CERT - NASDAQ

Good day, and thank you for standing by. Welcome to the Certara Second Quarter 2025 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 your first 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's Certara released financial results for the quarter ended June 30, 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 in the accompanying materials for additional information which you can find on the company's Investor Relations website. In our 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 most recent earnings press release available on the company's website. Please refer to the reconciliation tables in the company materials for additional information. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 6, 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, and good afternoon, everyone. Thank you for joining Certara's second quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions. Certara's second quarter performance reflected continued strength across the organization as we achieved results that were consistent with our full year outlook in both software and services. Second quarter revenue of $104.6 million, represented 12% year-over-year growth, while second quarter bookings of $112 million, reflected 13% year-over-year growth. Relative to internal expectations, we are pleased with the state of our financial performance and sales funnel as we head into the second half of the year. Across the portfolio, we continue to see strength in high-growth areas such as QSP services and our Simcyp software. We have a high degree of visibility into second half software performance based on the mix of renewals in our pipeline, which gives us additional confidence in our full year growth expectations. In services, our commercial team continues to execute in line or ahead of our expectations, delivering 15% bookings growth in 2Q and 10% bookings growth on a trailing 12-month basis, which supports the revenue outlook through the rest of the year. As a result of our strong year-to-date execution, we are reiterating our full year guidance. Across a variety of customer groups, our conversations continue to reflect a mixed spending environment in our various end markets. Large pharma companies remain cautious driven by a rapidly changing geopolitical and macroeconomic environment, decision- making time lines for our customers have been affected by proposed pharmaceutical tariffs and the potential introduction of a most favored nation pricing algorithm. Among smaller customers, the biotech funding environment has slightly improved, but it remains below trend on a historical basis. Despite these headwinds, we have been encouraged by persistent interest from customers seeking to expand their use of biosimulation technology, incorporating additional Certara products and services into their development workflows. Throughout the second quarter, our team did an excellent job of remaining in front of key stakeholders and facilitating discussions about how we can further expand existing relationships. Now turning to our second quarter commercial performance. In software, we saw strong bookings performance across Tiers 2 and 3, offset by timing-related softness in Tier 1, which remains in line with plan on a year-to-date basis. Software revenue of $46.7 million grew 22% on a reported basis and 9% organically, led by strong growth from Simcyp in addition to $5.1 million of contribution from Chemaxon. In services, we saw bookings growth across all 3 of our customer tiers led by strength in Tier 1 across both biosimulation and regulatory services. Strength in biosimulation services bookings was driven by QSP and Simcyp services, while total regulatory bookings also grew nicely during the quarter. Services revenue of $57.9 million grew 5% on a reported basis. Certara Simcyp reached a significant regulatory milestone earlier this week. We're happy to share that Certara is the first and only company to receive European Medicines Agency, EMA, qualification for a PBPK Modeling Platform and Simcyp is the only software to hold this designation. The recognition follows a rigorous multiyear collaborative engagement between Certara scientists, technologists and the EMA. The qualification is a significant milestone for biosimulation, demonstrating the value that regulators place on evidence generated through modeling and simulation approaches, and it will continue to encourage the usage of Simcyp by companies globally. Certara is continuing to increase investment in R&D to create our next-generation AI-enabled MIDD platform. This investment started in 2022, before the breakthroughs in GPT AIs were announced when Certara acquired Vyasa. Vyasa brought to Certara the foundational distributed data fabric technology which has become the underpinning of our ability to integrate AI with our modeling technology and data sets. Since then, we have utilized this technology in a number of new AI features in our products and also some new important AI products like CoAuthor. Last week, I was pleased to announce the promotion of Dr. Christopher Bouton, Founder of Vyasa as Certara CTO. Chris is leading the integration of Certara's key MIDD modeling tools into our next-generation AI MIDD platform, which we'll be launching over the next year. We believe that Certara can solidify our leading position in the MIDD with this platform, which will fuse both AI and biosimulation technology to enable our customers to reduce the risk and cost of drug development. The next step in the creation of this platform will be the release this fall of CertaraIQ, an AI-enabled QSP software solution that includes an intuitive model building interface and several prevalidated QSP models. As you will recall, QSP is one of the fastest-growing markets within Model Informed Drug Development, and we have the largest group globally serving these customers. Our