Management Commentary

David Deuchler
Investor Relations, Certara

Good morning, everyone. Thank you all for participating in today's conference call. On the call from Certara, we have Jon Resnick, Chief Executive Officer, and John Gallagher, Chief Financial Officer. Earlier today, Certara released financial results for the quarter ended March 31st, 2026. 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 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, May 11, 2026. Certara 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. With that, I will turn the call over to Jon.

Jon Resnick
CEO, Certara

Good morning. Thank you all for joining today's call. Since we last spoke, I have crossed over the 100-day mark at Certara, and I continue to be incredibly impressed by many things within the company. We are differentiated by our world-leading scientists, institutional knowledge, regulatory leadership, and our fit-for-purpose technology that is embedded in customer and regulators' workflows. Our clinical intelligence capability is the logic built into our technology, mining the latest science and drawing on what our experts know, our interactions with regulators over decades, and what thousands of drug development successes and failures have taught us. Certara products and services are integral to the drug development process and increasingly scalable through the use of AI technologies. Having exited the listening and learning phase, my attention has transitioned to helping Certara reach its full potential.

First quarter performance was in line with our expectations, but does not reflect the company's potential. I am focused on driving long-term durable growth across the organization by reshaping our business and portfolio strategy while instilling increased organizational and operational rigor. Today, we will discuss our markets and outline the steps we are taking to position the company for long-term success before wrapping up with our first quarter performance. Let me start by updating you on our end markets. Across the board, customers are increasing investment in AI and tech-enabled drug discovery capabilities. Today, there are over 200 AI-designed molecules in clinical development, up from just a few 10 years ago. Eli Lilly has partnered with NVIDIA to build a dedicated AI lab, and Roche Genentech is launching a hybrid cloud AI factory to scale their discovery and development efforts.

Amazon has also announced a bio discovery product through AWS. OpenAI and Anthropic have announced LLMs for life science. The expansion of the use case in AI is consistent with Certara's approach using analytical techniques embedded in customers' workflow to accelerate the drug discovery and development processes while reducing the reliance on living subjects. AI-driven drug development helps the industry deliver more molecules and innovation, demand will increase for Certara's core business, Model-Informed Drug Development or MIDD. Customers race to turn drug candidates into approved treatments for patients, accelerating data analytics processes becomes more important than ever as the decades-long goal of reducing drug application timeline comes within reach. In February, the ICH released ICH M15, providing guidance of the general principles for Model-Informed Drug Development, which establishes an overarching set of principles for the acceptance of MIDD applications by regulators globally.

In March, the FDA published guidance on the general consideration for the use of New Approach Methodologies or NAMs in drug development. More recently, in April, the FDA announced a major initiative to implement real-time clinical trials, a shift to eliminate the delays that have historically slowed regulatory decisions. As FDA leadership has said, the agency has been conducting clinical trials the same way for decades, where key data signals and lag time have delayed regulatory decisions unnecessarily, which has slowed down drug development timelines. These tailwinds present a clear opportunity for Certara to tackle historically arduous drug development processes. Certara has an incredible legacy. We believe we are unrivaled in MIDD today because of what was required to build it. We have more than two decades of published scientific literature, 2,600 customers around the world.

I've run over 10,000 projects and have more than 160,000 users of our technology, including the FDA and Japan's Pharmaceuticals and Medical Devices Agency. Pinnacle 21 has been used to validate more than 36 trillion data points in support of over 500 approved treatments. We are a team of world-class scientists and are proud to have 10 scientists recognized in Elsevier's top 2% of the world's most cited scientists. This is not a position that can be replicated overnight. It is the product of decades of scientific rigor, regulatory trust, and deep customer partnership that many underestimate. For example, the qualification of our Simcyp software for the prediction of drug-to-drug interactions in the EMA required two years of engagement with participants representing all 27 member states.

Our most experienced scientists worked directly with EMA reviewers to evaluate 25 years worth of data, code, and process documentation to gain approval from the EMA. To our knowledge, Simcyp is the only mechanistic modeling software qualified in Europe at this critical level. Building on this legacy, we have developed and continue to invest in category-leading products that are truly distinguished in the market. ChemAxon, Simcyp, Pinnacle 21, and Phoenix are purpose-built, validated, and deeply embedded in the workflows of the world's leading drug developers and regulators. What makes these valuable to our customers is the cutting-edge science, proprietary data, intellectual property, thousands of validated biological parameters, unmatched computational precision, and auditable transparency that regulated science demands. As we move the company forward, there is a window of opportunity for us to drive value from connectivity across our clinical intelligence capabilities.

We are building an AI-integrated platform that sits on top of and complements our existing portfolio. This next-generation platform will give researchers the ability to interrogate Certara's full body of knowledge across products, datasets, and scientific expertise to get accurate, trusted answers to increasingly complex questions. We have created an AI native team, allocated the investment resources needed for this effort, and are engaging lighthouse customers. Our annual Certara conference in Boston illustrated our scientific and technological leadership and provided clear evidence that our customers are looking for us to innovate. In front of more than 400 attendees, we showcased the latest in MIDD and AI-enabled technology capabilities for more than a dozen products, leveraging demos and user groups to collect valuable feedback. Moving to delivery, let me share a few highlights from the quarter. Our technology and scientific experts supported numerous drug approvals.

