CERT - Earnings call transcript Q2 2022

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Operator

Good day, and thank you for standing by. Welcome to the Certara Second Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today David Deuchler. ahead. go Please

David Deuchler

Thank call. everyone. for in participating Good you conference today's afternoon, all

On William is today we Officer; Certara, of ended the from call A XXXX. have the results the Schemick, copy company's Financial June XX, financial press and Chief Feehery, on Officer. released Earlier release Certara the for quarter available Andy Executive Chief website.

federal this of within begin, that made XXXX. the management Act of statements Securities differ of factors. during you those due the expressed events, are to like statements future results variety relate will Litigation Any forward-looking or the to or remind performance call laws, to a I'd include implied materially pursuant that from in Before Safe we of that which statements. Harbor Reform securities statements forward-looking may in call meaning the are statements make to or results of this provisions expectations predictions forward-looking contained Actual Private

website. of filed For XX-K business, XXXX. some conference adjusted only except net live as you Factors accurate I turn earnings otherwise. these Form the a and information these our forward-looking March on future over financial should adjusted by measures revenue call are that EPS list available and Commission contains mention and projections broadcast X aware the section of on comparable future and only with the be in obligation, to that to risks and refer Exchange William. should of urge measures. required XXXX. to This you please not EBITDA, directly be to factors, and whether considered time-sensitive X, company's revise Reconciliations or financial associated the will Risk is adjusted which statements, currency GAAP Securities And or income, Certara's August with We the with a information, and events Also, our constant as the non-GAAP law, statements uncertainties or questions, consider remarks may or release, today, description to of recent management to most estimates in are any update any of is because intention performance. Certara disclaims new call of guarantee through available responses

William Feehery

Thank and you joining mid-teens I you, second and significant prepared growth and headwinds earnings Andrew will second achieved remarks in Certara delivered Good exchange David. bookings and start the afternoon, services with everyone. business will we foreign for Thank growth Certara's then questions. in biosimulation revenue, software call. despite In quarter, the rates. take quarter from

regulatory not in meet of comprises regulatory performance to data. decisions ongoing regarding XX% and trial did less business Our our delays than recent clinical due expectations which China-only services,

foreign be significantly not XX% on operating by which flow impacted strong. Our of basis growth a was reported rates and cash basis to second on Pinnacle XX. currency We including a million quarter year-over-year XX% reported constant growing revenue continues exchange $XX.X

footprint located and a has many world. countries many different know the Certara global global business you operates around customers This employees As advantages. with in

However currency may revenue our periods during figures reported of volatility, growth foreign be impacted.

continues interest Demand growing a growth was better core biosimulation remain with we and be renewal rate. healthy. line and in healthy in Pinnacle rate. currency on at XX% applications for XX% result, basis to by basis from and our software with year-over-year the a contribution quarter $XX.X reported strong basis, as Phoenix mid-teens and a constant a both on trends growing As a help to decided business, which our financial constant the in million, driven software to disclose a aggregate businesses customer Simcyp results were our very well results XX. These biosimulation have you currency the with second Reported understand revenue expectations underlying new as

with and our advances the researchers which We needs the expanding we applies and of early to Simcyp are in role of development. to optimization, Discovery new discovery development. biosimulation prediction biosimulation software expansion of earlier lead launched first-in-human offerings. Discovery Simulator, our meet dose innovation Simcyp formulation committed In June, and

We and to drug identify further help candidates investigation. promising most progress are for excited the new

latest In the to how these help questions simulators work versions and the of our customers development addition, therapies. versions address tackle we of key toughest drugs immunogenicity, challenges and released novel immuno-oncology in development. and drug our to Simulators new Vaccine predict biologic help The in discovery of

biosimulation for Memorial therapies announced develop Kettering. recently initiative to platform We with CAR Sloan T-cell an a also

