- Earnings call transcript Q3 2022

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Operator

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

David Deuchler

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

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

statements you Before our differ some call for to during Slide management we are recent materials measures or GAAP website. additional accompanying you available can make find available I'd financial forward-looking on management begin, non-GAAP to and to comparable materially on the may the Please the in these the In or statements. expressed may the this questions, remind remarks company's non-GAAP include mention measures Reconciliations in results that information site. statements, to Investor those forward-looking implied which of measures. that directly in financial the X refer release most will like responses actual earnings company's from Relations

will whether I required by that, new of because only information, statements, the financial contains Slide information any additional And conference future obligation, please The the and to broadcast call forward-looking with William. as November the of except For or company Certara information, or is materials. law, in XX disclaims any live to to revise refer call accurate update projections events today, otherwise. over as or XXXX. time-sensitive X, turn

William Feehery

with quarter questions. I Thank plan. Certara's then everyone. afternoon, and joining our third prepared and with David. start Certara consistent In quarter, growth the remarks, Andrew call. take delivered in and bookings third Thank you, we'll will earnings for revenue Good you

robust, with business first software reported foreign with high biosimulation remains ongoing see for the and in exchange. Demand biosimulation momentum half growth in continue to revenue productivity the services, in services the from software where of teens quarter nice services core increased and compared particular despite strength Our with headwinds third year.

the cell and to we improve expanded biologics, a biosimulation look working $XX.X currency on year-over-year small are quarter customers molecules. million, gene on basis the of XX% constant XX% reported reported and of basis. across therapy companies third use their on As development and and of efficiency encouraged plans, We drug by a revenue growing effectiveness

and foreign but the growth global As countries you Certara currency customers global of be different know, This business employees impacted. during our in world. periods volatility, reported operates advantages, many has around a many may revenue with located footprint figures

However, results Reported expenses. on to rate. growing well a XX. growth is with year-over-year currency Simcyp line in and the effect constant as software foreign were due the mid-teens Pinnacle and our income less businesses of with and currency aggregate constant renewal in a on our basis core biosimulation XX% $XX.X software our by Phoenix from expectations These contribution as driven our currency currency mix XX% revenue much net revenue was EBITDA our million, and

with We expanding expansion to of are needs the our of of meet role offerings. researchers innovation committed the to biosimulation software and

discovery we and early As in prediction applies development. dose new and on Simulator June. our first-in-human prior and we optimization The earlier Discovery launched lead our Simcyp biosimulation discussed simulator advances in formulation call, development

this about product, excited we this we've launch, encouraged interest its are While been still early in and in XXXX. prospects with the days for

of and organization addition, and compliance but XX differentiators In in exchange Pinnacle leverages customers the the leverage data data more which Pinnacle key new broadly we to allows functionality for management. introduced XX, technology module, their

a investment seen XX product interest the years of products to introduction cadence accelerated ago. year, Pinnacle module new exchange data started a the this of has Discovery, but of The lot from couple build Simcyp with these As customers.

We for and and are Medical to market support Pinnacle Pharmaceuticals enters and PMDA from or advance of consecutive drug October, software simulator, PMDA, software the XX continue Certara Simcyp technology of Certara Japan. to and as Agency, adoption software positive biosimulation. feedback now the Phoenix in Japanese new In development regulators licenses continues enterprise Certara renewed the Devices customers. the by biosimulation The the biosimulation Certara's of using year into encouraged ninth and receive to growing reception software. novel products its continues to grow demand for

services. the constant of services, robust year Turning quarter for the last continues on technology-driven XX%, XXXX. of revenue X% and we a delivered biosimulation balance show of growth to Within services $XX.X revenue above million, expect and into continued year. with basis We third to technology-driven currency the representing compared growth strength

evaluate trends, with As and pleased trajectory the the biosimulation revenue of business. we we bookings services biosimulation are

the On due proposition. year Regulatory business results quarter last reported the the in delays profitability a was large which quarter, offers quarter the in on performance for Certara, business levels out solid due services comparison a regulatory drag generates difficult performs is late-stage we line completions, our discussed in of and submission in healthy compounded project second which side a last a to services to in services differentiated versus clinical call. of side, by a same with QX value laid XXXX. expectations the regulatory Certara trial unforeseen earnings The

encouraged management in am towards and I changes and the making some performance. our made go-to-market the progress by is strategy, improving have We team

for I has of for company Co-Head am Partners as Arsenal investment their Certara last remain the involve report Healthcare has the Partner McLean we decade. to the purchasing Steve Andrew increasing has third will discuss a approval will Investment be as a in who strong on without when and Arsenal and turn helping company. and the State, on industry. quarter in with been operating in to and transaction has Certara appreciation now an position financial David by shares mature their leader the biosimulation results impressive from for EQT's health morning, lockup the been closes, X we'll and to has agreed pleased the remaining stake years instrumental X-year our more in I at the over transaction Board, Schemick, that in this detail. Certara's in joined announced Board substantially in company. Arsenal care Steve be of partner Finally, experience our will by practice this global over to CFO, Arsenal,