One notable example was a complex generic of tazarotene, a dermal product used in the treatment of acne and psoriasis. Certara's PBPK in silico modeling data was accepted in lieu of a clinical endpoint bioequivalence study. This is only the second time ever that PBPK modeling has been used to enable approval of a generic drug in lieu of running clinical trials. In another example, Certara also demonstrated the real-world impact of MIDD and regulatory success for the leukemia therapy, osimertinib. Simcyp supported the evidence generation journey and approval, with the FDA accepting the PBPK modeling results in lieu of clinical studies for at least 10 human trials, significantly reducing development time and cost.

Certara scientists published nearly 100 peer-reviewed papers this year spanning dose optimization, pediatric development, virtual bioequivalence, and next-generation MIDD frameworks, which align with the recently published ICH M15 guidance focused on the multidisciplinary principles of MIDD. Among these, a publication co-authored with the FDA and MHRA scientists highlighted the expanding role of MIDD in pediatric drug development, showing PBPK has the potential to reduce timelines and costs for pediatric trials by informing dosing, study design, extrapolation, and label extension while reducing unnecessary studies in children. In addition, one of Certara's leading scientists serves as the editor-in-chief of Clinical Pharmacology & Therapeutics Journal, a position she took over from another leading Certara scientist. We had several technology advancements in the quarter with AI increasing the productivity of our developers and the value of our technology.

There were multiple new releases of our software, including a new version of D360 to help discovery scientists accelerate therapeutic peptide design and optimization, new functionality in Pinnacle 21 to accelerate clinical study startup and extended reporting functionality in Phoenix Cloud, and the release of Simcyp with expanded simulation virtual bioequivalence capabilities. To capitalize on these opportunities and prepare to scale, we are taking several decisive actions. First, we're focusing our business in accelerating long-term growth by exiting medical writing. Second, we're reorganizing and aligning the company around two distinct growth areas, MIDD and discovery, which we call MID3 and accelerated clinical evidence, which we call ACE. Third, we're creating a stronger center of gravity for AI across the company, formalizing leadership with a chief AI officer and increasing investment in our next generation Certara platform.

Fourth, we're extending our capabilities and reach with strategic collaborations and partnerships highlighted by NVIDIA and Altasciences. Fifth, we're reviewing opportunities to leverage our existing clinical intelligence capabilities into new use cases. And sixth, improving execution and efficiency. Focusing on the first action, on Friday, we closed the divestiture of the regulatory writing and medical writing business to Veristat. This transaction allows us to sharpen our focus in areas we have defined competitive and scientific advantage, results in a nearly one-to-one alignment between our expert services and our technology, where our value proposition is the strongest, improves the predictability of our revenue, and unlocks approximately 150 basis points of incremental growth in 2027 and beyond. Second, we are reorganizing the company into two groups to accelerate growth and better service our customers, MID3 and ACE.

Within MID3, we have merged our technology and expert services into one organization, creating a flywheel for technology, innovation, and customer engagement. ACE mission is to reduce data timelines along the full life cycle from design through and beyond submission, while maintaining or improving quality at every step in the process. Both groups will be supported by a Chief Product Officer, reporting to me, who will oversee product development across the organization. We are engaged in an active search for this position. Third, we have appointed Dr. Chris Bouton as our Chief AI Officer. Further evidence of our commitment to drive innovative solutions that turn decades of cross-program scientific and regulatory intelligence into market-leading AI integrated capabilities. Chris also serves as our Chief Technology Officer and led Certara's AI implementation efforts. In his expanded role, Chris will drive the acceleration of Certara's next generation platform.

Jon Gallagher
CFO, Certara

Thank you, John. Hello, everyone. Total revenue for the three months ended March 31st, 2026 was $106.9 million, representing year-over-year growth of 1% on a reported basis. Total bookings in the first quarter were $115.3 million, which declined 2% from the prior year period. Trailing 12-month bookings were $479.2 million, increasing 5%. Software revenue was $49.7 million in the first quarter, which increased 7% over the prior year period on a reported basis. Growth in the quarter was driven by Simcyp, Phoenix, and ChemAxon. Ratable and subscription revenue accounted for 57% of first quarter software revenues, consistent with the prior year period.

Software bookings were $48.7 million in the first quarter, which increased 20% from the prior year period. Trailing 12-month software bookings were $192.2 million, up 8% year-over-year. The software net retention rate was 106 in the quarter. Looking at our software bookings performance by tier, we saw performance at or above plan across all three customer tiers, which was nice to see following a mixed fourth quarter performance. Now turning to services revenue, which was $57.2 million in the first quarter, down 4% versus the prior year period on a reported basis. We saw mixed results in our MIDD services business in the quarter, reflecting the operational dynamics John mentioned earlier, which was compounded by softness in regulatory services.

Services bookings in the first quarter were $66.6 million, which declined 14% from the prior year period. TTM services bookings were $286.9 million, up 2% compared to the prior year. After a strong fourth quarter, we saw softer performance from tier one customers in MIDD services during the first quarter. Total cost of revenue for the first quarter of 2026 was $41.6 million, a slight increase from $41.5 million in the first quarter of 2025.

