Certara, Inc.

Good day and thank you for standing by. Welcome to the Sitara Fourth 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Deigler of Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Sartar, we have William Ferry, Chief Executive Officer, and John Gallagher, Chief Financial Officer. Earlier today, Sartar released financial results for the full year ended December 31st, 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 includes 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 in the recent earnings press release available on the company's website. please refer to the reconciliation tables in the accompanying materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 26, 2025. 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 Certara's fourth quarter and full year 2024 earnings call. John and I will begin with prepared remarks, and then we will take your questions. We were pleased to finish the year with strong commercial execution across both software and services as we deliver financial results consistent with the expectations we outlined in November. We finished 2024 with revenue of $385.1 million, representing 9% reported growth versus 2023. Sitara's fourth quarter bookings of $144.5 million represented 22% growth versus the prior year, driven by software bookings growth of 38% and services bookings growth of 12%. During the fourth quarter, we saw healthy software and biosimulation services bookings performance from our Tier 1 and Tier 3 customers, as drug developers around the world continue to use biosimulation to optimize their development processes. Additionally, our regulatory services business had a good quarter, delivering solid bookings, which represented a return to growth. We are encouraged by our strong finish to the year and are now squarely focused on executing our 2025 goals. At Sertara, we are enabling model-informed drug development, or MIDD, in the global biopharmaceutical industry. MIDD is an approach that uses biological and statistical models derived from preclinical and clinical data to inform decision-making in drug discovery, development, and commercialization. Biosimulation is a critical component of MIDD that uses computer-aided mathematical simulation of biological processes and systems to understand the action of a drug in a human body or in a population of humans. MIDD and biosimulation can increase the probability of success in bringing a new drug to market while also decreasing development costs. We accomplished this through our software platform, which includes four key pillars, our SimCit PVPK software, Phoenix PKPD software, Pinnacle 21, which is a data standardization tool, and ChemAxon, our most recent acquisition, which brings chemical property insights to the discovery phase of drug development. In 2024, our customers continued to exhibit cautious spending behavior as they grappled with funding constraints, Medicare drug price negotiations, and geopolitical uncertainty. Our software business continued to grow through the challenging environment, while demand for our services was less predictable, particularly in our regulatory services. Decision-making timelines were and continue to be elongated due to internal discussions at customers. During the fourth quarter, our team executed well despite end market uncertainties driving software and services bookings that were slightly ahead of our expectations. While we are pleased with our performance, we did not see any change in customer sentiment that suggests to us that our end markets are materially different heading into 2025. As such, our guidance ranges assume that 2025 will be a similar year to 2024 for clinical R&D spending. I'd like to take some time to discuss our progress over the past year and our vision for Sertara in 2025. Throughout 2024, we took steps to enhance Sertara's strategic position as a preferred partner to the global biopharmaceutical industry. In software, we made investments in our R&D infrastructure with three goals in mind. To expand the integration of generative artificial intelligence into existing products. To accelerate the development of new products and product updates. and to begin the process of integrating Sitara software into a unified platform. Another focus area was our commercial team, where we added senior level talent, such as key account managers, as we seek to strengthen strategic relationships among our top customers. One successful example from this investment was the launch of our co-author regulatory writing product. We began marketing co-author during the second quarter of 2024 and received positive initial feedback from early users. Our regulatory services team also uses co-author to increase efficiency in their regulatory writing projects. We attribute the successful launch to our product development team and a calibrated sales and marketing effort. Beyond internal investments, we focused on successfully integrating Formetics and