Certara, Inc. (CERT) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Certara Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jay Liu, Investor Relations at LifeSci. Please go ahead.

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 Faiz Mohammed, Interim Chief Financial Officer. Earlier today, Certara released financial results for the quarter ended June 30, 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 2 in the accompanying presentation titled Second Quarter 2026 Financial Results 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 today, August 4, 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. And with that, I will turn the call over to Jon.

Thank you for joining today's call. Before I get into our results, I want to highlight the appointment of our new Chief Commercial Officer, which we announced earlier this morning. This reflects our commitment to a new, more impactful go-to-market approach, which I'll cover in more detail shortly. The second quarter was about executing on our commitments. Overall, we are pleased with our progress. We are transforming Certara into a company we believe is capable of delivering sustainable double-digit growth. We still have work to do, but we are on the right path. We are executing against our plan. Our foundation is strengthening and the macro market conditions, biopharma spending, clinical trial starts and new regulatory guidance continue to be in our favor. I'll start with our top line financials, then move to our strategic and operational priorities, our client impact and finally, how we are leveraging AI. Top line results in the quarter were in line with expectations and guidance. Overall, revenue growth was modest at 1% with software revenue growing 4% and service revenue declining 3%. On software, our renewed focus on driving new growth is building momentum. Normalizing for the Chemaxon acquisition, trailing 12-month bookings grew 7% exiting the first half, up sharply from 0.8% exiting 2025. Overall, software revenue now represents 53% of our business versus 40% just 2 years ago. Service bookings lagged in the quarter with a book-to-bill of 1.07. Services bookings were impacted in part by the carve-out of our regulatory and medical writing business. In the quarter, we also began implementing several changes to the broader services go-to-market model, which we will continue to refine. Leading indicators are positive. Our pipeline grew 27% year-on-year exiting the quarter, which we anticipate translating into revenue growth in the back half of 2026. Today, we are reaffirming our guidance range of 0% to 4% for full year revenue growth. Shifting to the key actions we have taken to improve our ability to drive growth. In February, we outlined bold initiatives to more sharply focus the organization on its ability to deliver. And in Q2, we continued implementing them. Maybe divestiture was our first step in sharpening our strategy, rebalancing Certara while improving our overall financial predictability and strengthening our software services flywheel. We have reprioritized our product portfolio to focus on key growth areas and adjusted our road maps to accelerate AI. Our reorganization around 2 business units, Model Informed Discovery and Drug Development, or MID3, and Accelerated Clinical evidence or ACE, is expected to better align our business to how customers consume our products and our services. We have taken steps to streamline our cost base. In May, we executed a reduction in force focused predominantly on overhead, impacting approximately 5% of our global employee base. This action, combined with other steps towards operational excellence is expected to result in a run rate savings of approximately $13 million. These reductions allow us to address some of the stranded costs from the divestiture and accelerate our investments in innovation. We're also redesigning our commercial go-to-market engine to tightly integrate sales and marketing in support of the business units. This is expected to activate growth across all segments, extend our partnership models and drive adoption of new customer use cases. As part of that, I'm excited to announce Julien Perrier as our new Chief Commercial Officer, effective August 1. Julien brings nearly 2 decades of international commercial leadership across global biopharma, technology-enabled scientific services and AI-driven biotechnology. Most recently, he was CEO of an AI-powered diagnostic company. I'm also pleased to announce that Eric Jahn has been promoted to CIO. Eric will be critical in enabling our global scalability and optimizing internal AI systems to drive growth. Now turning to our unique value proposition and how it translates to customer impact. Certara sits at a rare intersection, regulatory and scientific leadership, proprietary software and AI. We serve more than 2,600 customers in over 70 countries with nearly 160,000 daily users of our software. The ecosystem we sit in amplifies our positioning. Regulators are accelerating model-informed approaches into policy. This quarter, HHS launched Operation TrialBlazer to speed up early-stage clinical trials and the FDA issued new guidance backing quantitative systems pharmacology or QSP modeling for first-in-human dosing. In