Total operating expenses for the first quarter of 2026 were $111.2 million, an increase from $98.4 million in the first quarter of 2025, primarily due to a $7.4 million increase in the change in fair value of a contingent consideration related to the Vyasa acquisition. Adjusted EBITDA for the first quarter of 2026 was $31.7 million, a decrease from $34.8 million in the first quarter of 2025. Adjusted EBITDA margin in the quarter was 30%. Wrapping up the income statement, note that GAAP net income and EPS are both impacted by non-recurring items. Net loss for the first quarter of 2026 was $8.8 million compared to net income of $4.7 million in the first quarter of 2025.

Reported adjusted net income for the first quarter of 2026 was $14.5 million compared to $22.2 million for the first quarter of 2025. Diluted loss per share for the first quarter of 2026 was $0.06 compared to earnings of $0.03 per share in the first quarter of 2025. Adjusted diluted earnings per share for the first quarter of 2026 were $0.09 compared to $0.14 per share in the first quarter of last year. Moving to the balance sheet, we finished the quarter with $149.5 million in cash and cash equivalents. As of March 31st, 2026, we had $294.8 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.

Last year, our board authorized a $100 million share repurchase program. We have repurchased approximately $82.6 million of stock since that authorization, including $40 million during the first quarter of 2026. Today, we announced the closing of the regulatory writing and medical writing services divestiture. As a reminder, in 2025, these businesses generated $50 million of revenue and approximately $17 million of adjusted EBITDA, excluding unallocated overhead expenses. During the first quarter of 2026, they contributed approximately $13 million in revenue, and we expect to recognize approximately $5 million from them in the second quarter. Going forward, we anticipate our revenue mix to be approximately 50% software and 50% services.

With that in mind, we are updating our full year 2026 guidance to reflect the divestiture as follows: We now expect 2026 reported full year revenue to be in the range of $395 million-$405 million, including the $18 million I just referenced related to the divested business. This outlook reflects full year growth of 0%-4%, excluding the divested business in both periods, and is consistent with our prior growth expectations from the call in February. We expect first half revenue growth to be closer to the low end of the 0%-4% range, while the second half is expected to be at or above the high end of the range.

We anticipate full year software growth to be at or above the high end of the 0%-4% range for the year, with first half closer to the midpoint and second half above the high end of the range. The software outlook contemplates higher visibility compared with last year, and we are optimistic about opportunities for newly introduced products. In services, we expect full year growth to be towards the low end of the 0%-4% range, with first half at or below the low end of the range, improving to the high end during the second half of the year. We see the tier two and three end markets improving through the course of the year following a strong capital raising environment through April.

Generally, compared to the guidance provided in late February, this more detailed revenue outlook reflects modestly improved software performance and modestly lower services outlook, which we attribute to some of the execution dynamics Jon referenced in his remarks. We anticipate full year 2026 adjusted EBITDA margin to continue to be 30%-32% range, including contribution from the regulatory writing and medical writing business. First half margins will be modestly below this range, and second half margins will be closer to the higher end of the range. Margin performance through the year reflects higher revenue growth in the second half of the year, as well as improved operating discipline across the organization following the divestiture. We expect adjusted EPS in the range of $0.35-$0.41 per share for the full year.

Fully diluted shares are expected to be in the range of $157 million-$159 million, and we are modeling an effective tax rate of about 30%. With that, we will open up the call for Q&A. Operator, can you please open the line?

