Good day and thank you for standing by. Welcome to the Certara Fourth Quarter 2021 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. [Operator Instructions] I would now like to hand the conference over to your first speaker today to Mr. David Deuchler, Investor Relations. You may begin.

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 Andrew Schemick, Chief Financial Officer. Earlier today Certara released financial results for the quarter ended December 31st, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with Certara's business, please refer to the Risk Factors section of our Form 10-K filed with the Securities and Exchange Commission on March 1st, 2022, which will be filed shortly after this call. We urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also in their remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of adjusted EBITDA, adjusted net income, adjusted EPS and certain other non-GAAP financial measures to the most directly comparable GAAP measures are available in the recent earnings release, which is available on the company's website. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 1st, 2022. Certara disclaims any intention or 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 fourth quarter and full-year earnings call. Andrew and I will start with prepared remarks and then we will take questions. 2021 was a milestone year for Certara. It was our first full-year as a public company and we made progress on a number of key priorities and initiatives. We are very excited about the opportunities ahead and as we continue delivering on our mission to accelerate the drug development process with our proprietary biosimulation software, technologies and services. At Certara our strategy is to transform the drug R&D process with our end-to-end platform powered by innovative technology and our global team of leading experts. We not only speed up the process, but also help to advance safety and efficacy of drugs for millions of patients worldwide. For the full-year, we reported total revenue of $286 million, growing 17% year-over-year including Pinnacle 21 and 15% excluding Pinnacle 21's contribution in the fourth quarter. 2021 revenue growth was in the double-digits in every region of the world. Fourth quarter total company revenue was $75.3 million, growing 17% versus the same period a year ago. Pinnacle 21 contributed $6.1 million in the quarter. Excluding Pinnacle 21, revenue was $69.2 million, growing 7% compared with the same period a year ago. Excluding Pinnacle 21 fourth quarter software revenue was in line with expectations, growing 13% compared with the fourth quarter of 2020, but technology driven services came in below our expectations, growing 6% compared with the fourth quarter of 2020. Our technology driven services performance in the fourth quarter was driven by two issues, both of which impacted the timing of work being executed. First, as we commented in our third quarter earnings call in November, we have been experiencing variability in the…

Thank you, William. Hello, everyone. Total revenue for the three months ended December 31st, 2021 was $75.3 million, representing year-over-year growth of 17%. Excluding Pinnacle '21 fourth quarter revenue growth was 7%. Full-year 2021 reported revenue was $286.1 million, which represents 17% year-over-year growth. Excluding Pinnacle 21 full-year revenue grew 15% in line with our long-term plan, despite the unexpected performance of our technology driven services business in the fourth quarter. We are very well positioned for 2022 with trailing 12 months bookings coming in at $341.7 million, up approximately 19% year-over-year on a reported basis and up approximately 16% excluding Pinnacle 21. I continue to look at trailing 12 months bookings as a predictor of forward 12 months revenues. Book-to-bill has been stable ending the year at 1.19 times and the annual bookings in 2021 as a percentage of forward revenue supports the visibility into our guidance for the year. Software revenue was $25.5 million in the fourth quarter, which increased 46% over the prior year period. Excluding $5.7 million in Pinnacle 21 software revenue contribution, year-over-year growth was 13%. The growth in the quarter excluding Pinnacle 21 was driven by our biosimulation software Simcyp and Phoenix. For the full-year, software revenue was $86.8 million, representing 18% growth as compared to 2020. Excluding Pinnacle 21 year-over-year growth for the full-year software revenue was 10% driven by Simcyp, Phoenix and Integral. Software bookings were $32.3 million in the fourth quarter, which increased 54% from the prior year period. Pinnacle 21 contributed $8.2 million to software bookings in the fourth quarter. So 4Q year-over-year software bookings growth excluding Pinnacle 21 was 15%. Trailing 12 month software bookings were $94.5 million, up 29% over the 2020 software bookings. Software aggregate renewal rate was 96% in the fourth quarter and 92% for the…

[Operator Instructions] I show our first question comes from the line of Luke Sergott from Barclays. Please go ahead.

I guess given the duration of the business and the visibility you guys have, you had a step down in 3Q in the bookings. And then kind of I guess that flowed through into 4Q. I'm just wondering you talked about getting this business back throughout the year. Why wouldn't it come back earlier, are you still seeing some weakness due to Omicron. I'm just trying to get a better understanding of the dynamics?

Yes, Luke, thanks for the question. We saw weakness quite suddenly at the end of the fourth quarter. It continued into January. Although it seems like we are through that now. So our view is that two things happen to us in the fourth quarter. One was due to Omicron our own internal capacity and then the other one is this we saw some lengthening of time between when particularly regulatory customers have booked our - have done bookings with us and actually have gotten the data ready for us to do work. So all things considered as we look forward to the year, it's what we know for the first two months now. We think our guidance of 350 to 360 makes more sense.