applied biomass, or ABM, into the organization, and we completed the acquisition of ChemAxon in October of 2024. During their first year under the Sitara umbrella, ABM's team seamlessly integrated with the Sitara QSP team, leading to a successful 2024, which included a project that was published in Nature Cancer. Formetics brought complimentary software products that were quickly combined with our Pinnacle 21 offering, receiving positive user feedback and bringing additional efficiencies to our customers. And more recently, ChemAxon has allowed us to enter the discovery bias simulation market at scale. ChemAxon brings a highly synergistic suite of software products which can be leveraged alongside existing Sitara software to bring cutting-edge insights to drug discovery, candidate selection, and lead optimization. We began to see the impact of these investments throughout the year. as we expanded our customer base to over 2,400 life sciences companies as of December 31st. Among these customers, we had 431 customers with an annual contract value of more than $100,000, representing 11% growth over 2023. We also had 67 customers with an annual contract value of more than $1 million, which grew versus 63 customers in 2023. Our growth strategy is working, Despite a turbulent market backdrop, biopharma companies around the world are expanding their use of biosimulation, which can be attributed to the investments and strategic initiatives at Sertara. Looking ahead to 2025, there's even more that can be done to best position Sertara for future growth. This year, we plan to make further investments in software to accelerate our product development initiatives. Our main priority will be the development of software products for the discovery and lead optimization phases leveraging ChemAxon's existing capabilities alongside Sertara technologies and artificial intelligence. Drug discovery represents a large addressable market for MIDD, whereas Sertara's products have historically been focused on the clinical stages. We believe that with our technology, we can develop products that will bring predictive analysis and insights to the discovery phase that will be unique and differentiated with the potential to significantly impact the success rate and associated costs of drug development. In addition to discovery, we will continue to invest in the cutting-edge areas of biosimulation software, including new models and features, QSP, and ADME property prediction. Outside of new product development, we will continue to focus on building an integrated software platform by elevating new products to the CITAR cloud. We are confident in our ability to execute our R&D and commercial goals because of our tremendous team. In 2024, we continue to prioritize hiring leading software developers, scientific subject matter experts, and senior commercial talent. We ended the year with over 1500 employees, including more than 400 with advanced degrees. An example of our team's expertise was the recent inclusion of several esteemed colleagues in Stanford, Elsevier's top 2% scientist ranking list. Twelve members of our team were named the list in 2024, which includes the top and most cited researchers globally. Sartar's researchers contributed to over 100 publications during the past year, showcasing the impact of biosimulation strategies and execution of drug development, and outlining the different application of technologies to streamline drug submission and approval processes. I am proud of the accomplishments of our team, and I'm looking forward to the continued success in 2025. Before wrapping up, I wanted to provide a brief update on the strategic review of our regulatory writing business. Our internal review process has progressed nicely, and we are continuing to evaluate potential outcomes and their impact on our go-forward strategy. We have not made any decisions, and we'll be not making any further comments regarding the review on this call. We expect to reach a decision in the near term and we'll plan to share additional details as soon as we have them. In summary, we had solid commercial execution across software and services driving successful performance in the fourth quarter. Progress CERTAR has made over the past year was very important as we leveraged organic investment and strategic transactions to enhance our competitive positioning. While our end markets remain subdued on a historical basis, the adoption of biosimulation remains strong, which has been exemplified by the performance of our software business and the increasing number of customers using our technology at scale. In 2025, we will continue to invest in software to expand the breadth of our offering. I'm excited to continue to advance biosimulation forward, unlocking greater commercial opportunities and leaving us well positioned for growth in 2025 and beyond. With that, I will hand things over to John to discuss our financial results in more detail.