Andrew Schemick

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

growth Pinnacle Excluding third X%. was constant XX, revenue quarter currency

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

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

revenue quarter, and currency growth driven software $X.X on our Excluding was contribution, in Pinnacle Phoenix. software the excluding Simcyp million a Pinnacle constant year-over-year biosimulation by growth XX, in basis. The XX% was XX

of subscription some As a last software in recognized Pinnacle total and up XX year. revenues newer result our performance QX was XX% of products, revenue, of over subscription software the strong XX% from of the time

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

and bookings XX% bookings quarterly XQ year-over-year year-over-year to XX-month $XXX.X software the excluding Trailing and Pinnacle software software headwinds. bookings due So were million, was year-over-year growth, Pinnacle excluding timing XX, up in renewals up FX XX. of The XX%. decreased X% decrease

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

were as million, $XXX.X to prior As third and bookings on year. the services prior a which strong services bookings was due X% XX%, drag XX% call, discussed in prior our services was difficult above which XX-month growth rate, Trailing compared increased while last were comparison and year. growth a the overall period. we to the services the regulatory with from biosimulation quarter remained expected revenue Technology-driven million, on primarily increased year $XX.X

services regulatory was growth down quarter expected, year-to-date. in booking As digits the and single

the licenses. software quarter of quarter XXXX. components $X.X were in of million primarily $XX.X of $XX.X million in in the quarter expenses a was increase million as $X.X increase stock-based the intangible increase X revenue this $X. decrease transaction costs, to stock-based $X.X to third of the a million Pinnacle costs to compared was the in decrease employee-related headcount in the year decrease rate from XXXX impacted XXXX. decrease a software XXXX, X intangible tax to bookings for benefit XXXX Interest the primarily compensation, by million required Depreciation million in million earnings year to customer and follows: currency of was of due sales to compared expense quarter expenses to the of of for the third $X.X the outside assets of such compared expense due a relating employee-related amortization in $X.X business cycles. the quarter million travel in XX% for tax EBITDA quarter in a to due gains due for costs in increase third to increasing XXXX, due by a million relating of law, was quarter and to to compared compared Income of spend. last quarter to fluctuation the $XX.X $X.X income $X.X were $X.X in in million to million, a of Continuing increase X are EBITDA third company million a due This marketing million $XX.X furniture million a increase $XX.X the for a quarter to Adjusted XXXX asset Portuguese compared of operating in XXXX. the primarily the the R&D decrease per expenses XXXX, to to of margin million as and as XXXX, expenses $XX. $X.X stock-based $X.X increase to to M&A of of expense representing travel result XXXX. million tax Intangible operating to decrease million tax XXXX. by P&L. $X.X million revenues XX.X% equipment, $XX.X of quarter primarily for in We The to was XX. elongated $X.X million and for in the million XXXX. amortization to longer $X. amortization, XXXX was offset quarter expansion $X.X is of effective adjusted from Reported as a R&D and third million of increase Net amortization depreciation net R&D and third to quarter $XX.X cost prior and XXXX cost acquired costs, which are the as the million third of in third asset of was the loss term expense. $X third and other quarter of in $X.X equipment. in conversion quarter income million $X.X loss our Diluted due compared in was were in growth. the third expense million $X. the million was million million revenue and expenses to loan. million investments. $X.X the million services down sales third increase $X remeasuring of record for due to was in million million from X due a of million, third related expenses an $X. for XX% Miscellaneous additional third the expenses in marketing XXXX employee for acquisitions third $XX higher compared rates. from The The a a $X.X of force, third $X.X third Total due foreign for third forecasting Total $X.X exchange in interest $X.X for compared to million million compensation, was R&D primarily XXXX. $X.X $X.XX change quarter share a compared G&A to compared of expense $X.XX were compensation. quarter million offset million quarter X was

services quarter. the quarter to our lower higher third half the the a the half first that contributed first on calls, all in on timing, to some resulted forward productive positive strong adjusted FX a discussed pulled margins margin and expected and As highly to and we margin previous the of expenses impact fluctuations EBITDA The the in in expense from EBITDA adjusted margin. side year

million expect per margin XXXX. the adjusted year of was We relatively in share the to Adjusted compared net income adjusted $X.XX Reported margin third X of earnings quarter $X.XX million third $XX. adjusted of the EBITDA be for the third to XXXX was guidance. of XXXX to line fourth quarter the EBITDA for full quarter XXXX. compared quarter the with diluted for third for quarter $XX.X

