Certara, Inc.

Good day and thank you for standing by. Welcome to the Sitara third quarter 2025 earnings conference call. At this time, our participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one 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, Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Surtar, we have William Curie, Chief Executive Officer, and John Gallagher, Chief Financial Officer. Earlier today, Surtar released financial results for the quarter ended September 30th, 2025. 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 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 the 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 and the company materials for additional information. This conference call contains time-sensitive information and is accurate only of the live broadcast today, November 6, 2025. Sartar 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 Sartar's third quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions. During the third quarter, our team continued to execute against our 2025 goals while also positioning Sertara for long-term success by investing in our R&D and commercial teams. Third quarter revenue of $104.6 million was in line with our expectations, representing 10% reported year-over-year growth. we outperformed internal profitability expectations, delivering adjusted EBITDA of $35.2 million, representing a margin of 34%. Our team remains focused on investing for growth, with R&D up 24% versus the same period a year ago, and increasing to 10% of revenue from 9% in the prior year period. On the other hand, third quarter bookings of $96.6 million came in below our expectations, representing growth of 1%, Among our Tier 1 services customers, we observed cautious spending behavior, with some customers pushing deal timelines later into the fourth quarter and into 2026. Taking this into account, we are narrowing our revenue guidance to $415 to $420 million, which we believe reflects the most likely range of outcomes for the year based on our performance to date. We have raised our adjusted EBITDA margin guidance to the high end of our previous guidance range and raised our adjusted EPS guidance to reflect the continuation of outperformance against our profitability targets and the impact of share repurchase activity. We continue to see pockets of outperformance throughout our portfolio, including our SimCit PVPK software and our QSP services. However, some of our customers are still dealing with factors that impact decision-making timelines and R&D allocation decisions. As large pharma customers adjust focus with their R&D programs and now onshoring initiatives that are impacting personnel and resource allocations, we have seen a slowdown in deal completion timelines, particularly in regulatory services and biotin SIM services. This slowdown has persisted into the beginning of the fourth quarter. conflicting with historical seasonality trends. We are closely monitoring consumer spending patterns as we begin to plan for 2026. At a high level, we continue to see several positive leading indicators for the biosimulation market and for Sertara. Among large pharma customers, the use of model-informed drug development is growing throughout all stages of development. Customers are adopting biosimulation solutions for use in dosing, efficacy, and toxicity analysis and using the technology earlier as we expand our software capabilities into discovery and preclinical. Among our smaller customers, the adoption of biostimulation is accelerating through the use of our technology-enabled services. As drug developers look to optimize their speed and efficiency, they're often attracted to areas of our business such as QSP, which can help streamline decision-making and trial design in both the preclinical and clinical stages. Since our IPO, We have seen a significant increase in both the number of customers using our products and services, as well as the wallet share of Sitara within larger organizations. Most of all, we are encouraged by our evolving relationships with key stakeholders and users at customers. Earlier this year, we hosted our second annual Certainty Conference, bringing together hundreds of our users to discuss the future of model-informed drug development. In early October, we held the same conference in Barcelona with our European user base, and the experience was very productive for all parties. At both events, I had the opportunity to discuss Sitara's products with customers, where they provided feedback on our software, suggested new features and functionality, and learned about our new products and long-term vision for the Sitara platform. There is tremendous value that can be gained by making more informed decisions earlier in the drug development lifecycle. which is why we are moving into discovery and preclinical. We closed the ChemAxon acquisition a year ago in early October of 2024, which gave Sitara an established product suite in discovery with synergistic capabilities relative to SimSip. In the first 12 months under Sitara ownership, ChemAxon has continued to grow and is on track to reach corporate average margins by the end of the year. Elsewhere, our services group has grown preclinical work in QSP, especially since the FDA's guidance promoting the use of new approach methodologies. QSP has grown ahead of the rest of the biosimulation business on a year-to-date basis and is becoming an increasingly important part of our business. Now, turning to our financial performance. In software, bookings of $40.8 million represented growth of 17%. We saw solid bookings performance in tiers one and three, which were in line with expectation, while tier two was below expectations, which we attribute more to timing than anything. Software revenue of $43.8 million grew 22% on a reported basis and 6% organically, led by strong growth from CIMSIP, in addition to $5.6 million in contribution from ChemAxon. In services, bookings of $55.8 million declined 9% on a reported basis, driven by slowness in the Tier 1 customer base. We have continued to observe cautious decision-making among large pharma customers into the fourth quarter. Services revenue of $60.8 million grew 3% on a reported basis and on an organic basis led by growth in QSP services. On the innovation front, 2025 has been our most active product development year since our IPO. We've embedded artificial intelligence into both our development processes and our products, accelerating the pace of new model creation following our Viasa acquisition. We launched several major products this quarter. Pinnacle 21 Enterprise, a cloud-based upgrade improving regulatory data compliance and submission speed. Phoenix Cloud, which transitions our customers from on-premise to Sartara Cloud deployment and provides significant upgrades to product functionality. And Sartara IQ, our new software for QSP modeling, designed to expand the use of bias simulation across discovery and clinical phases. Early customer feedback on these releases has been excellent, and we're confident they strengthen our long-term software growth engines.