Conference Transcript - CERT 2026-05-19

Ryan Halstead, Analyst — RBC

Thanks for joining us. My name is Ryan Halstead. I am the healthcare technology and distribution analyst with RBC's healthcare research team, and we have Sitara up next, and I am pleased to be joined by John Resnick, CEO, and John Gallagher, CFO. Sitara is a tech-enabled drug development company, so welcome. Thank you, Ryan.

John Resnick, CEO

Nice to be here. Thank you for the invite. Right.

Ryan Halstead, Analyst — RBC

So, John, I wanted to start with you. You've been in the CEO seat now for five months and just wanted to get some perspectives from you on, you know, about the company since you've joined. Anything that surprised you or anything that's changed?

John Resnick, CEO

It really only been five months. so I don't know if anything surprised me per se I think there are some areas where maybe I underestimated just how strong of a franchise it was I mean specifically around kind of scientific leadership you know the deep kind of regulatory expertise methodological leadership the closeness between the relationship between the companies and the work that they do with regulators. I knew that was a core part of the value proposition, but it's really truly in the DNA. Maybe the second area, and maybe this is a little bit of a surprise, is around the portfolio itself. There are a number of things that the company is known for, a number of kind of market eating assets but as you dig a little bit deeper within the company uh there is just this absolute uh set of jewels that exist uh you know built on the deep expertise that's been accumulated over the last few decades and the kind of unrivaled three capabilities you know there are all of these uh opportunities to deploy our expertise in in different ways uh you know with little bit of nurture a little bit of product development a little bit of evolution uh you know there's there's no shortage of of areas to uh of areas to go um well maybe following along with

Ryan Halstead, Analyst — RBC

you know your background and joining sitara you know i noted come from a large cro with experience with real world evidence technology in integrating that with clinical within clinical research. Just curious, you know, how are you kind of leveraging that experience and knowledge and expertise at Certara and bringing that to its opportunities?

John Resnick, CEO

Yeah, I spent over two decades at one of the larger CROs, had a ranger roles over time. I think the real world one is an interesting one. I think it's pretty intuitive of you to pick up on that. You know, on its face, creating and running a business on real-world evidence versus a business more in the model-informed discovery and drug development space the similarities and the analogs between the two are pretty remarkable. I ran the real-world business early 2010s and I think the state of maturity I'd say both from a regulatory framework standpoint regulatory acceptance from a technology standpoint and a democratization standpoint were a pretty similar situation. You know, real world in the 2010s was a very new concept that was, had a ton of promise. Regulators were asking a lot of questions about how they could get, how they could deploy it more frequently and more accurately to save clinical trial expenditures to prove up, to make trials smarter. And the MIDD or MID3 world is very similar. It's this unbelievable set of computational and biosimulation capabilities, and the regulatory frameworks and the regulatory agencies themselves are just catching up with the range of things that can be done. The second thing, when I picked up the real-world business 15-plus years ago, it was a very isolated science that had very specific groups, epidemiology, biostats, health economics, of these researchers, very specific groups that worked on it. And the value that was untapped over the course of a long period of time was democratizing those capabilities in a different way and allowing the commercial teams and the early discovery teams and the clinical trial teams to take advantage of the full depth and breadth of real-world evidence within life sciences. And I see the MIDD story is a very similar one which is today uh it is a it is a core core power science used by a handful of economics groups and uh pbpk groups uh and you know groups who are highly specialized but the power of what the platform creates really can be democratized and it can be used early in discovery to make good decisions that could be used in clinical trials to make good inclusion and exclusion decisions, and there are a range of other applications. I see a ton of similarities in building off a set of experiences from that time.

Ryan Halstead, Analyst — RBC

That's great. Well, hopefully we'll gain some more insights on the regulatory pathway as we look further out, kind of adoption and acceptance of the technology. Maybe transitioning to AI in drug discovery, certainly I think there's an appreciation of the opportunities there, but also there's a perceived threat of disruption that has cast a pall on many stocks that touch on this arena.