services team will adopt CertaraIQ as their preferred platform for executing QSP products, leveraging cutting-edge features and modeling capabilities. With CertaraIQ, customers will have one unified QSP platform to reference in collaboration with peers, Certara and regulators. The product will be based in the cloud, allowing for high-performance simulation and analysis work at faster speeds. We believe this product launch is a critical step in growing the market for QSP solutions by democratizing access to modeling capabilities across our customers, which should ultimately lead to more QSP use in clinical development. The product is currently in an early access phase with several customers, and we expect to announce a full commercial launch at some point in the fourth quarter. While we are on the subject of QSP, we received an update on our QSP collaboration with IGI, which was published in Nature Cancer last fall. Our QSP team worked with IGI to optimize the first-in-human dose of ISB 2001, resulting in a clinical starting dose that was 50 to 100 fold over the conventional starting dose, and that reduced the need for animal testing. These predictions were validated by first-in-human trial results that were presented at AACR this year and ISB 2001 was granted a Fast Track designation for the treatment of relapsed refractory myeloma patients in May. We are thrilled by the work of our QSP team and the outcome of these studies for all key stakeholders, showcasing the impact that QSP could have in accelerating trial time lines and accelerating the delivery of treatments to patients in need. In addition, excitement about new approach methodologies and particularly model-informed drug development has grown in the wake of the FDA's guidance to phase out animal testing for monoclonal antibodies. While it's still too early to provide a precise estimate of the broader opportunity, we do view it as a multibillion dollar addressable market over the next 10 years. We are excited to share that our QSP and broader Simcyp businesses have begun to recognize bookings and revenue associated with the replacement of animal testing. Roughly 50% of our new QSP projects this year have been for monoclonal antibody therapies, which is a testament to Certara's competitive positioning as the leader in QSP of services as well as the growing momentum of NAM use in clinical development processes. Our acquisition of Applied BioMath in late 2023, and the subsequent combination of our 2 QSP teams has proven timely and is becoming an increasingly important component of our overall growth. Now shifting towards some other product-related updates. During the quarter, we released version 8.6 (sic) [ 8.7 ] of our Phoenix PK/ PD platform, following months of development and incorporating feedback from key stakeholders. New enhancements included in the update were improved speed and efficiency of NCA setup, data preparation and the speed of nonlinear mixed-effect algorithms for population pharmacokinetics. As we have discussed in the past, this product has been made available through the Certara Cloud, offering faster performance with lower back-end IT costs for our customers. Initial feedback from our users has been positive, and we look forward to collaborating with them to drive further improvements to the Phoenix platform. Another key focus area for investment over the past several quarters was our Pinnacle21 product suite, which is core to the data component of the software business. Following the acquisition of Formedix in late 2023, our team began to integrate Pinnacle21 and Formedix data standardization capabilities, seeking to improve our customers' clinical data workflows and time lines. In early July, we were pleased to announce a new collaboration with Merck, expanding their use of Pinnacle21 and broadly incorporating new integrated data standardization capabilities. This collaboration helped us build upon our long-standing relationship with Merck, which is an example of the type of engagement that Certara is striving to build across our customer base. Our commercial team remains focused on identifying opportunities to form stronger partnerships with customers, both through the expansion of existing capabilities to more seats and expansion of new products and services. As we add to our portfolio organically and inorganically, our land and expand commercial strategy remains top of mind. Now before handing things over to John, I wanted to provide an update on the strategic review of our regulatory business. Regulatory bookings have continued to grow nicely through the quarter and we continue to value the business given the profitability and cash flows that it generates. Over the past several months, we have continued to make good progress in our review. However, this process has taken longer than we expected, which we attribute in part to the unprecedented nature of geopolitical and macroeconomic uncertainty that has taken place since the beginning of the year. With that said, we have maintained an active dialogue with several interested external parties with discussions progressing beyond the initial phases of diligence. We hope to be able to provide a more substantive update before the end of 2025. To close, we are pleased with our second quarter performance, and we are confident in our financial outlook for the remainder of the year. Our guidance is supported by solid bookings trends in services and high visibility into second half renewal dynamics in software. Customer interest in Model Informed drug development continues to grow stronger each quarter, supporting our growth strategy and validating the investments we are making in our business. We look forward to continued success and momentum during the second half of 2025. With that, I will hand things over to John Gallagher to discuss our financial results in more detail.

