Good day, and thank you for standing by. Welcome to the Certara First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Deuchler, Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Certara, we have William Feehery, Chief Executive Officer and John Gallagher, Chief Financial Officer. Earlier today, Certara released financial results for the quarter ended March 31, 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 2 of 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 financial measures are available in the recent earnings press release available on the company's website. Please refer to the reconciliation tables in the company materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 2025. 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. And with that, I will turn the call over to William.

Thank you, David. Good afternoon, everyone. Thank you for joining Certara's first quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions. We are pleased with our start to the year, delivering financial results consistent with our expectations, driven by strong commercial execution across both software and services. We finished the first quarter with revenue of $106 million, representing 10% reported growth versus the first quarter of 2024. Certara’s first quarter bookings of $118.2 million represented 12% reported growth versus the prior year period, driven by software bookings growth of 23% and services bookings growth of 7%. Additionally, we continue to see good performance from Chemaxon, which contributed $5.9 million of revenue and $4.9 million of bookings in the quarter. The current market has both continued headwinds that we've been managing over the past couple of years as well as some new and exciting tailwinds for Certara. Continued headwinds include the downstream effects of IRA price controls, an erratic capital raising environment for biotechs and a potential for new trade and healthcare policies from the current administration. Tailwinds include the recent FDA announcement about phasing out animal testing, a general willingness to expand the use of modeling in pharmaceutical development and the increasing spending on artificial intelligence solutions among our customers. In the long run, we expect most of the headwinds to resolve, while the tailwinds are likely to remain in Certara's favor. With that in mind, we will continue to execute our strategic investment plan focusing on the integration of AI into our software solutions, building a more integrated software platform, increasing our investment in biosimulation model development and expanding our solutions into the earlier stages of drug development. Certara’s value proposition is multifaceted. We accelerate decision making to drive more cost-effective development by making better use of scientific modeling and data analysis. Over the past several years, we've invested to build Certara into the leading partner in biosimulation by creating new software products and features, building a robust commercial infrastructure capable of selling to the large number of customers in our industry and executing strategic M&A to expand our capabilities. The FDA's recent announcement of a plan to phase out animal testing requirements for monoclonal antibodies and other drugs increases the relevance of Certara’s capabilities. This new direction follows a framework outlined by Congress and the FDA Modernization Act 2.0 that was passed in late 2022 and aims to develop a clear regulatory pathway to streamline the drug development process, including leveraging computer modeling and artificial intelligence to predict a drug's behavior. Certara has created a biosimulation solution called Non-Animal Navigator for preclinical monoclonal antibody development, which uses our Simcyp simulator and our QSP modeling group. The solution also leverages the extensive experiences of our services team in creating first-in-human study designs. In the weeks following the announcement, we have seen significant inbound interest from customers who would like to understand the role Certara can play in their preclinical development. Just last week, we hosted an online webinar with over 400 attendees outlining our approach to helping customers navigate alternatives to animal testing. We believe new regulatory initiatives at the FDA, including phasing out animal testing, are long-term tailwinds for the adoption of modeling and simulation tools across drug development phases. Now turning to our commercial performance in the quarter. In software, we continue to see healthy bookings performance from our Tier 1 and Tier 3 customers, with high renewal rates and modest upsell contributing to growth. We've also begun to realize some cross-selling benefits as we integrate Chemaxon into our broader commercial organization, leading to another strong quarter with $5.9 million of revenue. In services, we observed stable demand across both biosimulation services and regulatory services. In biosimulation services, we continue to see some softness in the Tier 1 customer base, which was offset by solid growth across Tiers 2 and 3. In Regulatory Services, we saw revenue bookings growth on a year-over-year basis with strong contribution across all three customer tiers. Heading into the second quarter, we are encouraged by the underlying demand from customers and are confident in our ability to meet our commercial goals at this point in the year. In addition to strong commercial performance, our R&D teams continue to make progress on the software development front. On April 1, we announced the 24th version of our Simcyp Simulator, which was the culmination of months of hard work from our team paired with valuable feedback and insights from over 30 consortium members. This year, updates were focused on numerous new features, including an expanded library for drug-drug interactions, additions to our biopharmaceutical and virtual bioequivalence modules, enhancements to support modeling of special populations and an improved user interface. To date, Simcyp has supported over 120 FDA approved novel drug applications and over 300 label claims in addition to being granted numerous clinical trial waivers. As we expand the breadth and capability of our software platform, we look to stay active and in front of our customers. We are excited to host the second annual Certainty Conference in Philadelphia beginning tomorrow. Last year's conference was a success and we are thrilled to host over 300 clients showcasing the advancements we've made in model-informed drug development. Certainty has become an opportune time to showcase our capabilities in the preclinical area as our customers look for alternatives to animal testing and there will be several presentations elaborating on how Certara can help drug developers implement new approach methodologies such as PBPK and QSP. During the quarter, we also had the pleasure of welcoming new leadership to our services group. We're pleased to welcome Dr. Adrian McKemey as President of our Drug Development Solutions business. Adrian joined Certara with over 25 years of industry experience, having led business transformation, portfolio management and R&D initiatives for a wide variety of clients in the biopharma industry. As part of a planned leadership transition, Patrick Smith has moved into a new role as Senior Vice President of Translational Sciences. Patrick will continue to be a key member of our services group, focusing on Certara’s scientific growth and innovation. Before wrapping up, I wanted to provide an update on some recent announcements. On April 14, we announced $100 million share repurchase authorization and provided an update on the strategic review of our regulatory business. The Board's decision to authorize a share repurchase allows us to have more flexibility with the management of our capital to drive value for shareholders. This authorization from the Board reflects their support and confidence in our investment in biosimulation, including AI and in the strategic decisions we have made to drive long-term growth for the company. However, our primary use of capital remains the same as it has been since we became public and we will continue to be active in looking at M&A opportunities and making organic strategic investments to drive long-term sustainable growth. Also, as we announced, we have been proceeding with our review of the regulatory business and have received interest from external parties, though we do not have more to announce at this time. To close, we are pleased with our first-quarter results and we are excited by the evolving opportunities at the company. Our team is executing against our commercial plan, driving solid operational performance in light of more muted end markets. Our R&D initiatives are progressing nicely and we are on track to launch several new products later this year. The secular tailwinds for biosimulation continue to drive adoption and we are excited to play a role in the evolution of drug development towards new methods and approaches. With that, I'd like now to hand things over to John Gallagher to discuss our financial results in more detail.