Yes and just kind of just a follow-up on that I mean because it's really early in the year and it just to not think that you're going to get it back. We'll give you the like what's the - is it getting pushed out to '23 now to do the regulatory stuff or is this business that was lost?

No, we didn't lose any bookings, but we have seen the lengthening of time from particularly from a number of customers from their database lock, which is really what kicks off this type of work for us. It's possible, this will reverse during the year. But we're kind of have to call it the way we see it with the two months of data that we've got so far. I don't know, Andy, if you want to comment on any of this.

That's consistent with my view.

Thank you. I show our next question comes from the line of John Kreger from William Blair. Please go ahead.

Just following up on that. Andy, can you remind us what's the percent of your revenue that is regulatory services related as opposed to the other buckets. Maybe now that you've got another full year, if you could just sort of give us some of those main categories as you have in the past that would be helpful?

Sure. Thank you for the question. The mix this year in terms of revenues was 30% software, 40% biosim services, 30% regulatory and access services. So it's fairly consistent with last year. Slight mix shift towards biosim services.

Got it. Thank you. And then should we be thinking about the slowing that you had in Q4 as sort of a push into Q1. In other words would you assume your Q1 might be even a little bit elevated or should we assume that kind of given the Omicron surge carried through a chunk of January, Q1 would be sort of slower and then momentum would build as you move through the year?

In putting together our guidance we incorporated the second point of view, given the data that we've seen so far. In January and mid-February we're starting to see some pickup, but certainly not a push into Q1.

Got it. Thanks. And then one more, Bill, this might be for you. There's been a lot of anxiety about kind of smaller biotech oriented clients being under pressure, not having the same sort of funding momentum. Can you remind us how big of a chunk of revenues come from biotech and are you seeing any change in behavior from them to-date?

Yes, we've been aware of a lot of comments about that, but we haven't seen it in our business. So our biotech business was grew quite nicely through 2021 and even in the fourth quarter in terms of our bookings. And I think our view is that there was a couple of quarters of slowdown in biotech funding that came after a couple of years of quite healthy biotech funding. So there's just a lot of - there's a lot of well-funded companies out there that are great customers for us. And I think there may be some aspect of when funding gets a little bit tighter then maybe people get even more interested in becoming more efficient by using biosimulation.

Great, thanks. And then can you give us a number about roughly what percent of revenue come from small biotechs without sales?

Yes, we don't disclose that number, but it's a small percentage of the overall company revenues, 50% of the revenues come from the top 20. So it's not a major fraction, a healthy biotech that's having some success, given the type of work that we do becomes a more significant customer, but early stage is a small fraction.

Thank you. I show our next question comes from the line of Dave Windley from Jefferies. Please go ahead.

Hi. Could you talk about your success. You talked about build the enterprise release on Pinnacle 21 and I think part of your strategy was to see what conversion you could encourage from the free accounts the freemium accounts to enterprise customers. Could you just give us an update on where that stands and what your outlook is for that?

Yes, thanks, David. Pinnacle 21 performed in the fourth quarter almost right down the fairway with what we had expected when we did the acquisition. We obviously it's going to take a quarter getting to know each other and integrating and as we go forward this year there is opportunities for cross selling with each other's customers. We still have a strong freemium customer base, particularly as some of the small biotech customers start going start becoming successful and filing for the FDA, they, some of them have converted over. But I think there is a combination of, in terms of strategy, there in terms of what you're talking about is how do we convert some of the freemium and then we have a pipeline of some new products that will be coming out over the next couple of months and we'll come back and sort of stay tuned, but throughout 2021 we have some new things coming out in Pinnacle 21 as well.

Okay, thank you for that. A little bit of a corollary as opposed another version of John's question on mix of clients. Could you I think it's logical to us that, that your biotech clients or your mid to smaller clients lean more towards services, services are going to naturally be lower margin than a pure software purchase. But if you look at apples-to-apples is a pharma service, a larger client services client versus a small services client, similar margin or would there be differences apples-to-apples on those basis?

So, Andy, how do we want to disclose this?

Yes, I would - I would say that for a small biotech, it's profitable in terms of the value that we're bringing to the biotech for a large pharma company we can run the projects more efficiently. So I don't see a mix shift in terms of margins from shifting from what we look at it the top 50 versus the or the Tier 1 versus Tier 2 and Tier 3.

Okay. And then last question, sorry, go ahead.

No. Go ahead, David. Thank you.

I was just going to say related to Project Optimus and maximum tolerable dose changes in philosophy at the FDA. Do you have any thoughts on I mean I listen to your webinar the other day that your colleagues put on. How quickly can this have an impact or an influence over customers changes in the way that they pursue their early stage oncology work and dose escalation and that then result in potentially some bookings for your products in trying to triangulate on those - on those optimal doses?

Yes, the FDA has already started to encourage this and as you said we had a quite large webinar talking about it the other day. We have already started projects related to Optimus. So I guess the answer is that the half of maybe half of drug R&D spending goes into oncology overall and probably a similar fraction of our effort in Certara is associated with that because we tend to mirror the pharma industry. So as those customers are moving over that presents, sorry, those customers are implementing Optimus that presents an increasing opportunity for us, but it starts now.

