Certara, Inc.

Good day and thank you for standing by. Welcome to the Certara Third Quarter 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. Please go ahead.

David Deichler Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Surtara, we have William Ferry, Chief Executive Officer, and John Gallagher, Chief Financial Officer. Earlier today, Surtara released financial results for the quarter ended September 30th, 2024. A 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 the 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 in the most recent earnings release available on the company's website. Please refer to the reconciliation tables and the accompanying materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2024. Sartara 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 will turn the call over to William.

Thank you, David. Good afternoon, everyone. Thank you for joining Sartara's third quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions. During the third quarter, Satara continued to benefit from our strategy of investing in the development of biosimulation for global drug development. Third quarter revenue of $94.8 million increased by 11% compared with last year, while total bookings of $96.1 million increased by 13%. Among our Tier 1 Biopharma customers, we saw stability and some improvement in new business activity versus the second quarter, while bookings from our Tier 3 customers continued to grow on a somewhat improved funding environment and on our increased investment in sales and marketing. In early October, we closed the ChemAxon transaction, which further expands our biosimulation reach into the preclinical market. We are excited about the prospects of combining core capabilities of ChemAxon software and data with Sertara's data infrastructure and biosimulation capabilities to create an end-to-end biosimulation platform. As we expand the serviceable market with ChemAxon, we will look to deepen existing customer relationships and develop new ones. Consistent with the plan outlined in our last earnings call, our biosimulation services achieved higher utilization during the quarter, which drove sequential improvement in our EBITDA margins. We see several positive indicators of biosimulation demand, particularly that we have a strong pipeline and a very high win rate. However, we have also experienced a lengthened decision-making process among many of our larger customers and have seen more discreet engagements compared with years past. This backdrop has made us more cautious about predicting second-half growth. Our experience in the regulatory services market has been different. where we are also achieving higher utilization rates, but market dynamics have been more challenging relative to our expectations earlier this year. As a result, we are revising our 2024 guidance modestly to reflect the changes that we have seen. Zotara has a good regulatory services business with revenues expected to be $50 to $55 million this year and operating margins that are comparable to a traditional CRO. However, For some time, the growth profile of this business has diverged from our core bias simulation business, and the customer base has less overlap with our core bias simulation business. For these reasons, we have begun a review process to consider the long-term strategic options for the business. Please understand that we are at the beginning of this review process, and we are not going to be making any additional comments until the review is completed during the first half of 2025. Turning to the biosimulation and data-related businesses at Sertara, I'd like to take a moment to highlight the investments we've made over the past 10 months and their importance to our growth strategy. Earlier this year, we announced investments to strengthen our software product suite and broaden our commercial reach. In research and development, we steadily grew our software team with three key goals in mind. To accelerate the integration of artificial intelligence and machine learning into existing products. to accelerate the development of new products and the cadence of products updates, and to begin the process of integrating Sitara's software into a more unified platform. We think of our software business as having three existing pillars, centered around the SimSip, Phoenix, and Pinnacle 21 products, which are core to our goal of increasing the broader adoption of biosimulation. We have also begun to implement a strategy of uniting these pillars into an overall platform, through the introduction of the Surtara Cloud. The initial version of Surtara Cloud was launched this year and provides easier access to our software and updates, increases awareness of Surtara's entire platform, and it lowers IT and security costs for customers. As we move forward, Surtara Cloud will further unite our software pillars by integrating data storage and providing workflow and collaboration, which enhance the use of our biosimulation products and services across drug development stages. Our recent acquisition of ChemAxon furthers this strategy. ChemAxon is a leading software company focused on chemical property calculation, search, research workflow, and in silico simulation. It brings Sertara a complimentary customer base and a close-knit group of employees with a track record of success. We plan to create a fourth software pillar within Surtara by aligning ChemAxon closely with Surtara's D360 product, which is used today by over 6,000 life sciences users in the screening process for drug selection and optimization. This combination, which will be further tied into our SimCip and QSP development, will create a very powerful tool for our customers to use biosimulation to select and optimize molecules. We also intend to fully leverage Sartara's other software investments by integrating this combined product offering into Sartara Cloud and Sartara's AI capabilities. Now, speaking of Sartara's AI capabilities, we have dramatically increased our ability to process data and scientific literature in the wake of the Viasa transaction, bringing on additional software developers to implement artificial intelligence across our platforms. Our previously announced launch of co-author into the regulatory writing market is proving successful, with our internal testing indicating the product can generate the majority of a clinical study report and reduce the delivery time to a level that has generated significant customer interest. We have already begun to generate revenues with the product, and we have a healthy sales pipeline. In sales and marketing, we took steps to build out our commercial infrastructure. bringing on global account managers and additional heads across several regions. Our sales team also grew inorganically as we brought in members from Applied Biomath and Formetics and are now integrating team members from ChemAxon. By adding experience across a variety of geographies and areas of expertise, we have implemented new best practices and evolved our commercial strategy to focus on large key accounts and on expanding our presence in the biotech market. This is an important and exciting time for Sartara, and I want to emphasize how ChemAxon and our 2024 investments tie into our broader strategy. While it's still early days, it is difficult to understate the impact of this year's activities on Sartara's ability to drive biosimulation adoption. On the product and services side, we are bringing technology in-house that expands our serviceable market further into drug discovery via ChemAxon. We've built out a software team that can create and validate models more efficiently using AI technology acquired from Viasa. We're integrating our products to form a single platform, which will lower the technological requirements required to adopt our software and buy a simulation. We are now leveraging investments in our commercial teams to execute an enterprise-style commercial effort to drive cross-selling and software license expansion. Sitara has made big strides toward a broader, more interconnected, and user-friendly suite of software products supported by the proper commercial infrastructure to expand our wallet share among existing and new customers. We believe we are better positioned to drive long-term growth and biosimulation adoption today than we were 10 months ago. Now I will turn to some of our recent highlights from the third quarter. Mid-August, we launched version 8.5 of Phoenix, introducing several enhancements that reflect feedback from existing users and stakeholders. Notable new features include integration with the Certara Cloud, reporting enhancements for tables and plotting, and improvements to the precision of the Phoenix NLME population modeling tool. Additionally, towards the end of the quarter, Certara's CIMCIP Consortium celebrated its 25th anniversary at the Consortium's annual meeting in London. In conjunction, for the first time ever, CIMCIP hosted an open day where non-consortium members were given the opportunity to join and connect with industry leaders in the PPPK modeling field. The event was a great success, and we look forward to hosting similar events in the future. In our services group, one notable highlight in the quarter was our QSP collaboration with ICNOS Glenmark Innovation, or IGI, which was published in Nature Cancer in September. IGI sought Surtar's help in optimizing the first in human dosing of their candidate, called ISB2001, as a potential treatment for multiple myeloma. Our QSP services team developed an innovative model to accelerate the speed at which ISB2001 was administered to patients, identifying an optimal dose that was significantly greater than the conventional starting dose. The model was accepted by the U.S. FDA and the Australian HREC, meaningfully impacting the opportunity for patients. We are proud of the team's accomplishments, which highlights the potential efficiencies and patient impact that can result from PPPK and QSP modeling. As we progress through the fourth quarter and into 2025, we are focused on uniting our investments in R&D and sales and marketing, the purchase of Comaxon, and our evolving commercial strategy to drive sustainable growth at Sertara. Through the first 10 months of the year, we have made significant progress on several fronts that have positioned us well to gain wallet share amongst our biopharmaceutical customers. We are entering the earlier stages of development through a well-established software acquisition, and we have continued to invest in our software innovation engine. With that, I will hand over things to John Gallagher to discuss our financial results in more detail.