to hub enterprise practitioners therapies. and updated Exchange four Data innovation meet expectations. solution trials. personalized researchers, a to that We management to ultimately be more oversight model help week, executive to forward look The a Pinnacle clinical sources that sponsors data ingesting decisions. MSK are we with from This data the or XX of with excited with to and pharmaceutical sources. our in of external data continues maintain an will XX regulatory integrity are and Pinnacle solution empowering majority primary while version module. grappling is collaborating process developing streamlines patients exchange new drive Last in trial ensures data objective companies clinical introduced compliance, data of biosimulation the a

representing high basis a Turning currency services. services revenue constant million, biosimulation $XX the on with XX% of growth of basis. show compared a continues on growth constant a to robust technology-driven Within delivered year. last to the services, in teens technology-driven second We currency revenue quarter

strong XXXX. customers. expanding XXXX The use We bookings clearly services has of expect the biosimulation second new and an growth biosimulation shown and in half with in interest in continued strength industry of in into the

in as this regulatory new have planned. team biosimulation continue experienced grow, are more services expand customer our our to we establish than for services volatility demand we investing business, As as relationships relationships. In year to existing well

US decisions recent to Chinese Our customers their by has projects to our China customers in regulatory continue causing and reassess in experience impacted delays business been strategy.

supporting drug revised our development our second in the we million trends which on expand was moving the are in guidance see confident provide cycle to right clients. as strategic are Certara a exchange rates, in Pinnacle the the and over As industry and cash and our opportunities, results well business the $XX these services. guidance the in continue to mission. to conservative We $XXX With I our performance Schemick we million, as direction offerings will to negative foreign and financial taking second outlook, Andrew an to in our CFO, deliver year related healthy Overall, to value of believe regulatory $XX the software performance We remain it from of for we foreign services for drive am services of below regulatory adoption quarter entire will see new the growth adjusting to our detail. our in on quarter throughout discuss remainder Andrew plan more million $XXX to capitalize to regulatory and as we revenue to turn regulatory opportunities to the XX. biosimulation details I'll on shortly. into generates and the disease flow team the impact modalities approximate due business, areas. committed full continue now more the year. to outlook exchange and reflecting million reduction this business a very result, in the more

Andy Schemick

the a revenue reported everyone. June million, ended you, growth $XX.X on XX% of Total Thank XXXX reported representing a Hello months currency basis was William. for basis. and three year-over-year XX, XX% constant on

was constant Pinnacle XX%. quarter second currency growth XX revenue Excluding

the non-US largest the reported with at trailing reminder, million, majority biosimulation up of are XX% British dollar on yen software a and As and pound, impacts coming $XXX.X the approximately currency XX bookings year-over-year We and well currency services. foreign XX%. translation euro XX and excluding up months remain Pinnacle a basis the exposures in positioned

basis at was a software We bookings currency which XX a $XX.X the continue increased on and the million look period over a reported to forward prior revenue. basis for XX% months year Reported quarter, constant trailing on revenue second XX-month basis. in XX% as

on software grew constant XX% XX to ago exchange year-over-year basis. headwinds. the Excluding was and a foreign Pinnacle in growth our which revenue was the excluding Simcyp this contribution currency approximately year The in XX% XX compared driven despite by a period $X.X Pinnacle same biosimulation quarter Phoenix, million growth software

bookings the were which software increased contributed million $X.X in $XX.X from XX Pinnacle second period. in quarter, second million to year Software quarter. XX% the the bookings prior

XX. Trailing So XX%. the XQ year-over-year Pinnacle XX year-over-year up were software bookings XX% growth XX-month and software excluding million, excluding XX% up $XXX.X Pinnacle was bookings

a on quarter, quarter the was basis. on Reported rate the revenue renewal rate the was prior aggregate currency XX% was and in basis XX% a second Pinnacle period or which $XX XX. constant XXX% net and increased excluding XXX% in million Software X% services over year second retention reported