Thank you, William. Hello, everyone. Total revenue for the three months ended March 31, 2025 was $106 million representing year-over-year growth of 10% on a reported basis and on a constant currency basis. Total bookings for the first quarter were $118.2 million which increased 12% from the prior year period on a reported basis. Trailing 12 month bookings were $457.7 million increasing 16% on a reported basis. Excluding Chemaxon, total company organic bookings growth was 7% compared with the first quarter of last year. Software revenue was $46.4 million in the first quarter, which increased 18% over the prior year period on a reported basis and 19% on a constant currency basis. Organic growth in the quarter was driven by Biosimulation Software and Pinnacle21. Additionally, Chemaxon contributed $5.9 million to our reported revenue, which came in ahead of our expectations. Ratable and subscription revenue accounted for 57% of first quarter software revenues or 62% when excluding Chemaxon, up from 61% in the prior year period. Software bookings were $40.8 million in the first quarter, which increased 23% from the prior year period. First quarter bookings include $4.9 million of Chemaxon bookings. Trailing 12-month software bookings were $177.3 million, up 27% year-over-year. The software net retention ratio was 102% in the quarter. With organic software revenue growth up 4% in Q1, consistent with our plan, this NRR is below the historic average based on expected timing of software revenue achievement during 2025. Looking at our software bookings performance by tier, we saw very strong performance in both Tier 1 and Tier 3 customers in the first quarter, driven by continued adoption of our software. Now turning to services revenue, which was $59.6 million in the first quarter, up 4% versus the prior year period on a reported basis and on a constant currency basis. We saw strong performance from our regulatory services business in the quarter, delivering a second consecutive quarter of year-on-year growth. Technology-driven services bookings in the first quarter were $77.4 million, which increased 7% from the prior year period. TTM services bookings were $280.4 million, up 10% as compared to the prior year. In the quarter, we saw stable demand for our biosimulation services with softness in Tier 1, offset by strong bookings growth in Tiers 2 and 3. Regulatory writing bookings grew double digits versus the first quarter of 2024. Total cost of revenue for the first quarter of 2025 was $41.5 million, an increase from $39.3 million in the first quarter of 2024, primarily due to higher software amortization expense. Total operating expenses for the first quarter of 2025 were $56.9 million, a slight decrease from $58.7 million in the first quarter of 2024 primarily due to a $3.1 million decrease in the change in fair value of the contingent consideration, which was offset by higher sales and marketing expense and intangible asset amortization. Adjusted EBITDA for the first quarter of 2025 was $34.8 million, an increase from $29.1 million in the first quarter of 2024. Adjusted EBITDA margin in the quarter was 33%, which came in ahead of our expectations. As I discussed last quarter, we plan to continue investing in R&D in 2025 to drive new product development and further integrate our software. In the first quarter, we saw some benefit to EBITDA from slower-than-expected hiring, which contributed about 200 basis points to our EBITDA margin. We expect hiring to pick up through the middle of the year, which will align margins more closely with our guidance expectations over the next several quarters. Wrapping up the income statement. Net income for the first quarter of 2025 was $4.7 million compared to a net loss of $4.7 million in the first quarter of 2024. Reported adjusted net income for the first quarter of 2025 was $22.4 million compared to $16.5 million for the first quarter of 2024. The Diluted earnings per share for the first quarter of 2025 was $0.03 compared to a loss of $0.03 per share in the first quarter of 2024. Adjusted diluted earnings per share for the first quarter of 2025 was $0.14 compared to $0.10 for the first quarter of last year. Moving to the balance sheet. We finished the quarter with $179.1 million in cash and cash equivalents. As of March 31, 2025, we had $294.8 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. As William mentioned earlier, the Board authorized a $100 million repurchase program in mid-April. Following the announcement, we have repurchased approximately $25 million of that authorization to date. We are reiterating our guidance today as follows: We expect total revenue in the range of $415 million to $425 million, representing growth of 8% to 10% compared with 2024. We expect Chemaxon to contribute software revenue of $23 million 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 the 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 we progress through the year. We expect adjusted EPS in the range of $0.42 to $0.46 per share, fully diluted shares in the range of $162 million 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 Feehery for closing remarks.

