Certara (CERT) Q1 2026 Earnings Call Transcript

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DATE

Monday, May 11, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

- Chief Executive Officer — Jon Resnick

- Chief Financial Officer — John Gallagher

- Operator

Full Conference Call Transcript

Jon Resnick: 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, mining the latest science and drawing on what our experts know, our interactions with regulators over decades and what thousands of drug development successes and failures have taught us. Certara products and services are integral to the drug development process and increasingly scalable through the use of AI technologies.

Having exited the listening and learning phase, my attention has 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 designed 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 Genentech is launching a hybrid cloud AI factory to scale their discovery and development efforts. Amazon has also announced the Bio Discovery product through AWS. Additionally, OpenAI and Anthropic have announced LLMs for life science. The 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-informed drug development, or MIDD, 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 timeline 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 in 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 has said, 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 of 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 Elsevier's 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 in the EMA required 2 years of engagement with participants representing all 27 member states. Our most experienced scientists work directly with EMA reviewers to evaluate 25 years' worth of 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. Chemaxon, 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 lighthouse customers. Our annual Certainty Conference in Boston illustrated our scientific and technological leadership and provided 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 PBPK 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-review papers this year spanning dose optimization, pediatric development, virtual bioequivalence and next-generation MIDD frameworks, which align with the recently published ICH M15 guidance focused on the multidisciplinary principles of MIDD. Among these, 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 serves as the Editor-in-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 writing.

Second, we're reorganizing and aligning the company around 2 distinct growth areas: MIDD and Discovery, which we call MID3 and Accelerated Clinical Evidence, which we call ACE. Third, we are creating a stronger center of gravity for AI across the company, formalizing leadership with the 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 Altasciences. Fifth, we're reviewing opportunities to leverage our existing clinical intelligence capabilities into new use cases; and sixth, 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 one-to-one 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 2 groups to accelerate growth and better service our customers. MID3 and ACE. Within MID3, 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 along 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 Bouton 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 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 a new 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 shift 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 collaboration, most notably through a new relationship with Altasciences, a forward-thinking integrated CRO CDMO.

Together, we are advancing a 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 off our clinical intelligence capabilities. For example, clinical trial simulation and asset evaluation to name just 2. 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.

John Gallagher: 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 incr