Certara, Inc. Q1 FY2026 earnings call

Strategic Context & Market Tailwinds

• New CEO John Resnick (100+ days in role) completed a listening/learning phase and has shifted to executing operational and strategic changes to unlock long-term growth. The company holds a leading position in Model-Informed Drug Development (MIDD), with 2+ decades of scientific expertise, regulatory trust, 2,600 global customers, 160,000+ technology users (including the FDA and Japan's PMDA), and more than 10,000 completed projects.
• New global regulatory guidance (ICH M15, FDA new approach methodologies guidance, FDA real-time clinical trials initiative) creates strong tailwinds for MIDD adoption. Growth in AI-designed molecules in clinical development is expected to increase demand for Certara's core MIDD services, as firms race to advance candidates to approval.

Completed Strategic Actions

• Closed divestiture of the medical/regulatory writing business to Veristat, allowing focus on core competitive strengths, aligning expert services with technology, improving revenue predictability, and unlocking ~150 bps of incremental annual growth starting in 2027.
• Reorganized the company into two distinct growth-focused segments: MID3 (MIDD and Discovery, integrating technology and expert services to create a flywheel for innovation and customer engagement) and ACE (Accelerated Clinical Evidence, focused on reducing data timelines across the full drug development lifecycle). A new unified chief product officer role (currently in active search) will oversee product development across both segments.
• Formalized AI leadership by appointing Dr. Chris Bouton as Chief AI Officer (retaining his CTO role) to accelerate development of the company's next-generation AI-integrated platform. A dedicated AI-native team has been formed, with resources allocated and initial engagement with Lighthouse customers underway.
• Entered new strategic partnerships: a collaboration with NVIDIA to apply accelerated computing/AI to the next-generation platform (shifting computationally intensive biosimulation from sequential to parallel workflows) and a commercial collaboration with integrated CRO/CDMO Alta Sciences to deliver a model-first, resource-efficient approach to early drug development.
• Launched multiple operational efficiency initiatives: deployed focused SWAT teams to drive cultural shifts and process simplification, aligned sales/marketing to the new segment structure, adopted data-driven AI-powered customer targeting, is reviewing and optimizing pricing and service consumption models, updated incentives to encourage cross-functional collaboration, and is rationalizing internal spend to maximize investment efficiency.

Q1 Operational Highlights

• Supported multiple high-profile regulatory approvals, including PBPK modeling data accepted in lieu of clinical endpoint studies for a complex generic tazarotene and 10+ human clinical trials for a leukemia therapy, significantly reducing development time and cost.
• Released multiple software updates, including new D360 functionality for therapeutic peptide design, new Pinnacle 21 tools to accelerate clinical study startup, extended reporting for Phoenix Cloud, and expanded simulation/virtual bioequivalence capabilities for SimSip.
• Certara scientists published nearly 100 peer-reviewed papers in Q1, aligned with new ICH M15 guidance, highlighting MIDD's ability to reduce timelines and costs for pediatric drug development.

For the quarter ended March 31, 2026:

• Software Segment: Revenue of $49.7 million, 7% year-over-year growth, contributing 46.5% of total Q1 revenue. Software bookings reached $48.7 million, up 20% YoY; trailing 12-month (TTM) software bookings hit $192.2 million, up 8% YoY. Recurring and subscription revenue held at 57% of software revenue (consistent with 2025 Q1). The software net retention rate was 106%. Performance met or exceeded plan across all customer tiers, with strength from SimSip, Phoenix, and Maxone.
• Services Segment: Revenue of $57.2 million, 4% year-over-year decline, contributing 53.5% of total Q1 revenue. Services bookings were $66.6 million, down 14% YoY; TTM services bookings reached $286.9 million, up 2% YoY. Performance was mixed, with softness in regulatory services and weaker Tier 1 customer demand for MIDD services following a strong Q4 2025. The recently divested medical/regulatory writing business contributed ~$13 million in Q1 2026 revenue and generated $50 million in full-year 2025 revenue. Following the divestiture, the company expects a long-term 50/50 revenue split between software and services.