Thank you, John. To summarize our message today, we are pleased with many exciting developments at Certara in the first quarter, and remain focused on executing our growth and profitability goals in 2025. We are working hard to capitalize on our commercial opportunities, including the recently announced phaseout of animal testing for monoclonal antibodies and we have begun to repurchase shares under the new share purchase authorization. I am proud of the work of our team, and I look forward to providing additional color as the year progresses. Operator, can you please open the line for questions.

Thank you. Our first question comes from Michael Cherny of Leerink Partners.

Great, thank you. This is Dan Clark on for Mike. First one from us. Just on the inbound you've received for your non-animal Navigator thus far. Are there any teams for companies or tiers of customers that are particularly interested? And then as a second question, what do you think is the right market for Certara in this business environment? Thank you.

Yeah, thanks. I'll take the first one. We've had a tremendous amount of interest from customers coming to our webinar or calling about it. I think a lot of the market is trying to understand what the FDA wants and what the possibilities are and how fast this is going to happen. I think in general, companies have been interested and excited about potential change in the way drugs are developed using fewer animals and trying to figure out how far the FDA is along in their thinking and when they would make a switch in drug development. So those are the kinds of questions we're getting right now. Also, I'd say just sort of how far along is the technology and what can be replaced with animals which animal usage can be replaced today? And then for the second question, I'll turn it over to John.

Yeah. Thanks, Will. So on the NRR, this quarter at 102% is lower than what you've typically seen from us. That's driven by a couple of things. One is the organic software growth at 4% is lower than our implied guidance range of 6% to 8%, but it was in our expectations. So there was some expected timing related to the achievement of organic software revenues that we would expect to ramp up over the remaining course of 2025. In addition to that, the portion of ratable software is increasing. In fact, in Q4, excluding Chemaxon, we had 70% ratable. That tends to be our high point in Q4. Here in Q1, we had 62% ratable, which was growth year-on-year. The more ratable that we achieve, the more that the software growth is going to roll out during the quarters of 2025. So I think in relation to what you should expect, I think it's important to look at a metric like NRR over a multi-quarter basis. Last year, we had an average of about 110. This year, what we're saying is the 102 came in on plan, and we'd expect it to increase as software revenue increases.

Thank you. And our next question comes from Joe Vruwink of Baird. Your line is open.