July, ICH M15 took effect at EMA, giving U.S. and Europe a shared standard for model-informed drug development for the first time. Certara is at the forefront of helping shape these policies. Our scientists are in direct dialogue with agencies on how modeling can optimize trial design and strengthen evidence. Their leadership is evident in the numbers, 62 peer-reviewed publications this quarter alone, spanning AI and machine learning, rare populations and the cutting edge of science. That science shows up directly in the products and services our customers buy. In the quarter, every one of the 13 novel therapies the FDA approved came from a Certara client. One was for Eli Lilly's orforglipron, the first once-daily non-peptide oral GLP-1 therapy for obesity. Certara's Simcyp Simulator supported the drug-to-drug interaction labeling and helped characterize how slower gastric emptying affects dosing. For patients, this means a therapy that can be taken any time of day and no longer requires the inconvenience of self-injection. This product was approved in just 50 days, the fastest new molecular entity approval since 2002. We saw the same pattern in rare disease where our clinical pharmacology and pharmacometrics teams partnered with a biopharma company on the evidence package behind the FDA's approval of a new therapy for rare autoimmune condition with historically few treatment. And in oncology, Certara Scientists partnered with Memorial Sloan Kettering to build a virtual patient model on our QXP platform for CAR-T therapy in multiple myeloma, individualizing treatment and optimizing trials of novel combination therapies. Our software business is seeing strong momentum from AI and the movement to the cloud. Phoenix, our pharmacometrics modeling platform has won 30 cloud implementations this year across client segments. Phoenix is one of our core launch points for integrated AI capabilities. Additionally, we grew our footprint globally this quarter. Our first major Simcyp win in China, expanding engagement across the Middle East and in Japan, a full modeling collaboration, delivering a first-in-human dose estimate through Certara IQ, our AI-powered QSP platform. Speaking about AI, we believe AI accelerates how we deliver customer value. With 25 years of accumulated scientific and operational data, deep scientific judgment, proven algorithms and software embedded in the workflows of both clients and regulators. Certara has exactly what it takes to optimize how AI benefits the regulated environments we serve. Generic AI tools don't have the same level of specialization and cannot provide the accountability l that Certara can. Let me highlight 3 examples from the quarter to illustrate how AI is helping us drive revenue growth and margin efficiencies. First, we are embedding AI across our product development and operations teams to drive speed and efficiency. Up to 85% of our new code is now AI-assisted. And we are seeing a 65% year-on-year increase in the rate of development per software engineer. We are connecting our internal systems and automating workflows across our functions. Agents are cutting cycle times by as much as 90% in areas like legal and IT. And our sales teams now get daily automated signals from our AI platform to drive prospecting and pipeline. Second, AI is enabling new customer use cases, powering new workflows and enhancing our existing software products. The integration of D360 and Chemaxon Design Hub will enable scientists to connect experimental data, scientific hypotheses and candidate compound design into a single workflow. Our next-generation platform will allow customers to leverage our software products alongside Frontier AI models, including NVIDIA's BioNeMo agent toolkit. We are enhancing functionality across several products, including Phoenix Cloud, Pinnacle, CertaraIQ, D360 and CoAuthor. As an example, CoAuthor, which has been used in more than 400 regulatory submissions, now provides nearly 600 AI agents, driving 40% productivity increase in drafting quality control documents and over 90% accuracy summarizing complex databases. And third, AI agents are now making our scientific services more productive. Proprietary scientific Agentic workflow is accelerating delivery steps by up to 80% for certain tasks. This allows our scientists to spend more time on activities that require human judgment. Importantly, our scientists remain at the center of every decision, creating an accountability layer that AI alone cannot provide. This protects the trust, reproducibility and auditability our customers and regulators depend on. In closing, today, we are focused on growth and instilling operational discipline into our business. We are aligning the organization behind our strategy, resetting our operational model and rightsizing our cost base. Our sights are also set on the future. Certara is well positioned to drive transformative growth, defining the science needed to accelerate drug development. With a broad customer base, deeply embedded software, we believe we are uniquely situated to lead MIDD adoption and growth that will meaningfully impact our customers and the patients they serve. With that, I'll turn the call over to Faiz, who will go over the financials. Faiz?

