services engagement over time? Or is it the alternative where customers are buying more software and then doing more themselves and having less of a need for your services?

Yes. We see the 2 linked together very closely, especially when you're talking about biosimulation services and the subject matter experts that conduct that work on behalf of our customers. And I think the increased adoption and prevalence of biosimulation software is going to bring with it an increased amount of subject matter expert warranted type services. So we see there will always be a significant place for those expert services in Certara, even with the growth and the strategy we have around growing the software.

Understood. Makes sense. Maybe we'll transition over to the financials and really focus on the profitability of the organization. EBITDA margins are off peak, but kind of stable to improving, trending in the, I'd say, the right direction with a few different drivers. Year-to-date gross margins kind of at or near record levels, that's a clear positive and Q3 EBITDA margin up quarter-over-quarter. So if we just try to be forward-looking from here, what could keep margins at the current range? Or what are the different potential big picture drivers that could elevate margins from here?

Yes. Thanks, Jeff. So we've been happy with the ability this year to make the investments we said we were going to make in software. We rolled out 3 new software products this quarter. And you see the expenses associated with those investments show up in the R&D line. R&D in Q3 grew 24%. So we're making the investments that we said we were going to make, yet we're still achieving the highest end of our EBITDA margin guide on the year. And we're doing that through very thoughtful and careful allocation of spend as well as high utilization by our services team.

So you commented on the gross margin. That's -- the gross margin is improving, one, because of software mix, but two, and very importantly, the utilization of the services team is very strong as we're converting bookings and backlog into revenue and hitting those revenue expectations. On the sales and marketing line, as we mentioned at the tail end of last year, we feel like we built out the commercial team. And so we're still continuing to grow the sales and marketing line, but we're going to grow that more in line with the rate of sales. And I think we've shown good discipline on G&A. So we're watching the expenses on the line items on each of the line items to ensure that we're not overspending, and that's creating capacity within the margin expectations that we set out to make the investments and still hit the high end of profitability, which we know is important to shareholders.

Excellent. Just kind of on a go-forward basis, can you help us think through the balance between moving to the cloud and maybe that generating some cost of goods sold efficiencies versus areas of continued investment. It sounds like R&D is likely the focus. And so those 2 kind of go hand in hand.

That's right. Yes. So moving into next year, we would anticipate continuing to make investments in R&D. And so we've seen that in '25. We should expect that in 2026. I'll say that part of the efficiencies that we found in answer to your prior question also, part of the efficiencies that we found too have been just in using our own AI capabilities in streamlining and going to market more quickly with software development and new software products. And so that's something we're focused on as we move into next year also is how to make the investments that we're committed to making to drive that growth, but do them as efficiently as possible and AI will help enable that for us also.

If we think beyond this year, beyond next year, longer term, as you really get cloud software at scale, you get AI more fully deployed. Is there a long-term model or framework that investors should have in mind as they think about where gross margins and EBITDA margins can ultimately go?

Well, when we catalyze the growth that we're looking for from these investments and we expect on a long, long-term basis that we would have double-digit growth in software and be able to obtain that in services as well. So once we reach that point, then naturally, I think we're going to continue to invest in the business with the software business, you have to annually invest in the software product, and we're doing that now. We would continue that in the future. But with the expansion of the growth rate, then naturally, we would expect some of that to fall through the P&L, and I think we'd see some margin expansion as the growth rate goes higher, then it's fair to assume that there's some margin expansion that's going to go along with it.

Understood. Maybe I'll transition over to capital deployment and I don't think there's a specific update today, but maybe you could give a quick reminder on what you've said before on the timing around a decision to divest the regulatory services business or not? And then also, if you did divest that, what the implications would be for the financial profile of the company?

Yes. Yes. So we said on the call a couple of weeks ago that we'd have a decision by the end of the year. So obviously, we're actively working toward drawing that to a conclusion, and you can expect an update from us before the end of the year, so over the next several weeks. When we think about capital deployment this year, for the first time, we opened up share buyback as an opportunity to return cash to shareholders. We've executed partially against the authorization that we had by the Board earlier this year.

And -- but over our history, though, we've also been an acquisitive company. We've done, I'd say, a significant amount of M&A has also contributed to our growth over time. And so it's going to be a balance. When it comes to having excess cash, then you should count on us to deploy it either toward M&A with strategically software being sort of first priority in mind there and balancing that against share repurchase, all depending on the backdrop of the overall environment that we're operating in.

Makes sense. And on the M&A front, any general thoughts or lessons learned from the last few deals completed? You had a couple in the QSP space and then Chemaxon in the kind of preclinical or discovery space more recently. And even more broadly, why can Certara be a strong consolidator of software assets in the biosimulation space?

Yes. We've been very pleased with the set of acquisitions that we've done over the last few years. Chemaxon, which we talked about already a bit during this call, then is on track. And we think -- we think that, that deal was done at a good valuation for what we have, something that's accretive to the top line and soon to be in line with our overall profitability expectations and got us strategically to expand our footprint into discovery. So really happy with that.

The other one I'd highlight, too, is Applied Biomath. So back in 2023, we acquired Applied Biomath, which is a quantitative systems pharmacology, so QSP practice that combined with Certara's legacy QSP practice to have the largest QSP practice in the industry at a time. And then during 2024, we were integrating the 2 practices together. And here we are in 2025 with QSP being one of the fastest-growing areas of Certara and one of the fastest-growing areas of biosimulation. So that, too, was a deal that has paid off very well as far as accelerating growth by a combination of acquiring an asset and combining it with the existing footprint at Certara.

So we would continue -- as I mentioned earlier, when it comes to M&A and cap deployment, we're focused on software. And we think our track record of deals over the -- during the time that we've been public is certainly indicative that we're in a strong position to be a consolidator of software companies in this space.

It sounds like you've identified some areas that are underpenetrated within biosimulation. You found attractive assets, bought them at reasonable prices and integrated. How do we think about the additional white space that's out there?

Yes. As you just said, Jeff, one of the key tenets around our approach to M&A is valuation and what we're paying. So we do look for unique opportunities. They often come in the form of partnerships that we've had with companies that we've already worked with to look for valuations that are going to allow us to pay a reasonable price for something that's going to be accretive to our growth very quickly. And in our recent past, at least, our method to do that has been to look at organizations that we've already partnered with in a way where we can see some revenue synergies very quickly upon combining the companies.

Excellent. I have one more I can throw at you with. I think we have 3 minutes left, but maybe I'll offer up to the audience if there's anyone that wants to put the question...

[indiscernible] what does it take to get back there? And how...

Yes. The commercial team has performed -- we built that out. We put investment. You saw investment in 2023 and '24 in sales and marketing that was building out the commercial team. The team has done quite well. There are some bright spots. Even though we have seen some -- what we believe is market-driven weakness in some of the bookings, we've seen some really strong performance in other areas. The Tier 3 or biotech companies would be an area I would highlight where the commercial team has worked with VCs as well as targeting biotechs that are well funded and have the ability and desire to work with Certara. And as a result of that, we've seen T3 biosim services growth in the double digits this last quarter. So I think that's a testament to what's working well with the new commercial structure.

I'll throw one more your way. Mix of software and services and influx of AI. How are your customers looking at in-sourcing versus outsourcing to Certara on both the software and services side. Any insight into how they're using AI internally and how that is impacting some of their activity and purchasing decisions as it relates to biosimulation?

Yes. We see AI as a competitive advantage and a tailwind to the Certara organization. One, for all the reasons we talked about, we're selling to customers AI products. We're using AI products inside the organization for efficiency. And to the extent that customers are also using technology, then we think that plays well into the overall narrative of using technology in the drug development process where this is an area where Certara is the market leader. So we think that the convergence of various technologies and the utilization of these technologies, we think, plays as an advantage to Certara overall.

Not to put words in your mouth, but it sounds like you have a first-mover advantage there that you can continue to execute on.

Yes, exactly, Jeff. Exactly.

Excellent. Well, that puts us at time.

All right. Thank you very much for having us. Appreciate it.

Appreciate it. Thank you John.

Yes, of course.

Okay. Good morning, everybody. Thank you for being here. I'm Dave Windley with Jefferies Healthcare Equity Research in the States, cover the pharmaceutical services supply chain, and I like to think of it as services, technology, manufacturing, kind of if you sell the pharma R&D, I'm interested. So we have here with us Certara and William Feehery, the company's CEO. Thank you for being here.

Thanks, David.

Think that I can't remember if this is your first time at this conference or maybe first or second. But nonetheless, we're glad to have you here. Thank you very much.

So I wanted to start off, I want to get into kind of guts of the business, but I did want to start off with your third quarter results and maybe more so, the reaction that you saw since then and what -- were you surprised by that? And I guess what have been your conversations? It sounds like you've had a number of meetings with investors, what have been your conversations with investors? And what do you think perhaps the market is misunderstanding about where the company stands and what your near-term opportunities are?

Yes. Great. All right. Thanks. Good question to start off with there. So going into the end of the third quarter and the beginning of the fourth quarter, we did see a slowdown in bookings, which I think is alarming to the market. The estimates for our bookings that were out there were higher than we thought was reasonable, and so we wanted to signal that. But I think maybe the reaction was a little bit stronger than we thought. .

So what I'd say about that is we still -- what we saw there was we've got very good results with what we call Tier 3 with biotech. We've been very successful with our strategy of focusing on venture capital companies that have large portfolios of them, and that's been paying off. In our regulatory business, we did see actually fairly weak bookings in the third quarter, to be honest. That's a business which has been volatile for the last couple of years. It doesn't do that many transactions in a quarter. So what we see is that if they get delayed or if we miss 1 or 2, it can really affect it in the quarter. We did see that.

Biosimulation was -- bookings were a little bit soft, but not alarmingly or so. Tier 1 clients, we saw a notable slowdown in the rate of closing. We don't believe we lost any business. We still have a very strong pipeline. It's just a question around when business is closing. And the only thing I'd say is I think what we saw -- someone has been interpreted as being different than what other companies have reported. And my view is that a lot of the CROs saw similar things in the second and the third quarter. They, at the end of the day, said more positive things about where fourth quarter is going. And what I'd say about that is we've seen an increase in our closing rate as we've gone on in the fourth quarter. We have a very healthy pipeline and so I'd say we're not inconsistent with that either.

I think you said the Tier 1 -- so Tier 3, it sounds like was stronger. Tier 1, I think you were talking about is where you saw that slowdown in close rate, the improvement that you're highlighting in the fourth quarter is also in that Tier 1 category? Or is it more broad than that?

It is. Yes, it is. So it's in Tier 1 as well. So we just -- we have a lot of deals to close in every fourth quarter. This one is maybe a little bit more intense as we go into the second half of that but we have a good pipeline. We have seen some improvement in the closing rate.

And the other thing I'd just point out is we have a very, very -- we don't really report on it, but I would say we have a very, very healthy backlog. So at this current rate of closing, we can maintain our business for quite a while.

Got it. And to kind of pause on the regulatory business, you've had that business under review and looking at taking some action there for about a year. The business, I think in 2Q, saw a little bit of, you know, maybe picked its head up a little bit and then reverse coursed. Anything you can -- any color you can add in terms of what's going on in the environment or maybe specifically in the business?

Yes. Look, we've had that business under strategic review for a year now. That's honestly longer than we thought that would happen. And it's -- I think, number one, the business has been volatile, and we see some of that. The other thing that's been not particularly helpful as we've been reviewing that business is the current disruption at the FDA has sort of caused questions around the short-term prospects around bookings and revenues on that business. We're expecting that, that will sort itself out as we go into 2026, but it is a factor as we thought about that.

So what we said about this business is the same. It's a profitable business. It's not -- we don't believe it's of the same strategic importance to the company as it once was. And the bookings have been volatile and of a concern to a lot of investors for a long time. So that -- there are good reasons for the strategic review. Having said that, it's not a business where you just wind it up or give it away for free. It's got some value. And so as we've kind of gone through this process and thinking about the process of price discovery, that's kind of where we hope to get some clarity soon, and we say we'll report by the end of the year.

Yes. Yes. So as a segue back into biosim, I think one of the keys that you've highlighted to me in the past in terms of driving adoption of broader biosims to have pretty high-level regulatory experts in your organization to, for lack of a better phrase, handhold the clients through decisions around should we rely on biosimulation for this case or not. Do those high-level experts sit within this regulatory business? Or are they...

So what's in this business is primarily medical writers. Most of our businesses, we call it onshore, but it's in North America or in Western Europe. It's kind of a high-end medical writing business that focuses on writing INDs and NDAs and other documents that would go to a regulator. It particularly does a lot of work in things like patient narratives and things like that.

So yes, from one of the reasons we owned it was because we view that at the time, it gave us credibility in regulatory. Right now, we feel pretty good about our position in biosimulation. We have a lot of regulatory experts that are not part of this business that are not doing the actual writing but providing the advice and providing the strategy around biosimulation in particular. And so that's when I said it's not of the same strategic importance to us than maybe it was when we bought it 10 years ago.

Okay. That's helpful. The -- so then as promised, switching back to biosimulation and your -- the point that you just made, which is very true that Certara sits in a pretty sizable leadership position in the area of biosimulation. It seems like an area that is a beneficiary of some of the efforts of the administration to push more streamlined and say, less animal intensive approaches to drug development. How do you see -- before I get into details around the quarter, but how do you see some of that administrative -- administration push percolating into your sales funnel?

Yes, great question. So what you're referring to is the FDA leadership last -- I guess, in the spring report, pushed an initiative to reduce the number of animal -- amount of animal testing that's done. And in particular, they cited monoclonal antibodies, but in a desire to go beyond that over time.

So our view of this is that this is a perfect example of what is actually possible today with modeling. So our QSP business has built up a significant amount of business about doing things like first-in-human dosing. And what we found, for example, in our monoclonal antibody customers, they are doing that type of modeling work in parallel with all of the animal testing. They're doing the modeling work because we actually get better data out of what the first dose ought to be in humans than you would get from animals. They're doing the animal testing because the FDA has not yet put out the guidance of exactly how do you go to the FDA and not have animal testing.

So good news is the technology is there. We're doing this type of work for a number of customers. And then when the FDA puts out this and makes it kind of lays out the regulatory guidance and the details of how you do this, it will be a benefit for Certara overall, this will expand. And there's more that we can do as you go vast monoclonal antibodies and you go into other areas where animals are used. But overall, we think it's a positive, and we're expecting more from the FDA in 2026.

Got it. And so that I'm not surprised by what you're describing, the running these approaches in parallel. Does that even predate these announcements by the administration? In other words, were clients already thinking this way?

Well, the thing about monoclonal antibodies is you're giving a nonhuman antibody. So there's always been questions about the utility of some of that data. And so yes, the general idea and the technology that we've developed with some of our customers does predate that. But it certainly increased the short-term interest and just sort of as companies are thinking about the long-term strategy. So a lot of our customers are -- they believe the FDA will sort this out over the next year, but their drug developments are going to span the next 7, 8, 9 years. So they're thinking long term about where they want to go here.