Analyst Q&A

Scott Schoenhaus — Managing Director, KeyBanc
Hey, team. Thanks for taking my questions. Jon, you mentioned this next generation AI platform that you guys are developing. Maybe walk us through the opportunity here, the monetization. Is it more a function of it drives engagement utilization on the software piece? Are you taking ASP up? Maybe walk us through the dynamics here to bridge us to this opportunity.
Jon Resnick — CEO, Certara
All right. Thanks. Thanks, Scott, for the question. Yeah, we're extremely excited about what's, you know, ahead of us here. First of all, before I get into the, you know, detail on the platform itself, I mean, AI more broadly, we've taken a step change in terms of our readiness. You know, we're focused on things like product development, which is the platform, scaling capabilities across the organization, people and talent. You saw the announcement about Chris and overall kind of corporate governance of it. You know, obviously, we talked historically about the great position, we believe we have.
My comments a few, a few minutes ago, I think you heard that foundation, those capabilities that we have over, you know, decades has created real, you know, exciting position in terms of embeddedness in client workflow, codification of science, validation, auditability, transparency. In essence, closing that kind of last mile in a regulatory sciences market, you know, our view and our expectation is that there's a spot and a place where Certara's capabilities know-how and expertise will fit in very well to complement to what's out there today. I don't wanna go into too much detail on exactly what we're doing because I do know that there are others who listen to this call as well. But it's in essence building on these exact capabilities.
It is, you know, a effort for us to unify many of our products and our know-how under a single environment. It'll allow us to take all the kind of independent know-how and the independent applications we have and answer questions across the life cycle. It's gonna, you know, create unique business models for us as we, as we move forward. In terms of your question around kind of guidance and how should you think about it, I think for 2026, as we indicated, we're out talking to lighthouse clients. We're out engaging in this. This is, you know, a, you know, a thing that's now in active discussion. I wouldn't think too much about near-term modeling.
I think what we'll do is provide more guidance towards the end of this year about how you should think about this relative, you know, to our conventional software portfolio as we think more on platform into 2027 and beyond.
Scott Schoenhaus — Managing Director, KeyBanc
Thanks. My follow-up is the strong software bookings, you had this quarter, you mentioned a lot of new product releases. Maybe help us parse out where you're seeing the strongest demand into that bookings, strength this quarter on the software side. Thanks.
Jon Resnick — CEO, Certara
I think software was strong pretty much across the board this quarter. You know, obviously off the soft trailing 12-month number that we saw at the end of last year. We put a lot of focus on it. You know, really got underneath it with our sales teams and put the incentives and products and plans and have done a lot of work in Q1 really to get ready. It's pretty consistent. Phoenix Cloud had a good quarter. Has a very good pipeline. We're extremely excited about the transition there and the growth. Simcyp had a good quarter as well. Core kind of PBPK offerings.
Clinical, which is, as we said before, has ebbs and flows a little bit when new trial starts, and it's gonna be a little bit slower than it has been in past years. Actually, slightly outperformed expectations in the quarter. You know, I think just about everything performed at or above expectation.
Scott Schoenhaus — Managing Director, KeyBanc
Thank you.
Brendan Smith — Analyst, TD Cowen
Great. Thanks for taking the questions, guys. Congrats on all the progress. Maybe just a bit of a follow-up on one of the previous questions, but I guess can you speak a bit more specifically to the new customer mix you're seeing here today? I know you mentioned pharma really leaning more into AI, which we continue to see kind of across the board, but also maybe some impact on tier one customers. I guess first just wondering how the new software adds within pharma compare to maybe new customer adds within smaller emerging biotech and just any trends to call out in those relative buckets.
Jon Gallagher — CFO, Certara
Hi, Brendan. We were pleased obviously with the rebound that we saw with software on the quarter. To your point, you know, across all customer tiers one, two, and three, we saw pretty significant acceleration in the bookings. We saw good achievement on the revenue with 7% software revenue growth on the quarter. I'd say, you know, as it relates to specific, you know, within the tiers, we saw tier three customers and tier two customers leaning in on, you know, Jon mentioned before on, you know, we saw strong performance in Phoenix as well as in ChemAxon. I'd say in the tier one category, we had another good quarter on Simcyp.
you know, that's, you know, that's a overall highlights of, you know, the customer tiers in the quarters. you know, they came above expectations on the quarter, which was good on the heels of, you know, some choppiness we saw in Q4.
Brendan Smith — Analyst, TD Cowen
Okay. Got it. Thanks. Then maybe just a quick follow-up, just kind of talking about the operational efficiencies you mentioned, I know it's being an internal target for, you know, kind of helping drive margins. Can you maybe help us understand kind of through that lens, the structure even of the NVIDIA collaboration, really what that looks like and how we should think about the impact over the next couple of quarters there? Thanks.
Jon Resnick — CEO, Certara
You know, you mentioned execution first. Look, there's a range of initiatives in play. I mean, obviously today we're announcing, well, some reorganization work we've done, have done. There's a divestiture. There's also been a lot of broader work on operational cadence and execution and cost base. We're moving incredibly quickly, certainly at a rate and pace which I'd expect to set up the business for long term. We can go through some of those mechanics if you want later. The NVIDIA partnership, no, I think our general mindset on these things is, let's, you know, let's not throw out splashy press releases and other things. Let's talk from a point of substance.
We've been working with NVIDIA for the last couple months, you know, through an MOU and through a signed partnership agreement, really to define ways of scaling, you know, the speed at which you can execute on particularly some of the more complicated simulations, allowing more democratization. The belief is, you know, if we can speed some of the, some of the, you know, core QSP and PK offerings, we can, you know, allow for much broader use within organizations so people can get quicker reads on what's going on earlier and kinda meet the expectation of early discovery of preclinical users of the applications. We're excited about it.
