Great. Good morning, everyone. Welcome to the first session of the Leerink Partners global healthcare conference. I'm Mike Cherny, the Healthcare Tech and Distribution Analyst. It's my pleasure to have with us Certara, John E. Gallagher III, our CFO, David Deuchler, does IR, sitting in the audience. John brought no slides, which makes me happy. Let's just jump in. I mean, you just reported.
Yes.
You had some interesting moving pieces, I would say, on your guidance and the outlook for 2026. 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?
Yeah, sure. We did. We just reported at the end of February, 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%. That was good. On a profitability basis, we were at the high end of our original EBITDA margin guidance at 32%, that too was in line or even, you know, above expectations as we ended the year. All positive things. You know, 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%, That's comprised of what we see as 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 -6% year-on-year, 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 whole dynamic reduced some seat licenses in Phoenix. Then perhaps even more of a driver was the study count on Pinnacle 21.
Study count is a, is a lagging indicator, slower clinical trial starts from 18 months ago, as they begin to finish, you know, they're now hitting Pinnacle. Those were the couple of the drivers of why software bookings were a -6% on Q4. You know, that's one of the key reasons why we ended with a organic TTM software bookings of 1%. What that means is, despite the strong finish to 2025 on a revenue and EBITDA perspective, as we looked forward, there was, you know, the current trends that we were seeing through exiting the year from a bookings perspective would have the software number lower than you might otherwise expect.
On the services side, you know, we've been, if you look at services revenue over the last three years, we've been a low single-digit grower, about 3% revenue growth. We had a very strong month of December in services bookings, and that's good. Actually, that's going to lead to my response to your question on what the end market looks like. We have seen budget flush-type seasonality in years prior, and despite that, you know, still end up with a low single-digit services number. When you take those two 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.
That, you know, along with a little conservatism is what gets you to the 0%-4% guide on the year. Now, the end market. You know, strong bookings in Q4 and services. We view services as an area that does have more discretion by the customers. An uptick in services bookings is, we do believe, is a good indicator of at least stability in the market, if not a bit of a tailwind. You know, we saw that with Q4 services bookings, not only in regulatory wasn't a spot where we saw that, but also in BIOSIM services, which was good. That's a positive.
We also, you know, we also take a little bit of pause as we look at, you know, if you look at the quarters on our services, we had a low quarter in Q3, we had a high quarter in Q4. It is lumpy when you look straight through that. You know, TTM services bookings were about 5%, so, you know, that's important to keep in mind. We do see as we look toward, you know, 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. We've got, you know, a new CEO in Jon Resnick, who's come with a fresh look at the organization.
We called out for the first time that, you know, we think that not only are there, you know, end market dynamics that are impacting the organization, but there's also some things that we can change operationally, an execution-oriented commercial approach, all of which, you know, are obviously within our control and something that we think, we can inflect and drive, you know, drive change to the organization starting now.
I definitely wanna 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. As you hear that 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 their various different prioritization? Is it a trial dynamic? Like, what is it you think that drove some of those levels of strength?
Yeah, I mean, customer demand for MIDD, Model-Informed Drug Development or biosimulation is strong. You see that, you know 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, you know, core biosimulation or MIDD offerings, where if you look at what's growing the fastest in the organization, it is QSP, Simcyp, PBPK services. There's areas of both software and areas of services that are fast-growing.
If you look at those two 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.
Let's turn to the leadership change. You brought in Jon Resnick, you know, aside from complicating the Johns, in the organization. You know, brought a very different profile, you know, 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 defensively, i.e., where can you go and execute better, you know, versus where you had performed, versus where are there opportunities where you're already building on strength within the commercial engine?
Yeah. Yeah, yeah. Maybe the... I'll start with the last one first, then we'll come back to the operating one. The one opportunity to are more closely linked together, our software and services offerings for the customers. You know, no two customers are the same. Even within big pharma, there, you know, there's quite different ways that they utilize the software and the services. One of the opportunities that we see is taking a more customer-centric approach. Jon Resnick brings with him, you know, a strong commercial background as well as strong focus as he's joined Certara now on customer centricity.
We believe that, you know, 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, you know, that's 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, you know, the reps is 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, you know, 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.
