Certara, Inc.

Good day and thank you for standing by. Welcome to the Certara second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Deichler, Head of Investor Relations. Go ahead.

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Surtara, we have William Fury, Chief Executive Officer, John Gallagher, Chief Financial Officer. Earlier today, Surtara released financial results for the quarter ended June 30th, 2024. Copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements, and actual results may differ materially from those expressed or implied in the forward-looking statements. Please refer to slide two in the accompanying materials for additional information, which you can find on the company's investor relations website. In their remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available on the recent earnings press release available on the company's website. Please refer to the reconciliation tables and the company materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 6, 2024. Sertar disclaims any obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to William.

Thank you, David, and good afternoon, everyone. Thank you for joining Sotar's second quarter earnings call. John and I will begin with repair remarks, and then we will take your questions. Sotar's second quarter performance reflects continued strength in software amid a more challenging environment in services. We have found that the pace of recovery in the market demand has been relatively mixed. There are positive signs among some biotechs, especially those in the clinical stage, but we see continued caution in the spending patterns of some Tier 1 clients. This has affected our business segments in different ways. Our software business is growing with new products, new seats, and new clients as customers see the potential for our products to reduce costs and improve development outcomes. However, our services business is more dependent upon the overall progress of projects in the global development pipeline where there has been reduced spending across the industry and which has impacted our near-term commercial opportunities. That said, our conversations with customers indicate high interest in biosimulation over the long term, and specifically in Sertar's software and services. Second quarter, total revenue grew 3% to $93.3 million, which was slightly below our internal expectations. Underlying this was 13% growth in our software segment and negative 3% growth in our services. During the quarter, Sartara made efforts to optimize the allocation of resources across the business, including cost reduction actions to better position ourselves for the balance of 2024 and beyond. As we look to the future, we were encouraged to see our total bookings in the second quarter were $98.9 million, which grew 15% year over year. Throughout the quarter, the pace of commercial activity in our services business progressed towards the lower end of our expectations, with Tier 3 customers outperforming and Tier 1 customers underperforming. We have not yet seen an inflection point at the market level in services demand, but we have seen some green shoots in the Tier 3 customer base that are encouraged by that customer group heading into the second half of the year. We believe that our Tier 1 customers have continued to evaluate spending priorities and pipeline development initiatives throughout the first half of the year. This has resulted in slower spending and elongated decision-making, impacting our services businesses. We are encouraged by our 14% growth in services bookings for the second quarter. As we continued our continued strength in software, re-emerging strength in biotech customers, and the normal seasonality of our business, we continue to have confidence in our full-year outlook, which we are reiterating today. The environment we have seen year-to-date falls within the range of outcomes we anticipated when we initiated 2024 guidance earlier this year. As we assess the remainder of the year, we believe disciplined commercial strategy, new product releases, and a stable end market keeps the revenue guidance range achievable, with the upper end of the guidance range possible with an improving end market outlook. But we are tracking to the lower half of the guidance range, of the revenue guidance range, given what we've seen during Q2 with our tier one services customers. We will continue to focus on commercial execution as we progress through the second half of the year. Next, let's touch on some recent highlights at Certara. In the rapidly changing biopharma landscape, we're engaging with key players across the sector. During our inaugural client summit called Certainty, We brought together biosimulation experts to discuss our offerings in an interactive environment. Over 250 clients joined various tracks tailored to specific applications, networking, and engaging with the Sitara team. This May event included hands-on workshops for SimSip, Phoenix, and Pinnacle 21, plus a preview of the co-author AI regulatory writing software. The summit proved to be an excellent platform for solidifying customer relationships, and promoting model-informed drug development. We have also continued to focus on investments that support the long-term adoption of biosimulation. Last month, we announced an agreement to acquire ChemAxon, a leading provider of cheminformatics software used in the discovery phase of drug development. This acquisition is expected to close in the fourth quarter, subject to customary closing conditions. Used by 18 of the top 20 pharma companies, ChemAxon's tools span the design, make, test, and analyze framework, which is used to make lead optimization and pipeline development prioritization decisions. By integrating these tools with CITAR's biosimulation products and artificial intelligence technology, we can enhance the use of model-informed drug development in the discovery and lead optimization phases. ChemAxon is expected to generate 2024 software revenues of over $20 million with their team of over 200 employees, including more than 75 software developers. Their 2024 adjusted EBITDA margin is below Sertara's corporate average, but we have a roadmap to achieve margins approaching Sertara's corporate average adjusted EBITDA margin by the end of 2025. In the second quarter, We continue to make progress in developing new software products and product features and integrating AI across our portfolio. In early June, we released the 23rd version of CIMSIP, which included new features such as advanced biomarker modeling to predict drug-drug interaction risks and expanded biopharmaceutics capabilities. Additionally, the new version of CIMSIP aligns with recent FDA guidelines covering pH-dependent drug-drug interactions and therapeutic proteins that should help ensure smoother regulatory processes. We also announced the highly anticipated full commercial launch of our co-author regulatory writing software at DIA 2024. Co-author leverages generative AI to accelerate the drafting of regulatory submissions and has demonstrated improved efficiency to first draft by greater than 30%. Co-author is another example of how Sertar is using AI technology acquired in the Viasa transaction to develop impactful products that can ultimately drive further market penetration. Early customer feedback has been very positive, and we expect the product will generate notable commercial interest as the year progresses. Wrapping up, we are working diligently to improve growth and profitability of the businesses in the second half of the year. There have been several exciting developments related to our software products this year, and we announced a strategic acquisition that will help accelerate industry adoption of model-informed drug development, particularly in the discovery phase, with strong synergistic growth opportunities. We continue to attract new customers and add new products and features that impact drug development timelines and efficiencies. As I look forward to the rest of the year and beyond, I am confident in the investments we are making in our business and that they will translate to long-term growth. With that, I will now hand things over to John to discuss our financial results in more detail.