Hi, thank you for taking my questions. I wanted to follow up on those who are reaching out to you. What is the scope of commercial engagement like? Are customers expressing interest in licensing agreements for more scientists? Is there discussion about providing users with features they currently do not utilize? One topic that appears to be coming up more frequently is the potential for QSP modeling to significantly increase. What is your initial sense of how your business might evolve?

Thanks, Joe. The main questions revolve around what can currently be replaced and what is more aspirational. It would be quite challenging to entirely replace all animal models today, but a significant portion could potentially be replaced. We launched a product called Non-Animal Navigator, which integrates our QSP capabilities and drug development skills to use QSP models for informing dosing decisions on items like monoclonal antibodies, thereby reducing the preclinical reliance on animal models. Looking ahead, we also have QSP and some toxicology models that can guide preclinical decision-making, though eliminating those in long-term studies may be more difficult. However, that is not the current primary concern for most people. I hope this provides some useful insight.

Yeah, that's good. And then obviously, the question that's coming up is how big of a dollar opportunity could this ultimately be for the biosimulation space. It might just be too soon to say, but maybe I'll ask I think about how Certara has traditionally framed the growth in their business and kind of the parameters of 10% to 15% over time. Would you kind of view the recent roadmap as increasing confidence on sustaining 10% to 15%? Or do you really think this could be a shift up entirely, and so it results in a number above the 10% to 15% range?

Yeah. I think it's probably a little bit too early to make that call. The FDA made an announcement that is very encouraging. I think it's very complementary in terms of the value that Certara can bring to something like this. But it's going to take some time to implement it and want to see how fast that goes. I think that's the key variable there. As I said, we're already getting a lot of early interest, but we're talking about a significant change in a regulatory process in a drug development process that can take years. So those will have to roll out as we go forward. I would say, overall, it will be helpful to our growth rate, but I think it's probably too early to give you a number right now.

Okay, I’ll leave it there. Thank you.

Thank you. Our next question comes from Scott Schoenhaus of KeyBanc. Your line is open.

Thank you. Thanks for taking my question. My first question relates to the potential pharma tariffs. Are you having conversations with your customers on this? Are they saying it's going to be impacting, or are they being more cautious with their budgets going forward? Any color around this potential headwind or tailwind in your view? And then secondly, as a follow-up to the FDA phase-out of animal models. Is it more centered around smaller biotechs that are coming to you around monoclonal antibody preclinical studies? Or is it broader in terms of your larger customer base? Thanks.

Let me address the second question first. We hosted a webinar last week that attracted over 800 participants, with a diverse audience including individuals from biotech, large pharmaceutical companies, and even government agencies. There has been significant interest in the technology aimed at eliminating animal models.

Regarding the tariffs, we have noticed a slowdown in decision-making from Tier 1 customers that has affected our Q1 performance. This can be observed in our Tier 1 biosimulation services. However, I wouldn’t point out any specific changes in customer behavior compared to what we have experienced so far, at least not at this time.

Yeah. So Certara is isolated directly from the tariffs, nothing we sell would be subject to a tariff. We're selling generally into an R&D market. So tariffs don't really affect that. I'm not saying there won't be an effect across the broad markets, but it will be some indirect. If it happens, and our customers haven't really been talking about that with us.

Okay. That's helpful. Yeah, it was more of the derivative impact on the R&D budgets and what it could mean. So that's really helpful. I appreciate all the color there. Thanks, guys.

Thank you.

Thank you. And our next question comes from David Windley of Jefferies. Your line is open.

Hi, thanks for taking my questions. Good afternoon. Will, you've mentioned before the challenges in the pharmaceutical drug development process. The recent FDA announcement about the initial Pedone 2 approval, along with the latest updates, seems to offer a positive push to overcome some of these challenges. My understanding is that the FDA is reaching out to a select group of drug developers to foster engagement around this new approach. I have several questions. First, what do you think is essential to encourage the pharmaceutical industry to gain confidence in the regulator's willingness to embrace these changes? Does it require the approval of a drug that has undergone a minimal animal or no animal development cycle? Second, regarding the future of the IND-enabling package, how do you envision that evolving? Additionally, how does Certara's software fit into this, and which components of that package can you integrate to replace the reliance on animal data? Thank you.