Thank you, Jon. Before I review the quarter, my comments on continuing operations include final adjustments relating to the divestiture of the regulatory and medical writing business. Our bookings discussion also excludes this divestiture. Through the close on May 8, that business contributed $19.2 million of revenue and $7.5 million of adjusted EBITDA, both in discontinued operations. Turning to the income statement. Total revenue for the 3 months ending June 30, 2026, was $93.3 million, representing year-over-year growth of 1% on a reported basis. Total bookings in the second quarter were $98.3 million, which increased 1% from the prior year. Trailing 12-month bookings were $405.4 million, increasing 3%. Software revenue was $48.8 million in the second quarter, which increased 4% over the prior year on a reported basis. Growth in the quarter was driven by strength in Simcyp, Phoenix and Pinnacle 21. Software bookings were $50.7 million in the second quarter, which increased 9% from the prior year period. Trailing 12-month software bookings were $196.4 million, up 8% year-over-year. Services revenue was $44.5 million in the second quarter, down 3% versus the prior year period on a reported basis. Services bookings in the second quarter were $47.6 million, which declined 6% from the prior year period. Trailing 12-month services bookings were $209 million, down 1% compared to the prior period. Total cost of revenue for the second quarter of 2026 was $35.1 million compared to $34.3 million in the second quarter of 2025. Total operating expenses for the second quarter of 2026 were $58.3 million compared to $50.4 million in the second quarter of 2025, an increase of $7.9 million. This increase was primarily driven by the absence of a $5.7 million favorable contingent consideration adjustment in the prior year period. Adjusted EBITDA for the second quarter of 2026 was $26.2 million compared to $27 million in the second quarter of 2025. Adjusted EBITDA margin in the quarter was 28.1%. This decline is largely attributed to stranded costs related to the divestiture, which I will discuss in a moment. Wrapping up the income statement. Note that GAAP net income and EPS are both impacted by nonrecurring items. Net loss from continuing operations for the second quarter of 2026 was $6.1 million compared to net income from continuing operations of $1.5 million in the second quarter of 2025. The change primarily reflects the absence of a $5.7 million favorable contingent consideration adjustment recorded in the prior year period, a $2.9 million unfavorable swing in currency expense and a $2.2 million increase in reorganization costs, partially offset by a lower income tax expense. Adjusted net income for the second quarter of 2026 was $12.5 million compared to $12.7 million in the second quarter of 2025. Diluted loss per share for the second quarter of 2026 was $0.04 compared to diluted earnings per share of $0.01 in the second quarter of 2025. Adjusted diluted earnings per share for the second quarter of 2026 were $0.08 compared to $0.08 per share in the second quarter of 2025. Moving to the balance sheet. We finished the quarter with $184.1 million in cash and cash equivalents. As of June 30, 2026, we had $294 million of outstanding borrowings on our term loan and $100 million availability under our revolving credit facility. In the second quarter, we repurchased $17.4 million in shares, which completed a $100 million share repurchase program previously authorized by the Board. In the third quarter, our Board approved a new $50 million share repurchase program, reflecting our continued confidence in the business and our disciplined approach to capital allocation. Turning to our outlook for the remainder of the year. We continue to expect 2026 revenue growth in the range of 0% to 4%, which translates into full year revenue of $367 million to $382 million on a comparable continuing operations basis. This reflects the impact of the divestiture of our regulatory and medical writing business we announced on May 8. We anticipate full year software revenue to be at or above the high end of the 0% to 4% range for the year. We have greater visibility into the software business than we did last quarter as we continue to see a shift from desktop to cloud-based product mix. In services, we expect full year to be at or below the low end of 0% to 4% range. As Jon mentioned, we remain focused on improving performance in this part of our business. Turning to margins. We expect full year 2026 adjusted EBITDA margin in the range of 29% to 31% compared to 30% to 32% range we provided in May. This change reflects the impact of the divestiture of our regulatory and medical writing business and is not related to the underlying performance of our remaining business. As we noted last quarter, the divestiture generated approximately $17 million of adjusted EBITDA in 2025, excluding unallocated overhead costs. A portion of that shared infrastructure remains with us, while the associated revenue does not. The reduction in force we completed at the start of the third quarter offset a meaningful portion of that impact, and we expect margins to improve through the second half as those savings are realized. Factoring in the divestiture, we now expect full year adjusted diluted EPS from continuing operations to be in the range of $0.31 to $0.36 per share. Fully diluted shares are expected to be in the range of 155 million to 157 million, and we are modeling an effective tax rate of approximately 30%. With that, we will open up the call for Q&A. Operator, can you please open the line?

