Thanks for joining us for this next session. My name is Mike Riskin. I'm on the BofA Life Science Tools & Diagnostics team, with the other Senior Analyst, Derek Brown. Joining us for the next session is Certara. We've got John Gallagher and Andrew Schemick joining us. The format of the chat's gonna be a fireside chat, and we'll take questions from the audience as they come in. First of all, gentlemen, thank you for joining us. Thanks for having us, Mike. Glad to be here. Yep. Maybe, I don't know, you guys reported, 1Q very recently. I don't know if you have some opening remarks you'd like to make to kick things off. Yeah. I mean, look, we were pleased with the performance on the quarter. Maybe a couple of metrics to think about on it. One is around the bookings. We did get some questions come in on the bookings when you look specifically at the quarter, 'cause we were impacted by timing. We did also mention that our reg services business is recovering a little more slowly than we originally anticipated, so it's gonna be more weighted to the back half of this year. I think what's important to point out is that when you think about the bookings and the pipeline of what's to come for us, and it's important to look at the trailing 12-month bookings. If you do that, and you look at software, trailing twelve months on software is a 24% growth. BioSim services, the trailing twelve-month bookings there is 25%. Those two things together combine to be three quarters of the business. We've got three quarters of the business on a trailing 12 month bookings basis has grown in the mid-20s. We're actually really pleased with where bookings are coming out. As far as the quarter, where we're about 4% growth there, you know, we as a company have said before that as you look at quarterly bookings, there are gonna be swings quarter-to-quarter, and there's gonna be some movement. You know, again, I just encourage everybody to look at the trailing twelve months. On the revenue side, also, you know, very strong on the revenue side. 13% constant currency growth, in revenue, and that's despite a few different headwinds. There were, you know, three different headwinds I'd point out where, you know, despite them, we're still growing 13% on a constant currency basis. That's pretty strong and right in line with our annual guidance. We, you know, a couple of those headwinds were in software, as I mentioned. We had some timing slip out of Q1 and into Q2. Then also, the reg business, as I mentioned, you know, a little slower recovery than we originally thought there, more back half-weighted. That was a growth headwind in the quarter. As well as the proportion. When you look at our software business, the proportion that's ratable or subscription-based, that proportion has increased to 59%, up from 54% last year. That also is a headwind to growth. When you take those into account, we're growing 13%, it's a pretty good place to be. Yep. Great. Andrew, anything to add or? I think that was well put. I think the other metric that we'd point to is, you know, the kind of the company's overall book-to-bill, which is stable at about 1.2, which is also supportive of our outlook going forward. Yeah, great. No, I mean, it's just that's a question we've often gotten, is the quarterly cadence versus the fiscal year versus the trailing twelve months. You know, how to think about backlog, how to think about orders. I think that's a debate we often have, is sort of like, what's the right way to do the forward model? Like you said, I think you've seen in the past a number of quarters where some things slip forward, some things come back, but then when you do come back and look at it on a trailing twelve months or on a fiscal year basis, it ends up being fine. It's a little bit of volatility quarter-to-quarter trends, I think is just the nature of the business, nature of the financial model. Yeah. I think the other point to focus on is the fourth quarter, our bookings are 12-month bookings. We do have multi-year contracts, but we only book the expected next 12 months revenue in terms of the metric that we put out. We came off a fourth quarter that was, you know, by far our company record for bookings. That's also support for our performance in 2023. Great. I think you also touched on some headwinds in the regulatory business. I just wanna dig into that first to get that out of the way. Just give us a little more background on what you're seeing there and why has that taken longer to work through the system. Yeah. On regulatory, it's important to note we didn't come off our full year outlook. We had said when we guided the year that full year we expected regulatory to be in low single digits. We still think it will be. We just think it's gonna be more back half-weighted. You know, when you look at the growth there, it's about flat on the quarter. Clinical trial disruptions, a little bit of delays from a regulatory basis is sort of elongating the cycle to some extent. That's one aspect. The other aspect, of course, is we're very focused internally on executing commercially. We believe we can do that. That market's grown high single digits. We think this year is low single digits. Over, you know, over a longer period of time, we can get there and we're focused on execution for the remainder of the year. That back half ramp, same thing. Do you have visibility there in terms of conversations with customers? Do you have any trends you can point to in terms of bookings or? One thing that I think is important to point out is sometimes the regulatory business can be lumpy and sometimes contingent on larger transactions. Our