Thank you, William. Hello, everyone. Before I walk through our financial results and 2025 guidance, I wanted to highlight slide 12 of our accompanying presentation, which provides color on our organic revenue performance in the fourth quarter and for the full year. Total revenue for the three months ended December 31st, 2024 was $100.4 million, representing year-over-year growth of 14% on a reported basis and on a constant currency basis. For the full year of 2024, total revenue was $385.1 million, representing year-over-year growth of 9% on a reported basis and 8% on a constant currency basis. Total bookings in the fourth quarter were $144.5 million, which increased 22% from the prior year period on a reported basis. Trailing 12-month bookings were $445.3 million, increasing 11% on a reported basis. Software revenue was $42.3 million in the fourth quarter, which increased 26% over the prior year period on a reported basis and on a constant currency basis. Organic growth in the quarter was driven by biosimulation software and Pinnacle 21. Additionally, Comaxon contributed $6.6 million to our reported revenue, which came in ahead of our expectations. Rattable and subscription revenue accounted for 63% of fourth quarter software revenues, down from 68% in the prior year period. The decrease in subscription mix was driven by ChemAxon, which has a higher mix of term licensed software. For the full year, software revenue was $155.7 million, which grew 18% on a reported basis and on a constant currency basis. Rattable and subscription revenue accounted for 65% of full year software revenues, up from 62% in 2023. Software bookings. were $59.7 million in the fourth quarter, which increased 38% from the prior year period. Fourth quarter bookings include $11 million of Camaxon bookings. Trailing 12-month software bookings were $169.7 million, up 24% year over year. The software net retention rate was 106% in the quarter and 108% on the year, which is consistent with our long-term growth profile. Looking at our software bookings performance by tier, we saw very strong performance in both tier one and tier three customers in the fourth quarter and throughout the full year, driven by continued adoption of our software. Now, turning to services revenue, which was $58.1 million in the fourth quarter, up 7% versus the prior year period on a reported basis and on a constant currency basis. Our services business has continued to recover following a period of cautious spending among our customers. For the full year, services revenue was $229.5 million, which grew 3% on a reported basis and on a constant currency basis. Services revenue in 2024 includes regulatory writing revenue of $54.7 million, which compares to $60.5 million in 2023. Technology-driven services bookings in the fourth quarter were $84.8 million, which increased 12% from the prior year period. Trailing 12-month services bookings were $275.6 million, up 4% as compared to the prior year. In the quarter, we saw double-digit growth in biosimulation services bookings, with growth across all three of our biopharma customer tiers. biosimulation services bookings were strongest in Tier 3, growing in the low 20s. For the full year, biosimulation services bookings grew 13%. Regulatory writing bookings returned to growth in the fourth quarter, up mid-single digits versus the prior year period, driven by solid bookings in Tier 1 that were moderately offset by declines in Tier 2 and 3. For the full year, regulatory bookings declined in the double digits. Total cost of revenue for the fourth quarter of 2024 was $38.3 million, an increase from $34.1 million in the fourth quarter of 2023, primarily due to higher employee-related costs and an increase in capitalized software amortization. Total operating expenses for the fourth quarter of 2024 were $56.1 million, a decrease from $62.4 million in the fourth quarter of 2023, primarily due to a $12.8 million decrease in the change in the fair value of a contingent consideration versus the prior year period, which was offset by higher sales and marketing expense and intangible asset amortization. In 2024, we made investments in research and development to accelerate and expand software development efforts. where we have seen good initial success. As Bill discussed, we plan to continue investing in R&D in 2025 to drive new product development and further integrate our software. We expect growth in G&A and sales and marketing to moderate in 2025. Adjusted EBITDA in the fourth quarter of 2024 was $33.5 million, an increase from $29.6 million in the fourth quarter of 2023. Adjusted EBITDA margin in the quarter was 33% in line with our expectations. As I discussed last quarter, we reprioritized some of our investments in sales and marketing to better align with our end markets. Alongside cost actions taken earlier in 2024, we delivered adjusted EBITDA of $122.0 million for the full year, representing a margin of 32%. Wrapping up the income statement, Net income for the fourth quarter of 2024 was $6.6 million compared to a net loss of $12.5 million in the fourth quarter of 2023. Reported adjusted net income in the fourth quarter of 2024 was $24.7 million compared to $14.3 million for the fourth quarter of 2023. Diluted earnings per share for the fourth quarter of 2024 was 4 cents compared to a loss of 8 cents per share in the fourth quarter of 2023. Adjusted diluted earnings per share for the fourth quarter of 2024 was 15 cents compared to 9 cents for the fourth quarter of last year. Moving to the balance sheet, we finished the quarter with $179.2 million in cash and cash equivalents. As of December 31st, 2024, we had $295.4 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. Now, I would like to walk you through our guidance methodology for full year 2025. As Bill discussed previously, our guidance assumes that end markets in 2025 will be similar to what we observed in 2024. We are monitoring several developments in our markets, which have factored into our 2025 guidance. As we have discussed previously, throughout 2024, some of our Tier 3 customers were slower to deploy capital than we anticipated, which widened the gap between when a customer received funding and when our commercial team was able to close a deal. Among our Tier 1 customers, we saw varying levels of spending activity based on each company's relative exposure to the IRA and impending patent cliff, which has resulted in modest impact for both our software and services businesses. Our guidance assumes these trends will continue through the end of this year. Factoring in these assumptions, we expect total revenue in the range of $415 to $425 million. representing growth of 8% to 10% compared with 2024. We expect ChemAxon to contribute revenue of $23 to $25 million. We expect adjusted EBITDA margins between 30% to 32%. Similar to our guidance last year, we anticipate a higher EBITDA margin at the lower end of our revenue guidance and a lower EBITDA margin at the higher end of our revenue guidance. This will be driven by discretionary investments in research and development, which will be managed based on our commercial performance as the year progresses. We expect adjusted EPS in the range of 42 to 46 cents per share, fully diluted shares in the range of 162 to 164 million, and a tax rate in the range of 25 to 30%. I will now turn the call back over to our CEO, William Ferry, for closing remarks. Thank you, John.