We'll come back with more details on how to think about it exactly in terms of product development and how to think about it in terms of kinda joint, you know, joint efforts here and its impact in terms of our thinking about overall operational efficiencies.
Brendan Smith — Analyst, TD Cowen
Got it. Thanks, guys.
Luke Sergott — Director of Healthcare Equity Research, Barclays
Great. Thanks for the questions, guys. I just wanna talk about the reorg there that you guys are talking about, across the two segments and it's more about just the consistency or stability that we could see from software versus services, because it seems like, you know, one quarter one of the segments is really strong and then at the expense of the other and then vice versa. Just what you guys are doing to build in some consistency and more sustainability here going forward between the two?
Jon Resnick — CEO, Certara
Yeah. I've had the same observation. There's been a lot of inconsistency and back and forth over the last few quarters, you know, that we clearly put a lot of focus on software this quarter. We got a strong software result. You know, I think our approach moving forward is obviously to try to get that balance right. There's a number of things. First of all, the exiting of the regulatory medical and medical writing business will help. That's been an extremely lumpy business on the service side. Our resultant mix of business will be much more mixed between services and software on an ongoing basis, which will give much more predictability into what we do.
The exit of the regulatory business, which wasn't really tied to our core software business, you know, as I said last quarter, we do best when our technology and services are integrated. What we've effectively done on the MIDD business here, MID3, is we've brought together all of our kind of expert services and our technology to create that flywheel effect. There should be more stability when those two businesses able to wrap around it. We're also taking some steps with our sales teams and our commercial organization to better align specialty engagement on that side. That should drive more predictability.
I wouldn't say we've, you know, completely solved the riddle, but we see the same pattern, and obviously we're focused also on creating the incentives in the organization that'll get both of those segments moving at the same written pace.
Luke Sergott — Director of Healthcare Equity Research, Barclays
Great. Now, I guess with regards to when you think about the guidance and the back half, step up here, you had a really big bookings have been pretty good on the services side. Like, when's the timing of there when we see that flow through? If you could just help us out with the pacing on that services ramp through the year.
Jon Gallagher — CFO, Certara
Yeah. It, services bookings take a couple of quarters to pull through. One of the focus areas that we've had over the last quarter has been.
Backlog conversion, we saw good despite the choppiness and softness we saw on the booking side for services, we did see very good backlog conversion. We expect to be able to continue that through the course of the year. Backlog is gonna help support the, you know, the revenue achievement, especially in the back half of the year here with the bookings that we posted in Q4, along with the bookings that we're posting now. What we're seeking to do is drive an inflection point through the execution on ensuring we're filling up that backlog. That's some of the focus area that we have right now.
Luke Sergott — Director of Healthcare Equity Research, Barclays
Great. Thanks.
David Windley — Managing Director, Jefferies
Hi. Good morning. Thanks for taking my question. I wanted to ask on the references to execution and go-to-market challenges that impacted the first quarter. Jon, you touched on those at kind of a high level, but I wanted to understand better, was that caused by a lot of the realignment that you talked about and just kind of the intensity of that during the quarter? What, you know, in more detail would you use to describe those execution and go-to-market challenges that impacted the first quarter? Thanks.
Jon Resnick — CEO, Certara
First of all, I'd say, David, there's, you know, there's a legacy model that was in place. A lot of the changes that we're making, I think, are meant to enhance it. I'm pleased by the progress we made on the software side. There was a real focus there, and you can see the results of that focus on that side of things. I think overall, what we're looking to is just more consistency across the teams. We're focused in a few areas. You know, one, you know, how can we make sure we're optimizing expert-to-expert engagement across the business? You know, a lot of these, a lot of the engagement that happens here is scientist to scientist.
We wanna make sure we're putting that foot forward. Second area that we're focused in on is expanding partnerships. You know, we mentioned the Altasciences relationship. That really, I hope, signals and reflects a different approach to partnering and a different approach to go into market in different ways. Our offerings are incredibly strong in terms of being complementary to what a number of players have out in market. There are a number of at-scale players, whether they're venture capital players or whether they're CROs that we are, you know, very good potential partners for. A renewed focus on partnership and how we can drive through. We've leaned in much heavier on a targeting approach, you know, continuing to focus on tier one.
There's a number of clients in the tier two space that we're working on building out new relationships and extending where the overall integrated tech service proposition fits very well. We've layered in a number of kind of AI initiatives to help drum up more opportunities and to drive more growth across the business. Look, we're doing a number of things. I don't, you know, necessarily, you know, change always creates some, you know, churn, as you'd expect, and you got reg business in and reg business out. Those things do have an impact, you know, our goal here is to set up, you know, a business that's going to be growing in line with your expectations and, you know, our shareholders' expectations over time.
You know, that's gonna be taking some short-term, tougher decisions that are gonna lead to that longer-term growth.
David Windley — Managing Director, Jefferies
Got it. Appreciate that. My follow-up is around biologics in particular. I think there's been some effort over multiple years to refine or augment some of the software platforms, maybe in particular Simcyp, to be amenable to or to better address the large molecule market. I wondered if you could comment on the progress there and what specific client traction the software in general, but again thinking primarily Simcyp might be getting on the biologic side. Thanks.
Jon Resnick — CEO, Certara