low single digits does not contemplate the necessity for, you know, a handful of large deals. Instead, it's really just some of the smaller transactions, if we can execute on those and get the pipeline done and maybe get a little favorability from just the broader regulatory environment, then we think we can get there. Okay. Then, maybe just taking a step back across the entire business, could you talk a little bit about, you know, end market strength, you know, conversations with pharma and biotech, for the rest of our coverage, which is outside of biosimulation, obviously, but, there's been a lot of worries in the last 3 to 6 months, both on large pharma with impact of IRA but also emerging biotech, you know, funding environment? Just what are you seeing from those types of conversations? Yeah. I mean, probably the best way to describe how we see it from our business perspective is looking at some of the customer metrics. You know, we have a renewal rate at 90%. Our net retention rate, a software metric that we look at, is 110%. When you look at the software growth, the reported software growth on the quarter, 13%. If you unpack that, 10% of it is from existing customers and expanding customers, and 3% of it is from new logos. We're continuing to build new business there, and new logo additions are really consistent with what we've seen on a sort of an annualized basis. We're adding new customers. Our existing customers are expanding. Oh, that's another note too. Customer account with account values greater than $1 million and greater than $100K, those are a couple of metrics we look at. Both of them are growing, we reported what those numbers were at year-end. In Q1, both of those metrics grew. Really across customer categories, we're seeing growth. It's sort of in contrast actually to what you hear around biotech funding. We're actually seeing really, really good growth at Certara. What do you think makes you impervious to that choppiness in the end market? Why have you been so resilient? We're focused on the clinical phase of drug development. In the clinical phase, once you get to that phase, then I think funding is more robust and consistent. I think our results sort of speak to the fact that, you know, once you're at a clinical phase of drug development, then there's enough momentum there that there's gonna continue to be investment, particularly by some of the larger players, which make up about 50% of our business. Maybe this is a good place to transition into sort of the overall, you know, investment thesis or business rationale for Certara, right? Is you exist to improve efficiency of clinical trials to make it easier and more productive from pharma to get drugs through the clinic. In a sense, you're a solution to the problem if they are facing some funding constraints or they need to be a little bit more efficient in how they allocate capital. Could you talk about, you know, that component of the, of the strategy? Yeah. Yeah. You said it well. I'll touch on it, and then maybe I'll let Andy chime in a little bit on that as well. Mike, you sort of set it up nicely. It's we are positioned, especially as I was just mentioning, so in the clinical phase of drug development, we're positioned with. We have the largest players in biopharma mixed with some of tier twos and tier threes. We're seeing growth in both of those customer categories. Our business model is effectively very symbiotic with these biopharma companies in the sense that we can shorten the length of clinical studies, we can reduce cost in the clinical studies, and that improves the overall healthcare environment. Anything do you wanna add to that? I think the only other piece to add to that is just in terms of the flywheel effect of the regulators are also kind of encouraging increased adoption of our solutions, and we're seeing that from the FDA in terms of taking additional licenses of some of our newer technologies and kind of collaborating with us on our roadmap for biosimulation. Also, what we've seen recently is from the perspective of the ICH, which is where the regulators come together to harmonize standards. They put together a working group and published out a kind of three-year roadmap about how they can kind of make some consistency around the application of biosimulation in regulatory submissions on a global basis. Right now there's varying levels of use when you look, for example, from the FDA to the EMA, et cetera. That's another kind of tailwind that we have and a piece of the kind of value proposition. It's seen as regulators as a way to do more efficient review and to make the overall industry more productive. How do regulators like the FDA interact with Certara? How do they use your services? Are they more on the software side, or are they more on the service side? Are they running sort of like checks of the data that pharma's submitting or... Yeah. The, the regulators are primarily on the software side. We do, you know, training as well in terms of on the services side, workshops and training for the regulators. They're the largest users in terms of user count of our core software. It's heavily adopted, and they're using it to, you know, ask questions in terms of data that's submitted and accelerate the review process. We also have a software called Pinnacle 21, which is a data validation software essentially. The regulators were, you know, dealing with a problem of receiving data from various data sources and how do you make sense of what you're receiving. The FDA led the way adopting the CDISC standard and selected Pinnacle 21 as the tool to ensure that all