To summarize our message today, we were pleased with the many exciting developments at Certara in the fourth quarter and remain focused on executing our growth and profitability goals in 2025. There's a lot to be excited about at Certara as we advance biostimulation with our innovative technologies. Operator, can you please open the line for questions?

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. to withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question will be coming from Jeff Garrow of Stevens Incorporated. Your line is open.

Yeah, good afternoon. Thanks for taking the questions. Maybe start off on the 2025 revenue guidance and, you know, as the kind of typical question of what gets you to the low end or the high end of the range and maybe further just

help us understand the the kind of balanced and market view um you know up against a pretty strong q4 bookings results on several fronts thanks yeah hi jeff it's john i'd start with the last part first i mean we were pleased with the fourth quarter results and we attribute uh the performance to execution by the team so As you know, we've been building the commercial team through the year and we were happy to see the execution in Q4 in the face of what remains pretty challenging end markets. So coming back to your question on what would bring us to the high end or the low end, that also comes back to the end markets too. I think when we look at our tier one customers, then we continue to see spending patterns that are impacted by layoffs at those firms, portfolio prioritization, as well as, you know, them just looking at and taking longer on decision-making for us to bring in new bookings. So that's a dynamic that we've seen with Tier 1s in 2024. You saw that in the results in Q4. despite the execution, and we expect that dynamic to continue in 2025. And then when you look at Tier 3s, similarly, we did see some progress last year on the funding environment for biotechs, but we are finding that the pull-through or the decision-making once the biotechs are funded has taken longer than what we've seen in the past. And so when you take all that together, then I think if we see some improvement in those end markets, that would obviously push us for the higher end of the range. And if we saw some deterioration from where we were in 2024, then we'd be at the lower end.

Understood. That helps. And maybe just to hit on the EBIT side of the guidance, the profitability side, maybe you could give us a little more commentary on what incremental R&D investments you're looking to make in 2025 and also help us further understand the investments in Comaxon, whether that's related to building out the product more or just scalability or really a purely technology integration with your existing assets in the discovery space. Thanks.