Got it. And then -- so then coming back into the -- a little bit the here and now, your -- you have some of these broader tectonic shifts, but the current environment, a little challenging. And in particular, the services bookings were softer. So maybe help me make sense of Tier 3s were stronger, they would typically lean into services, I think, because they are less able to do that stuff internally, but the services bookings were challenged.

Yes. So I look at this in 2 ways. So 1 is the Tier 3 services were good and have been good all year. There's -- I think that's a good sign for the prospects in the view of biosimulation because it used to be a few years ago, the smaller companies have never heard of biosimulation and never heard of us. And as biosimulations become more standard than expected, they're seeking that out.

Now we've also made a few changes in the way we've approached the market. One of the problems for us with biotech is there's just so many of them just the marketing expense of finding them. There's a lot of churn in the market as well. They come and they go. Some of them obviously get big and successful. And so we've really focused a lot on the financial sponsors. We have a number of larger [ BCs ] and funds that basically become important customers for us and as they've had portfolios. It's made that part of the business sort of easier for us to find a stable base. We still find lots of other ones as well.

In the Tier 1s, we've got kind of multiple things going on in the services. We have -- a lot of them are buying our software. They -- all of them have internal groups that do this and so what you have is they bring us in for services for 2 reasons. One of them has to do specifically with the software. You want extensions to the software or you want some specific experts that only Certara has that wrote the models or wrote the software.

And then the second piece of it, honestly, is, well, when they get busy, then they call us for help, and it tends to be hard to turn down your best customers who get -- who need new work. That -- we're kind of at the bottom of the cycle. As we look forward, there have been a lot of layoffs in big pharma. At some point, they're going to get this into the category as they always do, where they don't have enough people, and this will come back, that can come very quickly. It doesn't need -- we can see that come back very quickly. We have a very large backlog of work. A lot of our work goes on for years with pharma. So that's why I said earlier in your first question, we think that maybe we signaled a little -- the market reaction was more than we intended to signal around where we really think we are right now.

Got it. And on that -- on that bottom of the cycle point, a little bit of slowness in bookings. I think Certara has typically had pretty good pricing power on the products that you provide are pretty unique. How does that -- how is the current pricing environment compared to, say, normal history?

Well, I mean, in this kind of environment, it's a little bit slower and weaker. Obviously, we exercise our pricing power less than we might otherwise. We typically get mid-single-digit pricing increases on our software products, and we've continued to do that. Maybe a little bit tempered comparable when inflation was higher a year or 2 ago and things like that and given the market environment. I'm more focused right now on growing the usage of biosimulation, the number of seats we can sell, the penetration in more types of drugs and the sale of our new software. And I am on just trying to eke out an extra 1% or 2% of price at the [indiscernible]

And on that point about more types of drugs, the biologics capabilities in Simcyp or something that you've expanded. And then I think you expanded into large molecule capabilities and then you kind of streamline that to make it price appropriate for that smaller customer a couple of years ago?

Yes. So I think we were referring to -- we launched some new versions of Simcyp, one of them we called Simcyp Discovery, which, I guess, confusingly is actually targeted towards preclinical. So we're looking at people who have -- they're getting -- they're either going to go from discovery right into humans or if they have animal data, then translating that data into human data. So it's targeted to that 1 preclinical field. It's a narrow group of people. They don't need the full version of the software and maybe more targeted version at a different price point.

The second one is Simcyp Biopharmaceuticals, which is targeted towards formulation side. So there we're looking at, okay, we know that we're going to take the drug forward. We're tailoring the formulation for whatever it is absorption or something like that. It's a different group in pharma, again, slightly different needs, different price point.

But it kind of goes along with our thinking about how we're going to expand biosimulation and pharma, right? So if we were going to be limited to just the kind of our core Uber users, which we love, then there's so many of them. But as we can get into these other groups and we can make modeling more accessible to other parts of the drug development organizations that maybe aren't going to go into the literature, write all these models, but they do want to use them, they want to understand them, they want to understand the implications, then you can sell a lot more seats, and this is kind of the trend that we're pursuing there.

Another consistent with what you just described, another area where I think you're trying to push that is new, opens up new use cases is QSP. You acquired Applied BioMath, which I think is predominantly it was a service platform, but you are now evolving to an industrializable software offering in QSP.

Right. So this was a strategy that we set out when we acquired Applied BioMath roughly, I don't think it was 18 months ago, I don't know exactly the date. But the -- we and they had significant QSP groups. The QSP is a growing trend in biosimulation particular -- it is not limited to large molecules, but a lot of the questions in large molecules are addressed in QSP. So it's a growing -- we know that's a growing trend. The technology is advancing pretty quickly in QSP as well. So it's important for us to be in it.

But the reason why we bought Applied BioMath, it was not to create -- not necessarily just to create a big services group, but it was because we saw an opportunity to create a standard software product in a market that doesn't have one right now. Kind of think about this in terms of what we did in Simcyp over the years. We kind of created the standard PBPK product that's accepted by regulators and has a huge amount of support by modeling scientists across the industry, there's an opportunity to do that in QSP as well. So I'm pleased to say we just did put out our first product. It's called CertaraIQ, and that's the modeling platform that we believe can become the standard in QSP like we do with Simcyp. It's kind of too early for me to tell you. We've had lots of revenues in a couple of weeks, but I will tell you that there was a tremendous amount of interest at the conferences of the scientists where we've launched this. There's really nothing out there and people use Matlab, people use Python, see it's kind of all over the place.

And what that software does for us for that business is, number one, it makes our quite large group of internal people much more productive. Number 2 is it makes us more able to resell models, right? So we put out models in specific therapeutic areas, like, for example, we've got the immunogenicity. We have 1 in early development. We have things in ready ligands, things like that where we can resell them much more easily.

And then number three, as companies go to the FDA as the regulators now makes these models much more understandable to regulators, much more usable. We have AI embedded in this product. So as you're looking at -- what the FDA is interested in is not just the model. They're interested in what's in the model, where did you get it, what did you consider, what did you -- maybe you considered and you discarded it. So there's a large regulatory file that has to go along with any model that it also enabled. So it's why we think that this is an important part for the company and I think could be a really good product as we go forward.

And should we think of CertaraIQ and QSP as selling into and a different and, I guess, earlier phase or selling into a different modality like large molecule or both? Or where is the applicability and the early uptake?

So it tends to be -- you can take QSP in a lot of directions because what you're doing is you're modeling how the drug actually interacts with a target. However, the business uptick that we're seeing tends to be in preclinical, it tends to be in large molecule because a lot of the questions that people are asking, they're not really PBPK -- there are more questions around.

For example, I'll give you an example. So one, we have a -- we've developed an immunogenicity model, right? So now we're interested in basically how fast does the body produce antibody drug reaction to whatever protein you're giving that affects dosing. It affects the populations you'll go into, affects the selection of the molecule. That tends to be preclinical. That's a specific question that really only exists mostly around large molecules. And there's other ones like that too.

While we're on relatively new products, so you're trying to evolve the product for the software product portfolio into the cloud, single sign-on access, portal access. Phoenix Cloud, I think, is the second iteration of attempt on kind of cloudizing Phoenix. How is that effort, that broader effort of driving customers to your portal evolving?

So the portal is going well. All of our products have been migrated to work on the portal. That's really, I would call that kind of like phase 1 and what -- on our larger vision around pulling these products together in a platform structure so that we can deploy them at a bigger scale across pharma. So the first thing we had to do is get it to all the products you sign on and they're starting to work together.

The second phase is what we're doing as we go into 2026 around using AI to create the connectors between all of these things. So you could actually deploy, for example, our discovery level products around Chemaxon and D360 along with Simcyp, for example. And so there's a bigger strategy. The products I said we launched in Q3, that's certainly not the end of the story. We've got a lot of R&D that we've built up over the last 3 years or so that's starting to pay off there.

And how -- so if there are multiple steps to this long-term evolution, what's your time horizon on deploying?

So the first phase, we talked about 3 products we just launched, well, I didn't talk about all of them, but we launched 3 significant ones. They will -- we expect to have acceleration in revenue in software as we go into '26 from them. They've all -- they're not it's important as we go into big pharma. Obviously, we have to get in the capital cycle, but we will be in that as we go into '26.

And we have additional products coming out. One of the things -- I'll mention it, but we bought Chemaxon last year. We have a product called D360 and Discovery, and we're creating them -- we're basically going to launch a new version of that, which is designed to create a fourth platform for Certara. Right now, we have Simcyp, Phoenix, Pinnacle 21 is just about 80% of our software. We believe that this one is going to occur a fourth one as we go into 2026 and 2027, for example.

Okay. And if I back away in the last minute. So you have this environmental catalyst in the form of 1 just regular -- just kind of well-known ROI pressure on R&D at pharma. Added to it, an administration in the U.S. that's saying we need to move away from certain ways of doing things and try to be faster and more streamlined and animal-friendly and a lot of things in that basket that would seem to push clients in your direction. The economic realities that they face being what they are, how do you overcome that hesitation to spend when your products would seem to offer significant efficiency and productivity enhancement?

Well, I think that the main problem right now in the pharma area, it's not that they won't spend. It's that we're kind of caught in the middle. So for example, what we talked about in the animal testing, the government's indicated what direction they want to go, but they haven't completed the next phase. So it's caused some uncertainty about when will that happen. There's other uncertainties going on from a macro and pharma around what types of drugs will be favored or disfavored, and that has caused a short-term kind of hesitancy in closing deals. That's what I think is really going on. I think we're not the only ones that have seen that.

However, as you go forward, that is going to resolve itself. There's tons of pressure for them to sort out a lot of these details, and we've already seen some positive signs as far away from us, but things like the new negotiations with pharma companies have kind of put some more certainty there, which is helpful, and I think there'll be more of that.

As we go in the long run, pharma is pretty inefficient. There's price pressures. It will drive even more interest in modeling, which is fundamentally more cost effective than anything else you can do in pharma. And if we can -- which I believe we can, if we can change the probability that a drug makes it from discovery to approval by even a small amount the amount that's available economically to us is pretty significant.

Yes. I appreciate that. Thank you for being here. Thanks to the audience for your attention and wish you a good conference. Thanks.

Good day, and thank you for standing by. Welcome to the Certara Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, David Deuchler, Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Certara we have William Feehery, Chief Executive Officer; and John Gallagher, Chief Financial Officer.

Earlier today, Certara released financial results for the quarter ended September 30, 2025. 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 the forward-looking statements. Please refer to Slide 2 in the accompanying materials for additional information, which you can find on the company's Investor Relations website.

In the remarks or responses to questions, management may mention some non-GAAP financial measures. 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 accompanying materials for additional information.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2025. Certara 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 William.

Thank you, David, and good afternoon, everyone. Thank you for joining Certara's third quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions.

During the third quarter, our team continued to execute against our 2025 goals, while also positioning Certara for long-term success by investing in our R&D and commercial teams. Third quarter revenue of $104.6 million was in line with our expectations, representing 10% reported year-over-year growth.

We outperformed internal profitability expectations, delivering adjusted EBITDA of $35.2 million, representing a margin of 34%. Our team remains focused on investing for growth with R&D up 24% versus the same period a year ago and increasing to 10% of revenue from 9% in the prior year period. On the other hand, third quarter bookings of $96.6 million came in below our expectations, representing growth of 1%.

Among our Tier 1 services customers, we observed cautious spending behavior with some customers pushing deal time lines later into the fourth quarter and into 2026. Taking this into account, we are narrowing our revenue guidance to $415 million to $420 million, which we believe reflects the most likely range of outcomes for the year based on our performance to date. We have raised our adjusted EBITDA margin guidance to the high end of our previous guidance range and raised our adjusted EPS guidance to reflect the continuation of outperformance against our profitability targets and the impact of share repurchase activity.

We continue to see pockets of outperformance throughout our portfolio, including our Simcyp PBPK software and our QSP services. However, some of our customers are still dealing with factors that impact decision-making time lines and R&D allocation decisions. As large pharma customers adjust focus with their R&D programs and now onshoring initiatives that are impacting personnel and resource allocations, we have seen a slowdown in deal completion time lines, particularly in regulatory services and biosim services. This slowdown has persisted into the beginning of the fourth quarter, conflicting with historical seasonality trends. We are closely monitoring consumer spending patterns as we begin to plan for 2026.

At a high level, we continue to see several positive leading indicators for the biosimulation market and for Certara. Among large pharma customers, the use of model-informed drug development is growing throughout all stages of development. Customers are adopting biosimulation solutions for use in dosing, efficacy and toxicity analysis and using the technology earlier as we expand our software capabilities into discovery and preclinical.

Among our smaller customers, the adoption of biosimulation is accelerating through the use of our technology-enabled services. As drug developers look to optimize their speed and efficiency, they are often attracted to areas of our business such as QSP, which can help streamline decision-making and trial design in both the preclinical and clinical stages. Since our IPO, we have seen a significant increase in both the number of customers using our products and services as well as the wallet share of Certara within larger organizations.

Most of all, we are encouraged by our evolving relationships with key stakeholders and users at customers. Earlier this year, we hosted our second annual Certainty Conference, bringing together hundreds of our users to discuss the future of model-informed drug development. In early October, we held the same conference in Barcelona with our European user base, and the experience was very productive for all parties. At both events, I had the opportunity to discuss Certara's products with customers where they provided feedback on our software, suggested new features and functionality and learned about our new products and long-term vision for the Certara platform. There is tremendous value that can be gained by making more informed decisions earlier in the drug development life cycle, which is why we are moving into discovery and preclinical.

We closed the Chemaxon acquisition a year ago in early October of 2024, which gave Certara an established product suite in discovery with synergistic capabilities relative to Simcyp. In the first 12 months under Certara ownership, Chemaxon has continued to grow and is on track to reach corporate average margins by the end of the year. Elsewhere, our services group has grown preclinical work in QSP, especially since the FDA's guidance promoting the use of new approach methodologies. QSP has grown ahead of the rest of the biosimulation business on a year-to-date basis and is becoming an increasingly important part of our business.

Now turning to our financial performance. In software, bookings of $40.8 million represented growth of 17%. We saw solid bookings performance in Tiers 1 and 3, which were in line with expectation, while Tier 2 was below expectations, which we attribute more to timing than anything. Software revenue of $43.8 million grew 22% on a reported basis and 6% organically, led by strong growth from Simcyp in addition to $5.6 million of contribution from Chemaxon.

In services, bookings of $55.8 million declined 9% on a reported basis, driven by slowness in the Tier 1 customer base. We have continued to observe cautious decision-making among large pharma customers into the fourth quarter. Services revenue of $60.8 million grew 3% on a reported basis and on an organic basis, led by growth in QSP services.

On the innovation front, 2025 has been our most active product development year since our IPO. We've embedded artificial intelligence into both our development processes and our products, accelerating the pace of new model creation following our Vyasa acquisition. We launched several major products this quarter. Pinnacle 21 Enterprise, a cloud-based upgrade, improving regulatory data compliance and submission speed.

Phoenix Cloud, which transitions our customers from on-premise to Certara Cloud deployment and provides significant upgrades to product functionality; and CertaraIQ, our new software for QSP modeling designed to expand the use of biosimulation across discovery and clinical phases. Early customer feedback on these releases has been excellent, and we're confident they strengthen our long-term software growth engine.

