Certara (CERT) Stephens Annual Investment Conference summary

Demand environment and customer trends

• Tier 3 biotech customers showed strong double-digit growth in biosimulation services, offsetting some weakness from Tier 1 large pharma clients experiencing delays and slower decision-making, especially in regulatory and biosim services.

• Weakness in Tier 1 persisted into Q4, but close rates improved in late November.

• Q4 is expected to be strong, with sequential booking increases, though seasonality may be less pronounced due to Tier 1 slowness.

Software vs. services performance

• Software revenues remained stable with high renewal rates and less volatility, while services bookings were more volatile and sensitive to market sentiment.

• Services revenue conversion lags bookings by a couple of quarters, with market conditions driving volatility.

• The sales pipeline is strong, and backlog conversion to revenue has been a bright spot, even as pipeline-to-bookings conversion is under watch.

Regulatory and market environment

• Regulatory uncertainty at the FDA led to fewer drug approvals and slowness, impacting regulatory and biosim services.

• FDA's directive to move away from animal testing (NAMs) provided a tailwind, benefiting modeling and simulation offerings.

• Further FDA guidance on NAMs is anticipated to drive higher growth, especially for Simcyp and QSP businesses.