Yeah, thanks, Jeff. Yeah, we're calling for the margin to be between 30% to 32%, as you had said and observed. That does represent some additional investment. And we've been talking about the investment necessary to continue the strong momentum we've seen with the software portfolio, and as well as the investment in AI. And so what you're seeing in the margin is us continuing to make that investment and and making it in 2025. The other piece of it I'd say too, but it's, you know, it is a modest component, is we brought on ChemAxon. We were thrilled to bring on the ChemAxon business starting in Q4, and we're going to be working on integration of ChemAxon throughout the year, and we expect exiting the year having ChemAxon at our margins, but obviously, you know, this is just the beginning in Q4 and now into Q1 of 2025.

Understood. Thanks for taking the questions.

And one moment for our next question. Our next question will be coming from Michael Schurney of LeeRink Partners. Your line is up to Michael.

Hi. Good afternoon. Thanks for taking the question. You know, maybe if I can just talk a little bit about the trajectory in the quarter and the outlook. I fully understand the dynamics you put in place relative to the tough market. I think we all see it, the very different data points. But the bookings came through strong in the quarter. Do you give a little bit more color, Bill, about what you're seeing from a wallet share perspective? You highlighted some of the large deals, but as you think through both performance in the quarter and what's underlying guidance, how much of that do you think is you being able to garner a bigger piece of your customer's wallet?

Yeah, thanks for the question. I think there's an element of that in there. We have invested over the last couple of years in several new products and a whole lot of updates to products, which have resulted in, I think, very positive feedback from customers in terms of the bookings and additional sales that we got from them. And I think that's one of the reasons why we're emphasizing as we go into 2025, continuing to invest, particularly in the software suite, There's tremendous opportunity for us in front of us around what we're doing in AI, as well as, you know, continuing to invest in our core products like SimSip and in Pinnacle 21, which, you know, the investments we're making there are kind of taking us into new parts of pharma where, you know, maybe there were... few models available or, or, uh, and, and, you know, we're kind of opening them up as, uh, as addressable to, to the company right now. Um, like John said, I think, you know, chunk of fourth quarter was good execution by the team, but it wasn't just in the fourth quarter. I mean, some of this had to do with, I think some careful investment in, um, in, uh, in the products themselves that, that are, that have led to, uh, to taking a little bit more share, like you're talking about.

Thanks, Bill. And then I guess another kind of big picture question, but an important one. As you think through the incoming new administration, obviously, we're all waiting to see where the confirmations lie. But what do you see, at least based on public commentary, people's backgrounds of the opportunities and risks relative to the new administration coming in?

Yeah, I was thinking we would get questions like that since everybody's getting them. You know, I think right now we are watching carefully. There are some, you know, potential opportunities as well as some potential risks in what's being discussed. But I think to be fair, you'd have to say that it's all pretty new and we're just kind of watching to see how things settle out before we make any, you know, pronouncements or plans around that.

And one moment for our next question.

Our next question will be coming from Max Smock of William Blair. Your line is open.

Hi, it's Christine Raines on for Max. Thanks for taking our questions. So we noticed the tickdown in your software net retention rate to the lowest we've seen in a little while. I'm hoping you can speak to the drivers behind this and if there's been any change in your win rate. I'm just wondering if the downtick is a reflection of choppy large pharma demand And more broadly, if you can comment on the overall growth and leading demand indicator strength delta between large pharma and small biotech and 4Q and expectation for both cohorts in 2025.

Yeah, thanks for your question. So, the net retention rate for 4Q was 106. The full year was 108, so it was, it was lower in Q4 than on a full-year basis. We do, to your point, you know, we do attribute that to Tier 1 customer spending patterns. So when I was describing before on the guidance and sort of the upper end or the lower end of the guidance, and those customer spending patterns, the slower decision-making, portfolio reprioritization, headcount reductions, have all, to some extent, have... have impacted renewals in our Phoenix product and then to a lesser extent in Pinnacle. So there is a dynamic there. Alternatively, on the Tier 3s, then we've seen strong performance on both software and services, Biosim services specifically on the Tier 3 customers.