[Operator Instructions]. Our first question is from Craig Hettenbach with Morgan Stanley.

So Jon, it's now been kind of a couple of quarters since you realigned kind of the sales and go-to-market strategy. Just would love an update on kind of what's working to date and then just some of the milestones or things to watch out for to execute on that.

Great. Thanks, Craig. So yes, it's been a couple of quarters. I joined in January. The changes that we've made to the go-to-market model really have come into effect in Q2 and beginning and have fully been rolled out in July, obviously, with the announcement of the new Chief Commercial Officer today. So we're still, I'd say, in kind of early innings in terms of rotating the model itself. I've talked a lot about some of the kind of leading indicators I pay attention to on the software side of the business, we shed a lot of light on things like ARR and kind of future revenue. We're seeing really good kind of future indicators around that with revenue accumulation. That's been a focus from a go-to-market standpoint on net new sales in addition to renewals. The services side has been a little bit different. It's been a focus on getting our specialists and our experts back out into market and changing -- making some of the changes to the model that was put into place in '24 and 2025. That is early change days, but is yielding positive indicator. I look at things like pipeline creation, which I highlighted in the earlier remarks, which are up, what, 28%, 29% year-on-year, which is a positive indicator around it. So still have work to do. The end market, we believe, is incredibly strong. We've made changes both to the software and to the service side and to the overall kind of engagement model that we have. We've got Julien announced today and tracking where I think you'd expect to be on the positive leading indicators.

Got it. And then just a follow-up. You had announced a partnership with NVIDIA a few weeks ago. Considering they've been very active with many life science companies in terms of various partnerships. Is there anything you would call out that's most unique for Certara in terms of what you're looking to do with NVIDIA and how you think about the business implications?

Yes. So there are a couple of dimensions to the partnership. We talked a little bit about it earlier this morning. First of all, we've been talking increasingly about what we call kind of next-generation platform. Our next-generation platform is how the software offerings that we have within this business will interface with some of the frontier models and some of the existing more generic kind of AI models that exist out in the market. The NVIDIA partnership in part is around that point, allowing the NVIDIA agents to be an interface with our software system. The second area that we've been focused on and we've communicated externally over the last few months is really around new use cases like things like discovery, where some of the high throughput potential will allow us to accelerate time lines and turn through more data to provide, more data to get earlier indicators to help support earlier decision-making. So those are the 2 dimensions I'd point to. You'll certainly hear a lot more for us -- from us in the time coming. NVIDIA partnership, obviously, is great. I think the biggest thing for a company like Certara, I think it's a signal of a different type of partnering relationship and a different type of role in the ecosystem. to my knowledge, it's the first major kind of technology partnership, and there are several other discussions as well as we kind of look to take the next step with how we're used broadly by our customers.