Last year, we announced the strategic review of our regulatory services business. To date, we have made significant progress in our evaluation, including dialogue with external parties and significant internal analysis of best practices. As we evaluate our business, we recognize that regulatory writing performance has been inconsistent. Simultaneously, we value the regulatory writing business' ability to generate cash, which we have used to invest in growth and support recent share repurchases. At this point in time, we are in the final stages of our process and intend to share a definitive outcome before the end of 2025.

To close, we remain focused on delivering our 2025 plan and entering 2026 well prepared to capitalize on the opportunities ahead. Although we are seeing some variability in Tier 1 services, we are encouraged by the widespread momentum of biosimulation adoption in drug development.

I'll now hand things over to John Gallagher to discuss our financial results in more detail.

Thank you, William. Hello, everyone. Total revenue for the 3 months ended September 30, 2025, was $104.6 million, representing year-over-year growth of 10% on a reported basis and on a constant currency basis. Total bookings in the third quarter were $96.6 million, which increased 1% from the prior year period on a reported basis.

Trailing 12-month bookings were $471.4 million, increasing 12% on a reported basis. Excluding Chemaxon, total company organic bookings declined 4% compared with the third quarter last year. Software revenue was $43.8 million in the third quarter, which increased 22% over the prior year period on a reported basis and 21% on a constant currency basis.

Organic growth was 6% in the quarter, driven by strong growth from Simcyp. Chemaxon contributed $5.6 million to our reported revenue, which was in line with our expectations. Ratable and subscription revenue accounted for 65% of third quarter software revenues or 71% excluding Chemaxon, slightly down from 72% in the prior year period.

Software bookings were $40.8 million in the third quarter, which increased 17% from the prior year period. Third quarter bookings included $4.2 million of Chemaxon bookings. Organic software bookings grew 5% versus the prior year. Trailing 12-month software bookings were $187.9 million, up 23% year-over-year. And the software net retention rate was 104% in the quarter, consistent with our full year plan.

Looking at our software bookings performance by tier, we saw strong performance in Tiers 1 and 3, driven by the continued adoption of our software. In Tier 1, we saw some timing-related slowness due to renewals, which we expect to normalize in the fourth quarter.

Now turning to services revenue, which was $60.8 million in the third quarter, up 3% versus the prior year period on a reported basis and on a constant currency basis. We saw strong performance from our QSP and Simcyp services businesses in the quarter, which was partially offset by softness in the regulatory services. Technology-driven services bookings in the third quarter were $55.8 million, which declined 9% from the prior year period. TTM services bookings were $283.5 million, up 6% as compared to the prior year.

During the quarter, we saw softer performance from Tier 1 customers and biosimulation services, driven by spending hesitancy among our largest customers. In regulatory, bookings declined in the double digits, while biosim services were down low single digits.

Total cost of revenue for the third quarter of 2025 was $39.7 million, an increase from $37.2 million in the third quarter of 2024, primarily due to higher software amortization and consulting expenses, offset by lower employee-related costs.

Total operating expenses for the third quarter of 2025 were $61.9 million, an increase from $55 million in the third quarter of 2024, primarily due to higher employee-related costs in sales and marketing and R&D.

Adjusted EBITDA for the third quarter of 2025 was $35.2 million, an increase from $33.1 million in the third quarter of 2024. Adjusted EBITDA margin in the quarter was 34%.

Wrapping up the income statement. Net income for the third quarter of 2025 was $1.5 million compared to a net loss of $1.4 million in the third quarter of 2024. Reported adjusted net income for the third quarter of 2025 was $22.2 million compared to $20.3 million for the third quarter of 2024. Diluted earnings per share for the third quarter of 2025 was $0.01 compared to a loss of $0.01 per share in the third quarter of 2024. Adjusted diluted earnings per share for the third quarter of 2025 was $0.14 compared to $0.13 per share in the third quarter of last year.

Moving to the balance sheet. We finished the quarter with $172.7 million in cash and cash equivalents. As of September 30, 2025, we had $293.1 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. Subsequent to the end of the quarter, we executed a reprice of our outstanding term loan, which is expected to save $700,000 annually in interest expense beginning in 2026.

Earlier this year, our Board authorized a $100 million share repurchase program. We have repurchased approximately $41 million of stock during 2025. With year-to-date results and our outlook for the fourth quarter, we are providing the following guidance for 2025. We are narrowing the revenue range to $415 million to $420 million, representing 8% to 9% growth compared with 2024.

We expect Chemaxon to contribute software revenue of $23 million to $25 million. We expect an adjusted EBITDA margin around 32%, which is the high end of our previous guidance range, reflecting outperformance versus our internal profitability expectations to date. We expect adjusted EPS in the range of $0.45 to $0.47 per share, fully diluted shares in the range of 160 million to 162 million and a tax rate in the range of 25% to 30%.

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

Thank you, John. To summarize our message today, our team is working diligently to execute our growth and profitability goals despite a mixed operating environment. We are excited to bring several new products to market and look forward to providing further updates on our progress early next year.

Operator, can you please open the line for questions?

[Operator Instructions] Our first question comes from Michael Cherny from Leerink Partners.

This is Dan Clark on for Mike. Just wanted to ask a little bit on the Tier 1 services revenue or bookings dynamic in the quarter. I guess, one, when did you start to see a slowdown in decision-making timing? And of the potential deals that got pushed, I appreciate the color on some of them hopefully closing in 4Q with the remainder in 2026. How are you kind of thinking about that split at this point?

Yes. As it relates to the bookings, so it was our Tier 1 services customers where we saw delays. And what we're seeing is hesitancy to a slowness in decision-making. And a lot of times, we would talk about that as impacting timing and trickling into the next quarter. But what we just said in the prepared remarks, though, is that through the month of October, we continue to see some deceleration in Tier 1 services bookings related to these larger customers of ours. And as a result of that, we're expecting it to continue in Q4.

Our next question comes from David Windley from Jefferies.

Hopefully, you can hear me. I'm in the car. I was hoping you could comment or disentangle the gross profit outperformance between mix and perhaps efficiency, productivity?

Yes. Thank you, David. Yes. I mean -- so on the gross margin line, then we've certainly seen some productivity, especially compared to last year. You might recall, we did some reductions last year on the services side that hits cost of sales. We're still comping to that in the third quarter of this year. And therefore, some of that productivity is a key component of why the gross profit is accelerating. The other piece of it, of course, is the fact that we're achieving more mix on a software basis. So when we're looking -- the software business has, of course, a higher gross profit than services. So not only are we getting productivity on the cost of sales side when we look at services, but the mix shift towards software is also a tailwind to the gross profit.

I was going to make my next question, my second question about your areas of innovation, but it does end up being somewhat related. So think you talked about CertaraIQ is your more AI-enabled QSP and Phoenix Cloud launches. It sounds like those have been well received. The comment in the prepared about QSP being your fastest-growing area, maybe you could also drill into that because I think today, most of QSP is service-driven, but you're launching this, what I think sounds like a more technology or software-driven QSP. And how do you expect that to evolve? And does that growth in QSP mix kind of reverse the software mix until the technology -- the software picks up a little bit more. I'm just curious how the QSP feathers into that since you highlighted its growth.

Yes. Thanks, David. This is Bill. We are executing the strategy that we set out to do when we acquired Applied BioMath about whatever it was, about 2 years ago, which was to take QSP and to bring a software platform to it, and that is CertaraIQ, which we launched, as you pointed out. So there's a huge demand for QSP. Some of it has to do with the recognition that this type of modeling has been quite useful now that the FDA has made its announcement on NAMs and on reducing the number of nonhuman primates. And some of it has to do with the growth in biotech or in large molecules where QSP has been particularly valuable.

We're attempting, and I think we will very much succeed with this product to create a standard product that QSP modelers use not just within pharma companies, but also as they go forward and submit their models for approvals to regulators. There's a big need in the market for this, and there's a big opportunity to make QSP a lot more widespread by improving the efficiency of modeling, which we can do with AI and providing a platform where our consultants are much more efficient, providing the same platform so that our pharma customers are using the same platform internally and can also drive that kind of same efficiency, and we can get work going back and forth.

And then finally, this is an opportunity for us to create foundational models in particular therapeutic or drug modalities that we can sell over and over again using this software platform. So there's multiple ways that this will benefit the company financially as we go forward. There's nothing like it really on the QSP market. There's obviously modeling tools out there, but we believe this is a significant advance. It's been well received. We only launched it a couple of weeks ago. So it's a bit early to talk about the financial success, obviously, but we expect as we go into 2026, this will be a success for the company.

Our next question comes from Matt Hewitt from Craig-Hallum Capital Group.

I apologize, I'm having to hop between a couple of different calls. But first off, I recognize that there's some challenges or hesitancy with your Tier 1 customers. I'm just curious if you've heard or seen any change since we got a little bit of clarity on the most favored nation pricing and what that could mean, some clarity on the tariffs and what that impact could be. I mean we've heard from a few other companies that post some of those initial most favored nation type contracts or changes that pharma was kind of reengaging. Is that similar to what you're seeing? Or any color along those lines?

Yes. Thanks. This is Bill. We have also heard other companies talking about that and heard some discussion among customers. So I would say that we're cautiously optimistic that's a pretty recent development. So we need to see that kind of get out in the marketplace. But I think any sign of kind of the macro stability for the Tier 1 customers and the -- and what's going on with pricing, I think, would be ultimately good for us and will flow into hopefully a better environment as we go into 2026.

Got it. And then maybe just as a follow-up, and I realize it's still very early, and we haven't even closed out this year yet. But as you're talking to your customers, not only about the remainder of fiscal '25, but as they're starting to think about their budgets for fiscal '26, are you getting any sense for where those budgets may be going? Any sense for how modeling and simulation kind of fits into those budgetary plans for '26, recognizing, yes, it's early days, but having gone through this now for a while, I sense you guys might have a feel for, okay, if we're hearing this at this stage, that bodes well for the final budgets when they're announced later this year or early next year.

Yes. I mean we obviously only have kind of anecdotes you're asking a question about the overall industry. So what I can say is I think some of our new products have been very well received. People have talked about making sure that there will be budget for them as they go into 2026. And we're getting some sense that the pullback in services is not across the entire industry. We see it in Tier 1s. We're actually doing quite well with Tier 3s with biotechs right now. The Tier 1 seems to be kind of a hesitancy based on the overall macroeconomic environment. And I think every time we hear kind of positive signs of stability, things get a little bit more bright for us. So we're not -- what I've heard and we're expecting kind of want to call it a stabilizing environment, I guess, is the way I'll put it as we go into 2026 as opposed to kind of where we've seen part of this year where it's been getting a little bit tougher.

Our next question comes from Luke Sergott from Barclays. Our next question comes from Brendan Smith from TD Cowen.

Actually, I just wanted to follow up on some of the earlier questions related to the software business a little bit more. And this is frankly something we're just asked by investors a fair amount. But I guess we're obviously seeing pharma and some of those Tier 1 customers invest a lot more internally in some of their own AI plus capabilities. And I guess, do you kind of feel that's net-net headwinds, tailwinds, maybe a wash to where you guys come out? Just trying to understand like to what extent as they build out those capabilities, they turn to you all to help make sure that those internal processes are ramping as they should? Or is it kind of an or rather than an and within their budgets just based on your conversations?

Yes. Thanks for the question. What we've seen happen with AI has been tremendous. This is starting more than a year ago, a tremendous excitement and willingness to try things in pharma, but somewhat of a hesitancy to commit to enterprise sales until they understood the full implications of putting AI in terms of data security and how the products will be used, sort of the, let's call it, the quality controls that you need to put in around AI and some of these uses.

So we saw a lot of -- in the beginning, there were really great marketing opportunities, but slow to sell. And as we've gotten through 2025, we've seen somewhat of a pickup in actual sales of the pure AI products. All of our products that we've recently launched, well, let's say, Phoenix and CertaraIQ have embedded AI in them, and that's been quite well received. And I think we're seeing a bit more willingness to move faster to put these things in as you deploy them across the enterprise.

You're asking a somewhat different question also around is pharma considering building our core products using AI internally versus buying them from us. The core modeling technologies we have are really quite specialized. And so we're -- that doesn't tend to be a real option. And you can see that with our software, which is still growing quite nicely, and we expect will continue to be strong as we go into 2026.

Our next question comes from Joe Vruwink from Baird.

Just to go back a couple of questions ago, you mentioned the prospect of stabilized environment for 2026. What do you think stabilized means for Certara growth potential at this point? And I just ask as the last 3 years have obviously seen a lot of macro turbulence, Organic growth has averaged 3% to 4% over that stretch of time. Is stabilized supportive of mid- to high single-digit growth and robust gets you back to the double digits? Or any way directionally, just appreciating kind of what the company has been through over recent history?

Yes. Joe, so as it relates to us calling it stabilized, and really, what we're saying is we see continued performance on the software side, which has been playing out according to plan this year. So year-to-date software bookings have been 7% on a TTM basis. And then we're seeing -- or 6% year-to-date, 7% TPM and then 6% organic software this year. And then we're adding the products that Bill was talking about, of course, too. So those are the positives.

The headwind to all that is what we're seeing in services right now. And we saw it -- you can see it in the Q3 results. But you can also see it -- we saw it in October. And that's why we were indicating that as we look towards the end of the year this year, we're not really expecting to see the same level of seasonality that we've seen over prior years. And so that's going to provide a bit lower of a jumping off point as it relates to services. So services is likely to be in the low single digits as we approach next year as a result of that. So software going well, playing out according to plan. We've got new products, but services is the spot that we're keeping our eye on as we finish '26.

Okay. That's helpful color. Just to go back to David's question on gross margin. As I look at the mix of software sales this year, a lot of the incremental growth has come from higher license sales as opposed to subscriptions. Does that -- and that might be Chemaxon related, but in case it's not, is that a beneficial margin mix to year-to-date results? Or how to think of that versus a higher proportion of, I guess, ratable subscription revenue?

Yes, you've got that straight, Joe. So bringing in Chemaxon, Chemaxon is predominantly a license based, at least right now. So whenever we're recognizing revenue there, we're getting all of it at once. And so that, combined with Phoenix achievement on revenue this year is what's helping the gross margin, if you will, from that perspective, while at the same time, it's reducing the proportion of ratable that we have. And that's why I like to cite it not just what the ratable portion of software is, but even excluding Chemaxon is a better comp to the prior year.

Our next question comes from Kyle Crews from UBS.

You mentioned that customers were adopting model-informed drug development for use in toxicity and dosing analysis. CBR earlier in October here announced that you could use potentially pharmacokinetic analysis to replace some animal testing for first-in-human dosing. Can you elaborate a bit more on that point that you made earlier in the call?