data submitted to the FDA is in a kind of acceptable format for their review. That's been a good partnership for us as well. Yeah. I mean, maybe this is a good time to talk about some of the specific softwares, you know, what Simcyp, Pinnacle 21, Phoenix, where are you seeing, you know, some of the strongest growth? Is it those major sort of like anchor platforms, is it some of the newer offerings? Mike, you touched on what we'd sort of consider our core software programs, with Simcyp, with Phoenix, and with Pinnacle21. You know, all together, they're growing sort of mid-teens, which is a strong growth rate. Pinnacle21 is, it continues to grow strong. It's adding. You know, we've annualized it now, so we're not continuing to break it out individually. Yeah. It is certainly accretive to our overall growth rate. Simcyp also similarly, and despite currency headwinds, 'cause Simcyp business is based in the UK, a little currency volatility on a year-over-year basis. They're still growing in the teens even despite some of the currency pressure there. Phoenix is a core product that's been on the market for a long time. All of our, a lot of key players there. That's an annual license kind of business, as Andy was saying before. Sometimes it's multi-year. Most often, it's a single year, and that business is growing strongly as well. When we think about, you know, new additions to the platform, you know, you've got the R&D internal approach, both sort of like iterative but also completely new solutions. Then you've also got M&A like you did with Pinnacle 21. Could you just talk us through where the investments are going and where you see the opportunities? Yeah, I mean, we also did a transaction earlier this year. On an AI company called Vyasa that we're excited about. To your question, where is that going? It's, you know, it shows up in the P&L, an organization like Vyasa, mainly in R&D, and that's helping us continue to develop our products and how AI can interact with, you know, our whole portfolio of products. On a go-forward basis, I'd say that as we look to deploy capital, we would certainly look to M&A. We don't have to do a transaction, which is a luxurious spot to be in. We don't need to do a transaction, we do have a very strong track record of executing on accretive M&A for the organization. You know, Pinnacle 21 is certainly a good example of that. We'll continue to screen for those kinds of opportunities. We're very disciplined on price, and we'll continue to be. As I mentioned, we don't have to do a transaction. There are plenty of organic opportunities inside the company, where we focus a lot of our attention. And having, you know, just to sort of conclude on capital allocation while we're talking about it too, is the cash. We have $244 million of cash and equivalents on the balance sheet. We're generating cash, that's, you know, it's adding additive every quarter. We think it's important to have that cash in this macroeconomic climate that we're in. Having that cash and the strength of our balance sheet is a key differentiator for us to be able to take advantage of strategic opportunities. Okay. Are there any particular areas, you know, I'm not asking in terms of specific targets, but in terms of technologies. You know, you mentioned the AI deal you did earlier, you did Pinnacle 21. Are there, you know, as you look at the portfolio today, are there either therapeutic areas or technology solutions where you're looking at and you're saying, "You know what? We, we have a bigger opportunity here. This is where we need to invest," again, either organic or via M&A? Yeah. Yeah. I'll start. Yeah. Maybe have Andy add in a little bit here too with his strong base of knowledge. At least from, you know, from my start, it seems like opportunities for us... You can look at opportunities in software or services, and I think that we do have sort of a certain proclivity toward software at the moment, and as you're saying, Mike, kind of building out the software portfolio, whether it's adjacencies in biosimulation or adding some new spots like we, like we did with Vyasa. What else would you add to that, Andy? Just building on your point earlier in terms of the majority of our business is in the clinical phase. We do see some opportunity in the earlier phases in discovery in terms of extending the platform back so we can attach earlier and continue. We've made a lot of investments in sales and marketing in terms of a land and expand strategy. Kinda filling out some of the spaces where we're primarily approximately 70% on the clinical phase. At both ends there, we see some target opportunities. There's both tuck-ins. There's a lot of, you know, tuck-in opportunities for us kind of within our core and on those edges, and then from strategically, we're looking more towards software. Interesting. Would that be still sort of in the, like, PK/PD modeling side of things, or could that go as far as actual drug design and molecule design? I think that that's, you know, TBD. Okay. All right. Vyasa helped us accelerate that. Yeah. For one of the first integrations of Vyasa into our technology was into D360. Okay. Which I know you're familiar with. Yep. Vyasa was kind of an example of how we'd make a move into getting a bigger presence in discovery by taking D360, which is not talked about as part of the 20%, that we're not calling our core revenue. It's in discovery. It's got a loyal and large customer base, primarily with tier one pharma. We believe that incorporating the AI tool with the discovery analytics platform is an opportunity for us to take a foothold there. We have made