One moment for our next question that comes from Brendan Smith with TD Cowen.

Actually, I just wanted to ask quickly about net retention rate. I think we noticed in the filing, it looks just down a bit sequentially and maybe year-over-year. So I'm wondering if there's any nuance there in the quarter we should be aware of or any kind of customer feedback you've been hearing just in Q2? And then I guess, you mentioned, Jon, in your prepared remarks, you kind of rightsizing the company to get to that sustainable double-digit growth. I guess, do you have a time frame in mind over which you hope to kind of hit that? And I guess just from a go-to-market strategy, like what do you see as kind of the most important inflections to really supercharge that? Is it like new product rollouts the cloud-based monetization? Just kind of any thoughts on that would be great.

Yes. Thanks, Bernie, and thanks for the question. So on NRR, I don't -- no, I don't think there's any particular issue with NRR. Absolute renewal rates of the organization were up in the quarter, actually slightly ahead of our expectation. There's a little bit of kind of time effect that goes in. There's a little bit of a mix effect between kind of ratable and on-prem work that happens that has some changes in the timing of different things that they're hitting. But there's nothing that I'd speak to that is unusual or out of expectation. I think on the whole on software, we're pretty happy with where we sit and pipeline looks good. So it's a focus on continuing to execute, continuing to get the that renewal business through and continuing to get net new sales. That's what the team is incentivized and what the team is focused on. In terms of -- and your second question, look, I continue to say what I've said pretty consistently since I joined, which is the end market is strong. Our products are exceptional. We have market-leading products across multiple dimensions. What we historically have done less well is execution around it. We're in the process of making significant changes to way this organization works, lining up places in the right direction. I'm taking a very midterm view in terms of that -- when that inflection point will fully be able to be realized. We're doing the things that we need to do in terms of setting the portfolio for long-term growth, making the investments, changing the P&L models and the operating models, changing the go-to-market incentives and the go-to-market model, changing the CCO to ensure that we're positioned to be sustainable and to have the structured platform to grow off. So I don't think there's any one thing that needs to happen. I think we've taken the hard steps over the last 6 months to put those building blocks in the right places. I'm pretty pleased with the progress we're making. Obviously, today, with the announcement of the new CCO and the new go-to-market model, we talked about the leading indicators around ARR and pipeline creation on the services side, we need execution against that. And I think that will be the thing that will be the early sign for you in terms of inflection.

One moment for our next question that comes from Luke Sergott with Barclays.

This is Jake on for Luke. You mentioned breaking into China for the first time. I was wondering if you could talk about the significance of that, maybe your exposure in the region and the broader opportunity that you see there.

Okay. Thanks, Jake. So yes, so I think one of the things we would like to emphasize in -- yes, one of the things that we'd like to emphasize as we think about this business is it's truly a global business. It's truly an international business. When we talk about regulatory trends, I think there's a bias and a tendency to focus on the FDA. But things like ICH M15, if you look at the standards that are happening, these are really global effects. And a big percentage of the pharmaceutical population biopharma world is obviously here. But we are quite bullish on the opportunities in both Europe and Asia. If we look at those 2 geographies, those are both attractive growth opportunities for us. And as I kind of sat down and started to do some new planning with our new CCO, those are clear growth options and priorities for us. We have a foundation. We've built businesses out there over the last few months platforms for teams out there. We see a lot of potential -- growth potential. I think what you're seeing there in China, Japan, the Middle East is these are not huge contributors to our overall business, but we think on the whole, these are going to be outsized growth potential for us as we continue to focus on international opportunities.

Our next question comes from the line of Michael Cherny with Leerink Partners.

Maybe if I can tie back to the question regarding the NVIDIA partnership. As you think about this partnership maybe in construct of the broader offering, how are you measuring timing on returns? And how are you measuring your broader partnership functionality capabilities as you also work to reposition the go-to-market strategy?