Okay. And would you view that as new revenue that's incremental revenue not say cannibalizing something else that you do for those clients?

Yes, we see this as a new revenue opportunity for us. Look, a lot of biosimulation focus is on optimizing the dose between safety and efficacy and oncology customers have been at one end of the spectrum for a long time, right. So they you know if you're going to give the maximum tolerable dose then sort of the dosing calculation is easier. Now it's a little bit more complex and we have a lot of our services in our software are quite valuable I think for this. So it should - it should be a good - it's a good opportunity for the company.

Thank you. Our next question comes from the line of Michael Ryskin from Bank of America. Please go ahead.

It's Derrick Brown in for Mike. Hey, just a little bit of clarity on how should we think about the step-up in revenues from Q4 to Q1 or are you expecting flattish. I mean, historically, I mean given the two quarters it's usually like a low single-digit step up is what you're saying is that, is that something, is that similar or be looking more flattish or down Q-o-Q?

We have - we're looking at I would say more like low single-digit step up.

Great. Thank you. And as we look at OpEx, you talked about retaining people and doing like that. Is there any incremental headcount spend OpEx spend, SG&A spend that we need to sort of incorporate relative to what you said on the Analyst Day?

We continue to invest in our commercial organization, our sales and marketing efforts and we also continue to invest in our corporate infrastructure in terms of OpEx. However no difference for the assumptions that we provided at the Investor Day.

Got it. And just some other clean up. Interest expense for the year?

Interest expense for 2022?

Yes, sir.

$15.3 million.

Great, thank you. And just one other one. I mean just reiterating no cancellations. It's all push out and you're just being very conservative based upon what you see at this point in the year?

So we had really no significant. We had no cancellations. We had actually quite healthy bookings in the - in Q4. We did see some of the same slowdown that we saw in December and early January. As we moved into February that seems like things have picked up well.

Great. Thank you.

But these are healthy and we didn't lose any significant business.

[Operator Instructions] I show our next question comes from the line of Vikram Kesavabhotla from Baird. Please go ahead.

Yes, thanks for taking the questions. I just wanted to follow-up on some of your comments around the workforce. I think you mentioned that there was increased attrition towards the end of the year. Could you just give us some more color on some of the drivers behind that dynamic and what you're seeing so far this year. And then I guess going forward I'm wondering if you can just put a finer point on your expectations around headcount growth in fiscal '22 and maybe what parts of the business or what geographies you're most focused on from a hiring perspective?

Yes, thanks, Vikram. So we saw quite low turnover through in 2020 and through the first half of 2021. Like a lot of companies we saw some increased turnover in the second half of 2021. If you average it over 2021 though it was probably at or maybe even lower than our historical average. So I think it might have been a maybe a delayed reaction to people hanging on - in the beginning of the year. Our turnover rate is always something we pay a lot of attention to, because we want Certara to be a place where software developers and drug developers come and innovative and do some really amazing work. And so we do pay a lot of attention to this. We've seen it, you know, we've seen, it will probably improve as we've gone into the first half of this year or the first part of this year rather. For the second part of your question maybe I'll ask Andy to comment around the budget for this year.

So we've seen the delays that we have referenced earlier also had some impact on Q4 bookings. So we're seeing healthy bookings going into the year this year and in line with that we're looking at expanding our billable headcount by around 18% in 2022.

Okay, great. Thank you. And then I apologize if I missed this, but could you clarify what the fiscal '22 revenue guidance assumes for growth rates across biosimulation market access and regulatory. I think you gave some color on those different components at the Investor Day. I just want to make sure we understand the new range appropriately. Thanks.

Sure. In terms of growth rates, it would be high teens, mid to high teens for the biosimulation and low to mid-teens for the regulatory. The difference being historically they would grow at similar growth rates, but the delays are having the greatest impact on the regulatory side.

Thank you. I'm showing no further questions in the queue. At this time I'd like to turn the call back over to Mr. William Feehery, CEO for closing remarks. Please go ahead.

Thanks very much. So thanks everybody for joining us tonight. I think that the message I'd like to leave everybody with is, we had some temporary lengthening of some regulatory projects coupled with an unfortunate timing around Omicron, but fundamentally we believe the company is very healthy and to support that I look at the strength of our bookings, which were quite good both for full year of 2021 and as we finished the year. We've seen, as I said earlier, we saw a continuation of the Omicron delays in the first part of January, but that seems to have ameliorated and things have been picking up as we went into February. Our guidance changes based on what we see right now in terms of, you know, we haven't lost any work, some things have stretched out and they've slipped. But fundamentally we think as we go through 2022 we should see an acceleration. The overall market is healthy. The company is healthy and we feel quite excited about our future. So I'll wrap up now and say thank you to everybody for joining us tonight.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Good day.