Yeah, it's a great question. I don't have the data points in front of me, and I can provide them at a, in a subsequent discussion. I, you know, there's obviously been a lot of focus on that point internally as I've gotten ramped up. We, you know, we are-- We do see not only in Simcyp, but QSP, which is kind of the extension beyond that which brings in more of the biological components. We do see, a, you know, a growing percentage of our business, you know, outside of the oral components which you get into peptides and a whole range of other things. There's a range of other things. There's a ton of need for both of these.
I was actually asking over the weekend, David, for a quantification, a percentage of each of them. I don't have it to hand right now, but we're looking. There is strong growth as you look at the net new offerings that we're building. They are, you know, equally as relevant to the, you know, to the chemical and to the, you know, large molecule side. I can provide follow-up when we speak next with a little bit more color on it. We are focused on extending the applications into that large molecule space.
David Windley — Managing Director, Jefferies
Got it. Appreciate that. Thank you.
Michael Cherny — Senior Managing Director, Healthcare Technology, and Distribution, Leerink Partners
Good morning. Thanks for taking the question. Maybe if I can just circle back on the Strategic AI expansion that you noted earlier. Jon, either Jon, as you think about the investments you're making, the reorg you're doing internally, how are you balancing the need to ensure appropriate returns versus the spend levels? We hear so many stories about AI spending ad infinitum. What is the risk, the up-down dynamics that you're pursuing to make sure that the investments you're making are the right ones?
Jon Gallagher — CFO, Certara
Yeah, good question, Mike. Well, what we've undertaken this year, you've seen R&D spend in the quarter continue to increase and, you know, we've said that we're deliberately making investments. What, with Jon's onboarding, one approach that we've changed to ensure that we're getting the return on that capital invested is starting to look at, we call it a portfolio view or looking at business cases around what we're investing in and when the revenue's gonna come on that. You know, Jon talked about some changes to the organization. Jon talked about some of the platform investments that we're making.
What I'd tell you is that, you know, we're taking a disciplined approach toward the investments that we're making this year in R&D, and looking at when the return is going to come, i.e., when is the revenue gonna start to show up for that? Which, as you understand, many of the investments that we're, we'd be making in 2026 will start to show up in 2027.
Jon Resnick — CEO, Certara
I'd add just a little bit to that. I mean, the good news about, you know, about this portfolio is that it's, you know, it's built on what I've described as kind of clinical and scientific intelligence already. You know, if you think about the fundamental business, 10,000 projects, thousands of published articles, you know, the regulatory know-how, the entrenched workflow, 160,000 users. I mean, there's a lot of, I think we said a 36 trillion data points in Pinnacle and the Simcyp record. There's a lot of know-how and unique data and unique applications that exist within our four walls. The investment itself doesn't have to be in building up that capability and the ability to create the infrastructure.
The investment is on top of it in terms of turning, you know, that unique capability and that unique insight we have into something that's gonna be broadly, you know, available on a more systematic basis to, you know, work within a client's ecosystem. That's one. Two, I'd also say that I think we'd signal that I think we understand where our fit will be in here relative to some of the other model providers and other, you know, workflow and agent providers in market. You know, we're very comfortable with our perspective in terms of being able to partner within this ecosystem. NVIDIA is one good example of kind of where we're going with some of this.
We also have a number of other discussions going on around how can we be as effective as possible and as targeted as possible, and do some of this in a stepwise fashion so that we can get the return that we're expecting.
Michael Cherny — Senior Managing Director, Healthcare Technology, and Distribution, Leerink Partners
Just one quick additional question. I apologize if I missed this. With the divestiture now completed, what's the plans for use of capital raised?
Jon Gallagher — CFO, Certara
On capital allocation, I mentioned in the prepared remarks, we bought $40 million of shares against our authorization in Q1. Share buyback continues to be a focus and a capital allocation vector for us. What I'd also say though is, you know, we've got a good track record of tuck-in M&A, and looking at the pipeline there is also, you know, something that we're evaluating. We didn't specifically highlight, Mike, that we would do one or the other. You know, both of those are now areas that where we've been deploying capital successfully over the course of the last year.
Michael Cherny — Senior Managing Director, Healthcare Technology, and Distribution, Leerink Partners
Got it. Thanks, John.
Jon Gallagher — CFO, Certara
Yep.
Jeff Garro — Managing Director, Stephens
Yeah, good morning. Thanks for taking the questions. Wanted to ask about the new MID3 and ACE categories. As just to start, if you could spell out in a little more detail the products that fit in each area and what we should expect in terms of metrics or commentary on those categories going forward.
Jon Resnick — CEO, Certara
Sure. Absolutely. MID3 is gonna be our core model-informed drug development and discovery applications that'll house not only the technology assets, things like Simcyp and Certara IQ, but also the full range of expert-based service capabilities that we have with QSS, QSP, PBPK. It'll be kind of a one-touch up. They're, you know, accountable and responsible for building up the regulatory footprint and the scientific footprint and, you know, on offering development on that side, a good mix between that flywheel effect between technology and, you know, expert-based services. The other side, ACE.
ACE is gonna be focused on solving a lot of the data problems that exist within which is probably underlined best by some of the recent FDA trial acceleration commentary. That will include things like Phoenix and Clinical and CoAuthor and GlobalSubmit and some other things that we have within our four walls, which are really focused in on kind of solving the data and workflow problems. Helping to accelerate the rate and pace at which data can be turned into evidence for submission.
Jeff Garro — Managing Director, Stephens
Excellent. I appreciate that. To follow up on that topic, curious about how the go-to-market evolves with these categories. You know, any way you can frame kind of how big of a change is this going to be for your go-to-market teams? How should we think about the timeline of making those operational changes? Finally, any expectation you would set on expected impact from these go-to-market changes? Thanks.
Jon Resnick — CEO, Certara