Okay. Thanks for the question. So NVIDIA partnership is obviously an important enabler. I think, as I said, as I mentioned before, I think you'll be hearing other things from us in the coming weeks and months in terms of other partnerships. Look, I think we all recognize that this is a fast-moving ecosystem that we all need to -- that we need to play in multiple dimensions. And I think what you're seeing from us is a modernization of the way we're thinking about this, a relevance of the way that we're thinking about the way our software and our systems can be consumed by clients based on where they sit in a really kind of client-centric way. We haven't put any time line out against the individual products. We talked a little bit about the next-generation AI platform and the functionality and capability that builds, but we haven't yet provided any guidance in terms of timing for impact. But we certainly look at that as an opportunity to -- as we start to look out over the near to midterm as an opportunity to continue to build, continue to find new ways to serve our clients to figure out new ways for them to do new types of science and to consume our software in new and more innovative ways.

Got it. And just one more follow-up regarding the divestiture. Obviously, capital available. You did some buybacks. I apologize if I missed this. Within the guidance, is there an assumption on any incremental share repurchases and/or plans for capital deployment with the capital cash balance available to you?

There is no outlined plan of execution. We did highlight the Board has authorized an incremental $50 million in potential buybacks. Our stance on capital allocation hasn't changed. We are incredibly disciplined in terms of what we do. We focus on a combination of long-term strategic opportunity and what the best use of that cash and capital is. But I think you can take the signal of the incremental authorization in terms of where we see some attractiveness here. But there's no time line against it, and there's no outline execution path, just clearly that there's an intent to continue along that path of some buyback.

Our next question is from Jared Haase with William Blair.

This is Christine Rains on for Jared. Hoping you can speak to your expected back half cadence for revenue overall and for software versus services and overall EBITDA given the moving pieces here.

Thanks, Christine. So look, I think the key thing is our guidance is unchanged. We're continuing to call out the exact same range that we highlighted we were going to call out at the beginning of the year. In terms of second half cadence, I think although we don't guide on sub offerings anyway, I think the pattern that we've seen over the first half of the year with software outperforming services is certainly a pattern we expect to continue into Q3 and Q4. The big factor for us as we start to move into Q3, I talked a little bit about some of the leading indicators. The software indicators on the ARR side are very positive and give us a high degree of confidence on that side. Services, if you go back to kind of basics first principles on this, build up the pipeline, convert that pipeline, move to backlog into revenue burn. Our leading indicators on this are that pipeline creation. And so we're feeling good with the changes that we made. The rate and pace at which that converts, obviously, will drive potential upside on that services line. But our fundamental guidance hasn't -- has not moved, hasn't wavered at all from the range that we put out. And we expect a pattern that we saw in the first half of the year to continue in the second half.

Great. That makes sense. And just double clicking on the EBITDA margin puts and takes for the rest of the year, specifically asking given the risk in 2Q, but lower margin guidance at the midpoint. And also if we should think about margin ending this year as a good jumping off point for next year?

Yes. So firstly, on margin, let me just clarify. I think what you see is not a lowering the midpoint, but a change to reflect the new composition of the business. The business last year, if you look at excluding the regulatory carve-out that we did, the regulatory medical rating carve-out was a 30% margin business, 30.2% margin business. So coming out of the divestiture and kind of repositioning for the rest of the year, the change is in line with the math of that new business, also factoring in some of the stranded costs that we signaled in the last call that exists. So it's not, I would say, a change in guidance more just a reflection of the discontinued ops new profile of the business. I would point as you move forward, obviously, the stranded cost component is something that we're actively working on within out of the cost structure. We're also trying to free up capital to focus in on AI and some of the new offerings that we're intent on pushing into market. The operational excellence activities that we highlighted, the $13 million in run rate and the RIF, which is mainly focused on overhead were to really address both those points. Obviously, the run rate won't impact fully in the second half of the year. That run rate by definition will be into out years. But the intent of that is to protect and to highlight margins and ensure that we're in a good position to hold within the margin and to achieve the margins that we're outlining today.