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

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

guidance. the to Turning

Feehery, XX CEO, tax XX%. a in and We range in a towards million, back quarter. are high shares share. rate I customer set the XX% range the of the million, range gives million cash me EPS results adjusted $XXX and range the $XXX quarter the call the to strong our tax will XX% goals in and of of $XXX in year to to $XXX the to remarks. guidance diluted rate achieving Fully closing turn reiterating to range $X.XX the visibility $XXX of to forth million, second million the of range EBITDA in of now in XX% third Revenue XXXX confidence in our $XXX million over adjusted William engagement $X. to during for per the GAAP full

William Feehery

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

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

Operator

first from Jefferies. Dave Instructions] question comes [Operator Our Windley with

open. is line Your

David Windley

you could strong. quarter update sounds market what services between wondered breakdown but an looks a and heard and haven't like access revenue, had on mix the biosim really if biosim, could reg talk to us you and help give I if understand while, to really that guys I nice in you today? continues it You market access, in like be revenue mix the a about us

Andrew Schemick

take the works. can around Still around, I quarter, sorry, Bill. in was that, specifically XX%. third That it

as And reg the about be about when for talk XX% we one fourth that, to group. it the expect we quarter. run We market access

in included number. that that's So

David Windley

and breakout you and after -- the first this then you quarters back quarters fourth a talk three in -- that what quarter I And the you from what wondered dropped row, on is bookings some But about quarter. wondered, shortfall the couple that's timing in comment? bridge quarter if kind about $XXX year 'XX of really on renewals software XXX and, quarter for were the quarters the Where down front, could a if flat, of third could software of of came below the continued of first you talked little the bookings had from delta beyond in XXX XX% then million to above a the there? the I of front. down in again this nice three kind kind

Andrew Schemick

QX a bookings had -- XXXX, our gave numbers. QX push from recall, you into from which customers to and we last We largest boost if the of the QX had kind year, two XXXX

a would of million July September As third the it XX% of third that the in factor. the has October. we $XX saw were continuation pipeline towards of since seasonality and in slow, quarter. quarter, end an bookings moved into north kind into put and I grown the the August of uplift We And more

to August. I in attribute would some and seasonality factor July So most of the

Operator

comes Bank next Ryskin from Michael question Our of America. with

open. is line Your

Wolf Chanoff

Hi, it's for Mike. Wolf on

services And you So discussed follow-ups. I last began could are what was seeing from a the wondering, commentary headwinds Or more the few since still a you've if on regulatory you we've been provide little bit market have to in quarter? seeing stabilize? I volatility as

William Feehery

Bill. one. Yes. take is I'll this Thanks. This

at quarter. of in end So say has the market what the told been second -- I would the in pretty everybody line -- the we that with much

So we to out we executed the laid plan then. according

a We pipeline. in have our of uptick seen an bit

some some of you that So made operations as of changes other business. we've know, management the in in

So grow the will that out, believe I we've to -- we we'll as we we and achieve cautiously laid into we're optimistic. continue XXXX. plan then move

Wolf Chanoff

macroeconomic a And sign just given to if then from level? Are talk at even the recent on higher pharma’s like field others looked that take what longer elect you to renewals, this contract or customer customer are base? slightly different uncertainty. trends some not, you a among we've starting note, in renewal not heard to the seeing broader have can your larger And

Andrew Schemick

start, did line with I for Bill. we our perspective, metrics If rate, have solid The net -- a was was the expectations. can what retention a XX% so from rate expect which quarter. in third we renewal also would

there. no So real change

renewals, similar terms did In trends additions. new of logo we in terms of see

actually year. in XXX this we had last And logos we third -- quarter were XXX about we averaged new per quarter year. So about the

So the saw split activity X seeing both kind on segments We Top of there XX a healthy still and front, in on we're the growth SMID. that there. pretty between Tier

in differentiation on base, we renewals. seen no haven't the any really So impact client and

Operator

a Smock from William with Blair. Max We question have

open. line Your is

Max Smock

earlier around year We're the end quarters. Just on wanted bookings coming here after of few bases one to of follow the up to topping the here. questions a nice off

where kind the achievable around as you growth what in what is have your level as So based environment if you XXXX of in well wondering, backlog? on currently with we're any of macro you have think comments at