I've mentioned a couple times, You know, I think the predominant focus here from the management team is how are we gonna build this business to get to that, you know, double-digit growth that everyone externally is expecting, that we believe is, you know, 100% possible. You know, as you kind of make and evolve these changes, you may have a little bit of churn in the near term, but these are being set up for, you know, long-term, you know, long-term opportunity maximization and long-term growth. The changes that we're making, that we've announced today and that we're moving forward are really what I would characterize as more alignment-based changes than kind of fundamental restructuring of our commercial organization.
We've taken, you know, our. Historically, or the last couple years, there's been a centralized sales organization that operated independently from the businesses. One of the changes that we've made is basically to align the portfolio teams that are selling the products within MID3 or ACE with the actual businesses. This will shorten, you know, feedback loops from clients. It'll, you know, create more accountability within the business. It'll help, you know, help us with the product innovation and ensure that, you know, we have focused hubs for sales and product execution. Look, I don't, I don't You know, I don't think we're, we've quantified, near term versus long-term churn attached to this.
You know, again, our expectation is that this will set up this business to have, you know, the type of growth that you want over the midterm. That's the goal of these changes, and it's the goal of the strategic moves that we're making.
Jeff Garro — Managing Director, Stephens
Great. Thanks for taking the questions.
Craig Hettenbach — Executive Director, Morgan Stanley
Yes, thank you. Can you touch on just the visibility in the software business, you know, the expectation for a stronger second half, including any differences you see by customer tier over the course of the year?
Jon Gallagher — CFO, Certara
Yeah. Hi, Craig. Yeah, the visibility. We mentioned the visibility on software for a stronger second half is better this year than what we saw last year. The main reason for that is if you look at the deferred revenue, the deferred revenue balance is higher, meaning the ratable software business that we've sold is in hand, and it's gonna start to build as we, you know, as we move through the course of the year. The other thing I'd point out on Certara for a second half ramp is it's more of a ramp in growth rate than it is in dollars. If you look at the actual dollars, if you were to look at that at the top end of the range, it's a pretty modest increase in the amount of revenue dollars.
The comps ease as we get into the second half of the year, and therefore the growth rate itself will be reflected higher. Those are a couple of the key reasons why the first half/second half story on software. Of course, you know, the performance in the quarter gave us some confidence as we move through the year.
Craig Hettenbach — Executive Director, Morgan Stanley
Customer tier you said was kind of broad-based in Q1. Is that the expectation as you move through the year? Is there anything you would call out by customer tier?
Jon Gallagher — CFO, Certara
Yeah. I mean, across the Good growth exceeded our plan expectations across the customer categories. I'd say that was most pronounced in tier two and tier three. That outperformance tier one was a strong contributor for sure. You know, we've got some tailwind from funding environment at this point. We think that as we move through the year, that's gonna help us in the tier two and threes.
Craig Hettenbach — Executive Director, Morgan Stanley
Great. Just my follow-up question on kind of the AI dedicated team. Just as you're thinking about allocating capital in the business, are there parts of the organization where you're finding efficiencies in terms of where you're shifting spending? Can you give any color around that?
Jon Gallagher — CFO, Certara
Yes. Yeah. We are. You know, you probably remember on the prior call, we mentioned cost avoidance. We're still working through that. You know, our margin guidance that we gave here today would be reflective of, you know, improvement as we move through the course of the year. The answer is yes, we are reallocating. We are making trade-off decisions, and that's happening, you know, on the operating side as well as in R&D investments.
Jon Resnick — CEO, Certara
I think unsurprisingly, similar to others, we're seeing massive acceleration improvements as well. Productivity is way up. The amount of code our teams are able to generate, the productivity of what we're doing is dramatically increased. Quite pleased with the acceleration of roadmaps and the acceleration of capabilities that comes along.
Craig Hettenbach — Executive Director, Morgan Stanley
Helpful. Thank you.
Sean Dodge — Analyst, BMO Capital Markets
Yeah, thanks. Maybe just the partnership you mentioned with Altasciences. Is there anything more you can share on how that works with the opportunity? Is there anything about the economics of it? Is it just software you're providing there, or is there gonna be services that are part of the Altasciences partnership too?
Jon Resnick — CEO, Certara
Yeah, we're excited about this. I mentioned before, I think as a company, our portfolio lends itself very well to a range of partnerships. We're very highly complementary to a number of, you know, at-scale market players here, and I think this is something we'll continue to push on. You know, this relationship is, you know, brand new, obviously just announced this past week. There is genuine alignment between the teams around acceleration of trials, you know, opportunities to completely rethink, you know, early stage execution in different ways.
Altasciences is a unique one of two who has, you know, set up integrated, you know, lab, animal, human CDMO capabilities, so they have the opportunity to come from an early stage, really kind of connect a lot of the things that we do on the modeling side. You know, by working together, we'll also be able to do some disruptive things with data and help close some of the loops on data and accelerate data flows. We'll be working with them over the next couple of weeks and months in terms of defining not only kind of joint opportunities to engage customers. There's very high customer overlap already, which is the starting spot.
Identifying opportunities to, you know, better integrate, you know, technology and service workflow across the two organizations to the benefit of our clients.
Sean Dodge — Analyst, BMO Capital Markets
Okay. Thank you. On the software side and more specifically on the upsells you referenced in the quarter, can you give us an example or two around, like what is an upsell? What would've been kind of some of the more common ones lately, and have those been pretty consistent across all client tiers, or have you seen kind of more on one or the other?
Jon Gallagher — CFO, Certara