cost $XX.X in XXXX, the increase million million basis. due $XX.X TTM follows; $X.X $XX.X second As of million XXXX in expense billion and in offset were million a intangible in related foreign the XX% decrease $X.X is corporate for to operations software The increase $X.X biosimulation $XX which $X.X second were teens the Intangible asset the not for of of in the assets. $X.X bookings is tax compared operating $X historical single compared of in was of second were elongated from higher second $X.X Interest costs, $X.X amortization an we're in to the sales employee was G&A primarily travel William the increased to $X.X marketing and quarter asset in expenses Regulatory as of expenses and the was compensation R&D expenses year. in was employee-related bookings this income XXXX. decrease second million impact expense compared expenses is licenses. higher $X.X in million million, increase revenue million of headcount the cycles. $X.X year business services due grow and in billable $X.X expense to million to P&L. marketing due second compensation, of to million, a bookings the to of in to $X.X components $X.X to XXXX, for R&D Depreciation by of million, R&D of the XXXX. to of slightly $XX.X investment and increase the XXXX. are for in to due were $XXX.X purposes. customer R&D it a the was were prior intangible Regulatory million, sales $X.X decrease to of professional in and was forecasting quarter due XXXX Income stock-based million $XX.X services force, a increase to compared quarter longer $X.X to $XX.X quarter Total furniture in we're of due expenses marketing expense, second $XX.X as to an increase rates million, to services million tax acquisitions interest XX% flat increase $X.X currency growth million to reclassification stock was in and the international due cost in $X.X to for from last rate in compared increased implementation. to $X.X to and and million to depreciation accounting XXXX growth, million, services amortization forecasting for which digits million, year revenue low driven services a This Total amortization, in sales headcount The due currency stock-based million, revenue and the increasing second earnings the million a quarter the the from second of $X.X increase to remainder mentioned the $X.X compared compensation million an high XXXX on million and due quarter the costs compared of to hedge. expenses no million Technology interest our costs primarily and investments. effective The of quarter costs acquired $X.X year $X.X at costs of million, in which miscellaneous million. the second expenses relative to as income conversion a compared primarily this was year. mix expense M&A by of quarter of in quarter and quarter growth swap deductible due quarter million from compared booking second for loss expansion Continuing offset increase XXXX. million growth primarily for million for services decrease expense the of was expense transaction equipment. million the a primarily longer gains was of Miscellaneous to constant and were domestic stock operating million $X.X due down pre-IPO from headcount million prior trending costs. due prior period.

adjusted the second come of the for XXXX second compared Reported $X.XX quarter to to net earnings of second loss was rate second XXXX of the for million, quarter Reported XXXX. was $XX second quarter of of representing compared in XXXX was growth. We compared $XX.X million, income XXXX, for $X.XX quarter to year. was expect million of Net the the half down Diluted X% back million in for in quarter XXXX, $XX.X net quarter the to second share quarter to share for for quarter the adjusted diluted compared the per $X.XX, as of loss of the quarter Adjusted XXXX. for the a EBITDA per a of the second XXXX. loss earnings compared of XXXX. of second $XX.X XXXX second for to million second quarter the $X.X of was $X.X of million $X.XX the

Now, million the with balance moving the $XXX.X We sheet. ended equivalents. cash cash and to quarter of

June loan our million our and under $XXX we of facility. borrowings had As of outstanding full term under revolving availability XX, credit XXXX,

Turning to guidance.

full exchange slow year in to our and rates the adjusting due are We guidance, services foreign market. regulatory recovery

$XX to revenue performance and exchange services to and million, business. of We forecast the foreign headwinds outlook due are lowering million, regulatory approximately $XX the our by due

cash to shares $XXX GAAP of XXXX updated of share, $XX range forecast of $XXX million as to $XXX rate a to EPS. million, of follows. $X.XX of is Our in foreign I reported the in per out million range million, the no range the to a $XXX EPS the full Revenue approximate impact through forecasted EBITDA adjusted diluted would year minor of to tax headwind virtually range flows million, planning for rate XX% point the $XXX to EBITDA the to $XXX XX% we adjusted $X.XX in capital adjusted impact adjusted like XX%. range and tax million to the fully due and to to in million that, the of have in of on in range XX% exchange reported

quarter highlighting the change look that of Lastly, a particularly towards technology-driven in as reported half we the in comparison second revenue, services. we have year, to it's services third challenging regulatory worth due the in outlook

services low William call As a technology-driven third result, Feehery to we returning for remarks. digits the I growth anticipate be our before closing will in in CEO, turn mid-teens back quarter. growth the fourth single reported now the to revenue the in for quarter to

