Q3 2024 Certara Inc Earnings Call

In This Article:

Participants

David Deuchler; Investor Relations; Gilmartin Group LLC

William Feehery; Chief Executive Officer, Director; Certara Inc

John Gallagher; Chief Financial Officer; Certara Inc

Jeff Garro; Analyst; Stephens Inc.

Max Smock; Analyst; William Blair & Company, L.L.C.

Ahmed Muhammad; Analyst; Leerink Partners

Kyle Crews; Analyst; UBS

Luke Sergott; Analyst; Barclays Capital Inc

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Certara third-quarter 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. Please go ahead.

David Deuchler

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, 2024. 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 company materials for additional information which you can find on the company's investor relations website.
In their 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 release available on the company's website.
Please refer to the reconciliation tables in the company materials for additional information. This conference call contains time [sensitive] information and is accurate only as of the live broadcast today. November 6, 2024. 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.

William Feehery

Thank you David. 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, Certara continued to benefit from our strategy of investing in the development of biosimulation for global drug development. Third quarter revenue of $94.8 million increased by 11% compared with last year, while total bookings of $96.1 million increased by 13%.
Among our tier one Biopharma customers, we saw stability and some improvement in new business activity versus the second quarter. While bookings from our Tier III customers continue to grow on a somewhat improved funding environment, and on our increased investment in sales and marketing. In early October, we closed the Chemaxon transaction which further expands our biosimulation reach into the pre-clinical market.
We are excited about the prospects of combining core capabilities of Chemaxon software and data with Certara's data infrastructure and biosimulation capabilities to create an end to end biosimulation platform. As we expand the serviceable market with Chemaxon, we will look to deepen existing customer relationships and develop new ones.
Consistent with the plan outlined in our last earnings call, our biosimulation services achieved higher utilization during the quarter which drove sequential improvement in our EBITDA margins. We see several positive indicators of biosimulation demand, particularly particularly that we have a strong pipeline and a very high win rate.
However, we have also experienced a lengthened decision making process among many of our larger customers and have seen more discrete engagements compared with years past. This backdrop has made us more cautious about predicting second half growth. Our experience in the regulatory services market has been different where we are also achieving higher utilization rates but market dynamics have been more challenging relative to our expectations earlier this year.
As a result, we are revising our 2024 guidance modestly to reflect the changes that we have seen. Certara has a good regulatory services business with revenues expected to be $50 million to $55 million this year, and operating margins that are comparable to a traditional CRO.
However, for some time, the growth profile of this business has diverged from our core biosimulation business and the customer base has less overlap with our course biosimulation business. For these reasons, we have begun a review process to consider the long term strategic options for the business.
Please understand that we are at the beginning of this review process and we are not going to be making any additional comments until the review is completed during the first half of 2025. Turning to the biosimulation and data related businesses at Certara, I'd like to take a moment to highlight the investments we've made over the past 10 months and their importance to our growth strategy.
Earlier this year, we announced investments to strengthen our software product suite and broaden our commercial reach. In research and development, we steadily grew our software team with three key goals in mind, to accelerate the integration of artificial intelligence and machine learning into existing products to accelerate the development of new products and the cadence of product updates and to begin the process of integrating Certara software into a more unified platform.
We think of our software business as having three existing pillars centered around the Simcyp, Phoenix and Pinnacle 21 products which are core to our goal of increasing the broader adoption of biosimulation. We have also begun to implement a strategy of uniting these pillars into an overall platform. Through the introduction of the Certara Cloud.
The initial version of Certara Cloud was launched this year and provides easier access to our software and updates. It increases awareness of Certara's entire platform and it lowers IT and security costs for customers. As we move forward, Certara Cloud will further unite our software pillars by integrating data storage and providing work workflow and collaboration which enhance the use of our biosimulation products and services across drug development stages.
Our recent acquisition Chemaxon of furthers the strategy. Chemaxon is a leading software company focused on chemical property calculation, search, research workflow and in [Simcyp] simulation. It brings Certara a complementary customer base ,and a close knit group of employees with a track record of success.