John Resnick, CEO

But just curious, how are you thinking about Sotara's competitive position against the new emerging AI technologies that may or may not disruptive wow that's okay where to start on this on this topic so first of all i'd say uh look we view ai as a huge enabler for the business across the board uh you know this is uh something you know three and five years you know three years from now we will be known uh as you know a market leader in the space and it'll accelerate everything that that we are doing the uh you know raw first well from an underlying fundamental standpoint most of the money that's going in today is going in a little bit deeper into discovery which is going to drive more compounds to market which is going to help to you know accelerate the you know the frequency and the volume by which mide itself will be demanded and as we think going forward about the opportunities that exist for us we've got this long legacy you know literally decades of of working on successful products, hundreds of products that have included, that have worked with Surtara and have informed their label. Got thousands of scientific publications, hundreds of PhDs that work within the company. We've got some of the leading software products in the world that are fully embedded. And if you think about those core enablers, that's really a capability that we've created over time. That's one to build off in the AI space. It embeds us within workflows. We're working on billions of kind of data transactions. We have computational knowledge and kind of scientific depth of application that is second to none. You have this relationship between the technology, which is in the day-to-day workflow, not only of our clients and regulators, but also in what we do. So you have this kind of expert in the loop. And all of that creates this amazing foundation to take the next step with this, which is to, you know, agentify, you know, a bunch of the workflow that exists to help build new applications, to help create a power future, which will do exactly what we were talking about earlier, which is kind of democratize the use across the full life cycle, accelerate the insights, power the way that this type of research can get done. That's great.

Ryan Halstead, Analyst — RBC

You mentioned, you know, AI, you think, could have the impact of, you know, generating more new drug candidates and faster. That's certainly a conversation that I've been having with investors recently, this idea that, you know, we could be seeing a much greater influx of clinical drug development and a pipeline of new candidates. just curious following up on that comment where do you think we are and you know what innings do you think we are in terms of ai and drug discovery that's gonna you know drive volume oh boy or at least super super early innings i mean i think we're just just scratching the surface for what can be deployed you've seen you know an exponential increase over the last few years but we're still you know we're still doing uh you know super super early uh days on this look as i said before i

John Resnick, CEO

i'm i'm encouraged most of the big press releases that are out there today are around kind of product identification and product you know early stage discovery components which to me will just accelerate the market the more products that are developed the more opportunity there is for us to bring kind of our domain expertise and knowledge around the way products computationally work uh in humans uh so we're we're super early uh in you know in this we're going to see explosion over the next five to 10 years. And as I said, it's going to be a huge accelerant for core MIDD, which is a perfect complement to a lot of the investments that's going on today.

Ryan Halstead, Analyst — RBC

And maybe on your investments in AI, I think you mentioned on your last call investing in the next generation platform.

John Resnick, CEO

Can you talk about some of those strategic initiatives in terms of those investments and how are you measuring success or how are you going to measure success yeah i mean i think we're already uh investing so it's not uh we're already you know we're already adding ai functionality to just about everything within our portfolio uh in fact the fastest growing products within you know within this quarter are ai native products and very specific so we're seeing huge acceleration uh we're working through the identification a lot of our next generation workflow our qsp and pbpk roadmaps are are loaded with this you know we're already sitting in our in our you know in our clients uh infrastructure and their workflow and our ability to kind of power them to do more quicker is in support of what we do uh you mentioned the next generation platform i think what we see and what we've already kind of built and already actively engaging clients on is this opportunity to play the role you know the big models will be fantastic at kind of creating foundations and no one's competing with the big model companies in terms of their ability to you know build out the general models but the layer between which is kind of this regulatory intelligence layer what we're calling a clinical and scientific intelligence later really needs someone with the deep expertise like a certara you know that i talked through the capabilities and the platform before which creates a lot of distinctive capabilities just to give you kind of one one example of why you need this kind of last mile and this ai infusion from this last mile we have one product simsip which is a market leader in terms of uh helping to support label uh for you know things like uh drug drug interaction pediatric trials and increasingly going to move into pregnancy and other things it's the only product that's certified by regulators uh you know we think uh certainly in europe and maybe in in the world to do this type of task and you know if you think about the process to get this regulatory validated asset approved it took two years and not only did you have to get approved by the ema you had to get it approved by the 25 member countries as well you had leading scientists out actively engaging and this know-how is embedded into our workflow and increasingly will be into our kind of AI, scientific and clinical discovery. It's a perfect complement to what exists out there in some of the structural models to bring that last mile into development and really make sure that regulated space gets the credibility, the validation, the transparency it needs.