Certain customers' needs, depending on, you know, scale, appetite, spend, profile of the organization, you know, has a different or varying level of need when it comes to which software they need, as well as which service they need to pair with it.
Thinking about along those lines, the investments you're making, whether it be a commercial, be it R&D-oriented, your guidance assumed incremental investments, yet still a fairly similar, EBITDA margin versus what you put up previously. 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?
Yeah. Yeah, yeah. We, you're right, Mike. The guide is the same as it was last year. The EBITDA margin guide is 30%-32%. Of course, last year we came out at the high end of that. We have proven a track record of being able to navigate investing in R&D. We saw an increase in R&D spend last year, which was intentional as we were launching three 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. The, some of the prepared remarks that we made on the call were also a signal to, you know, appetite to do something similar this year. We do have to make investment.
The reason we just didn't guide 32% is we do have to make investment in the organization. It's primarily in R&D. It's in Model-Informed Drug Development and biosimulation to continue to roll out features and functionality. Think the AI features and functionality that we just included last year, Certara. We'll get into these, but Certara IQ, Phoenix Cloud, we gotta do more of that. That's part of the plan for this year. That spend, that's gonna go into R&D, and we're leaving room as a management team to be able to make those investments. 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, you know, put us not only within that range, but hopefully toward the higher end of that range.
You mentioned AI. I mean, I'd always have to come back to you, but this obviously wouldn't be a discussion.
A conference without all things AI. Maybe just to level set for everyone, 'cause I know there's a lot of moving pieces. Where do you feel right now Certara is using AI appropriately within the MIDD world? If you think about either your product pipeline or other planned investments, like what comes next in terms of what Certara needs to be adopting within Phoenix Simcyp, any of the platforms? Maybe just walk us through the AI strategy, for lack of a?
Yeah. Yeah, yeah. The AI strategy, we, of course, acquired a company called Vyasa all the way back in 2022, and we've been, you know, weaving Vyasa AI technology into Certara since that time, which, you know, we were very proud to be able to launch Certara IQ in Q4. That's software, AI software for QSP, or Quantitative Systems Pharmacology, which is the fastest growing area of biosimulation. 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. A couple of proof points are Certara IQ, as I mentioned, for QSP.
Phoenix, we have data visualization, functionality within Phoenix Cloud now. We think that's a really good inducement for customers to move off of the desktop and into the cloud version. We've seen strong interest from customers. We feel optimistic about the conversion from on-prem to cloud for Phoenix. That's gonna bring the AI technology with it.
If I can stop you just for a second.
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? How much of the before was with Certara versus some other solutions versus cloud, as an example?
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 in tables that can happen instead of doing them manually, they're happening in an automated way, as you would expect, with AI functionality. What customers, what a customer's spend profile would look like is 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, you know, we do get some price opportunity because there's more value for the customer there. 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.
Why for Certara IQ was QSP the right area to invest to grow in? Like, what about that part of your market? 'Cause I've always been impressed that Certara just touches a lot of different parts of the R&D process. Like, 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?
Good question. The quantitative systems pharmacology or QSP, as I mentioned before, it's the, it's the fastest growing area of biosimulation. Certara has the leading practice there. 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. These are subject matter expert scientists we combined together to create the world's largest QSP practice. The all of these consultants are, you know, delivering QSP services to our customers. There was no software associated with QSP. Unlike PBPK services that have a Simcyp associated with them, there was no associated software with QSP.
It naturally became an area to find efficiency with this, you know, 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. It was naturally an area, given the high growth in QSP, this was naturally an area we wanted to invest in.
As you think going forward, how much of what comes next in AI is stuff that you wanna 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?
Yeah.
I remember joking, it was, Dave told me the first time we spoke, like, "You have people that run software 'cause we're not smart enough to do it." Like, how much of the process over time becomes that you have bots, agentic capabilities Can help complement and or replicate those people?
Yeah. Yeah. Yeah. Yeah. It's, well, you heard me use the term human-in-the-loop before. I think, you know, Certara is a very good example of that because it is true that the software that Certara sells to our customers does require, you know, a high degree of scientific expertise. As well as you know, not only acceptance by the customers themselves, but acceptance within the regulatory bodies too. The key, 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. Then there's also regulatory acceptance on the other side of that, meaning, you know, the FDA uses our software and they understand it.