Andrew Schemick

the the on the by reg up third we've second driven Based next and book-to-bill year on we're and the the in of quarter in the pick remains of past. seen a -- year. grown, of kind the year-to-date which of expecting in the based towards kind to growth pipeline, of north biosim the side, that X.X, to pretty delivered October We end quarter, quarter it -- has for we've more on is the uptick the healthy. bookings results looking supportive It's of fourth with backlog of have teens kind demand

William Feehery

a our basis. report we bookings Just on XX-month

within indicative growth of some the X.X been -- we've should talking for about that pretty the time. growth the of mid-teens in be So range

Max Smock

more for Maybe just one here. me

but Tier already, follow of So some around on the that's to many and to your that And why mean just really that in X cash. right? but we in keeping have a Because Tier would programs, it companies bit you wanted these Tier programs quarter on if I'm clients would programs conserve them from about aren't Tier follow, make don't biotechs, X I be why -- your regulatory So fair pipeline? cancelling need business, I'm not comments is talked forward. to they assume the the are case, have programs also the these they if sure X some sure I not last guess cash, I slowed with I quite dynamic, that simply moving X down and conserve to of they understanding know to I are it this limbo. up late-stage be

delays you behind we and here? what's maybe continue So as think the to opposed help understand as lost or can delayed whether being these to bookings should not these just about me rationale

William Feehery

going there So on. things of couple a are

Tier than Tier say. completion, there's they're trial is X clinical trial X. cash may have -- in Tier hard have X in more or a their a So That been they're priority to they one been hit to because operations, appears and which conserving lower because delay have

a interesting has it And were about an to and quarter and reasons profile from thing up, for for not much some was we time. in talked last growth of The U.S. outside other number and customers dried that pretty we seeing that specifically China. we're return the anticipating expecting

Operator

with Our Luke next Barclays. question Sergott comes from

Your line is open.

Luke Sergott

follow-up Just quick one. that on real

rate year about is going then but and hit you piece an -- confident if accelerator what that going you're So the to when what to out China upside? that, as are to historical coming to mid-teens going talk that offset growth you was trying you just or envisioning guys is I'm viewed that to -- have just be that that. guys back could figure all next

William Feehery

growth mid-teens that expecting company. the for We're

of balanced biosimulation now quite higher our is a by the growing bookings and Our which then actually growth than company, is regulatory mid-teens. And that's than slower just is which business, that. strong around quarter

pretty to you by we don't trailing strong around the which the supported on Andy. to I if that, we biosimulation and know side. the net-net, have generally, add So to just expect XX-month It's And seeing anything come reported. mid-teens. bookings, software demand we're

Andrew Schemick

I coming in from China of guidance mean would adjusted terms of No. regulatory quarter, come last that upside. be off would our anything of out

that we're the point performance launched, of in [Audio products based we're positive our which we've The and kind of of of is services, which are mostly the on building Pinnacle biosimulation demand level strength XX, the we're for pleased client of So sign. the year for engagement, new Gap] the but stage the seeing pipelines of with are in evaluation things increased the view terms next trends a on. growing,

provide for us. that So a could lift

Luke Sergott

And on talk talk there? Is you about down? implied for the the Can that of then EBITDA can some a That dynamics going about XQ step seasonality? of margin? just guide more the you

Andrew Schemick

bookings the We growth on side XX% Yes. kind biosim of QX, had in QX.

bookings, that third of in level quarter. productive had quarter extremely with we the So an

pulling revenue consultant accelerated Our through the X% high. second average kind and of We in that was started the versus was bookings per about first utilization up growth. quarter

So that the EBITDA down to falls margin.

and in year for of had kind side some year G&A and the spending the side. sales also of on the the the the We marketing half back repeat on early won't that

some conservatism around last kind fourth saw what we the of in fourth and more a So given holidays in quarter the seasonality of it's the quarter, of reflection year.

Operator

Vruwink from with Baird. will question come next our And Joe

line is Your open.

Joe Vruwink

just again. focus regulatory services in on wanted to I

are to seem database maybe maybe leads to derivative some until that is Is the still lock of Some this the quarter has and across that things. then fact you the had a in-line maybe I surprise that getting challenges, to you're for an brought and of it So these imagine earlier whole been from The quarter but Certara in. events in a everything seem lengthens not it's stabilizing? worse the year? the up these CROs planned indicate that chain commentary industry of this here staffing bit have and facing the the second challenges

Andrew Schemick

That was guidance of second the intention our the so... quarter adjustment in

William Feehery

Yes, we're I in to we guidance gave say accordance the we're the building changes, We've second would made and few focused performing on adjustment a quarter. in up our pipeline.