Yes. One of the significant uses around QSP has been in these 2 areas. So first-in-human dosing has been particular area of interest in pharma for modeling. It doesn't sound like the biggest problem. But when you really think about it, the initial dose that gets tried in a Phase I trial really defines the range that will be used for all trials later. Many of the -- if the doses that are tried are outside the effective or the safe range, they're kind of wasted. And so that's been recognized by a lot of companies in the pharmaceutical industry, and it's been also good to see that the regulators are paying attention and are encouraging it as well. So that's been one of the reasons for the uptake in modeling services like QSP that we've seen.

Great. Can you speak briefly on your exposure to biologics or small molecule drugs at this point with your software offerings?

We have exposure to both. We are fair -- we always said, and I believe this has not changed, that our exposure is pretty similar to what the pharmaceutical industry as a whole is working on at any given point. So the questions that get asked in modeling between small molecules and large molecules are often somewhat different. For example, small molecules, there can be more formulation questions and absorption questions. In large molecules, there are often more questions around things like dosing and immunological responses and things like that.

However, we have products targeted for both. We have quite healthy and active businesses for both technologies and even other technologies that maybe don't even quite fit this kind of definition. For example, we've got products focused on radioligands and peptides, things like that. So I think we're pretty well covered in terms of our exposure and our investment in the technology to kind of serve both of these.

Our next question comes from Max Smock from William Blair.

John, maybe just want to follow up on some of your earlier commentary around services bookings, particularly in Q4. I think you mentioned you haven't seen much improvement or you didn't see much improvement in October. Just kind of looking back historically, I typically see a 30%, 40% sequential increase in bookings in Q4. Can you just kind of frame out, given the volatility quarter-to-quarter here, how you're thinking about just kind of the range of outcomes on the services bookings in Q4? Just to give us some more color around what the organic growth of that segment can look like in 2026.

Max, so we do still expect from Q3 into Q4 a sequential increase, but not to the same magnitude that we've seen historically. Historically, you've seen a book-to-bill in Q4 that's 1.3 to 1.4, and we don't anticipate that being the case given what we've seen through October.

That's helpful. Maybe just one on the margin side. Really nice performance in the quarter. And I know in the past, you talked about maybe pulling back on some of your investments if the macro environment got a little bit more challenging. Just want to make sure that, that wasn't a factor that contributed to the beat on margins in the third quarter here. And then as we're thinking out in 2026, can you just talk about how you're kind of prioritizing the opportunity that you have here to continue to advance or invest in your pipeline versus prioritizing margin expansion? And just your initial thoughts on how we should be thinking about margins moving forward?

Yes. Yes. So definitely not pulling back on the investments, and you can see that reflected in the 24% growth in R&D year-on-year. So we're continuing to make those investments. good discipline across the rest of the P&L. We talked a little bit about gross profit. But if you exclude Chemaxon from the expense lines, you'd see that they're in line or lower than growing at the rate of sales. So I'd say, yes, making the investments, absolutely. You can most notably see that reflected in the R&D line as you would expect. And there is more investment to come as we look at next year. But we've been pleased with our ability to navigate both making those investments in software development while also preserving our margin.

[Operator Instructions] Our next question comes from [ John Park ] from Morgan Stanley.

I was wondering, I know you guys talked about Tier 1 and some of the macros that they're facing. I was wondering if you could talk to Tier 2 and Tier 3, acknowledging that they make up a smaller portion of the revenue, but is it any different in terms of some of the macro headwinds that Tier 1s are facing?

Yes, that's a bright spot for us actually. So Tier 3, both Tier 2 and Tier 3 services have had good growth throughout the year. And in fact, in Q3, we saw double-digit growth in biosim services Tier 3. So this has been a partial offset to the headwinds that we've been describing in Tier 1 has been the positive growth and momentum that we have in Tier 2 and most notably in Tier 3.

Great. And just as a follow-up, I know you guys work with the FDA. I was wondering if there was any type of waterfall implications with the government shutdown regarding -- for FDA or any of the agencies you guys work with?

Yes. Thanks for the question. It's I guess the question revolves around how long it lasts. I think most people in the pharmaceutical industry believe that this will resolve itself at some point and that point will be less time than causes serious issues. It goes on for a really long time, and we have a big slowdown in drug approvals or something, that's one thing, but I don't think that, that's really what people believe. There's a little bit of slowdown in terms of any kind of contracting with the government, but we don't expect that will have a significant effect on the year.

Thank you. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

All right. I think we're on time here. Great. Well, good afternoon, everyone. I'm Craig Hettenbach, I cover the health, tech and provider space at Morgan Stanley. Very pleased to have with the CFO, John Gallagher of Certara.

So I thought we'd just kind of set the stage with a focus on kind of your strategy, particularly from a growth perspective. If I think about the organic growth profile in kind of mid-single digits, some of the things you're looking to do to kind of accelerate the growth profile over time.

Yes. Yes. Thank you, Craig, and thanks for having me. Yes, the -- I mean, look, the overall end market environment is subdued. We've talked about that through some of our meetings and -- and on the quarter, we talked about that, of course. But that doesn't stop us from being able to accelerate growth for the company. So you pointed out and cited what our -- what our organic growth is looking like. And we're making a number of investments during the course of this year. We made investments first over the last couple of years in sales and marketing to fully build out our commercial organization. And then the next phase of investment, which you've seen this year and will trickle over into the next year has been in R&D. So -- and we believe that these investments, we've seen accelerated growth from the build-out of the commercial organization. And that's showing up with the results we're seeing in our Tier 3 customers this year.

But we're also in a position where the organic growth that you said, we're not satisfied with that. And we believe we can grow even in subdued market conditions, we think we can accelerate growth. And we're doing that by investing in R&D. And what does that mean? That means we're investing in the software platforms. And so we're excited that in the fourth quarter of this year, we're rolling out 3 additional -- whether it's enhancements to our existing platforms or all new software during the fourth quarter. So we can get into that some as we -- as we've talked through the questions. But we're very excited about Certara IQ, which is going to be AI-enabled software for QSP, which is an emerging fast-growing area of biosimulation. We have a cloud version of Phoenix with AI enhancements and functionality that we think is going to be very attractive to our customers and entice them into converting from on-premise into the cloud. And then recently, we've come out with Pinnacle 21 for enterprise, which is another enhancement for that important platform. So altogether, what that spells is new software, new software enhancements that's going to allow us, and we expect it, even in the face of these subdued end markets to be able to accelerate growth next year on an organic basis.

That's great. And on the R&D side, specifically, you mentioned kind of some new products coming out. Can you just discuss the feedback loop with customers, any particular pain points you're addressing to them and how that kind of might shape that product development side?

Yes. Yes. I mean, like the most glaring pain point that exists is the fact that the vast majority of drug programs and drug trials get all the way into the clinical phase and are still failing. And so, that is the value proposition of Certara is to save time, save money on drug development, enable our customers to understand these failures faster to redeploy capital in areas that are going to be successes. And so everything that I described with accelerating and enhancing our software platforms is going to enable addressing that -- what is that critical pain point in drug development.

Got it. And you recently appointed a CTO, and I would love to hear just kind of in the context of some of these things we're discussing kind of what's his name kind of directives? What are some of the goals there for that role?

Yes. We're super excited to name Chris Bouton as our CTO, which Craig, as you pointed out, just did that recently. Now Chris is not new to Certara. He came as part of the acquisition of Vyasa, which was our acquisition of AI technology which was a company that he founded and led up through the acquisition. And of course, he's been with Certara and that acquisition was done at the tail end of 2022. So he's been with us for the last few years and has done a fantastic job of enabling AI technology across the various product platforms and offerings at Certara. And now it's the perfect time to elevate Chris as more and more of the product enhancements that we're rolling out, 3 of which I just talked about, are involving AI. So we're super excited to have him named as our CTO. And one of the key things that he's focused on right now is the launch of Certara IQ, which is AI-enabled software for -- in the QSP space.

Great. And I did want to touch on more broadly kind of Certara Cloud that was kind of launched in April '24. What type of impact is that having on the business? How are customers kind of responding to that?

Yes. Yes. So Certara Cloud, think about Certara Cloud in the context of like a single sign-on opportunity to make our customers who may be using 1 or 2 of our software platforms, aware of the breadth of software offerings that Certara has. So the adoption of Certara Cloud has been -- has accelerated rapidly, particularly when you think about that single sign-on, our Phoenix customers, as an example, are annually renewing their Phoenix license renewal rate, very high on our software products. And what's happening is they're automatically being ported over to the single sign-on so that they can go and use their Phoenix product, but they also become aware of if they're not already using it, of Simcyp, of Pinnacle, of all of Certara's software offering. So you can imagine with the high number of seat licenses that we have for something like Phoenix, as each and every renewal rolls over to the next year, they're ported over to Certara Cloud. So the adoption has been very good. The receptivity has been good, and it really primed Certara from a marketing and branding perspective in making our customers aware of the breadth of the software offerings that we have.

Got it. When I think about adoption and where that's at, any distinction between the type of customers, be it kind of biotech versus large pharma?

In the case of Certara Cloud, then I think that just purely from a renewal perspective, a lot of that's been centered in the large biopharmas. But that being said, we're having a good year in the biotech space, and I credit that to the commercial team. I mentioned earlier we have a fully built-out commercial team that's able to focus on the biotech that have the funding, even though the funding environment has picked up slightly, it's still not what it once was. And in the first half of this year was tough. We've seen strong results there. And I think it's because we're targeting the biotech companies that are poised for adoption.

Got it. Maybe just building on that in terms of how you define your customers in terms of Tier 1, 2 and 3. What are your thoughts in terms of the growth prospects kind of on a multiyear basis, how are you kind of approaching that?

Yes. Yes. So maybe first, just to define the tiers. So we have -- as you just said, Craig, we have customers categorized by Tier 1, 2 and 3. And so Tier 1 customers think big biopharma annual customer revenue in excess of $5 billion, and that category were up 50% of our revenue. Then the Tier 3 customer category, I think biotech revenue less than $100 million or no revenue, pre-revenue type biotech, and they represent about 30% of our revenue. And of course, the Tier 2 is the 20% that's in between.

And as far as the growth and performance, I've mentioned already that the Tier 3 performance has outpaced our expectation this year. And so when I look at Tier 3 bookings, we've had solid results there. Even in the face of a funding environment that's continued to be challenged, although recently have gotten a little bit better. And that's because we do have that strong commercial focus. We built out the commercial team, and we're able to target the biotechs that have the funding and the appetite to spend. So performance there has been good.

In the Tier 1 category, we've seen -- in the second quarter, for example, we saw software bookings in the Tier 1 category were impacted by some timing. So -- and here we are, we fully expect to realize that timing in the second half of the year and remain on track. In services, in the Tier 1 category, we had a strong 2Q there. I'd say as we proceeded through the summer months, we saw some softness in the Tier 1 services category, but typical to what you might expect seasonality. And overall, we remain on track with the plan for the full year. So we still -- we've got a little bit of timing in software bookings in the Tier 1 category in the second quarter. We see that swinging back in the second half. And overall, on a full year basis, we feel good about the plan.

Great. And then within the portfolio, any kind of high-growth areas that you're kind of most excited about kind of as we exit this year and heading into 2026?

Yes, yes. Yes, 2 key areas to focus on when we think about the highest growth that we're seeing this year as well as excitement for moving into next year would be QSP or quantitative systems pharmacology, which has been outpacing our expectations during 2025. We expect that to continue into 2026. This is a higher growth area within biosimulation, and Certara is the market leader in the spot, too. Because keep in mind what is QSP to Certara, that's the combination of an acquisition we did in 2023 of Applied BioMath combined with Certara's own QSP consulting practice, giving us the biggest QSP consulting practice in the industry, that has fared very well during 2025 so far. And now we're launching Certara IQ, which is taking what is a 100% of services or consultant practice today and adding software to it. And so that's what gets us really excited about that product moving into next year. And then Simcyp. Simcyp is our core biosimulation software platform that has performed really well during 2025, and we expect that to continue during '26.

Great. Maybe we can just shift for a minute just to the margin side of things, just kind of current margin profile, how does that kind of look relative to your longer-term targets?

Yes. Yes. So the margin guide for this year is 30% to 32% adjusted EBITDA margin, and we're on track to be able to deliver that, and that's clear with the first half results. It's reflective of a low -- I'll call it, a low 30s EBITDA margin profile that we had last year, we have this year, and we would expect to continue in the near future given the investment profile that we have in front of us. So I mentioned earlier in our discussion that we had invested in sales and marketing, that was really more of a last year investment. This year, we're investing in R&D to drive the growth in the key product categories that we discussed, Craig. And we expect to continue to invest in the R&D line to be able to roll out additional software enhancements, new product offerings in the software category and be able to shift the focus of our services organization also.

Great. Maybe just shifting gears to kind of the near-term environment. And I mentioned before, no surprise at this conference, there's so much focus on just kind of policy, what's happening in D.C. I think on your earnings, you guys kind of characterized things as kind of stable right now, not a ton of change. But just what are you seeing out there from a sales cycle perspective? And how does that shape how you think about going into next year?

Yes. Yes. The -- you're right. I mean with the number of policy changes that have hit us this year is probably unprecedented, right? And some of them represent headwinds, some of them for Certara actually represent tailwinds. And so I'd say, overall, the market environment remains challenging. When we think about the funding environment for Tier 3s that we talked about, that's challenging, although we've been executing well on it. And we look at the -- our biggest customers are the big biopharmas have certainly been faced with a number of challenges, whether it be tariffs, MFNs, any of the potential policy changes that would slow down their decision-making, which can impact the bookings results that we see. So those are some of the challenges that are out there. And those have existed before this year, they're existing during this year. And now that we're in the middle of September, we're -- it's not long before this year, it will be over. So it seems as though this could easily continue into 2026. So that's the headwind part of it.

Now the tailwind part of what's gone on this year, of course, is the FDA put out a directive to -- for drug companies to start to shift away from animal testing and to modeling. And then Certara being the market leader in model-informed drug development, we're very well positioned, of course, in a scenario like this one. And so although there are significant challenges in the market, there's also some tailwinds that -- such as the FDA NAMs directive that is certainly affording additional customer discussion opportunities and we think is at least in part, driving the strong performance that we're seeing in Simcyp and QSP this year.

Great. I definitely want to come back to that in terms of the animal testing and FDA events come more broadly. But before doing so, I'd love to spend some time on kind of AI and really starting with Certara kind of internally, what are some of the things you're doing from a technology perspective?

Yes. So I mentioned the acquisition of Vyasa and our CTO, our now named CTO, came with that. So we've spent the last couple of years since the acquisition of Vyasa, utilizing AI technology internally to be able to start to work that technology into our own workflow processes, into our own modeling and accelerate the work product and the efficiency of our employees. Now of course, we also did that with a commercial mindset, and we've rolled out -- we've rolled out one product, and we've got another one coming in the form of CoAuthor, which is AI for regulatory writing that we launched last year. And of course, Certara IQ, which I've mentioned a lot today because we're very excited about offering some AI-enabled software in the QSP space. So the first stage was assimilating the AI technology from the acquisition of Vyasa onto our own platform to make our own teams more efficient in the modeling and the work that they conduct on a daily basis, including in our consultancy practice. And then, of course, the second phase of that is commercially offering these technologies as software, too.