There are several aspects to your question. First, regarding what is necessary to advance Pharma, I see two main factors. The FDA is continuing to build upon its original announcement, discussing their encouragement of alternative technologies and possible discouragement for those who do not adopt them. The industry is eagerly anticipating more details on how this will unfold. Practically, it requires approval, but the FDA has specifically mentioned monoclonal antibodies and other medications. Monoclonal antibodies are an area where the use of animal models has faced significant scrutiny, and the technology for alternatives is quite advanced. This is promising. Some drugs, particularly gene therapies, have successfully gone to the FDA without employing animal models where their use does not make sense. The FDA has approved certain models in place of animals, which suggests a potential direction for the future. As for the evolution of the IND package, animal models generally serve three main functions during the IND process. The first involves initial human dosing, where current models can often outpace animal studies, especially for monoclonal antibodies. We believe we can make a strong case to our clients that our technology is viable and that the FDA is likely to promote more rapid and efficient paths at lower costs. The second aspect relates to toxicology. There are existing models that can be enhanced as interest in this field grows. Referring to the FDA’s announcement, they mentioned organ-on-a-chip technology, which aligns with the companies developing it. We have solid modeling capabilities here; however, toxicology is a significant area where we could consider larger investments as it represents new opportunities. The third and most challenging aspect involves long-term studies, such as those concerning cancer. These studies are difficult to replace with alternatives due to their nature of seeking unmodeled conditions, although they do not constitute the highest volume of animal use. It's uncertain how the FDA will approach this, but it seems likely they will postpone any changes until new technologies emerge. They are currently seeking modeling solutions and are investing in changes to this end. I realize that was a lengthy response, but I hope I addressed the various components of your question.

I really appreciate it. Thank you. That’s helpful.

Thank you. And our next question comes from Dan Leonard of UBS. Your line is open.

Thank you. First, a cleanup question. On the services business, it sounds like regulatory is now a good guy in comparison to biosimulation services. I’m wondering why that would be.

Well, a couple of things there. Most importantly, we've fully built out our commercial team. The commercial team is executing very well across the board, including in regulatory, so we've been very pleased with the performance there. And when you look at last year, it's important to keep in mind that we were hitting some low spots. The comparisons we have are easier as well.

Thank you for that. And then just to follow up again on this FDA bit. Is it possible at all to compare and contrast your inbound activity and interest following the passage of the FDA Modernization Act 2.0 a few years ago with what you're experiencing today following the most recent updated FDA discussion?

Yeah. What I would say is the FDA Modernization Act was passed by Congress, but the industry didn't do very much because the FDA didn't say very much. The difference now is that the FDA has set a very clear signal about what they are really intending to do and they're sending it to the market. I would say a couple of years ago, I would have characterized it as Congress saying the FDA could do something, but they didn't move to do it at that time.

Thank you. And our next question comes from Jeff Garro of Stephens. Your line is open.

Yeah. Good afternoon. Thanks for taking my question. Maybe one more on the non-animal Navigator product. I recognize it's very early and you have a big event this week, and that will be a key topic there. But I wanted to ask further about how the pipeline has been building for that offering? And if you could put a timeline on potential financial impact, such as the first contracts contract booking related to that product?

Yeah. Hi, Jeff. So I'll take the last part first, and Will can fill in if there's something I missed there. But, as far as when and how much, it's early for us to tell. The key areas of products that we're focused on are obviously our QSP offer and the Simcyp offering. We're getting a lot of inbound interest, as Will had said earlier, but it's really too early to tell and feels like something that we'd look beyond Q2. But stay tuned, we need to see it in the performance, and then we'll be able to give you an update.

Makes sense. And on the prepared remarks, you mentioned client AI spend as a tailwind. I was hoping you could elaborate on your continued effort to infuse your products with AI and whether your investments there are being recognized as a differentiator in the market.

Yeah. Thanks for the question. So we launched a couple of AI products last year. One of the major ones was our co-author product, which is used in basically writing regulatory reports but will eventually extend to other reports across our software portfolio. We have some other products we launched last year, and there are a couple coming out this year. The ones we launched last year have seen meaningful adoption, and we're pleased with the growth rate there. They also attract a lot of attention from our customers. Everyone is trying to figure out what AI means, and they're eager to have conversations with us about the latest developments. Generally, we can often move on to a more comprehensive discussion around our product portfolio. I think it's all good for Certara. Just remember that a few years ago, no one was really thinking about GPT-based AI, and then there's been a rapid interest and a significant amount of budgets devoted to exploring it. As this experimentation phase continues to unfold, we expect certain companies and products to clearly generate revenue, and that’s where we are focused.