Great. Thank you. Those are really helpful commentaries. I'm just digging a little bit more into 2025 and organic growth expectations. So at the midpoint, if I think about $24 million in total from Camaxon contribution this year, about three-fourths of which is inorganic, that implies $18 million in inorganic revenue this year. The midpoint of your guide then implies about like 4.5% organic growth in 2025 versus around 2%. in 2024. First, just wondering if this is the right way to think about organic growth this year. And you mentioned that you're expecting the environment to be the same this year versus last year. So how we should think about drivers behind the delta of around 2% in organic growth this year versus the mid-20s, your guide calling for about a 4% to 5%. Thanks.

yeah so i i think to to cut through it the the organic growth uh based on our guidance so we said the guide was eight to ten percent reported growth the organic underlying that would be four to six percent okay great thanks that's really helpful and then so given that there's four to six percent

How do you think about the step up there and the drivers behind the step up in organic growth rate versus 2024, given the expectation for kind of a relatively stable demand environment?

Right. I think one of the key drivers there is underlying our assumption within services, where we had a decline in regulatory in 2024, which we've laid out. embedded within our guide is a reg business that's flat to low single digits.

Great, thank you. That's all for us. Thanks for the help. Thank you.

Thank you.

And one moment for our next question. Our next question will be coming from David Windley of Jefferies. Your line is open.

Hi, good afternoon. Thanks for taking my questions. I wanted to follow on the Connexon questions. John, would it be possible to quantify the margin differential or alternatively kind of how much margin in the guidance, how much margin drag from the Comaxon inorganic ad? How should we think about that?

Yeah. So, Dave, the way to think about that, so we stepped down off of 2024 by about 100 basis points. Approximately half of that is related to Camaxon and the other half is related to incremental investments.

Okay. And then maybe more broadly on Camaxon, what's the competitive landscape for Camaxon to the capabilities that it has in that discovery space and how is that perhaps different from your competitive position

in pbpk and pkpd thanks yeah thanks david um you know the the uh discovery space is uh is pretty fragmented uh so you know chemoxon has a suite of tools that cover uh both the design make test analyze cycle and they also have a suite of uh chemical predictors And then they have some other tools that get into things like searching large databases for chemicals. So those are embedded across the industry. And I guess they all have individual competitors, but there's not like a second Chem Exxon out there, really.

Okay. And then if I broaden out a little bit, I think if we go back to even, say, Pinnacle 21... One of, I think, the underpinnings or the kind of acquisition cases for these acquisitions is how can you build a portfolio that has some kind of synergistic benefit in terms of helping the client to buy across your portfolio and, of course, your investment in cloud, but also in the case of Pinnacle 21 and maybe for Medix, helping the client to better manage its own data to make using simulation and MIDD more approachable, better enable those kinds of capabilities. Is it possible to kind of see that evolving? Do you see those benefits showing up as you're interacting with clients and kind of essentially helping to pioneer their more intensive use of model-informed drug development?

yeah that's a great question so um you know we've been working on biosimulation as you know for a while and we're known in this space but we're known in you know smaller we've been known for a long time in smaller groups within pharma so i think the plans and the news and the and the reality of creating an integrated platform where you can apply this across multiple stages of drug development starting in discovery has drawn a lot of attention. Now, you know, we have still investment to make as we go forward to pull all of these tools together. But, you know, as you pointed out, we've made a pretty good start with Sartara Cloud. And, you know, I think that's helping our discussions at more senior levels of pharma. And I think that's basically the plan as we intend to continue. So we've got great tools, but we want to take it from great tools to a great platform where you've integrated a whole process across the development of a molecule from start to finish. And I think as we accomplish that, we'll add a lot more value and we'll capture a lot more value.