It's the combination of those things together that really creates the competitive advantage for Certara to be in a market-leading space here. We intend to build on the model. Not so much partnership. You really haven't seen as much partnership. You know, that being said, given how active the market is and how fast technology moves, you know, we're obviously looking at forging important partnerships with leading tech organizations, and you'll hear more from us on that. You know, generally, the strategy for us has been, you know, the software, the subject matter expert scientist in the loop, and then the regulatory acceptance on the other side.
Maybe sticking on a 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?
Yeah, I mean, we're in a leadership position there. This is a tremendous opportunity for, you know, the whole practice of modeling and biosimulation. 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. 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. The counterbalance to it is that the pharma industry, you know, thinks in decades, right?
It's a long cycle time. There's, there's risk aversion, naturally. You know, we, we've said that, you know, nobody's gonna get fired for running a typical clinical study. What we're up against really is just the adoption curve here. It's not gonna move as quickly as Certara would like it to. I think that. Clearly the industry is gonna 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 animal models don't exist?
Yes. Yeah. In fact, you know, we just had a good discussion on QSP. The areas within Certara that are most ripe to help, you know, to help this shift using NAMs would be Simcyp, PBPK services and most predominantly QSP. We just talked a lot about how we've grown the QSP practice. We've put in software associated with QSP. That area of the business is gonna be the biggest benefactor of the early signs. 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 NAM.
There's some optimism, but we don't, you know, we don't wanna, we don't want to suggest that this shift is all gonna happen inside of a year, though, either.
I think that's probably the right assumption. Going 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 an end-state demand from disease categories? It's been some of the prioritizations that we've seen market-wide have been on categories that, you know, like cardiometabolic, where people may have gotten too far ahead of themselves on the amount of trials. Some of it's just natural failures that come in 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?
The good news for Certara is our work goes where the customer goes. Like, to your point, Mike, there's been shifts in focus by biopharma companies, and that happens iteratively over time. The good news for Certara is that, you know, we do the work where the work exists. 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, you know, wherever, excuse me, wherever the focus is of the biopharma company is where Certara meets them.
Along those lines, you work with so many pharma companies, 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 is a translational approach? Obviously, if your customers are uncertain, that leaves uncertainty for you. Like, you talked about the potential for green shoots this year. Obviously, don't wanna get ahead of ourselves, like, how are the real-time discussions occurring there after the bookings performance? If there were green shoots, what do those green shoots look like?
Yeah. Yeah, well, we do see the market as being stable this year. You know, I talked about some of the customer dynamics in the large biopharmas or the tier one customers being, you know, 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 three or the biotechs perform really well throughout last year. Some of that was related to the funding environment easing and some tailwind there. We've seen recent results would suggest that's continuing, if not accelerating. That's certainly a positive sign that we'll continue to have a tailwind as it relates to tier three customers. As it relates to tier one, we see, you know, stability there.
We think that a lot of the volatility that had caused some of the reprioritization, headcount reductions, even the study counts that I mentioned before is really in the past. Does it affect our near term revenues associated with slower bookings? Yes, we talked through that. 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.
You 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?
I mean, we have a strong balance sheet, good cash position, low leverage. As you mentioned, Mike, you know, we've certainly proven a good track record of doing tuck-in type deals for the organization, we continue to, you know, 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, you know, it's worth, you know, taking a look at that, so more news to come there. You know, that process does not stop us from, you know, 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, you know, 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 for people? I mean, it's interesting that, you know, you guided below where the consensus expectations were, yet I think there's also setting an appropriate level to build off of. I mean, you talked about the level of conservatism. Like, how do you feel Certara's positioned right now heading into 2026 with stabilizing markets? Like, where are you most excited about the business?
Yeah. 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. Those are all things that, you know, as you listen to us speak as a company that we control. You know, it doesn't take a multi-year effort to inflect change there. 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.
You know, that being said, you know, you have to look at the trending and you have to look at, you know, the actuals of the business. We guided the way we did based on, you know, what those TTM bookings were telling us.
Makes sense to me. John.
All right.
Thank you so much.