Great. On CoAuthor, any kind of proof points you can kind of share in terms of where that's at and how customers are responding?

Yes. I mean it's -- CoAuthor is able to realize about a 40% efficiency or removal of time and cost spend on a regulatory document. And so, the way to think about that is you can go from 0 to first draft very, very quickly with the use of a software tool like CoAuthor. It doesn't eliminate the need for regulatory writers because there's still the opportunity to review and edit. But it takes a tremendous amount of the work and time associated with that work out of the process. And so clearly, that's very attractive to our regulatory customers and to our big customers. I know that some big drug companies have even come out and said that they want to use technologies like CoAuthor to help try to reduce the amount of time and effort spent on regulatory writing.

Great. And more broadly, I mean, there's a lot of kind of experimentation happening at kind of your customers' internal development. What are they through your interactions with them in terms of what are some of the things that looking from a event like Certara in terms of how can you help them and kind of the value add around technology and AI?

Yes. Yes. Well, I think that the most innovative customers are searching for ways to spend their budget dollars more wisely or efficiently. And they would seek to do that as we were discussing earlier, by understanding potential molecule failures sooner in the process or understanding where inefficiencies might exist in their existing clinical process. Anywhere across the sort of the time line of drug development, there's opportunity for us to help enable them to get more efficient. So at a point in time where there's been a slowing of total biopharma R&D spending, and there's clearly been some time spent by the biggest pharma companies doing portfolio prioritization and understanding how they want to spend their dollars, Certara is well positioned to help them find those efficiencies anywhere from in the discovery phase of drug development where we can help enable them with the use of Chemaxon software, which was an acquisition we did last year, up through the preclinical phase where we offer non-animal navigator, which was the result of the FDA directive to shift away from animal testing. That's our offering to help bring together our software and our services to find efficiencies in the preclinical setting. And then, of course, in the clinical setting where we've had a strong presence for a long, long time, we're able to help them with our Simcyp software, our Phoenix software and ultimately pre-submission our Pinnacle software. So you can see that as biopharma companies seek to become more efficient with each R&D dollar spent, Certara is well positioned across the drug development cycle to help them.

Great. Maybe just circling back to the FDA. I know they kind of use your software. So just -- what are the use cases there? What are the kind of value that they get from Certara?

Yes. Yes, thanks for bringing that up because the FDA is a big user of our software. And I think Simcyp and Phoenix has a couple of key software products that they've been using for years and years. There are many, many users at the FDA that have been using our Certara software for a long time. And that's actually creates one of the key competitive moats for Certara is the fact that we've had these interactions with the FDA on a long-standing basis. And so, there's a very good understanding by the FDA of how our software works and it really smooths the pathway for our customers and take some of the risk off the table and using modeling when it comes to FDA submissions because they know that the folks on the other side of the table, meaning the FDA, already have an understanding and usage of the software that they have tucked into their FDA submission. So that's a key competitive advantage for Certara is the long-standing relationship, the number of people at the FDA that use our software and the understanding that those individuals have of the submissions that are coming into them that are using our software by our customers.

Great. And on the animal testing front and understanding it's kind of recent, what are some things investors should be watching for in terms of how that could impact your business over time?

Yes. Yes. The key -- the key areas to watch for our higher performance in Simcyp and QSP. And so on the last call, we actually mentioned we're like, well, the performance -- some of the key areas of higher performance this year above our expectations has been in Simcyp and QSP. And so the natural conclusion to say that that's correlated to the FDA directive. And I think that's fair. I wouldn't say it's the only reason that we're seeing the outperformance there. I think some of that outperformance is because we've got the biggest QSP practice in the market, and that's a fast-growing area of biosimulation to begin with. But it is -- but making a mistake, it is a tailwind to have the FDA put that directive out and it increases the volume and the depth of the conversations that we're having with our customers.

Got it. And more broadly, there's been a lot of change at the FDA and agency. I'm just curious kind of potential headwinds or even opportunities that, that might present itself as kind of the dust settles, so to speak, at the FDA.

Yes. Yes. Certainly, a lot of turbulence there, this year. I wouldn't say that personnel changes, like, for example, layoffs, we have enough users, as I was just saying, at the FDA that there's not a concern that there's been a layoff that would materially impact sort of the knowledge of the Certara software. That's not the case and has not impacted us. But I certainly think moving away from potential layoffs and getting some certainty at the FDA leadership level, I think will provide some stability to the whole marketplace, including Certara.

Got it. And I did want to touch on the stat in terms of Certara supporting 90% of FDA drug approvals since 2014. So high percentage there? Kind of how do you think about that across kind of biosimulation, regulatory writing and things in terms of how you're engaged with them?

Yes. Yes. It comes back to the point I was raising earlier around the breadth of our product offering. So I talked about our offerings in discovery and preclinical and the clinical phases, all the way through submission. And like when you think about the important product and services offerings that we have across the drug development cycle, it's not surprising that 90% of drugs that we've touched their program in one way or another. I think the key opportunity here, of course, though, is that -- is to increase adoption across all of those categories. And so that's really what the growth opportunity for us is increasing adoption of model-informed drug development, the use of our software, which also gets us the opportunity to work with our customers on a services basis, too. So even though that breadth of the product portfolio has enabled us to touch, as you said, 90% of the drugs that are approved, there's still a vast opportunity for us to increase the depth in how we're working with each of these customers.

Great. I wanted to segue over just kind of M&A and maybe starting with Chemaxon in terms of just the integration process, how that's going?

Yes. Yes, we've been very excited. I touched on Chemaxon briefly during our conversation here, but just to reiterate what Chemaxon is and then touch on the integration, which has been going really well. So we acquired Chemaxon about this time last year, and they are a chem informatics software company in the discovery phase of drug development. And so think chem informatics tools that enable drug companies that are in the business of finding new drugs, you're help enabling their processes, much like in the clinical phases of Phoenix helps our customers with drug development. So that's what Chemaxon is. We -- at the time that we did the acquisition, we said that it would take us about a year to get the margin up to -- is a profitable company, but it would take about a year to get the margin up to Certara's corporate average. And so we're almost 3 quarters into that. And I'd say the integration is going very well according to plan. Chemaxon is hitting its bookings and revenue targets that we had put out there. And because we're measuring both our reported and our organic result in bookings and revenue, then it's pretty clear like what the Chemaxon performance is because they're the only contributor. And we've been really pleased with the performance at Chemaxon so far. So a little bit more work to do on the integration as far as fully -- some of the opportunity with bringing on Chemaxon fits with the ability to introduce them to new customers and our -- and then enhancing some of their products, which we're working on now and will be releasing in 2026, combined with sort of what I'd call more of the back office integration that's going to help us get the margin to where it needs to be by the end of this year.

Got it. Can we touch on just the status of the strategic review of the regulatory business, kind of what the time line looks like? And then, ultimately, where you see kind of the implications of whatever that outcome is?

Yes. Yes. So the regulatory process is ongoing. We said on the call back in August that the process has gone slower than we anticipated. And we attribute that mainly to the overall market backdrop is choppy, and I think just creates an environment of a little bit of indecision there that impacted the process. But we are engaged in talking with the multiple potential buyers and we'll update when we have a little bit more information. But we do -- the process is ongoing, and it's important to remember, too, we've disclosed last year, we've started to disclose what the size of the reg business is and what the profitability profile looks like. And so it's important to remember, even though this is a business that's up for strategic review, and we are in active dialogues with potential buyers, as we said. It's a business that has returned to growth in both bookings and in revenue this year and have an adjusted EBITDA margin of about 20% to 30%, which is quite high in a reg writing business. So when you start to think about potential buyers then, this is a profitable business that's returned to growth and has an EBITDA margin that would be immediately accretive to most organizations that would look at it. So it's important that we get the right value for this asset for our shareholders, too.

That makes sense. When I think about kind of your M&A strategy and the deals that you've done and probably more so on a forward-looking basis of pipeline and companies you evaluate, what are some of the key criteria in terms of how it's a strategic fit, financial profile?

Yes. Yes. So a couple of things that we look for when we're screening for M&A. One is, we have had a tilt towards software. The mix -- one thing we didn't touch on during this discussion is the mix shift at Certara from services towards software has been dramatic, particularly in recent years. If we look back, Certara over history had predominantly been a services business, and now we're nearly 50-50 software services, and that's been a product of our organic software growth but also M&A activity. So we look towards software. We would look for businesses that are generating revenue. So -- and are profitable with a clear path, kind of like I mentioned for Chemaxon, with a clear path towards getting the profitability profile up to Certara's corporate average within a reasonable period of time, and that would be accretive to our overall top line growth.

So strategically, there's a tilt toward looking at software. We want to make sure that there is an important base of revenue there to grow off of that, that revenue is growing in a way that would be accretive to Certara's top line but that the profitability profile is balanced enough that we'd be able to get it within a reasonable period of time to where Certara is. And Chemaxon is probably a good example of that kind of profile that we just executed on last year.

Great. And then just last one, kind of bringing that together just from a capital allocation perspective on a near-term basis, how do you view kind of M&A opportunities, share buyback? You mentioned you're investing organically in R&D, kind of what are the top priorities?

Yes. Yes. The highest priority, for sure, is the investment in R&D that we've outlined here. I'll -- I won't repeat all the great things that we're doing, but that is a high priority, as I'm sure you could tell from our discussion. And we have been an acquisitive company over our history and have done 4 acquisitions in the last 2 years even. So -- and we would continue to -- to look -- and we have a healthy balance sheet, low leverage. So we can -- there's a lot of opportunity to continue to deploy capital on M&A. That being said, there's a lot happening right now. We're still integrating Chemaxon. We're rolling out 3 new software offerings. So we are busy, make no mistake. But we're always screening for M&A kind of against the criteria that I mentioned to you, Craig.

And then importantly, you said it recently in new for Certara, we do have a share repurchase authorization for $100 million. That's the first time we've had an authorization at Certara for buying back shares. We executed $25 million of that in the second quarter. And so the way that we view share buyback is it's another vector or opportunity for capital allocation that we've added to the toolkit for us. So you can rely on us to sort of balance the -- or look to balance the capital allocation according to that kind of a time frame.

Great. I think we'll wrap there. So thanks so much, John, for your time. Appreciate it.

Thanks for having me, Craig. I appreciate it.

All right.

All right. Hi, everyone. I'm Joe Vruwink. I cover vertical software at Baird. Our next presentation comes from Certara, the leader in biosimulation software and services, helping to revolutionize drug discovery and development. We have William Feehery, CEO; John Gallagher, CFO with us on stage. This is going to be a fireside chat. But to begin, I'll turn it over to Bill for an intro to Certara. Thanks for joining.

Thanks a lot, Joe. It's great to be here. I'll just introduce Certara for anyone who hasn't come across us before very briefly. So we are -- we went public in 2020. We've reached about 1,500 employees right now. We operate globally everywhere the pharmaceutical industry does is kind of the way you can think about this.

Of the -- one of the things we're very proud of is that 90% of all new drugs that have been approved in the last 10 years, we can trace directly to the use of our services or software based on public information around their filings in their drug applications. We're a profitable company. We're in 30s in EBITDA margin. And we're roughly becoming a 50% software, 50% in services. You can see here some of the other statistics we have.

But basically, the idea behind Certara is that we're dedicated to the proposition that the drug development process needs a new model. So the reality is that nearly 90% of new medicines in interclinical trials fail. Now consider that's not just a random drug that enters into clinical trials. That's a drug that's been selected using all of modern technology, AI, screening, genetic information with the best idea going forward, they still fail quite considerably. And that causes really the cost problem in pharma.

So every drug that goes forward into any degree of clinical trials attracts a lot of cost. Most cost and drug development is actually in clinical trials. Some drugs go all the way to large Phase III trials. They still have a 30% failure rate at that point historically. If you look over the last, let's say, generation 25 years, I'd love to tell you that it's been getting better as modern science has been getting better. But in fact, it hasn't been, in fact, you would argue it's been steady or maybe even declining a bit in terms of efficiency. And the drug industry is under some pressure now for around costs and around -- that it's coming from price controls and things like that, and it can be done differently.

We have a biosimulation platform that consists of both services and software. Our platform spans basically the development phase of pharmaceuticals starting in discovery going all the way through approval. In discovery, we focus on the problem of which drug is likely to succeed as it gets into a big clinical population vary in all kinds of characteristics, age, weight, sex, comorbidities, genetic background.

As we get into preclinical, we focus a lot on dosing. What's the proper dose for this drug that is most likely to bring it forward and succeed in the largest population. As we get into clinical, we advise a lot on developing the right clinical trials to basically efficiently proof that the drug works. And as you move into approval, we advise on how to get the drug approved at the FDA. Our drug development models are used by the FDA. We've been part of -- our software has been used by the FDA since the early 2000s. They're a big proponent of biosimulation.

And I'll just leave one chart, which is kind of the cool -- I've told you a little bit about the company and what we do, but here's a little bit of the cool science we do. So one of the things we're really known for is our Simcyp Simulator. This is a biosimulation simulator we've developed over the last 25 years. This is quite a complex model of the human body. You can see it has all of the organs of the human body. And what it does is it predicts the absorption, distribution, metabolism and excretion of the drug, where it goes in the body, what the concentrations are. And it's used to -- for all kinds of questions as you move through drug development.

This model has been used and has -- when it's used well, it eliminates the use of -- it eliminates the need for a certain clinical trial, so it saves our clients a lot of money. To date, we counted over 125 approved drugs where if you look in the label claims, you can see the use of the simulator to avoid clinical trials and make label claims. There's nothing really else like that on the market in terms of the adoption of the use in the industry. and we're still just getting started. There's a lot more we can do in the science here, and we're investing still very heavily in this.

I'll stop there and turn it over to Joe.

Yes, that's great. Any questions from the audience, session2@rwbaird. I'll get those on the iPad. I'm going to ask a question, and I've probably asked it every year you've attended the conference. But to tee it up a little bit, we follow other technical applications, software where maybe the spending is 10% to 20% of that customer's R&D biosimulation is a very small piece of R&D in your industry. The TAM you define is only 1.5 points or so of global biopharma R&D. Why isn't that a bigger number? Why isn't biosimulation spending a much bigger number.

Yes, good question. So I'll answer it a couple of different ways. One is the pharmaceutical industry is a little bit different than some of the other industries that the pharmaceutical industry has been based on statistical science from its outset. There was a view in the beginning that human biology was simply too complex for modeling to make real recommendations. And to some extent, we've had to battle that from our inception.

The potential for the use of biosimulation as it exists today with no improvements is much greater than we penetrated. And because we've proven this works in a lot of situations, it's also attracting a lot of investment, and so the technology is also improving. If you look at -- usually, people tell me that we've over defined the TAM. So it's interesting you're saying we underdefined it. But 1.5% of global pharmaceutical spending is an enormous amount of money.

If you look at our product offerings, we've got software offerings in the discovery area and that companies are spending hundreds of millions of dollars a year on that. We are virtually the only real biosimulation solution in the clinical area. And obviously, that's half of R&D spending. So okay, maybe we've underput our -- our kind of view is we're a small part of a really big number that's out there. There's a lot more for us to go get.

