Certara, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Performance: Certara had strong commercial execution across software and services, finishing 2024 with revenue of $385.1 million, a 9% year-over-year growth. Q4 bookings were $144.5 million, a 22% year-over-year increase.
• Investments: Invested in R&D to integrate generative AI into existing products, accelerate new product development, and unify software platform. Strengthened commercial team with senior talent. Launched CoAuthor regulatory writing product. Integrated Formedix, Applied Biomass, and Chemaxon.
• Customer Base: As of December 31, 2024, Certara had over 2,400 life sciences customers, including 431 with an annual contract value >$100,000 (11% growth over 2023) and 67 with ACV >$1 million (up from 63 in 2023).
• 2025 Plans: Plan to invest in software for discovery and lead optimization, build an integrated software platform, and continue R&D and commercial investments to expand product offerings.

Segment Performance

• Revenue: Total revenue for Q4 2024 was $100.4 million, representing 14% year-over-year growth. Full-year 2024 revenue was $385.1 million, a 9% year-over-year increase.
• Software: Q4 software revenue was $42.3 million, up 26% year-over-year. Full-year software revenue was $155.7 million, a 18% year-over-year growth. Ratable and subscription revenue for Q4 software accounted for 63% of total, down from 68% in the prior year period. Full-year ratable and subscription revenue for software was 65%, up from 62% in 2023. Software bookings in Q4 were $59.7 million, a 38% year-over-year increase. Trailing 12-month software bookings were $169.7 million, up 24% year-over-year. The software net retention rate was 106% in Q4 and 108% for the year.
• Services: Q4 services revenue was $58.1 million, up 7% year-over-year. Full-year services revenue was $229.5 million, a 3% year-over-year growth. Technology-driven services bookings in Q4 were $84.8 million, a 12% year-over-year increase. Trailing 12-month services bookings were $275.6 million, up 4% year-over-year. Biosimulation services bookings were strong in Q4, and regulatory writing bookings returned to growth in Q4 but declined double digits for the full year.

Guidance

• Total Revenue: 2025 guidance ranges from $415 million to $425 million, representing 8%-10% growth compared to 2024.
• Chemaxon Contribution: Expected to contribute $23 million to $25 million in revenue in 2025.
• Adjusted EBITDA: Anticipates adjusted EBITDA margin between 30% to 32%.
• Adjusted EPS: Expected to be in the range of $0.42 to $0.46 per share, fully diluted.

Risks

• End Market Uncertainty: Cautious spending by customers due to funding constraints, Medicare drug price negotiations, and geopolitical uncertainty.
• Regulatory Services Review: Ongoing strategic review of the regulatory writing business with no immediate decision, and the impact on future strategy is uncertain.

Question and Answer

Q: Jeff Garro on 2025 revenue guidance and end market view A: John Gallagher stated that Q4 performance was due to team execution, but end market dynamics such as layoffs at Tier 1 customers and delayed decision-making at Tier 3 customers influence the guidance range.

Q: Michael Cherny on wallet share and new administration A: William Feehery mentioned that investments in products have led to increased wallet share, and Certara is cautiously monitoring developments related to the new administration.

Q: Christine Rains on software net retention rate and organic growth A: John Gallagher attributed the dip in software net retention rate to Tier 1 spending patterns, and organic growth guidance is expected to be 4%-6% with services flat to low single digits and software organic growth at 6%-8%.

Q: David Windley on Chemaxon margin and discovery space A: John Gallagher said the margin step-down of approximately 100 basis points is half due to Chemaxon and half due to incremental investments; Chemaxon operates in a fragmented discovery space with unique tools.

Q: Constantine Davides on quarterly cadence and regulatory services A: John Gallagher noted seasonality with stronger performance in the second half, and regulatory services rebounded in Q4 with support from Tier 1 customers.

Q: Andrew Moss on CoAuthor traction A: William Feehery said CoAuthor has multiple paying customers, is on track, and is expected to generate millions in revenue in 2025.

Q: Kyle Crews on Simcyp expansion and BD assets A: John Gallagher discussed multiple delivery routes for Simcyp and mentioned that Certara is open to acquiring additional software assets through M&A.

Q: Unidentified Analyst on BD assets A: John Gallagher stated that Certara has the capacity for additional tuck-in acquisitions in software as part of ongoing M&A efforts.