• Full-year 2026 reported revenue guidance is set at $395 to $405 million, which includes $18 million in remaining contribution from the divested medical/regulatory writing business. Excluding the divested business in both 2025 and 2026, this guidance represents 0% to 4% full-year revenue growth, consistent with prior expectations from the February 2026 call.
• Revenue growth is expected to be concentrated in the second half of 2026: first half growth will be near the low end of the 0% to 4% range, while second half growth will be at or above the high end of the range.
• Full-year 2026 software revenue growth is expected to be at or above the high end of the 0% to 4% range, with first half growth near the midpoint and second half growth above the high end. Higher visibility and new product launches support this optimistic outlook.
• Full-year 2026 services revenue growth is expected to be near the low end of the 0% to 4% range, with first half growth at or below the low end of the range, improving to the high end in the second half. Improved capital raising conditions for emerging biotech through April 2026 are expected to drive improvement in Tier 2 and Tier 3 customer demand through the year.
• The 2026 adjusted EBITDA margin guidance remains 30% to 32% (including contribution from the divested business), with first half margins modestly below this range and second half margins near the upper end, driven by higher second half revenue growth and improved operating discipline post-divestiture.
• Adjusted diluted EPS guidance for 2026 is 35 to 41 cents per share, with fully diluted weighted average shares outstanding expected to be 157 to 159 million and an expected effective tax rate of ~30%.
• Capital allocation priorities continue to include share repurchases under the existing $100 million program (approximately $82.6 million has been repurchased to date, including $40 million in Q1 2026) and evaluation of targeted tuck-in acquisitions.

• Near-term operational churn from the recent reorganization, divestiture, and go-to-market alignment changes may create short-term performance volatility as the company implements new processes.
• Services revenue has experienced inconsistent quarterly performance historically, with uneven results between software and services from quarter to quarter, and soft demand from large Tier 1 customers in Q1 2026 after a strong Q4 2025.
• AI investment carries execution risk: the company is targeting disciplined, portfolio-based investment with expected returns starting in 2027, but there is no guarantee that investments in the next-generation AI platform will deliver expected revenue growth or returns.
• The next-generation AI platform and product expansion into new use cases (such as large molecule/biologic applications) is in early stages, with commercial traction and monetization not expected to meaningfully contribute to results until 2027 or later, creating uncertainty around near-term upside.

Q: How does Certara plan to monetize its new next-generation AI platform, and what contribution should be expected in 2026? / A: The platform unifies the company's decades of unique scientific and regulatory know-how across existing products to answer cross-lifecycle drug development questions, with a unique position complementing general-purpose AI models currently on the market. The company is currently engaging with Lighthouse customers in active discussions, so no meaningful contribution to 2026 results should be expected. More guidance on monetization will be provided by the end of 2026, with meaningful contribution expected in 2027 and beyond.

Q: What is causing the historical quarterly inconsistency between software and services performance, and what steps is the company taking to improve stability? / A: Management acknowledges the inconsistent quarterly pattern, and the divestiture of the lumpy, non-core regulatory/medical writing business will immediately improve revenue predictability. Reorganizing core MIDD services and software into the integrated MID3 segment creates a flywheel effect between technology and expert services that should drive more stable performance. Aligning sales teams directly to the new segments will also shorten feedback loops and improve accountability, creating more consistent growth over time.

Q: How is the company balancing AI investment needs with return requirements, and what is the approach to capital allocation for AI? / A: The company uses a disciplined portfolio approach, requiring formal business cases that outline expected revenue timelines for each AI investment, with most 2026 AI investments expected to start delivering returns in 2027. AI investments build on top of an already existing unique foundation of regulatory know-how, proprietary data, and embedded customer workflow, so investments do not need to be wasted building core capability from scratch. The company also partners with existing AI and technology providers (like NVIDIA) to avoid unnecessary redundant build, and pursues stepwise deployment to ensure expected returns.

Q: Could large pharmaceutical companies build internal MIDD and AI solutions that compete directly with Certara's offerings? / A: Most large pharma internal AI investment today is focused on early discovery, which generates more new drug candidates that increase demand for Certara's MIDD services, creating a net positive tailwind. Building a competing MIDD capability requires decades of regulatory trust, auditable/validated science, and unique proprietary data that would be hugely inefficient to replicate internally. For example, EMA qualification of Certara's CIMSIP required two years of cross-agency review and 25 years of historical data, which cannot be replicated quickly. Certara aims to partner with large pharma to make its capabilities broadly available internally, rather than compete as an alternative.