William Feehery

to as as global remain strong Thank biosimulation. you, focused commitments customers grow results our Andrew. a we on leader shareholders and for summary, our continue to in In delivering we

line. open will the up We can open line questions. Operator, the please for you now

Operator

question first from from Dave Jefferies. Our Windley comes of Instructions] [Operator the line

Dave Windley

could to have project on regulatory last times choppy clients end databases these a to what guess, do there level bit projects? I your It's understand services. just with in what – is different help at If us year in dates you of for of you tight would little little you there? start question wanted of more the your delivery time and communication visibility been your and for how plus. to of kind what anticipated I bit understand the you be the visibility real a visibility understand kind first

William Feehery

find us. David. Thanks, working times, they number clients – are is sometimes It the out with still when varies A we that, book themselves client. many that Yeah. by what

have of have some them XX% the I would to all any you'll projects sort our generally, be of slowdown have can touch past. referred pandemic what is But the we you – That year number in of said talking backlog it's the with we've in a we sorry, at the been in in when last expect and generally, continued visibility there in add? I a have slowdown Anything, during little currently just we the clients So a And that projects our time. We start started discrepancies. with seen about they booked. seen about given of some say to think bit. starting. we which

Andy Schemick

specifically That projects with reg into to We XX% on were services, customers, the just the have hand. relates visibility other firm dates XX%, about today. dialogue the would start in

Dave Windley

you on quarters. XX% regulatory visibility Got four it. specifically? And -- that's forward that And quarter said, forward

Andy Schemick

basically on us specifically, regulatory relates what's XX% guidance it available coverage us That's visibility, that here? to work that gives the work gives in XXX% to only the total to if and

Dave Windley

Okay.

the simulator mentioned simulator Phoenix, taking a a Pinnacle new market? I getting year it's Simulator then interested in, of sell versions of and like you version how that And Discovery you out the What Maybe beginning pretty that see inflect last little we're biologics carved that throw hold Okay. there? guess also I'd for What do bit? well. being on in, Thanks. kind of And you're product late had enterprise XX? receptivity on biologic XX basis. of to be then you to opportunities tracking I'd side, Simcyp acquisition, looks in a Pinnacle is more stand-alone

William Feehery

Yes.

is launched what new the to two in quarter you're referring products. we So,

of them is One the Simulator. Simcyp -- Discovery

and towards more in drive has revenues the its beyond. the and preclinical. Simcyp in of targeted the past as phase in is this So more said, earlier discovery we clinical

pretty a minute, answer to given about was you Pinnacle XX the pipeline, growing to it but want XX, Andy think next it's been say, to -- on customers early already been we continue. that in that in year I launched let as put grow was it's it's on we've sales the customers for comment a the in Exchange, I'll exact would numbers And focused continue our budgets, this then product. the The over talk have the their expect Pinnacle to nicely. time. growth that their next do But company. also has product percentage To question people launch. growing for biologics particular before versus expectations? has XX year. Andy, we Pinnacle successful growing simulator of don't Data I biologics, paying product recently So on already your and it been reached the We we of the bought and obviously year nicely.

Andy Schemick

pleased beginning of our line XX year. say the the with guidance, Pinnacle to tracking from in is,

year-to-date did the quarter, XX% we So about the launch some SaaS $XX million uptake on in product million $X we've second and new seen there.

So we're feeling that's expectations. that to our well performing relative

Dave Windley

Excellent. it I’ll leave Thank you. there.

William Feehery

Dave. you, Thank

Operator

Instructions] comes line SVB of next [Operator the you Thank Our from Zhang question from Joy Securities.

