Certara, Inc. (NASDAQ: CERT) is a leading provider of biosimulation technology and solutions for the global biopharmaceutical industry. The company's innovative software and technology-enabled services help pharmaceutical companies accelerate drug development, reduce costs, and increase the probability of success in bringing new drugs to market.

Business Overview

Certara's proprietary biosimulation platforms are built on biology, chemistry, and pharmacology principles with advanced mathematical algorithms that model how medicines and diseases behave in the body. The company's solutions enable pharmaceutical companies to leverage data, modeling, and analytics to make better decisions during drug development and commercialization. Certara's software products are licensed by more than 57,000 users, and the company has collaborated on over 8,000 customer projects in the last decade across a wide variety of therapeutic areas.

Certara's strategy is to create and apply validated software applications that can be used broadly in the life science industry, while also offering technology-enabled services delivered by scientists with extensive drug development experience. The company's solutions are designed to help customers reduce the cost and increase the odds of new drug approval and commercial success.

Financials

In the fiscal year 2023, Certara reported annual revenue of $354.3 million, a decrease of 2.3% compared to the previous year. The company's annual net income was -$55.4 million, and its annual operating cash flow and free cash flow were $82.8 million and $67.4 million, respectively.

For the first quarter of 2024, Certara reported total revenue of $96.7 million, representing a 7% increase compared to the same period in the prior year. Software revenue grew 19% to $39.3 million, while services revenue remained flat at $57.3 million. The company's net loss for the quarter was $4.7 million, and it generated $4.3 million in operating cash flow.

Segmental Performance

Certara's business is divided into two main segments: Software and Services. The Software segment, which includes the company's biosimulation software products, accounted for 40.7% of total revenue in the first quarter of 2024, up from 36.5% in the same period last year. The growth in software revenue was driven by strong demand for the company's industry-leading Simcyp, Phoenix, and Pinnacle 21 platforms.

The Services segment, which provides technology-driven services and professional services, contributed 59.3% of total revenue in the first quarter of 2024, down from 63.5% in the same period last year. While services revenue was flat year-over-year, the company has seen a recovery in customer activity and has been encouraged by recent discussions with prospective customers for both biosimulation and regulatory services projects.

Geographic Breakdown

Certara generates revenue from customers across the Americas, EMEA, and Asia Pacific regions. In the first quarter of 2024, the Americas region accounted for 71.6% of total revenue, EMEA contributed 21.6%, and Asia Pacific made up the remaining 6.8%.

Outlook

For the full year 2024, Certara is reiterating its guidance for total revenue in the range of $385 million to $400 million, representing growth of 9% to 13% compared to 2023. The company expects to grow adjusted EBITDA on a dollar figure basis in 2024 and anticipates an adjusted EBITDA margin in the range of 31% to 33%. Certara also expects adjusted EPS in the range of $0.41 to $0.46 per share.

The company has been encouraged by positive trends in clinical trial activity and biotech funding so far in 2024, but it has not yet seen an inflection point in activity through the first several months of the year. Certara remains cautiously optimistic that its end markets will continue to recover throughout 2024, but it expects the recovery to be more pronounced in the second half of the year.

Recent Developments

Certara is dedicated to investing in several key initiatives that will drive the company's next stage of growth. This includes improving its commercial infrastructure, expanding the reach of its biosimulation software capabilities, and unifying its organization both internally and externally.

In the first quarter of 2024, the company launched Certara Cloud, a unifying platform that integrates access to its entire software suite of applications. Certara Cloud is designed to make the company's software solutions easier to navigate across each user's organization and with external parties, enabling collaboration across different workflows. The company has already established 1,500 client-specific portals on Certara Cloud, which are currently used by 15 of the top 30 biopharmaceutical companies.

Certara is also accelerating the development of CoAuthor, a regulatory writing tool that uses AI and machine learning to draft regulatory submissions. The next version of CoAuthor is expected to be launched at the end of the second quarter of 2024, and the company has received significant interest from customers.

Risks and Challenges

Certara faces several risks and challenges that could impact its future performance. These include the potential for deceleration in the acceptance of model-informed biopharmaceutical discovery and development, increased competition within the market, changes or delays in government regulation, and the ability to successfully enter new markets and retain and expand relationships with existing customers.

The company is also exposed to risks related to the integration of acquired businesses, the accuracy of its addressable market estimates, and its ability to comply with applicable laws and regulations, including those related to data privacy and cybersecurity.

Liquidity

As of March 31, 2024, Certara had $224.8 million in cash and cash equivalents and $287.8 million in outstanding borrowings on its term loan, with full availability under its revolving credit facility. The company's strong cash flow generation, with $82.8 million in annual operating cash flow and $67.4 million in annual free cash flow, provides it with ample liquidity to fund its operations and strategic initiatives.

Conclusion

Certara is well-positioned to capitalize on the growing demand for biosimulation and model-informed drug development in the global biopharmaceutical industry. The company's innovative software and technology-enabled services, coupled with its investments in key growth initiatives, position it for continued success. While Certara faces some risks and challenges, its strong financial performance, liquidity, and strategic focus make it an attractive investment opportunity in the life sciences technology sector.