in So There's XXXX have through stronger in in we of CROs disruption the into that move well a of But would position. some say we've been to a in good in this. pretty reported the terms fed of where lot as I probably staffing, some in of And we say improvement business, modest were. pipeline we're from we're shape. seeing some terms of the seeing I'd our

Joe Vruwink

the just good then quarterly revenue improvement. on question, of And second has the been sequential showing Pinnacle build performance XX. The

product obviously changed and and changed flips anything organic forward, of to about performance? some commentary? about about the inorganic where business you one opportunities, profile, business contributing as on Just new of now the think initial relative managing that looking kind that talked as growth has becomes Has anything earlier,

William Feehery

been the has been in -- and them above couple your to customer wider to would expectations I I that we've a base. there's the when is year Certara's software answer had biggest we say one that number. invested well, would heavily directly, XX question So we've the performing a had introducing right? changes Pinnacle say of sales we company at there's a changes, or acquired two ago.

we've one completed customers, it traction. It's to The has into received expecting second what go good It third which teams, well that the X some Data grow to we good in is future. team interesting to, we're the XXXX. looking between Exchange. already also gotten since the we've combined thing Pinnacle which we're I new new launched a Pinnacle guess, referred at for we're product our significant is you as XX software a product integrated some team, and some our piece the both ideas XX called for, XX, And pipeline future and we've Pinnacle has been new into is

say good. bought the we was product So I'd

helped. that I think it's got starting that's business stage, we pipeline that we're take see great and brought and it then a And shape of bigger products, a right a now. to to healthy

Operator

a we Gora have Berenberg. question Goparaju from from And

Your line is open.

Unidentified Analyst

on customers mentioned, me. the I solutions by cell was split between used of gene Just you modalities guys color for different for you therapy. for small drug biologics and if your wondering molecule example, any like one versus had a

would Just any basically, insight great. trends, modality if on possible, be

William Feehery

Andy, take that or? to you Sure. do want one

Andrew Schemick

we've in the engagement biosim industry the Well, base, small those newer speaking, coming targeting side, a mirrors, the we're modality a on seeing that's put in Yes. have of place around is What off and progress split seen, where modalities. what some some the we budgets our newer base. in of services generally kind the platforms customer and we're R&D we seeing our since such QSP in broad-based modalities some growth of of

Operator

And our Suisse. next from Li Credit Lu question from comes

open. is line Your

Lu Li

expense. Just a quick interest one on the

do to how about you the level. the going then little strategy margin And 'XX? rising do impact that? Can interest how set that is on So you the bit in see talk rate a on on you up QX

Andrew Schemick

Sure.

I little X.X% have plus to outstanding subject think the we I an bit a that is the of as heard But that spread. is balance of interest term today XX% rate interest it stands loan XXX soft. swap terms in expense,

starting October, get the quarter credit end. the So then of the at starting the back we that third on we're of end ceiling hit our and to on kind

XXXX. we So we're in protected well until pretty think place August that swaps in

Lu Li

down, given strategy. you your this in one at like the pipeline any more interest quick of on update And the what's thinking about M&A that, on Can just targets? And you just then point? the do a see valuation some like coming

William Feehery

markets sort elevated did private the a this would markets see relative valuations Throughout indicate. where to bit the public we year, of of in

so And some those we've little of more been a valuations. conservative terms in of

seeing As forward, be we some signs go that normalizing. we might are

said a I opportunities. and companies list healthy lots good a position. have got we're track as We've of interesting interesting got keep And before, that We've market. We we of talk organic healthy of in a to.

So position for any make we’ll a is time in to be we to the do right don't feel good it these obligations things topic. M&A one that but the

Operator

Thank like you. queue. call to back William Feehery the the in for turn no other any questions Mr. showing And I to closing remarks. am I'd

William Feehery

Yes. Thanks very much.

to I'd continued averages, our just in use revenue historical build pleased very biosimulation. with stronger with And around bookings new in organic prioritizing that develop to our we're grew of quarter say demonstrated well relationships Just and the them. continuing our biosimulation. And third really, investments like and We're and and performance software relationships our in closing, strength we're products. above clients existing

some our So reported remain to seen we that, you've maintain adjusted committed improve EBITDA margins. and of and

balance you. out into feeling we strong million to X.X and with very to $XXX Our continue over remains Thank meet July the balance the sheet we EBITDA, meet our in cash XXXX. the ability on we -- grow just about pretty are and debt-to-adjusted of year put move sheet and as expectations that good our for full

Operator

concludes for conference This you Thank participating. call. today's

may You now disconnect.

Certara (CERT) 8 Nov 222022 Q3 Earnings call transcript