some moves there. That's, for example, what we'd look at in discovery. Got it. That's pretty cool. Any questions from the audience? Demosthenes Haptou? I'll keep going. Maybe just, sort of taking a step back then and looking at the bigger picture and the longer-term opportunity. When we think about the market, obviously just sort of especially if you focus just on the clinical side of things in terms of clinical trial opportunity, and then we look at where Certara is utilized and the penetration rate is, you're still very, very under-penetrated in the market. You know, longer term, you could see utilization going higher and higher. The way I kinda wanna phrase this question is, you know, you're growing mid-teens revenue. Not that that's a bad growth rate, but why isn't it 20%? Why isn't it 30%? I say that kind of tongue in cheek, but what's holding pharma back from adopting the technology even more? Well, I think, I'll start and then you can. I think that, you know, we are seeing adoption. That is why we're growing in the, in the mid-teens, which is a good growth rate. To your point, when you look in the context of like total drug development R&D, it's a big, big number. And that would lead you to a spot where why isn't the growth rate higher, which is a fair question. I think that, you know, it comes down to how will biosimulation be adopted in not just like in a, in an organization, but in pockets. Some of these large pharmas it, you know, it'll develop in pockets of the organization. How do we drive further adoption, in with tier two and tier three biopharma companies as well? That's why, you know, it is important to come back to the regulatory business and, you know, we got some questions about why that business. We're in that business because it helps drive adoption. We have key regulators globally that are using our software and with their support, it will drive adoption. The market is growing for biosimulation, and obviously we're growing within it, and we're a market leader within that space. The more we can drive adoption, the more we'll be able to grow. Anything you wanna add to that, Andy? I think the two big tailwinds long term are the access to the technology. Right now the kind of, the core technology is used by primarily the large pharma groups that have in-house teams, and there's been a lot of years of training and development there. In terms of the long tail outside of, say, the 25 or 30 companies that use the software, there's been limited access to the technology. We've been working on the platform and to some extent modularizing that. Simcyp Discovery is a good example of that, to make it accessible for specific use cases across the drug development spectrum. I think as the access and acceptance increases, that's a good opportunity for us. Then back to the regulatory point. In terms of the FDA, biosimulation is a technology that's used broadly in what they call model-informed drug development. The FDA is kinda put out there. We've got where we are today, but from their perspective, they have an MIDD pilot program, so they're having companies come and participate in what are novel ways or new ways to use this. That's just the term pilot to me indicates relatively early stage. Yeah. You know, just this 3- to 4-year plan in terms of the regulators aligning on moving from, say, ad hoc uses or guidances to standard applications, and some clarity around when and how it could be used creates an opportunity, but it's more of a 3- to 4- to 5-year opportunity from my perspective. Got it. Then, I mean, yeah, anytime you talk about regulatory or sort of changing... Yeah. Clinical trial procedures, that's gonna take five times longer. The other unappreciated factor is, you know, developing a drug takes a long time, so a lot of the drugs that get approved today were started under a different. Yeah. view in terms of how drug development is. We're increasing our footprint in our existing customers and in kind of drug development programs in earlier stages. That'll be beneficial, I don't know, hopefully it's not seven to nine years, but, you know, seven to nine years down the road. Yeah. When we talk about the applications of the technology and some of the, some of the use cases, some of the proof points of the value add, you know, we talk about reducing the size of the clinical trial, reducing the complexity of the clinical trial, you know, being able to conduct in a shorter amount of time. The data points are continuing to grow, right? It is a flywheel where it's making every successive conversation easier and easier in terms of convincing the sponsor. I'll just shoot in, and you can add. Yeah, yeah. If you go back to, you know, I've only been here nine years, eight and a half years. There was no evidence of label claims in terms of biosimulation. A couple years ago, we put out a press release, there were 200 label claims. Now I think we just put out a press release above 300 label claims. These are examples where biosimulation is referenced in the drug label and essentially eliminated the need for a clinical trial. That trend continues and it provides more, more evidence for what we're doing. You know, we talk about it, but I'll talk about it again in terms of Last year, the FDA put a paper out about a project that we did where a generic drug was approved using virtual bioequivalence, and it was, again, great support to see the encouragement from the regulators. We continue to work in that space to look for new opportunities to apply that. Where do you see the technology and the company potentially being, you know, 5, 10 years from now? Sort of