Joy Zhang

question. to of one eventually regulatory prepared become strategy. your of taking for want revisit Thanks in or business well? a about their parts bigger other in Is that headwind the comments I that only customers, a Chinese remarks for the headwind reassessing the could as business, your

Andy Schemick

a some in new about we're entry I submissions, And could companies continuing lack us the materializing discussions year last with export start biosimulation to the opportunity Bill. resources believe some, the diversity regulatory front. see use FDA concerns this work of clients. started the submissions regards that business. pipeline, could global year. some to with points some That's based but specifically And call feedback we on helping in the Chinese for to, on headwind population our biosimulation not that We to current addressing create add the of of works in in the with

Joy Zhang

bit. an molecule you of the large helpful. I do wanted innovation? on I to in what a on get for this of future know possible But on what just little some areas is to modeling, now? Maybe are And QSP touched Got update question it. the side, That's, a terms

William Feehery

the of with. On interact a system QSP it's on models of we're to whatever building action targeted drug to do

Kettering in we've like therapy. so let recently modeling And the work that's Sloan general. Vaccine is launched been on cell therapies. specifically clients designed -- build from we've QSP gene announced CAR-T the companies a for immune that And some our done in the has that which for of some We us work of in things pandemic. our and on up and by models used system that that lot vaccines we've bringing investing addition, our collaboration will in our been the during was Memorial to who the -- led been And to example of Simulator

flavor So little helps. a it bit what I doing of we're that's a there, hope for

Joy Zhang

Yeah. super Thank No. That’s helpful. you.

William Feehery

Thank you.

Operator

Thank you.

next comes question Garro of line Jeff from Our the from Sandler. Piper

Jeff Garro

Thanks there just on causing for capacity headwinds are to was taking I services agencies being clients? from whether afternoon. with just various more hoping regulatory could by the Hi. And you on caused want outlook. delays comment or any reasons questions. Good my the regulatory themselves follow-up

William Feehery

seeing not No, that we're specifically issue is this agencies. as believe an of we because regulatory

with we're what a factors several the case. combination regulatory seeing business, -- in I our is Our of think

where one with year. -- developing is, to bit the paused talked what we a business were we've and this around we to and some a the had So U.S. FDA about clients came they Chinese that's as that's

the of some has in Second slowed down and really believe during the about been pandemic have which past that a the conserve we Tier which talk X cash completing that there's to so slowing. been effect, and slowdown studies. -- in a we third then there's And isn't just Tier did X quarters one clients is

the And XXX% stretch -- of of just it a a out slowdown has we've backlog historically. there's lock. made in than a which so database much kind generally a begin our until lot completion seen And of of work longer sort study those doesn't had lot

Jeff Garro

whether of last some number have helpful typical the a I as that changed Got gets the little cons over length kind of the the around steps it. project then bookings your months? sales up net we and is the of a But cycle any strong into various six backlog your and the of the marked win. new ask quarter. and a funding saw their wanted bit long and business follow sales pros environment, from the elements before discuss more given to hoping of could to CROs the and a was on in discussion cycle there about you Very maybe

William Feehery

of get our mean of we couple software in for quarters more I for cycle -- radically since sales regulatory. on different of that There's which most biosimulation we first is tends differences really sales in Yeah. disproportionately company. example sure not the versus I'm to to we've business a some it's renewals happened the lot in that tend in tend to a quarter, get disclosed past. which the run

to we relative completely my think are impression what to is study CROs what study. we're don't than is very looks our seeing is I side. think in thing business there some what are bookings will regulatory finished that, in is is people is talking CRO seeing lock, like of we're get that a biosimulation about I are some I difference CROs, strong until throughout radically and think get not what of whereas one that the regulatory tends say, seeing But there's from don't seeing. -- on though our we paid with what the in the bookings dissimilar I've seen too entire the general, market. reporting started we database different The the in I the

software happening in with that and X and biosimulation. be and effects interest happening X to just for services in in pretty both seeing doesn't Chinese X and seem customer the customers Tier Tier are everybody bookings and and across the biosimulation. We're good regulatory else board So Tier