Our next question from Sean Dodge with BMO Capital Markets.

This is Tom Kelliher on for Sean. Jon, can you talk about the lag between an improving biotech funding backdrop and when that typically starts to translate into demand on both the software and the services side?

So the majority of our impact tends to have a slight lag. We're not doing a lot of work in the earlier stage discovery. Our stuff starts to click in as that discovery starts to translate to development and the early stage development work moving towards first in human. So there tends to be a lag. As I've said pretty consistently, and I'll say it again, I think we're not dependent on biotech funding or market health at this point. This is an execution component, getting our teams out in front of -- there's plenty of market for us to go out and get. And our focus has been on making the changes that we need to make to our engagement model and to our commercial model to fully capture that opportunity. So yes, like technically speaking, there's a little bit of gap between when things get funded in terms of where they are in the stage of development, and you can see where we kind of click in. But for Certara's recovery story and Certara's inflection story, this is much more about execution, getting out in front of the existing clients, getting out in front of new clients and not dependent on biotech funding in the near term.

Okay. That's helpful. And then just a clarification on the cost savings. Is some or all of that $13 million incremental to the $10 million? I know you had like a cost avoidance plan you talked about before. Is this completely separate...

Yes, it's the latest update. Yes, we signaled that we would be putting this in place as we kind of look to address the stranded costs in the second half of the year and to obviously change the cost base, so we continue the path of investment and disciplined operating management. So the $13 million is an increase over the former identified plan. So the $13 million is the latest view of run rate savings. We continue to push and continue to do it and we'll continue to -- we'll look to optimize to free up capital to spend on things that are going to drive a return for investors.

Our next question is from Matthew Hewitt with Craig-Hallum Capital Group.

I'm curious if with -- there's been a fair amount of consolidation, both in pharma and biotech as well as one of your peers is getting acquired. And I'm curious if there's any type of disruption that, that creates from a customer perspective, if there's a merger or acquisition occurring, does that kind of slow time lines to getting deals done with the competitor getting taken out? Does that create an opportunity for you? Maybe while they're distracted, you're able to get in and maybe win some new business?

Thanks, Matthew. There's -- look, I don't -- again, there's plenty of market for Certara. There's no -- we're not going to point to acquisitions of small biotech companies. Obviously, I saw the same FT article you did this week around potential mega mergers, those are a long ways away. There's plenty of market for us. We're -- our focus is execution. Our focus is on commercial operations and getting out in front of our customers. So I'm not going to worry too much about that trend. I understand the rationale for the question, but there's plenty of opportunity for us to continue to grow and accelerate our footprint. In terms of competition, I'm probably not going to comment on that. Look, I think our job is to serve our clients with excellent work, is to lead with science. It's to put the best proposals and the best delivery and the best software in front of our clients, and that's where we're going to focus. So look, this is within our control, not within someone else's acquisition control. This is fully within our ability to execute.

Our next question comes from Scott Schoenhaus with KeyBanc.

Jon, I wanted to focus on your pipeline commentary up 25%. Can you give us some more color there on what's driving that more services versus software? Is it more smaller SMB or biotech or larger pharma? And then with the new commercial -- Chief Commercial Officer, how are you thinking about executing on this pipeline? Is there a mandate to get this converted more quickly? Any color would be appreciated.