Understood. Thanks for taking my question.

Thank you. And our next question comes from Max Smock of William Blair. Your line is open.

Great. Thank you. It's Christine Rains for Max Smock. So two for us. The first one, again, related to the preclinical animal testing space. Just hoping you can comment on what percentage of your current both small and large pharma customers utilize your software and services for preclinical applications today? Just trying to get an idea of where penetration is versus your clinical offerings.

So we haven't broken out the proportion of revenue by preclinical versus clinical. But we have said that historically, the majority of our revenue is coming in the clinical phase. Obviously, with Chemaxon, we're expanding our footprint into discovery, and a portion of the legacy Certara business was preclinical, all of this would expand that.

Great. Thanks. And then relatedly, can you talk about any additional planned investments that you're making or planning to make in building out your preclinical offerings? And relatedly, how should we think about your newly launched Non-Animal Navigator solution? Is it more of a repackaging of your existing software and services that are mostly applicable to the preclinical space? Or is there anything in the solution that you previously did not offer?

Well, we have been investing pretty aggressively in the development of our QSP group and technology and software. A lot of that is tied to preclinical and effectively directly falls into the category of what we're talking about regarding non-animal usage. Non-Animal Navigator was intended to combine that plus some of our drug development strategies that we can offer to new customers, explaining what is the new landscape, how do you come up with a plan for your preclinical development leading into IND under the new FDA thinking, and how to implement that using software like our QSP team. We moved quickly to put several other key pieces that you need for this that were already available in Certara together. I think that will create a winning combination.

And one point I might add as well, too, is that the addition of Applied Biomass at the tail end of 2023 really gave Certara the combination of our existing QSP practice, plus applied biomass and having been together for more than a year now positions Certara with a market-leading stance in QSP, as Will just said, it's going to be a key component of capitalizing on the opportunity in front of us.

Thanks. Just changing gears a little bit. Just wondering if you can give us a little bit of an update now on Certara Cloud. It's been a few quarters since you've rolled that out. Just give us some sense of how that's scaling and what kind of engagement or behavior you're starting to see thus far.

Yeah, hi. So we're pleased with the take rate on Cloud. In fact, it's really just a component of pushing the software update across. So when Phoenix customers are renewing their licenses, they're accessing their new log-ins and Certara Cloud, which is providing them access to the software they've already purchased and all of the software that we offer. The value proposition of Certara Cloud is giving the opportunity to see the breadth of the product portfolio. We have many customers for a product like Phoenix that are renewing their licenses annually, which gives us a strong presence on Certara Cloud as we sit here now.

And I guess just a follow-up there on the Phoenix. I know you're trying to move a little bit more of that base to a hosted solution. Where does that kind of sit now? How should we think about how that's going to trend over the next few years?

We're still in the earlier innings of the conversion. The good news is part of the R&D investment we're making in the software portfolio during this year is adding enhancements and functionality to the Phoenix hosted product that will be attractive to our customers. We're expecting that the take rate on shifting to hosted will increase, but it's still going to take some time.

Hi, this is indiscernible on for Brendan. Thanks for taking the question. Given the reiterated guidance, where do you see the opportunity for potential upside within the software business in fiscal year '25 as well as within services?

The upside opportunities we've discussed relate to the transition away from animal testing. We have invested in software product platforms that we expect will lead to greater adoption by customers, which is very encouraging. A critical question we face is when this will come to fruition, and while it's still early, we are seeing a lot of inbound interest driving the potential growth. However, it is essential to recognize that we are still dealing with a challenging market environment. Although we are optimistic and performing well, as shown by our bookings in Q1, the difficulties we face in the market, such as limited biotech funding and slow decision-making within Tier 1 pharma, are ongoing challenges that will extend from 2024 into 2025, which we have already been experiencing.

That's great. And I'll just hop on the bandwagon here for just a quick follow-up on the FDA announcement. Do you have any thoughts on how the FDA will select platforms to include in their upcoming pilot studies?

I think it's difficult to speculate on the FDA's decisions. They are clearly very interested in this area and are in discussions with many companies. We'll have to wait and see what actions they take.

Thank you. This concludes our question-and-answer session and today's conference call. Thank you for participating, and you may all disconnect.