what's the long-term view here with biosimulation? Like, what could this achieve long term? I mean, look, we think it's continuing on the same trajectory. You feel free to jump in here too, but it's like, hey, look, there's a, there's a huge market, there's a tremendous amount of R&D spend that isn't being spent in the most efficient manner. It can be lengthy. You know, our mission is very, very well aligned with pharma companies' missions, which is very, very well aligned with regulatory mission, which is aligned with overall improvement to healthcare. We think that the trajectory for us is very, very strong when you take that into account. I'll just say for my last, my last time with this quote, you know, mid-teens organic revenue growth, mid-thirties EBITDA margin is what we see as our profile right now. We kind of develop our financial plan using mostly backward-looking, high-visibility metrics, some of the metrics that John quoted. There's really no change from that perspective right now from the company. Okay. Any questions from the audience? Last one. How do you guys think about positioning versus guys like Schrödinger, which is doing development, but also selling tools, and then maybe further on the spectrum, Exscientia or Recursion, which are sort of taking the software-first approach and kind of essentially disrupting the industry with all the knowledge? How are you guys thinking about the trend of themselves and overall just, you know, AI, in AI-driven drug discovery? Yeah. I'll repeat the question really quick for the webcast. The question was about how do you see yourself versus Schrödinger and someone like Exscientia or Recursion using AI, machine learning in drug discovery in various parts of the development process. You know, at Schrödinger, you're probably in the middle of, you know t he software surface. You know, the two kind of being more doing it all in-house. They, you know, they're looking at that data. I mean, I. The way that our platform is built today, they're complementary. We 5% to 10% of our revenues are in the discovery space. I view ourselves as a partner to pharmaceutical companies and to any company that's developing a drug in the industry. I would imagine they would be potential future customers as they moved out of discovery into the clinical phases. That's my perspective. We don't really have an intention to become a drug development company. We like to work on, you know, in a non-competitive way with the industry. We see the most projects. We work across all therapeutic areas, so that's just not a strategy that we have as a company. Interestingly, as Andy is saying, it's almost more likely they could be a customer than a competitor in some cases. We got just a couple of minutes left, so I'll end with this last one, is, our standard question is, what do you think is most underappreciated or most misunderstood about Certara, just based on, you know, your conversation with investors? You've been public for a couple of years now, so, you've probably had a lot of these fireside chats, a lot of these debates under your belt. You know, what do you see, people still misunderstanding about the business? No, I'll start, and then Andy probably has thoughts here. I know he does. You know, from my perspective, look, I joined on April 1st. This is a really exciting company to be a part of. We talked about the market. The market's growing. We talked about Certara. Certara's got a great growth profile on both the top line and the bottom line, as Andy said. It's a space that you can really get excited about for all the reasons that we talked about. Andy and I have been working together now for, you know, the last six weeks or so. The transition is going very smoothly, and we work well together. I guess I'd say, too, I've spent a lot of time getting to know the business. I've already visited a handful of our sites at Certara, getting to know the business, getting to know the business leaders, been a part of business reviews. I think it's going really well. Andy, anything you wanna add as far as. It'd be a tough one to answer in a minute. I would say, you know, a couple of things. We put out pretty clear and transparent metrics that you can draw some conclusions about the trends of the company. We are working on, you know, with 1,300 biopharmaceutical companies who are in various stages of drug development. Our revenue recognition in terms of the services is somewhat of a back and forth. We're working on these projects. We receive data, we send data. There seems to be a kinda hyper-focus on small quarterly revenue fluctuations. When you take a step back, the trends are consistent with what we've been saying all along. You know, mid-teens organic revenue growth and the kind of book-to-bill, the customer metrics have been supportive of that. It's a little bit of a misunderstanding there. In 30 seconds, we also do a lot of R&D and innovation, so the other 20% of our software is really kinda cutting-edge software in terms of biosimulation. That's set up to not grow by definition. We invite 3 to 5 early adopters to come in and help us develop a immuno-oncology QSP software platform. 3 to 5 years, that's gonna be flat a headwind to the revenue growth, but it's driving cutting-edge innovation that's gonna be a huge opportunity for the company as you go out and regulators start putting out guidances about the use cases. I don't think people really appreciate that. Great. Thanks so much. I could go on for an hour. Thanks for having us. We're out of time. Thanks so much. Thanks everyone for joining. 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