Effectively, that's reflected in the net retention rate. We did 106 on the quarter, which was an inflect higher than where we've been over the last few quarters, which is good. What does that mean? I mean, in the tier one customer category, those are already our customers. You know, an upsell would basically be some kind of expansion. We're taking more seats, we're selling more functionality. In the tier two and tier three, and particularly in the tier three category, you know, that's the opportunity to add some new names or some new logos. We also have a huge 2,400 total customers, customer base.
Any kind of upsell is that land and expand strategy that you've heard us talk about in the past, which is really working the existing customer base and making sure they're aware of the breadth of product offerings that we have, and that would fall under that upsell category.
Jon Resnick — CEO, Certara
Yeah. If you recall, in the last call, we talked a lot about price as particularly pricing discipline as a lever. We've looked at this on, you know, two or three dimensions. We've looked at this on an operational lever, which John just referred to. You know, look at our net contract values, look at our, you know, existing, you know, up-upgrade paths and potential, which is a tactical plan we have in place, and we've got a SWAT team who's looking at that. We've also looked more broadly at a suite of strategic initiatives.
One of the pieces of feedback that I've received from some of our enterprise clients is that they're looking to consume more of our software, to consume more of our technology in an integrated way, and sometimes the pricing structures, are inhibiting to doing that. How can we develop more enterprise-based pricing approaches that will be consistent with our push more into platform engagement is another big initiative that we have as well. We think both of these, will be net beneficial to our growth rates over the coming months.
Sean Dodge — Analyst, BMO Capital Markets
Okay, great. Thanks again.
Matthew Hewitt — Analyst, Craig-Hallum Capital Group
Good morning. Thanks for taking the questions. Just one from me. Jon, you spoke about your partnerships, and there's been consortiums announced over the, you know, past few quarters. You've got these relationships with NVIDIA and the new one with Altasciences. I'm curious, as you look at the news flow regarding these partnerships, whether it's yours or others in the market, is the ultimate goal here to drive either adoption of simulation and modeling to accelerate that, which obviously would benefit you? Is it to create a wider moat, allowing you to not only retain but maybe grow that business even further? I mean, what is the ultimate goal, and when do you expect to see some benefits from these types of partnerships? Thanks.
Jon Resnick — CEO, Certara
Good question, maybe I can say yes, and yes. I mean, I think those are both, you know, we know success in this market is not, you know, one-offs. We live in a very connected ecosystem. There are a range of capabilities it's gonna take to be successful, and to, you know, to grow at the rate and pace at which we believe we can. You know, we're being focused in terms of what we think we're very, very good at, and we're doubling down and tripling down in what we're very good at. We'll look for, you know, for partnerships to fill in some of those gaps.
You know, partnerships with technology, you know, it's with, you know, it's technology suppliers and with, you know, modeling, you know, those things are complete accelerants to what we do. Commercial partnerships with at-scale players like, you know, like early-stage CROs or in fact, you know, perhaps others as you go along who at scale have large books of business as well and are working with, you know, in the core kind of clinical side, which we don't have capabilities. We're not, you know, not CRO per se. Is it another? You know, if we can integrate that on behalf of our clients, it's win-win. It's, you know, win, win.
It's win for us, it's win for an health sciences type partner, and it's a win for, you know, clients who we'll be working with because we can accelerate timelines and drive, you know, drive costs down for them and help disrupt conventional flows. Look, I think it's a realization that it'll help accelerate the market. It's also a realization that, you know, we know what we do very well and that we're comfortable in partnering with others and what they do well to help create winning scenarios for our clients.
Matthew Hewitt — Analyst, Craig-Hallum Capital Group
Got it. All right. Thank you.
Max Smock — Analyst, William Blair
Hi, Jon and John. Thanks for taking our questions and squeezing us in here at the end. Maybe just one for us quickly. You talked a lot about just interest and impact of AI on drug development. I'm curious to get your thoughts on how much interest is out there on the large pharma side from building out internal solutions. Obviously, it seems like there's been a lot of focus on discovery. Do you expect these investments to result in solutions that are going to be competitive with your offerings in that space? In clinical, how should we think about the risks that large pharma builds solutions that compete with your MIDD solutions here going forward? Thank you.
Jon Resnick — CEO, Certara
Max, I just want to make sure I understand the second question. Can you just repeat that one more time?
Max Smock — Analyst, William Blair
Yeah, just around large pharma and their willingness and ability to build out solutions that compete with your offerings, whether that's in discovery or the clinical space.
Jon Resnick — CEO, Certara
Look, I genuinely think in the near term, where most of the productivity is happening and where most of the big splash press releases are is on the earlier stage discovery. I think as we've mentioned, we see this as kind of a net positive to the market. More compounds means more demand for MIDD services. Look, I know there's a lot of, you know, a lot of press releases, a lot of uncertainty out there around how some of these things go. What we're hearing on the other side of it is phone calls from a lot of these players and providers about how do we tap your capabilities into what we're building and doing.
You know, I started in the opening statements, and I think I reiterated again when we told the story about what it took to get Simcyp approved in the EMA, and we've been working with the 25 member companies in two years and the importance of transparency and the importance of auditability in that. We talked about the mechanics around, you know, Pinnacle 21 and the 36 trillion data points and the mechanics of it. You know, we talk about the legacy of the historical data and all the kind of unique IP that we have. It's pretty tough to replicate. I mean, this is not easy stuff. I would see it as hugely inefficient for others to be building their own capabilities.
I think it's incumbent upon us to democratize it, to the extent that we can make it broadly available within their four walls and partner with them in different ways so that the companies are getting, you know, broad application, the benefit of the capabilities that we bring.
Max Smock — Analyst, William Blair
Got it. Thanks for taking our question.
Source: Certara, Inc. earnings call transcript (2026-05-11). Management commentary and analyst Q&A are reproduced as delivered; speaker roles as stated on the call.

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