Andy Schemick

bookings look as growth terms we similar growth just the the ex-Pinnacle would the QX in side at when on saw X% and on biosim well. it side, and of add I trend XX, I on Yes, a mix specifically XX% TTM basis regulatory in

Jeff Garro

end there. the last very Great. with is the specifically one line terms growing activity year-to-date? pipeline in you've but positive of printed the the client overall that in follow-up ask growth sounds roughly Then It market, bookings

Andy Schemick

healthy pipeline side. on the The -- particularly, around remains biosim

million major factors one the are in have the year lack which which range. a a in project, or year price side typically several we guidance just is regulatory submission one of the On the two dollar of incorporated

did that year -- say scheduled last would bookings occurred the that expect I large that healthy were pipeline half continuation remains said, that being in So with last of have biosim this of we booked book year deals performance. and we two year. that But to the first strong

do a in pretty typically our I bookings which consistent back quarter. to up step-down QX the anticipate with return historical and largest in trends QX then So a is

Jeff Garro

color. Great. Helpful Thanks again.

Operator

you. Thank [Operator Thank you. Instructions]

Our comes from the from of Jefferies. question line Windley Dave next

Dave Windley

questions in I'd back on come in queue. the margin. Many

adjusted lower margin margin lower guess at coming I'm of partly a your you -- in EBITDA in Your was that XQ. revenue going function expected. least than to that's the

as you some could quarter In for adjusted your as sized color that add to on business, there the happen a to some impacts explain your you perhaps margin. now or So or the are outlook EBITDA view to services cost structure result? is changes what regulatory that business appropriately in the cost that need

William Feehery

first part? Andy take want All to the you do right,

Andy Schemick

slower the will that are services. biggest backlog, there. be speaking, of revenue given the on we're hiring on size. There do a than projections have still of regulatory. business for look some I We're opportunity and say growth that opportunities generally a and the at rate the year-over-year basically looking contribution half those pretty The the basis product way is are contribution But the I flat software year. margins but the back the from is of the rate for historically would some -- There healthy is kind at the the hiring. of They opportunities

by margin elsewhere. was did we but dip regulatory offset in see a So higher

It third, and of margin mix going costs impacted software. a about is We stronger it's really change. up. recruiting revenues the build-out the benefit It's office the lower corporate. commercial SOX third, HR is and third. a the the So, And It's by from and to team. of had talent audit no at impact a some the and build-out investments

Dave Windley

look adjusted like kind at we it not year you've Should posted to up, than full even And second on a little -- the just given more looks EBITDA there of you expect cadence like should little bit fourth is comments what third back half? jumps expect a quarter more and your with us Maybe through midpoint, then Okay. little a -- bit it bit third margin revenue in lower is it help so second half, or quarter year-to-date? you're quarter the could your please? lower much we but

Andy Schemick

Yes.

the little you're offline, quite So, can XX.X% looking it's think sure what QX. QX We even more about I but through half. I've and bit talk not for back I'm at. got a

Dave Windley

Got it, okay.

Andy Schemick

just Could little towards yes. be a QX,

Dave Windley

Okay. you. That’s very helpful. Thank

Operator

back closing to I would you. to Feehery remarks. conference for over now Thank William like the turn

William Feehery

say I'd we've All quarter right. well I that have biosimulation seen see very Well, quarter. -- what thank the summarize, to you for we is, for healthy business would joining. in the a everybody

bookings strong. products, bullish we're making very our as We're evidenced Our are and that. by investments new about

has as I in and simulation and part excited -- anticipated factors a can. have an future. it still the think generates business. talked We're the a grown we is grow market by than of small important supportive cash that -- of can we're business regulatory a it had we're But very Regulatory But significant has that a very amount Our It about. business the we It we of big view overall for flow business. a a we small for nice us, less margin. for

to of things a very talking much. good We to you quarter. next we you company, for look and coming forward the all lot have Thank

Operator

Thank you. conference today's concludes Thank you for participating. this like I call. would -- now

disconnect. now may You

Certara (CERT) 9 Aug 222022 Q2 Earnings call transcript