You mentioned the battle to educate around biosimulation. Month of April, something comes along, FDA, a bunch of exciting news that potentially eases the battle, let's say, can we maybe talk about what new approach methods mean for Certara and specifically the aspects of your portfolio you think will grow much faster as a result?

Well, I think what you're referring to is the FDA announcement around eliminating animal models in -- and they specifically mentioned monoclonal antibodies. But they want to extend it past that if [ they ] get done. So we view that as kind of a recognition of, to some extent, of what the reality is in terms of the science and also to some extent, a goal or an ambition that's been set out there for the industry.

So where we are today is we do a lot -- modeling in fact, is used pretty extensively in monoclonal antibodies for a bunch of reasons. One is the models are pretty good. The other one is because giving a human antibody to a nonhuman primate and expecting to get really good data is perhaps a little bit far-fetched, right? So I think the fact that the FDA has recognized that the science is getting to that level. And in many cases, perhaps not all, you could use that to reduce the number of animal testing. I think that's all positive for -- its positive ethically for the world, and it's good for Certara, right?

So we're doing lots and lots of work. What we find is with our largest companies, most of them are doing modeling in parallel with animal testing. And so they would welcome path to reducing amount of animal testing because they're really basing a lot of their internal decisions on the modeling. But the FDA has made that announcement. There's a lot of details that need to follow from that from a regulatory perspective. So a lot of customers now are saying, "Okay, they've made the announcement, but exactly how do you do this with -- like what do they want to see and what's the process?" And the FDA is still rolling it out, let's say. So that's kind of where they are.

So a little bit more work needs to be done. There still has not been a customer got a drug approved the FDA under this new announcement. So I assume the FDA will have some pilot programs and encourage some, but that's still to come.

This is maybe not the right analysis to be doing, but you talked about QSP, which I think has the most immediate ramifications in terms of what customers would look to employ half of the bookings on your QSP solutions were deployed into monoclonal antibodies. But I think about monoclonal as a share of all activity, it's maybe 15%, 20% of things that are in development right now. So if that's 50% of your bookings, it just seems like any work happening there is basically using some sort of software or the share of work employing software has gone dramatically up. Is that the case? Is that kind of what you're seeing at the front line?

Well, monoclonal antibodies is one area where the modeling has been particularly developed the capabilities of the models are pretty good and widely recognized. And so it's become -- I don't know if you call it standard, but over the last year or so, we've seen a big uptick there. So we can do a lot of interesting things there. And one of the things -- one of the questions we're asked on monoclonal antibodies has to do with first-in-human dosing. So when you go into a human trial, you may have -- let's say you're going to have 10 data points on your Phase I clinical trial, you're going to modify the dose from some small number and move it up.

Now a few -- if that range doesn't include the active range, the safe and active range, you've got a problem -- if you've got 5 data points too low and 5 data points too high and only 1 in the middle, you have a problem. And if you -- or if you have all the doses too low, you're probably never going to go higher than the highest dose given. So that's a really important question. You can answer that with QSP, that's one of the reasons were being brought in. If you get it wrong, you kill your drug, if you get it right, you can save a lot of money later with faster and better trials, for example, right?

Yes. This is going to create a lot of new product opportunities. So specifically on your QSP platform, you're doing some things, and you've alluded to some new -- it's really going to be a QSP platform. But can you just talk about what Certara is doing there? And it's not going to just be on MABS anymore, but how that will broaden out what SP is used for?

Well, so we acquired a company called Applied BioMath 2 years ago. And that enabled Certara to create -- basically the largest group of people that do QSP modeling. So QSP modeling, it's quantitative systems pharmacology maybe not the best term for this, but that's the most advanced modeling that's out there. And we wanted to create a large group that we're doing that not only so that we have the capability of sort of serving customers. We have the breadth and the experience across lots of different areas, but also because we see an opportunity here to create an industry standard software platform to do this.

So right now, people -- it's kind of the Wild West. People are writing their code in our Python, C, everything you can think of, these are complicated models, right? These -- you might be talking about thousands of differential equations. They're very hard for humans to understand. And when you add on top of it, they're all written and everything else. It's a problem for companies. Someone leaves, all we've got is a SharePoint drive full of whatever the guy did. It's a problem for regulators because they're getting submissions in -- with every kind of documentation to think of.

And it's a problem for us because we need like a sort of a defined process to create these models. It's not just creating the models that you get paid for, it's creating all the documentation around them. Where did you get this data? How did you backtest it? What's in here? What did you not consider because I think it was wrong all -- where do you believe this model is accurate, not -- all of that documentation around the model becomes a piece of it.

So long story, but we're launching a piece of software called Certara IQ this fall. We believe that is going to become an industry standard around QSP. And why it's going to be an industry standard? Well, number one, we have the largest group of people doing this stuff and they're all going to use it. So we're going to have a good base of people both using and developing it.

But what this software does is it allows us to do the modeling. We've incorporated AI in it. So we're basically leveraging AI with our experts to develop these models. And we've incorporated all of the reporting and documentation that you need, what we call regulatory grade. So you can go to the FDA and say, "Look, here's all of the files that you would need to understand what's in this to understand whether you should allow it from a regulatory standpoint, which gives our customers the reason to come over here.

So we're very excited about it. We think that we have a great business in QSP, but right now, it's a services business. And like everything in Certara, we always look at things around services and software. So we really are at heart a software company. We're creating the kind of the core biosimulation software and then we array experts around that for companies that either don't have the internal expertise to do it or they don't have the very specific expertise, you need to really make the most use of it. And we're going to do that in this area as well.

You talked on the second quarter call where you think the news out of the FDA and how that could evolve and create different decisions in the industry is maybe a incremental low single-digit billions, billions of potential new TAM for you. Would you say that QSP is specifically the biggest contributor of that increment?

Well, there's a couple of -- QSP is not just targeted towards reduction of animal models. It tends to be that those -- that is one way to do it. So we calculated the industry spending on non-human primates is something like $5 billion a year. So you could argue that's the TAM. But probably when you move from that to software, it will be some number less. So we kind of pick something there, right?

It's a significant opportunity for us to go forward. But it's not just the reduction in cost for a lot of our large customers, those animal trials take months. So if you -- for a large drug, if you can take off a month or 2 in terms of the approval time, that adds up in terms of basically the NPV of the drug, and that's probably where the real value is.

Yes. You mentioned a moment ago, Certara sometimes at its best when you take the software the AI infrastructure, but then you wrap your expert services around it. And services, of course, have had a lot of fits and starts over recent history just given the macro and spending at your customers. But it seems to be on a better path. The bookings recently have been very strong. How much would you maybe attribute just the end market becoming a bit more stable, and that's conducive to you being able to execute better versus that business has gone through some different organizational changes. Is that the ultimate contributor?

Yes. Yes, I'll take that one. So we don't -- to be clear, we don't see it as the end market improving, specifically in the Tier 3 category. We've been seeing strong performance throughout the year in services and we attribute that largely to the full build-out of the commercial team. So we've been investing in sales and marketing. We had said at the end of last year, we thought we got that built out and we're seeing our ability to influence our results through that commercial team executing and an overall funding environment that has gotten a little better but not a lot better. So we don't see the end markets as the key driver there.

And then when we look at Tier 1s, we had a good quarter in Q2 in the Tier 1 category. As we look at the summer months a little bit slower in Tier 1s in the summer months, but we also see that as typical seasonality. And we have full confidence in the plan for the remainder of the year.

And maybe real quick while we're talking about services, just the regulatory piece of the service business and where maybe that stands in terms of finding a home outside of Certara?

Yes. So the regulatory business has been performing well this year. So we saw a return to growth in both bookings and in revenue, which is good. We have had a process going. That process has taken a little bit longer than we thought. We attribute that largely to some of the end market environment and some slowness there. Overall, we don't necessarily see the business as strategic as it used to be for Certara. So we're continuing that process, and we'll provide an update when we have a little bit more information.

Okay. I wanted to go back, Bill, you said something at the beginning about just how the TAM definition kind of gets debated. But I think part of the debate is that there is spending on biosimulation, it might not go do an external third party like customers are working on this to varying degrees. And I'm just wondering, everything we've talked about to this point whether it's different segments of your customer base, like you brought up strength in Tier 3, which seems more conducive to using the full turnkey offering but even just the importance of getting models into a drug development framework, maybe more than has been the case.

Are those things all good for increasing your share of wallet? Like would you imagine that more spending will end up coming your way? Or do some of these events motivate competition and so that the share doesn't really move in a dramatic sense or maybe it actually encourages others to do more than they have been doing in your categories.

So in terms of competition, we -- the market kind of started out as primarily a bunch of small service providers and they're still out there, you still hire people other than Certara to do this type of thing. But the bulk of the people that really do this are in particularly the large pharma clients. And those companies have recognized the need for professional software that's not only professionally supported and supported with a lot of scientific background, but also is accepted by the regulators. So we've kind of become that over time. It's hard to recreate that just because the way this works is the industry regulators want to know what's in the models. It's takes a very long time to have them approved, right?

So every year, we go through a process of expanding the software explaining the regulators what's in there? What wasn't in there? How good is it? Where do we get the data to back test it and then finding a customer to bring forward those new features, and that's been going on for 25 years. So there's a lot of catching up, I think, to jump in. It's not to say we don't have -- it's a good market. We want to have some competition, but we have a pretty big moat around what we do just because we have the kind of the first-mover advantage in terms of getting the industry software that's out there. And there's a reason for the industry to consolidate around something that people know and understand and particularly that the regulators are known to accept, right? So that drives a lot of business to us.

Yes. Yes. I wanted to shift gears and talk about AI, and we were chatting on the way and that scientific software is maybe a good place to be in this debate because then just multi-industry enterprise software, the debate is AI is going to ruin the software business model. AI will make it easy to build software. And kind of in that debate, you have a view on the application layer and a view on the infrastructure layer.

And what I find so interesting about Certara is that you actually have both. You've built businesses and product sets in both the application layer and you have the data infrastructure. Maybe just explain kind of the thinking there and how you intend to monetize? Do you have a view on which one could end up being more consequential.

Yes. So we're kind of on both sides of this, right? So on the one side, we are fully leveraging AI. We've launched AI -- fully AI products, and we've launched features within quite a number of our products that add AI capabilities to it. So the way we think about this is the core of what Certara does, we're basically building these very complicated differential equation-based models of chemical kinetics of drugs in the human body and across populations of people that vary in a lot of ways. And AI is not really capable of doing that. And even if it was because we're set up in a way where the FDA requires very detailed understanding of what's in that, it would be very hard to just kind of turn loose a black box kind of AI model to do that.

On the other side, if you look at how we do what we do, we're -- AI has really helped us a lot. So we hire very rare high-end experts who have to come through lots of literature. It takes a lot of time. Their productivity has just gone way up because they can use AI to come through all the scientific literature looking for that -- looking for relationships between things, looking for specific data we need, explaining, doing some of the -- I don't want to call it groundwork, but like all of the work around to sort of organizing all that data. That's helping a ton.

We've launched an AI product around reporting. Our scientists love that. Scientists -- as far as I can tell, nobody really likes to write scientific reports or reports to explain the project to a client. So that's -- so there's a lot of productivity we've gained. And then on the scientific side, what we've started to do is take into account things that we can't easily model, right. So there are some things where we don't really understand the underlying mechanisms, but you know they matter. So an example would be like real-world data, tons of data on what really happens when drugs are given across the population may not, but we can use AI to add those into our models.

Genetic data, we certainly understand that certain genetic patterns cause diseases, but we don't always know underlying mechanisms, we can add those in. So it's also added an ability to extend what we do.

And then just your data infrastructure because you have a platform there that I think is kind of being positioned as the data platform for your customers to do their own AI work and to be very extensible across their organization, just the business case there.

In terms of using -- sorry...

The layer platform.

Layer platform. Yes. Yes, so we've acquired an AI platform that lets you basically tap into lots of different data sources and organize them or. That's become the basis of us pulling together all of our software across the full span of the full development time line into one platform. So what we can do with that software is effectively, you can index databases for AI without pulling all the data out of the database.

When we bought that, we thought it was pretty cool as AI and we bought it right before ChatTPT made all their announcement. As that has kind of rolled forward, what we've seen is companies have realized that they want to deploy AI across the pharmaceutical area. So like if you look at some of our large clients, they have databases of clinical trial data that date back 50 years. They would like to apply it. They don't want to let that out of the company. A lot of it's poorly organized. So using layer to kind of create an AI -- the underlying data infrastructure platform. The use of AI has become an important part of that too.

Great. Maybe just to finish on a few financial topics. The growth at one point in time was very consistently kind of in that 10% to 15% bands. Recent years have been below that band. What are some of the incremental things that need to happen to get you back into kind of the double-digit organic range?

Yes. Yes. Well, let me start real quick. Bill gave an overview of Certara and I can do that in 30 seconds from a financial perspective, too. So we're a $400 million-plus revenue annually company that's growing 8% to 10% on a reported basis. We are -- as Bill mentioned earlier, we are about 50-50 software services. Software organically is growing 6% to 8%. And our margin or profitability profile is in the low 30s from an EBITDA margin perspective.

So I think coming back to your question, Joe, then what's going to catalyze additional growth, particularly when we think about the software results, then it's the investments that we're making. So we talked a lot about our offerings and some of the offerings to come, whether it be QSP or the AI offerings. We are rolling out 3 new software products inside of 2025 and what we're assuming is that even if the end markets remain unchanged that we expect the company to grow additionally accelerate growth off of our organic results this year moving into next year by making those investments.

And then, of course, over the longer-term time horizon, as we see end markets normalize, we fully expect the company to be able to grow on a long-term basis in the 15% that it once did in history.

And are renewals, the big event to bring in a lot of that new decision, the new spending because I think you have some big enterprise renewals coming up, maybe how those are looking.

Yes. Yes, those are looking good. So we still have confidence in the plan in the back half of the year, which to your point, Joe, was reliant on some Tier 1 software renewals, which -- and we're seeing those play out as we expected. And it's not just the renewals, but as we have these additional product offerings, we're also going to be able to find expansion. So part of our overall business model is to land and expand. We have many, many customers, in fact, in the Tier 1 category. Most all of the world's large biopharma companies are already our customers. So it's a matter of adoption and expansion, and we do that through the new product offerings that we have.

Okay. That's great. We're out of time, but please join me in thanking Bill and John.

Good day, and thank you for standing by. Welcome to the Certara Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, David Deuchler, Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Certara, we have William Feehery, Chief Executive Officer; and John Gallagher, Chief Financial Officer.

Earlier today's Certara released financial results for the quarter ended June 30, 2025. 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 the forward-looking statements. Please refer to Slide 2 in the accompanying materials for additional information which you define on the company's Investor Relations website.

In our remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the most recent earnings press release available on the company's website. Please refer to the reconciliation tables in the company materials for additional information.

The conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 6, 2025. Certara 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 will turn the call over to William.

Thank you, David, and good afternoon, everyone. Thank you for joining Certara's second quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions.