Right. And maybe a last question for me that leverages that answer is, I think at this time last year, we were talking about investments in SG&A and R&D, maybe talked about evolving to a cloud approach at that time. The first half was pressured more than the second half. I think some investors probably thought that the kind of pressure on margin was weathered and the second half of 24 might be a reasonable step-off point to think about your, you know, your go-forward margin and kind of additional investment and additional margin pressure in 25 might come as some surprise. How should we think about as you're evolving toward platform and adding capabilities and things like that, what is the duration of the, you know, what I might call excess investment before you think you get there?

So, I think

I think the way we think about this is that Sitara is a, is a quite profitable company and we've demonstrated we can run at a high profit margin, but there's a significant opportunity for growth here. And there's, you know, a good opportunity to put some of those profits back into, into growing the software. And if we do that, I think we can, you know, our plan is to take the growth rate of the company up over the next few years. So it's, You know, it's hard to answer your question with, like, you know, decimal points of precision because some products are, you know, we've got a pipeline of products coming. We have several, you know, new things coming out this year. We have some that are, you know, kind of slated as we go into 2026. And then, you know, after we, after 2026, we'll probably sit back and look around and see, you know, hey, how'd that go? And, you know, did that lead us to other things we want to do or not, right? So I guess what I'm telling you is I've got a plan that runs out about two years right now. You know, that's not a situation where I'm just going to pour money in for two years and hope to get it out. I mean, that's a pipeline of products starting basically now that will be a regular cadence coming out of upgrades and new features, AI-enabled features, things like that in our existing products. So, you know, we're going to, You know, we're expecting to see revenues from them, you know, as we go along. Got it. That's very helpful. Thank you.

Okay. As a reminder, to ask a question, please press star 1-1 on your telephone. And one moment for our next question. Our next question will come from Constantine Devaday of Citizen Securities. Your line is open.

Thanks. Just, John, one more kind of modeling follow-up. Is there anything from a quarterly cadence standpoint that you'd call out in terms of headwinds or tailwinds that we should be mindful of in 2025? I guess first I'm thinking of Comaxon, just if that steps down from the pretty strong fourth quarter into the first quarter, the way software typically does. And I guess, you know, obviously the ramp of margin for that asset throughout the year. But is there anything else that, you know, you think you'd like to highlight just in terms of quarterly progressions?

I think, I mean, you've seen us historically be more second half weighted when you think about first half, second half. And, you know, I would expect that continues to be the case this year as we see the typical seasonality that does play out for us in the fourth quarter. So in addition to what you said, Konstantin, you know, just remember to think about the first half, second half balance too.

Great. And then... Just on the regulatory services uptake, and I apologize if I missed that, but can you just maybe expand a little bit on the rebound there? And I know you're kind of limited in what you can address with the process that's going on, but does that sort of uptake, I know it's only one quarter, but maybe change how you're thinking about moving forward with that?

Well, I'll start with the performance piece. You know, so we were pleased to see that the regulatory business returned to growth in both bookings and in revenue in the fourth quarter. And obviously, a lot of that performance, as we said in the prepared remarks, too, was coming from the Tier 1 customers and then partially offset by some softness in Tier 2 and Tier 3. So I think what that tells us is, You know, we still have good support from our large tier one customers there. We saw the business return to growth. And obviously those bookings, being a services business, those bookings are going to have an impact on revenue as we move into 25. So we were happy with that bounce back coming off of Q1, Q2, and Q3.

And one moment for our next question.

Our next question will be coming from Andrew Moss of Bank of America. Your line is open, Andrew.

Great. Thanks for taking my question. So, William, you've noted high expectations for co-author in the year ahead and the potential to expand the offering. Can you provide any color on the co-author traction and how large the opportunity might be to expand the current AI offerings?

