Certara, Inc. (CERT), Mid/Small Cap AI Study of the Week

September 12, 2024

Weekly AI Study from the S&P 400 or S&P 600

Company Overview

Certara, Inc. is a prominent provider of biosimulation technology and solutions for Model-Informed Drug Development (MIDD) within the global biopharmaceutical industry. Their core offerings include advanced biosimulation platforms that utilize complex mathematical algorithms to simulate biological processes, aiding in drug development, reducing costs, and increasing the likelihood of new drug approvals. Leveraging artificial intelligence (AI) and machine learning, Certara enhances its software and services, improving predictive models and streamlining regulatory document creation. Among their key products are the Simcyp Simulator for physiologically-based pharmacokinetic (PBPK) simulation and the Phoenix PK/PD software suite, which includes modules like Phoenix WinNonlin and Phoenix NLME for pharmacometric analysis.

A notable new business area for Certara is the Certara.AI platform, which uses generative pre-trained transformers (GPTs) to enhance data connectivity, search, and content generation within life sciences organizations. The company also offers automation tools such as Pinnacle 21 for clinical data standardization and D360 for discovery research, both incorporating AI-enabled analytics. Their Quantitative Systems Pharmacology (QSP) team, strengthened by the acquisition of Applied Biomath in 2023, provides significant insights into drug development, particularly in immunogenicity, immuno-oncology, and neurodegenerative diseases. Certara’s regulatory science services include tools like GlobalSubmit for eCTD submissions and CoAuthor for AI-driven content authoring, ensuring efficient drug submission processes.

Certara operates in the competitive and fragmented biosimulation market for the biopharmaceutical industry, competing with other solution providers and traditional research methods. Their competitive edge lies in the functionality and quality of their models, breadth of supported molecular types and therapeutic areas, regulatory acceptance, user-friendliness, and an integrated, end-to-end platform. The company safeguards its intellectual property through a robust portfolio of patents, trademarks, copyrights, and trade secrets, and complies with regulatory and privacy laws relevant to drug development. Certara's growth strategy focuses on expanding its technological offerings, including AI-enabled solutions, automating and connecting its platforms, and forming strategic acquisitions. With a significant global presence, a robust customer base including major biopharmaceutical companies and global regulatory authorities, and a dedicated workforce, Certara aims to drive innovation and customer satisfaction in the biopharmaceutical R&D market.

By the Numbers

Annual Report (Year Ended December 31, 2023):

• Bookings: $402.3 million (down from $409.0 million in 2022)
• Renewal Rate: Approximately 90%
• Net Loss: $55.4 million (compared to a Net Income of $14.7 million in 2022)
• Adjusted EBITDA: $123.1 million (up from $120.2 million in 2022)
• Adjusted Net Income: $69.0 million (down from $73.4 million in 2022)
• Adjusted Diluted Earnings Per Share (EPS): $0.43 (down from $0.46 in 2022)
• Revenue: $354.3 million (up 6% from the previous year)
• Operating Expenses: $254.1 million (up 49% from the previous year)
• Goodwill Impairment Expense: $46.9 million
• General and Administrative Expenses: Increased by $23.6 million (33%)
• Interest Expense: Increased by $5.1 million (29%)

Quarterly Report (First Half of 2024):

• Q1 2024 Bookings: $105.8 million (down from $112.7 million in Q1 2023)
• Q2 2024 Bookings: $98.9 million (up from $85.9 million in Q2 2023)
• Net Retention Rate: 114.1% in Q1 2024 and 108% in Q2 2024
• Adjusted EBITDA for Q2 2024: $26.3 million (down from $32.4 million in Q2 2023)
• Adjusted Net Income for Q2 2024: $11.4 million (down from $18.4 million in Q2 2023)
• Adjusted Diluted EPS for Q2 2024: $0.07 (down from $0.12 in Q2 2023)
• Total Revenues for Q2 2024: $93.3 million (up 3% from Q2 2023)
• Cost of Revenues for Q2 2024: $39.8 million (up 10% from Q2 2023)
• Sales and Marketing Expenses for Q2 2024: Increased by 51%
• General and Administrative Expenses for Q2 2024: Increased by 97%
• Net Loss for Q2 2024: $12.6 million (compared to a Net Income of $4.7 million in Q2 2023)
• Effective Income Tax Rate for Q2 2024: -2% (down from 44% in Q2 2023)
• Total Revenues for H1 2024: $190.0 million (up 5% from H1 2023)
• Net Loss for H1 2024: $17.3 million (compared to a Net Income of $6.1 million in H1 2023)
• Operating Cash Flow for H1 2024: $14.1 million (down from $28.0 million in H1 2023)
• Cash and Cash Equivalents as of June 30, 2024: $224.6 million

These figures highlight Certara's financial performance, including growth in revenue but also significant increases in operating expenses and a shift from net income to net loss in the reported periods.