Certara's second quarter performance reflected continued strength across the organization as we achieved results that were consistent with our full year outlook in both software and services. Second quarter revenue of $104.6 million, represented 12% year-over-year growth, while second quarter bookings of $112 million, reflected 13% year-over-year growth.

Relative to internal expectations, we are pleased with the state of our financial performance and sales funnel as we head into the second half of the year. Across the portfolio, we continue to see strength in high-growth areas such as QST services and our Simcyp software. We have a high degree of visibility into second half software performance based on the mix of renewals in our pipeline, which gives us additional confidence in our full year growth expectations.

In services, our commercial team continues to execute in line or ahead of our expectations, delivering 15% bookings growth in 2Q and 10% bookings growth on a trailing 12-month basis, which supports the revenue outlook through the rest of the year. As a result of our strong year-to-date execution, we are reiterating our full year guidance.

Across a variety of customer groups, our conversations continue to reflect a mixed spending environment in our various end markets. Large pharma companies remain cautious driven by a rapidly changing geopolitical and macroeconomic environment, decision-making time lines for our customers have been affected by proposed pharmaceutical tariffs and the potential introduction of a most favored nation pricing algorithm.

Among smaller customers, the biotech funding environment has slightly improved, but it remains below trend on a historical basis. Despite these headwinds, we have been encouraged by persistent interest from customers seeking to expand their use of biosimulation technology, incorporating additional Certara products and services into their development workflows. Throughout the second quarter, our team did an excellent job of remaining in front of key stakeholders and facilitating discussions about how we can further expand existing relationships.

Now turning to our second quarter commercial performance. In software, we saw strong bookings performance across Tiers 2 and 3, offset by timing-related softness in Tier 1, which remains in line with plan on a year-to-date basis. Software revenue of $46.7 million grew 22% on a reported basis and 9% organically, led by strong growth from Simcyp in addition to $5.1 million of contribution from Chemaxon.

In services, we saw bookings growth across all 3 of our customer tiers led by strength in Tier 1 across both biosimulation and regulatory services. Strength in biosimulation services bookings was driven by QST and Simcyp services, while total regulatory bookings also grew nicely during the quarter. Services revenue of $57.9 million grew 5% on a reported basis.

Certara Simcyp reached a significant regulatory milestone earlier this week. We're happy to share that Certara is the first and only company to receive European Medicines Agency, EMA, qualification for a PBPK modeling platform and Simcyp is the only software to hold this designation. The recognition follows a rigorous multiyear collaborative engagement between Certara scientists, technologists and the EMA.

The qualification is a significant milestone for biosimulation, demonstrating the value that regulators place on evidence generated through modeling and simulation approaches, and it will continue to encourage the usage of Simcyp by companies globally.

Certara is continuing to increase investment in R&D to create our next-generation AI-enabled MIDD platform. This investment started in 2022, before the breakthroughs in GPT AIs were announced when Certara acquired Vyasa. Vyasa brought to Certara the foundational distributed data fabric technology which has become the underpinning of our ability to integrate AI with our modeling technology and data sets.

Since then, we have utilized this technology in a number of new AI features in our products and also some new important AI products like co-author. Last week, I was pleased to announce the promotion of Dr. Christopher Bouton, Founder of Vyasa as Certara CTO. Chris is leading the integration of Certara's key MIDD modeling tools into our next-generation AI MIDD platform, which we'll be launching over the next year.

We believe that Certara can solidify our leading position in the MIDD with this platform, which will fuse both AI and biosimulation technology to enable our customers to reduce the risk and cost of drug development. The next step in the creation of this platform will be the release this fall of Certara IQ, an AI-enabled QST software solution that includes an intuitive model building interface and several prevalidated QSP models.

As you will recall, QSP is one of the fastest-growing markets within model inform drug development, and we have the largest group globally serving these customers. Our services team will adopt Certara IQ as their preferred platform for executing QSP products, leveraging cutting-edge features and modeling capabilities.

With Certara IQ, customers will have one unified QSP platform to reference in collaboration with peers, Certara and regulators. The product will be based in the cloud, allowing for high-performance simulation and analysis work at faster speeds. We believe this product launch is a critical step in growing the market for QSP solutions by democratizing access to modeling capabilities across our customers, which should ultimately lead to more QSP use in clinical development.

The product is currently in an early access phase with several customers, and we expect to announce a full commercial launch at some point in the fourth quarter.

While we are on the subject of QSP, we received an update on our QSP collaboration with IGI, which was published in Nature Cancer last fall. Our QSP team worked with IGI to optimize the first-in-human dose of ISP 2001, resulting in a clinical starting dose that was 50 to 100 fold over the conventional starting dose, and that reduced the need for animal testing.

These predictions were validated by first-in-human trial results that were presented at AACR this year and ISP 2001 was granted a Fast Track designation for the treatment of relapsed refractory myeloma patients in May. We are thrilled by the work of our QSP team and the outcome of these studies for all key stakeholders, showcasing the impact that QSP could have in accelerating trial time lines and accelerating the delivery of treatments to patients in need.

In addition, excitement about new approach methodologies and particularly model-informed drug development has grown in the wake of the FDA's guidance to phase out animal testing for monoclonal antibodies. While it's still too early to provide a precise estimate of the broader opportunity, we do view it as a multibillion dollar addressable market over the next 10 years.

We are excited to share that our QSP and broader Simcyp businesses have begun to recognize bookings and revenue associated with the replacement of animal testing. Roughly 50% of our new QSP projects this year have been for monoclonal antibody therapies, which is a testament to Certara's competitive positioning as the leader in QSP of services as well as the growing momentum of [indiscernible] use in clinical development processes.

Our acquisition of Applied Biomass in late 2003, and the subsequent combination of our 2 QSP teams has proven timely and is becoming an increasingly important component of our overall growth.

Now shifting towards some other product-related updates. During the quarter, we released version 8.6 of our Phoenix PK/PD platform, following months of development and incorporating feedback from key stakeholders. New enhancements included in the update were improved speed and efficiency of NCA setup, data preparation and the speed of nonlinear mixed-effect algorithms for population pharmacokinetics. As we have discussed in the past, this product has been made available through the Certara Cloud, offering faster performance with lower back-end IT costs for our customers. Initial feedback from our users has been positive, and we look forward to collaborating with them to drive further improvements to the Phoenix platform.

Another key focus area for investment over the past several quarters was our Pinnacle 21 product suite, which is core to the data component of the software business. Following the acquisition of Prometic in late 2023, our team began to integrate Pinnacle 21 and Prometic data standardization capabilities, seeking to improve our customers' clinical data workflows and time lines.

In early July, we were pleased to announce a new collaboration with Merck, expanding their use of Pinnacle 21 and broadly incorporating new integrated data standardization capabilities. This collaboration helped us build upon our long-standing relationship with Merck, which is an example of the type of engagement that Certara is striving to build across our customer base. Our commercial team remains focused on identifying opportunities to form stronger partnerships with customers, both through the expansion of existing capabilities to more seats and expansion of new products and services. As we add to our portfolio organically and inorganically, our land and expand commercial strategy remains top of mind.

Now before handing things over to John, I wanted to provide an update on the strategic review of our regulatory business. Regulatory bookings have continued to grow nicely through the quarter and we continue to value the business given the profitability and cash flows that it generates.

Over the past several months, we have continued to make good progress in our review. However, this process has taken longer than we expected, which we attribute in part to the unprecedented nature of geopolitical and macroeconomic uncertainty that has taken place since the beginning of the year.

With that said, we have maintained an active dialogue with several interested external parties with discussions progressing beyond the initial phases of diligence. We hope to be able to provide a more substantive update before the end of 2025.

To close, we are pleased with our second quarter performance, and we are confident in our financial outlook for the remainder of the year. Our guidance is supported by solid bookings trends in services and high visibility into second half renewal dynamics in software. Customer interest in Model Inform drug development continues to grow stronger each quarter, supporting our growth strategy and validating the investments we are making in our business. We look forward to continued success and momentum during the second half of 2025.

With that, I will hand things over to John Gallagher to discuss our financial results in more detail.

Thank you, William. Hello, everyone. Total revenue for the 3 months ended June 30, 2025, and was $104.6 million, representing year-over-year growth of 12% on a reported basis and 10% on a constant currency basis. Total bookings in the second quarter were $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. Excluding Chemaxon, total company organic bookings growth was 8% and compared with the second quarter last year. Software revenue was $46.7 million in the second quarter, which increased 22% over the prior year period on a reported basis, and 20% on a constant currency basis.

Organic growth was 9% in the quarter, driven by strong growth from Simcyp. Chemaxon contributed $5.1 million to our reported revenue, which was in line with our expectations. Ratable and subscription revenue accounted for 60% of second quarter software revenues or 64% when excluding Chemaxon, slightly down from 65% in the prior year period.

Software bookings were $46.6 million in the second quarter, which increased 11% from the prior year period. Second quarter bookings included $5.2 million of Chemaxon bookings. Trailing 12-month software bookings were $181.9 million, up 25% year-over-year. The software net retention rate was 107.6% in the quarter, consistent with our full year plan.

Looking at our software bookings performance by Tier, we saw strong performance in Tier 2 and 3 driven by continued adoption of our software. In Tier 1, we saw some timing-related slowness due to renewals, which we expect to normalize in the second half of the year.

Now turning to services revenue, which was $57.9 million in the second quarter, up 5% versus the prior year period on a reported basis and 4% on a constant currency basis. We saw a strong performance from our QSP and Simcyp services businesses in the quarter, which was partially offset by softness in regulatory services. Technology-driven services bookings in the second quarter were $65.4 million, which increased 15% from prior year period. TTM services bookings were $288.9 million, up 10% as compared to the prior year.

During the quarter, we saw an improved demand for our biosimulation services with bookings growth across all 3 of our customer tiers. We were also encouraged by regulatory writing bookings, which grew mid-single digits versus the second quarter of 2024.

Total cost of revenue for the second quarter of 2025 was $40.7 million, an increase of $39.8 million in the second quarter of 2024, primarily due to higher software amortization expense offset by lower stock-based compensation.

Total operating expenses for the second quarter of 2025 were $54.3 million, a decrease from $62.5 million in the second quarter of 2024, primarily due to an $8.5 million decrease in the change in fair value of a contingent consideration, which was offset by higher sales and marketing expense and intangible asset amortization.

Adjusted EBITDA for the second quarter of 2025 was $31.9 million, an increase from $26.3 million in the second quarter of 2024. Adjusted EBITDA margin in the quarter was 31%. As Bill mentioned earlier, we are executing on our investment plans this year and have begun hiring additional software developers in the second quarter, which will continue through the second half of the year. Total expenditure on R&D during 2Q, including capitalized spend is growing year-on-year as a result of these investments.

Wrapping up the income statement. Net loss for the second quarter of 2025 was $2 million compared to a net loss of $12.6 million in the second quarter of 2024. Reported adjusted net income for the second quarter of 2025 was $11.6 million compared to $11.4 million for the second quarter of 2024. Diluted loss per share for the second quarter of 2025 was $0.01 compared to a loss of $0.08 per share in the second quarter of last year. Adjusted diluted earnings per share for the second quarter of 2025 was $0.07, same as the second quarter of last year.

Moving to the balance sheet. We finished the quarter with $162.3 million in cash and cash equivalents. As of June 30, 2025, we had $297 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. 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.

We are reiterating our guidance today as follows: we expect total revenue in the range of $415 million to $425 million, representing growth of 8% to 10% compared to 2024. We expect Chemaxon to contribute software revenue of $23 million to $25 million. We expect adjusted EBITDA margins between 30% to 32%, similar to our guidance last year, we anticipate a higher EBITDA margin at the lower end of our revenue guidance and a lower EBITDA margin at the higher end of our revenue guidance.

This will be driven by discretionary investments in R&D, which will be managed carefully based on the timing of new product launches and business performance in the second half. We expect adjusted EPS in the range of $0.42 to $0.46 per share fully diluted shares in the range of $162 million to $164 million and a tax rate in the range of 25% to 30%.

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 the many exciting developments of Certara in the second quarter. and we remain focused on executing our growth and profitability goals in 2025. We continue to make good progress on the software development front, and I am looking forward to sharing further updates following some new product launches in the fall.

Operator, can you please open the line for questions?

[Operator Instructions] Our first question comes from the line of Joe Vruwink of Baird.

Just a quick clarification. Multibillion dollar addressable market opportunity you cited around NAMs. Is that incremental to the low single-digit billion TAM you traditionally have discussed for biosimulation software?

Yes. We're looking at that as what would be additional opportunity, Joe, based on trying to ring-fence what we think the long-term opportunity is for NAM.

Okay. That's great. And then I thought it was interesting. Certara had a webinar during the quarter and during the webinar they ask respondents just what they're currently using around NAMs and I think 40% cited nothing. So that seems like a good opportunity. But 30% cited PD/PK modeling, 12% with QSP. I guess I would have expected the QSP responses to be a lot higher. What's kind of your interpretation of just how kind of the thinking is settling out does Certara need to do more marketing on their part to educate customers around maybe the best course of action? Just how are you seeing kind of customer decision-making change now that we're a few months further in.

So Joe, as it relates to QSP, QSP is one of the bright spots on the quarter for us. So I think that those results would also surprise us as far as that's a pocket of the business along with Simcyp, where we would see additional opportunity going forward. So that QSP is a growing area in general. And our combination of our existing practice along with applied biomass makes us the market leader in that spot. So I would expect that ratio that you cited to grow into the future.

Yes, Joe, I think the other thing that we'll be aware of, it's still pretty early days, in terms of the markets thinking about what this announcement means and how it's going to play out as drug programs move forward. The reality is QSP and PD/PK are often quite closely linked. And so I think people may answer the question a little bit differently depending on sort of what they're more familiar with when they go in. QSP is sort of a newer branch of model-informed drug development.

And so the number that you cited doesn't really concern us, obviously, we're pretty big in both of them. But I think it's -- the way I think about it is as up to 70% of people that are using technologies that we're pretty good in.

Our next question comes from the line of Luke Sergott of Barclays.

This is Andre Prozesky on for Luke. I was wondering if you could give any color on the demand drivers for software versus services bookings? We would think that the services booking strength is like a better leading indicator of future spend and adoption. So it would be great to get your sense of this.

Yes. I think it's a good question. We don't -- I think that might not be quite the right way to look at it. I think the demand drivers are software, to some extent, companies need the software as part of the R&D infrastructure, so that continues. But we have also put quite a bit of R&D resources over the last periods into new products, which is driving some of that demand there.

Services, it's come back nicely in the quarter, particularly compared with where we were last year. I think there are several things going on there. One of them has been particularly high demand for QSP services, which is kind of a new growing area as I talked before, second piece has been the linkage of the services to some of the software that I just talked about, the people are buying. So -- we talk about software and services as separate lines, but in fact, they're often quite closely intertwined when we're actually making sales to customers, and so the one drives the other.

All right. That is helpful. One quick follow-up. Can you share a little bit more on the dynamics that you saw across customer peers? The biggest difference is between Tier 1 behavior versus Tier 2 and 3, particularly on the software side?