We plan to create a fourth software pillar within Certara by aligning Chemaxon closely with Certara D360 product which is used today by over 6,000 life sciences users in the screening process for drug selection and optimization.
This combination which will be further tied into our Simcyp and QSP development will create a very powerful tool for our customers to use biosimulation to select and optimize molecules. We also intend to fully leverage Certara other software investments by integrating this combined product offering into Certara Cloud and Certara AI capabilities.
Now, speaking of Certara AI capabilities, we have dramatically increased our ability to process data and scientific literature in the wake of the [Vyasa] transaction. Bringing on additional software developers to implement artificial intelligence across our platforms. Our previously announced launch of co-author into the regulatory writing market is proving successful with our internal testing indicating the product can generate the majority of a clinical study report, and reduce the delivery time to a level that has generated significant customer interest.
We have already begun to generate revenues with the product and we have a healthy sales pipeline. In sales and marketing, we took steps to build out our commercial infrastructure, bringing on global account managers and additional heads across several regions. Our sales team also grew inorganically as we brought in members from Applied Biomath [informatics] and are now integrating team members from Chemaxon.
By adding experience across a variety of geographies and areas of expertise, we have implemented new best practices and evolved our commercial strategy to focus on large key accounts and on expanding our presence in the biotech market. This is an important and exciting time for Certara and I want to emphasize how Chemaxon and our 2024 investments tie into our broader strategy.
While it's still early days, it is difficult to understate the impact of this year's activities on Certara's ability to drive biosimulation adoption. On the product and services side, we are bringing technology in house that expands our serviceable market further into drug discovery via Chemaxon.
We've built out a software team that can create and validate models more efficiently using AI technology acquired from Vyasa. We're integrating our products to form a single platform which will lower the technological requirements required to adopt our software and buy a simulation. We are now leveraging investments in our commercial teams to execute an enterprise style commercial effort to drive cross selling and software license expansion.
The Certara has made big strides toward a broader, more interconnected and user friendly suite of software products supported by the proper commercial infrastructure to expand our wallet share among existing and new customers. We believe we are better positioned to drive long term growth and biosimulation adoption today than we were 10 months ago.
Now, I will turn to some of our recent highlights from the third quarter. Mid-August, we launched version 8.5 of Phoenix introducing several enhancements that reflect feedback from existing users and stakeholders. Notable new features include integration with the Certara Cloud reporting enhancements for tables and plotting and improvements to the precision of the Phoenix and NMLE population modeling tool.
Additionally, towards the end of the quarter, Certara Simcyp Consortium celebrate it, celebrated its 25th anniversary at the Consortium's Annual Meeting in London. In conjunction for the first time ever since it posted an open day where non-Consortium members were given the opportunity to join and connect with industry leaders in the PBPK modeling field.
The event was a great success and we look forward to hosting similar events in the future. In our services group, one notable highlight in the quarter was our QSP collaboration with Ichnos Glenmark Innovation or IGI, which was published in [Nature] Cancer in September.
IGI sought Certara's help in optimizing the first in human dosing of their candidate called is ISB 2001 as a potential treatment for multiple myeloma. Our QSP services team developed an innovative model to accelerate the speed at which is ISB 2001 was administered to patients identifying, an optimal dose that was significantly greater than the conventional starting dose. The model was accepted by the US FDA and the Australian HREC meaningfully impacting the opportunity for patients.
We are proud of the team's accomplishments which highlights the potential efficiencies and patient impact that can result from PBPK and QSP Modeling. As we progress through the fourth quarter and into 2025, we are focused on uniting our investments in R&D and sales and marketing, the purchase of Chemaxon and our evolving commercial strategy to drive sustainable growth at Certara.
Through the first 10 months of the year, we have made significant progress on several fronts that have positioned us well to gain wallet share amongst our biopharmaceutical customers. We are entering the earlier stages of development through a well-established software acquisition and we have continued to invest in our software innovation engine.
With that, I will hand over things to John Gallagher to discuss our financial results in more detail.

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