That's a good question. So we have multiple, you know, paying customers, which I think we view that product as being very much on track after just, you know, a couple months on the market. We have a pretty good pipeline as well. So I think we're finding that from a competitive standpoint, you know, we put together a solid product and it seems to be meeting the need. The product itself will expand over time. You know, we're, we're, there's a whole lot of regulatory documents out there. Um, the first version addresses a piece of it. And obviously, you know, like all software, you know, you, you keep new versions coming along, um, which, which we're, which we're going to do this year as we add new features and do, um, new document types particular to it. So, um, You know, I think what we're looking at here is, you know, you can reduce the amount of time to create a new document by a lot, you know, maybe north of 60% in terms of at least a first draft. You can't really take all the humans out of a loop, obviously. People still have to read it and edit it, but that takes a lot of the upfront cost out of, you know, getting a regulatory document in place. um the product product itself does more than just writing you know it's handling things like the data the tables uh the connectivity to to other databases as well so so it has it's more than just kind of applying uh you know uh co-pilot or chat gpt to to regulatory writing um as far as how far i can go i don't you know it's it's um We have expectations, let's say, in the millions of dollars of revenue for this year. I won't get more specific than that about any one product, but it's a real product and it's going to be a significant revenue generator. Where it goes in the long run... it's always a little hard to tell because AI is moving so quickly and this product is moving so quickly. So it's got a lot of opportunities as we take it forward, you know, after even where it is right now.

Great. That's all for me. Thank you.

And one moment for our next question. Our next question will be coming from Kyle Cruz of UBS. Your line is open, Kyle.

Hey, thank you for taking the questions. I think you earlier said that you're expecting a low single-digit to flat decline in regulatory services revenues this year. Could you maybe help us with the segment guidance? I believe that that piece of information almost implies around a high single-digit growth rate for organic for software business, for the software business, and maybe you could just provide more color on the organic growth guidance for each business line.

Yeah, sure. Let me clarify first on regulatory. What I said for regulatory is that we expect the business in 2025 embedded in our guidance is flat to low single digits increase. But to come back to your question on sort of the component parts here. So we said the reported was eight to 10% growth. I had mentioned earlier that the organic total company was four to 6%. When you split that by software, and services, then you could see services would be low single digits, so think of it as 2% to 4%. Software, including Comaxon, would be 16% to 19% growth. But the organic, and to your point, Kyle, the organic software growth would be in a range of 6% to 8%. So that is aligned with what you were saying earlier.

Great, thank you. And then maybe could you provide some color on your efforts to expand the SIMSIP software outside of the core consortium to other customers?

Yeah, we have multiple routes for delivering SIMSIP. We have, obviously, we have our core consortium, which is Minerama, and it's going very, very strong. We also sell the software directly outside uh the consortium to a number of customers that's been growing and we have a group that uh uses simsip uh you know basically we'll just do projects for people for for customers that might be uh too small or not have the internal capabilities to do it uh which has also been uh you know a significant uh a significant grower over the last couple of years so I kind of think of it as one tool where we've got multiple customer segments and we've thought about different ways to deliver it. Now, in addition, we're starting to interface SimSip in with our QSP software. And I think as we go forward, that's going to lead to additional opportunities to expand the core base we've got there. QSP, when we started this, was primarily a a consulting type business, but we've been investing heavily in the underlying modeling software with the idea that, you know, we've got a core advantage because we've already got a lot of the underlying parts built from SIMSIP. And so that's started to come out, and there'll be, you know, additional investments in that as we go forward this year.

Great. Thank you.

And one moment for our next question.

And our last question will be coming from Vikram Purohit of Morgan Stanley. Your line is open.

Hi. Thank you for taking our question. This is Parth on for Vikram. You guys touched on investments you're making in AI and software. Could you provide us your current view on BD and which profile of assets could be interesting to fold in to the company at this point?

Yeah, so we, you know, obviously we have the balance sheet to continue M&A, and we're constantly looking at, you know, opportunities there. We've been clear that we said we look, you know, towards software. We are busy given the number of acquisitions we've done recently, but we have the capacity to be able to do additional tuck-ins should we want to do that.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.