Yes, sure. So we did see Tier 1 software, as you saw on the chart, was impacted by timing of renewals. But as we look at the full year basis and in the second half, we have high confidence and good visibility into being able to achieve those renewals. So that was the one spot on the customer tiering to call out.

But then as you look at Tier 3, despite the funding environment, then we've had strong performance on both software and services in Tier 3. So we've been pleased with that. And we had a particular -- as Bill mentioned, we had a particularly strong quarter on services, both biosim services on the Tier 1 side that both Biosim services and in Reg that was that was helping our overall growth rate there.

Our next question comes from the line of Jeff Garro of Stephens.

Yes. I wanted to ask about the new AI MIDD platform. Curious if you could provide any more detail on how we should think of the glide path for customers as they might adopt that new platform in the future? More specifically, does the -- does the delivery model or economics between you guys and customers look any different? And lastly, there, any concern over potentially pushing out demand ahead of an exciting new product launch?

Okay. Yes. Thank you, Jeff. Appreciate the question. So several questions there.

Look, we're creating -- we believe that we have the industry-leading technology around biosimulation. And as I said in the call, we've made some very strategic acquisitions in the AI area. The opportunity there is to create a bigger platform that unites a number of our software solutions that work in different areas of drug development into 1 platform, so that drugs can be optimized according to multi parameters. And basically, our customers can make a better decision about which molecules to bring forward.

We're really excited about this. We think that there's a very significant opportunity for the company. And frankly, for our customers to make much better decisions on which drugs to bring forward, that's an opportunity here. And the reason we highlighted it now is not so much to kind of preannounce the product, but we are spending a fair amount of R&D to produce this. We've got a plan to launch this over the next year, as I said.

I'm not particularly worried about your concern about customers kind of waiting it out. Most of our customers are pretty highly interested in using our existing products on their current drug development products. It's become -- for a lot of people, really part of the standard way that you do some of the key technical parts in MIDD. So I don't think we'll see people pause that.

This is going to be a new product that's going to be over on top of what we sell today. It's got capabilities that are beyond what we have today. Like a lot of companies, the advent of the AI advances that have happened recently have kind of changed the game in terms of what's possible, and we're going to implement that in. So stay tuned. We haven't fully announced the product. The first part is -- the first part, however, is in fact being launched in Q4 and is in the hands of customers, but there'll be more to that as we go forward over the next year.

Great. Appreciate that. Really helpful. And maybe to kind of translate some of the key themes there to the financial model, not just this new platform, but you've had CoAuthor release kind of last year and growing this year, you have regular releases of your existing products and some other new ones as well. I just want to get your viewpoint on whether product launches alone are sufficient to drive organic growth out of the -- the low single-digit to mid-single-digit range that the company has been in the last few years? Or if you really do need a better macro environment on top of that?

Yes. Thanks for the question. We -- while we would love a better macroeconomic environment, we are not planning on that, and we're not dependent on that. We believe that the company is in a very unique and valuable spot where it's kind of a combination of maturity of technology and understanding by a lot of the industry and has -- and how to use this and acceptance by the regulators. All of them are coming together in a good way at the same time.

And so as we can -- this is a good time for us to expand our product suite because the possibilities of what we can do are expanding, but we don't need any kind of recovery of the market in order to deliver the results that we're expecting. Now at some point, markets go up and markets go down, some markets will go up, and that will be great, but that's not necessary for our model.

Our next question comes from the line of Michael Cherny of Leerink.

Great. This is Dan Clark on for Mike. Just had a question on the EMA qualification for Simcyp. I know this just came out, but how are you thinking about that in terms of differentiating your product, any early customer feedback on receiving that would be great to hear?

Yes. Thanks for the question. I think that's been a real accomplishment by our teams. Our teams seen both at the EMA and Certara. We've been working on this for a better part of 2 years right now to get this qualification. This is a significant -- the way I would explain this is the MA, like other regulatory agencies has accepted the use of Simcyp in drug applications for some time now.

However, the EMA really consists of 27 member nations, and there was no particular qualification of any product there. So for a lot of our customers, it would depend a little bit on what reviewer you got and what questions they asked and that added time and some uncertainty to the overall process. So reviewers reasonably want to know what's in the models and they want to go qualify it.

What this does is that it basically provides a prequalification. So the EMA is effectively saying that Simcyp has been -- all of the underpinnings of Simcyp have been explained and examined and you don't need to do that an approver does not need to do that again in the middle of a drug application.

So no one else has achieved this. It's certainly not easy to do the -- I mean it was a really expensive review. And it's not easy to get there. But for our customers, this adds 2 things. I think one is it's kind of a sign of what the regulators think about the software. So they've looked hard at it and accepted it. And the second one is just from a practical standpoint, it ups the consistency of what you can expect when you go into a review process because you don't have to worry about what questions you might get about the underpinnings of Simcyp, that's already kind of taken care of before we've gotten there and it just makes it a whole lot easier to use the software in the review process and to expect consistent results.

Our next question comes from the line of Kyle Crews of UBS.

The software bookings declined organically, but it sounds like it's related to a timing issue with Tier 1 customers where you have more visibility into 2H. Beyond 2H and given kind of a heightened visibility in future orders, could you provide early framing thoughts on 2026 relating to the headwinds with Pharmateras potential MFN and a potential reduction in pharma R&D spend offset by the continued regulatory push for model and form drug development and if you expect growth to accelerate into 2026 and how much and any early qualitative planning thoughts there?

Kyle, yes, I think the right way to think about this is in terms of the investments that we're making in R&D and the product launches that Bill has been referring to and the expectation that we don't rely on or expect the end market environment to necessarily improve in the near term, but we do intend to grow the business in the face of that.

And so as we look at products that we've rolled out recently, we look at the strength of the existing platforms of call out Simcyp as a key highlight in this quarter in that sense. And then you combine that with the product launches that we're heading toward inside of this year, then that sets up a nice platform for growth as we look at next year.

Great. And then maybe could you discuss how you aim to get regulators comfortable with incorporating AI into model important drug development?

Yes. We'll talk more about that as we launch this. But I think the -- just saying AI and model for drug development doesn't cover all of the possibilities. So I think a, as a regulator, I think you have to be questioning any kind of a black box where an AI is making a recommendation that you don't understand how they got there. We're well aware of that, and that's not what this does.

What this type of technology does is it allows AI to process a lot of the scientific information we need to create models, and it allows us to build models much more quickly with our experts, but still in an explainable way. So in MIDD, the name of the game is really explainability. We have to explain what's in the model, why do the -- where do we get it? What are the equations, where is the data that backs us up. And that's not going to change. And so I think that regulators could feel comfortable about that.

But the process of how you get there and the process of how you use some of the really top experts that we have in Certara can get a lot better. Basically, we can bring down the cost of creating these models, we can bring down the time of creating them and we can speed up the overall cycle that's -- that they're used on in the drug development process.

Our next question comes from the line of Brendan Smith of TD Cowen.

I wanted to ask just another one actually about some of the new customer inbounds in the wake of FDA's pushing animal testing. I think you called out a 50% of new licenses in the quarter were kind of in that biologics biosim for non-animal testing arena. So I guess, can you just maybe remind us how we should think about kind of the cadence over the next couple of quarters really how and when some of the new bookings are or even, I guess, new preliminary inquiries could translate into any upside.

I mean I totally understand there's always some variability in customer timing and all that, but just trying to understand some of your internal assumptions around a brand new customer comes to you specifically because of FDA, what you expect kind of average time from first outreach to revenue recognition for you all looks like? And maybe what some of those considerations have been this quarter?

Yes. Well, probably the first thing to highlight, Brendan, would be the QSP business and the Simcyp business, we've said previously, would be the areas that would be sort of the initial beneficiaries here. That being said, we do think it's a long-term conversion, as we discussed earlier in the call.

But we've seen strength in QSP and Simcyp, as we mentioned earlier, in the quarter, and as we look at the remainder of the year, there's certainly potential upside in those 2 areas, which is book services on QSP services and Simcyp software. So the customer conversations have been good. And I think that we're increasing the dialogue while at the same time, those businesses are outperforming our expectations on the year.

Our next question comes from Steven Dechert of KeyBanc.

I just want to dig into the Tier 1 son of software renewals. Anything specific to point to there?

No. The way to think about it is that bookings are lumpy on a quarterly basis. We've certainly seen that historically. Revenue was strong, organic revenue at 9%. [indiscernible] organic bookings were at 11%. So that's indicative of what we've been booking, and we have good visibility into the second half renewals during the year. So -- that gives us a lot of confidence as we approach the remainder of 2025.

Okay. And then given the strength you're seeing in QSP, what's the profitability of that product relative to your other offerings?

Well, keep in mind, to QSP, as it stands right now is services. So we've -- and it's a combination of our existing practice along with Applied BioMath, which was an acquisition from 2023, which gives us a market-leading position there. Profitability profile is what you'd expect of a services business. And as Bill mentioned earlier on the call, then too, we're actively working to roll out some software associated with QSP in the form of Certara IQ later this year.

[Operator Instructions] Our next question comes from the line of Max Smock of William Blair.

Maybe just following up on an earlier question around QSP, and you flagged the 50% of new engagements tied to MAD just kind of a proxy for the uptick in demand you think you've seen since the FDA guidance is released. But just wonder if you can give some more context around what the breakdown of therapeutic modality looked like for QSP pre-FDA guidance? And then any context you have around what portion of those engagements that you flagged in the quarter wouldn't have been on, in your opinion, without that FDA guidance.

Yes. Thanks, Max, for the question. So QSP has been working heavily on mAbs for some time. The FDA made an announcement, which I think, is a result of the fact that there is a -- I'm guessing as a result of the fact that there is so much modeling going on in mAbs and you can get some pretty good answers out of that.

I would -- I'm not going to give you the specific numbers, but there's been somewhat of an uptick since the FDA made their announcement. I think, however, there wasn't like an FDA announcement in the next day, all of a sudden, everybody switched to using QSP, there's been a process since the announcement kind of started with one of the webinars that we very well-attended webinars that we gave right after the FDA announcement, where companies have been exploring what's the possibility and what's the meaning of what the FDA is talking about.

And during that process, a lot of them learned about the benefits of QSP and we picked up from there. So it's been good for business so far. Is it -- is it like at the maximum rate. Now it's going to take some time for the market to really build up and gain confidence about exactly how the FDA want this to play forward, but it's definitely driven a lot of interest in that type of modeling and has driven revenues to the company. So I'll just leave it there.

That's helpful. Understood. Maybe turning to margins. The midpoint of the guide implies about 30% in the second half, kind of well below you did 32% in the first half. And I know you talked about hiring being a driver there. But -- can you just walk through any of the other kind of factors that are leading to that step down in 2H in the second half of the year here, and then the cadence between the third quarter and fourth quarter. And then, John, I think more importantly, is going to be a good jumping off point for thinking about margins next year? Or are you going to moderate investments to make sure that you're protecting margins in 2026?

Yes. Max. So -- so first half was impacted by some slower hiring in Q1. So the best way to model for the remainder of the year, Q2 is a good jumping off point. So our 13.5% margin in Q2 is a good way to think that as we ramp -- as we continue to ramp the investment coming out of Q2 and into Q3 and Q4, then that's the Q2 margin is a good proxy. And Q1 is less so, so I put it more in the quarter than the first half. That's the way to think about how to model the full year from a margin perspective because of those investments coming in.

And then as far as the jumping off point for the margin next year, sort of aligned with what I was just saying, the investments that we're making are -- that hiring is going to take place during -- some of it was in 2Q. There will be more of it in Q3 and into Q4. So I would say that Q4 would be a decent proxy for where we go ahead into the next year.

Our next question comes from the line of Gabriel Weiner of Jefferies.

Dave Windley here. Is it me? I think it's probably me. if you can hear me?

Yes.

So I wanted to ask around kind of adoption curve. So Certara has been in this modeling business for a couple of decades, probably seeing several adoption curves. And so my question is, what are the telltale signs of clients that are on the cusp of, say, climbing the steeper looking adoption curve? Is it hiring more people in their quantitative sciences divisions? Is it running pilot programs what might that look like? And I'm asking as something to look for as it relates to the NAMs and how we might try to observe pharma companies stepping into adoption of NAMs?

Yes. Thank you, David. It's a complicated question because of the many different players in this market and frankly, there lots of just the technical aspects of where biosimulation is used. But if I want to generalize we often start with services. So a company I don't -- it's not exactly a pilot program, but the first one through often is a project that gets conducted by Certara, and then as companies get excited and feel confident in what we're doing, they become -- they become software customers as we go forward.

So if we look at that on NAMs, I don't -- I guess, say NAMs is kind of an interesting thing because it's only this whole announcement from the FDA has only been around a few months, which is really no time in the way pharma operates, yet there has been a tremendous amount of interest. We've been hired to do everything from additional QSP projects to strategy projects around what does this mean for my drug and how do I change the way I think about bringing it forward -- and that's happened very, very quickly.

So we're sort of trying to project off just a few months as to how this is going to play out over a multiyear process going forward here. But I think -- in this case, what we see is, number one, companies are very interested in NAMs, right? A number of them kind of combine this with a test of additional modeling or biosimulation in their projects. So it's all good in terms of it's driving business to us, but it's a little bit convoluted about maybe the -- don't oftentimes try to do multiple things when they start working with this.

Yes. Maybe as a follow-up to that is are and trying to understand how the client might use or might try to arrive at the answers that they're trying to achieve without using animal models and insomuch as Simcyp is an area that you're pointing to as being invoked by this QSP lie newer, but like let's focus on Simcyp is the client using Simcyp in a different way to produce different answers than the clients have typically used Simcyp to do? Or are they kind of running similar maybe more intensive, but similar types of analyses modeling, as they've done with Simcyp in the past, but just our -- say trusting those answers more and moving on without, say, verifying in animals.

So the way I can explain it is this for some time, many of our customers have been doing modeling in monoclonal antibodies in parallel to their animal testing. And there -- the modeling has produced results that if the FDA allows it and when [indiscernible] fostering it can be used to reduce, maybe not totally eliminate the use of animals.

So they've done that. Why are they doing that modeling in parallel? Well, really, it's being done in parallel because it produces useful information that is kind of difficult to get from animals. So for example, if you're trying to do first in human dosing, it's one thing to try that on a primate, but you can get a much better answer if you use modeling. And if you get a better answer, you're more likely to make better use of your Phase I trials where you're trying to figure out the effective dosing range.

So that's why they're doing that. that data, however, now everybody is looking at it and saying, wow, we can use some of this data and we can -- if the FDA allows us, we can reduce the number of animals as we go forward. So that's good. Those are our customers that are already working on it. They're taking some of the modeling, they were doing the other reasons and they're sort of like getting some additional benefit.

And then other companies that were maybe on the fence about doing that are saying, well, we ought to start taking a look at QSP as well. So that's why we say that this has been good for business so far. There's still some quite -- I mean, I don't think anybody has actually gotten to the point of taking a drug application to the FDA with reduced use of animals so far is -- like I said, it's only in a few months, hopefully, as that happens, then we'll see some kind of a falling effect as that drives even more interest.

Thank you. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.