Ryan Halstead, Analyst — RBC

Maybe just taking a step back, I wanted to touch on the broader customer demand landscape and environment, you know, would be curious what you're seeing in terms of, you know, just demand for either discovery or, you know, preclinical work more generally. And just, you know, any particular areas of strength that are worth highlighting amongst, you know, your customer segments or types of customers?

John Resnick, CEO

Yeah, like I think overall we see what others are reporting. We see market health. If I look at core things like funding, I look at, you know, biotech funding, I look at new trial starts, I look at, you know, we talked about some of the AI discovery and the increasing kind of pipeline size, all those, you know, really positive metrics that we track. I also look at regulator engagement, and, you know, over the last few months, we've seen several, you know, regulator tailwinds from our standpoint, either, you know, pushing NAMs or accelerated clinical trial execution or clarifying some of the role for, you know, for model-informed drug development. All of those are tailwinds as well. So from a market standpoint, certainly, you know, we see it after a couple of rough years, over the last couple of years, certainly improving. And based on the volume of questions and engagements and inquiries we're getting from clients, we see a robust market, which is just strengthening and increasing, you know, any time you do something that pushes regulatory boundaries or kind of changes that, you know, takes changes in current practice, it takes time. but the amount of questions we're getting about how to do things differently certainly is incredibly encouraging demand signal. That's great.

Ryan Halstead, Analyst — RBC

Maybe before, I wanted to get into the regulatory landscape in a second, but before we move on from this topic, just, you know, I think much has been made about the biotech funding environment. It's been pretty healthy, companies able to access capital in various ways or, you know, realize the exits that give other companies confidence and perhaps maybe spend you know how should investors think about how that funding can translate into your business spending in in the areas that will drive your business from like a timing perspective is this something that you know is uh still a quarter a few quarters out in terms of trickling down into actual spend so historically we we've looked at that so timing of uh positive funding and what the pull through is on on our customer tiers especially tier two and tier three

John Gallagher, CFO

customers and uh it generally takes about a quarter by the time the funding so you see the funding environment get better uh capital allocation decisions are happening inside of these biotechs and of course our commercial team is is targeting those those that are getting uh getting funding and now as john was just saying overall it's a it's it's a tailwind for our uh for our biotech customers, which will fall into that tier two and tier three category. We saw strong performance in Q1 and in both of those categories in software. And we commented that, you know, that there's some execution points that are going to help us on the services side. And this overall market backdrop is going to be, it's going to aid that effort as well.

John Resnick, CEO

And the thing I'd add is that our business model itself is set up to be flexible based on, you know, the different segments uh you know we have the ability to sell only software technology where clients are are looking just to do the technology we have the ability to sell technology with uh with wraparound expert services and we've realigned the business to ensure we fortified that and the third on the on the biotech side where they won't have kind of large scientific teams and know-how we have the integrated capability to run uh entire programs for them so as as that funding improves, you know, those real full-service opportunities are very much what we're building towards. Great.

Ryan Halstead, Analyst — RBC

Okay. Well, I wanted to move on to the regulatory landscape. You mentioned, you know, wanting to see increased acceptance of things like NAMS, and, you know, obviously, there's some changes at the FDA, but, you know, I think we were talking a little bit about this earlier i'd like to think that the fda will continue to be a supporter of things like nam so just wanted to get your thoughts you know what are you looking for from the fda in terms of you know that further support and acceptance of man yeah i think i've learned a long time not to kind of forecast regulatory agencies too much uh it's uh it's a different it's certainly a a difficult one to do.

John Resnick, CEO

I don't see, these are long-term trends. They make sense as our computational capabilities, as our AI capabilities accelerate, our ability to understand the human body more and more. These are the right things to be building, not only for, there's a lot of drivers in NAMS, efficiency and speed and time, and the time to market is a worldwide issue. I know there's a lot today of, you know, U.S. positioning versus China. We've seen a lot of money moving to China. So there's lots of incentive for regulators in the U.S. and Europe to accelerate timelines and speed the market. So I think these trends are somewhat immutable. The rate and pace at which they're accepted may vary from administration, administration, or regulator, regulator, but I don't see the fundamental trend of accelerating. It just makes, it makes too much sense. I was talking to one of our toxicology leaders yesterday. I mean, he's a huge opportunity to avoid tons of bioequivalence trials and do a lot of talk simulation. I mean, there's just so many applications here as we push more into QSP and really mix in not only the understanding of the human biology, but real-world data and other things. There's just so much to know, and there's so much inefficiency in the ways our trials are executed. So I think the day-to-day kind of ups and downs of things are probably less relevant than the long-term trend, which will be to deploy these things more and more often.