So look, I focus internally on kind of 2 or 3 metrics. I focus on ARR accumulation on the software side, which continues to build and continues to be very positive. So our software business, we believe, continues to be healthy with a focus on new software continues to be a significant piece of that pipeline. The biggest single change, though, is on the service side. I have been vocal about the -- my difference of opinion on the way that you should be moving this business forward. I believe the market that we roll -- the go-to-market model that was rolled out within Certara 2 years ago, which focused on more of a generalist model was not the right model that we need to focus more on kind of specialist scientific engagement. We need to get our scientists out in front of the market more directly. They're the lifeblood of this business. And so we've done a series of things internally to rotate and get the scientists back out in front to hire more of the PhD-led sales teams for -- to get those folks back out in customers. And that's really where you're seeing the biggest spike in pipeline. You're seeing a rejuvenation of that model of that model of engagement leading to a much higher percentage of scientific service in the business, which is exactly what we're positioned to do. So that's the big kind of change that we've seen year-on-year and as for the disproportionate chair. The rate and pace of burn, the time in which we call that inflection point in terms of moving from low single-digit growth into something stronger, obviously, is the rate and pace of that burn. And so that's what we're focused on in the rest of 2026. Yes, obviously, with Julien coming in and a new integrated sales and marketing effort, this is going to be a very different approach, much more data-driven, much more segment-driven, much more targeted. We've built a bunch of AI to help enable our sales teams in a different way. We've got a much different view about getting our scientists out in front of customers in front of conferences, et cetera. So look, we're optimistic about it. With change, obviously, you always have to signal a little bit of caution. You don't want to get too far over your skis in terms of your ski tips in terms of when you make the call. But yes, this is going to be more focused on operations and implementation of the go-to-market model that we've been changing over the last 6 months.

One moment for our last question that comes from Joe Vruwink with Baird.

I wanted to ask about the updated guidance for the year. And sorry if I'm missing something obvious here, but I understand regulatory is now in discontinued ops and that ended up being $19 million. I think the guidance range moved down by about $26 million. What's just the delta between those 2 numbers?

I'd have to -- so I don't think that's the case. We'd have to go back and walk through your math. The only change that you saw to our top line guidance range, we've said pretty consistently that the business will grow in the 0% to 4% range over the course of 2026. The discontinued operations from the carve-out of the regulatory business, that profile of business in 2025 was $367 million. So if you put the 0% to 4% on top of that, you get to the $367 million to $382 million. So I think it probably is the timing in which you're taking in -- we are reporting out completely without regulatory medical writing where we're moving the Q1 and the first half of Q2 numbers from our ongoing compares. So I think that's probably the math issue, but we can work through it with you offline.

Okay. And then obviously, there's a lot of just draft guidance and discussion on what's going to be the right approach to models and what's going to be the right approach to data and what the regulators accept. Does that create any hesitancy on the part of customers for maybe how they want to engage with Certara, where they engage with Certara?

I kind of see it as the opposite. Look, there's a handful of very established use cases, and Certara is the go-to player for those are very established use cases, where the things that we've talked about in the last couple of calls is the acceleration of all the new regulatory use cases that are coming out, the maturity of regulators worldwide in terms of not just taking the standard use cases on MIDD, but really trying to transform, whether it's NMEs or QSP or some of the other kind of international standardization that's coming. What we believe -- and by the way, we're actively involved in discussions with regulators worldwide, scientists within Certara are journal editors for the major publications on this front. What we believe is that there's a time lag between when regulators establish a framework and when these start to get built into regular practice. You're seeing that. The number of questions that we are getting is going up exponentially in terms of how do you manage through this. It takes a little bit of time, particularly for the newer use cases to translate from, hey, there's scientific methods to now there's regulatory pathway, regulatory acceptance to it until when the adoption occurs, that's the rationale for us getting our scientists back out there. That's what they're more science-led is to help drive that transformation and the adoption. So I don't see it as a point of distraction for our clients at all. In fact, I think it's a huge opportunity as they start to adopt this into their practice, and we're going to help be partners with them and guiding them in that direction.

All right. This will conclude our Q&A session. I will pass it back to Jon Resnick for final comments.

Thanks, everyone, for joining. Look forward to some of the subsequent follow-up phone calls over the next couple of hours. Thanks, everyone.

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