Ryan Halstead, Analyst — RBC

I think you've set forth a goal of driving double-digit growth. So as you're thinking about the business plan for 2026, how should we think about the timeframe to achieving that double-digit growth and what are kind of the next key milestones to be on the lookout for?

John Resnick, CEO

Yeah, so let me, I'll do it strategically and then I'll turn to you, John, for some of the guidance around this. But we've taken, you know, in the first 100 days, we've done some very significant reorganization of the company. We set it up around two major growth, you know, hypothesis, growth stories. One around what we call MID3, which is model-informed drug discovery, which everyone drug uh development as we know we've also added discovery uh to that as well to drive that kind of longitudinal connection across the pipeline uh you know we put all of our scientists and our and our technology systems together to create kind of that expert-based fly wheel and really accelerate that business both in terms of engagement with regulators thought leadership but also the software build and then the other side we created a new group called ace which is accelerated clinical evidence and the way to think about that is truly around the digitization particularly around data and acceleration where data can be generated and can help accelerate from protocol all the way to submission so those are two we think very nice growth platforms very consistent with what the regulatory bodies around the world are looking for in terms of accelerated execution, accelerated time to market. So we're excited about the room that that creates for us. We're also strategically also looking, and I mentioned the platform before that we've created with all these decades of experience and the know-how and the workflow and the IP and everything that sits on top of it. The other thing we're looking for is a whole range of growth areas. Those growth areas are things where we can deploy our core expertise. like our, you know, our drug-to-drug interaction, you know, capabilities. You can apply those to clinical trial simulation. You can apply those earlier into discovery. You know, is there opportunities to do something like that in the clinic? And there's a whole range of ways that you could go. So, we're pretty bullish about the long-term opportunities for growth, combination of execution and kind of untapping some of these opportunities and letting us run.

John Gallagher, CFO

Yeah, so the building blocks to get there are, if you look at the quarter we did, on the software side, we did 7% revenue growth on the quarter for software. So that was above our expectations. And then we said that software is, given the visibility that we have for software for the year, we think the software business will perform at the top or even above the top end of the range. And, you know, there are some execution changes, as we described, as well as just better visibility through the deferred revenue that we think will accelerate the ARR as we exit the year, and that's going to benefit the growth rates in 2027 as well. So on the software side, we feel good about that. On services, we talked about execution. There's some operational, there's commercial changes, all of which are execution-oriented with a backdrop of favorability. The market is better than what we've seen. We talked about capital markets funding being better. Overall, we think the backdrop for pharma spending is better. And as we make these operational changes, then we're expecting to see some acceleration there. So that's the setup for, that's the setup is better visibility and software exiting the year with a stronger ARR and making some operational changes to services all under the backdrop of a better market environment. And sticking with you, John Gallagher, with the final question, you've maintained healthy margins so as you're thinking about accelerating growth, anything you would add in terms of how you're thinking about the margin profile i mean we're being disciplined right and we've done that before so we hit the top end of our margin uh guidance last year and during a time where we were managing through uh some volatility i'd say that you know as you look at the quarter we put a 30 margin it's at the bottom of our range but we did cite some choppiness in the first half we think that'll uh that'll resolve and accelerate into the second half and we're taking cost actions too. We just divested the regulatory business, which does come with some stranded costs that we're dealing with in the first half of this year, but we're taking cost out. We're seeing some revenue acceleration in the back half, and that's going to help us stay inside the ring.

Ryan Halstead, Analyst — RBC

Great. Well, I think that does it for time. Thank you, John and John, for joining me.

John Resnick, CEO

Thank you for having us. Appreciate it.

Ryan Halstead, Analyst — RBC

Thanks, Ryan.