Thank you, William. Hello, everyone. Total revenue for the 3 months ended June 30, 2025 was $104.6 million, representing year- over-year growth of 12% on a reported basis and 10% on a constant currency basis. Total bookings in the second quarter were $112 million, which increased 13% from the prior year period on a reported basis. Trailing 12-month bookings were $470.8 million, increasing 15% on a reported basis. Excluding Chemaxon, total company organic bookings growth was 8% and compared with the second quarter last year. Software revenue was $46.7 million in the second quarter, which increased 22% over the prior year period on a reported basis, and 20% on a constant currency basis. Organic growth was 9% in the quarter, driven by strong growth from Simcyp. Chemaxon contributed $5.1 million to our reported revenue, which was in line with our expectations. Ratable and subscription revenue accounted for 60% of second quarter software revenues or 64% when excluding Chemaxon, slightly down from 65% in the prior year period. Software bookings were $46.6 million in the second quarter, which increased 11% from the prior year period. Second quarter bookings included $5.2 million of Chemaxon bookings. Trailing 12-month software bookings were $181.9 million, up 25% year-over- year. The software net retention rate was 107.6% in the quarter, consistent with our full year plan. Looking at our software bookings performance by Tier, we saw strong performance in Tier 2 and 3 driven by continued adoption of our software. In Tier 1, we saw some timing-related slowness due to renewals, which we expect to normalize in the second half of the year. Now turning to services revenue, which was $57.9 million in the second quarter, up 5% versus the prior year period on a reported basis and 4% on a constant currency basis. We saw a strong performance from our QSP and Simcyp services businesses in the quarter, which was partially offset by softness in regulatory services. Technology-driven services bookings in the second quarter were $65.4 million, which increased 15% from prior year period. TTM services bookings were $288.9 million, up 10% as compared to the prior year. During the quarter, we saw an improved demand for our biosimulation services with bookings growth across all 3 of our customer tiers. We were also encouraged by regulatory writing bookings, which grew mid-single digits versus the second quarter of 2024. Total cost of revenue for the second quarter of 2025 was $40.7 million, an increase of $39.8 million in the second quarter of 2024, primarily due to higher software amortization expense offset by lower stock-based compensation. Total operating expenses for the second quarter of 2025 were $54.3 million, a decrease from $62.5 million in the second quarter of 2024, primarily due to an $8.5 million decrease in the change in fair value of a contingent consideration, which was offset by higher sales and marketing expense and intangible asset amortization. Adjusted EBITDA for the second quarter of 2025 was $31.9 million, an increase from $26.3 million in the second quarter of 2024. Adjusted EBITDA margin in the quarter was 31%. As Bill mentioned earlier, we are executing on our investment plans this year and have begun hiring additional software developers in the second quarter, which will continue through the second half of the year. Total expenditure on R&D during 2Q, including capitalized spend is growing year-on-year as a result of these investments. Wrapping up the income statement. Net loss for the second quarter of 2025 was $2 million compared to a net loss of $12.6 million in the second quarter of 2024. Reported adjusted net income for the second quarter of 2025 was $11.6 million compared to $11.4 million for the second quarter of 2024. Diluted loss per share for the second quarter of 2025 was $0.01 compared to a loss of $0.08 per share in the second quarter of last year. Adjusted diluted earnings per share for the second quarter of 2025 was $0.07, same as the second quarter of last year. Moving to the balance sheet. We finished the quarter with $162.3 million in cash and cash equivalents. As of June 30, 2025, we had $297 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. Earlier this year, our Board authorized a $100 million share repurchase program. As of today, we have purchased a total of $25 million in stock, all of which was during the second quarter. 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 to 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 our revenue guidance and a lower EBITDA margin at the higher end of our revenue guidance. This will be driven by discretionary investments in R&D, which will be managed carefully based on the timing of new product launches and business performance in the second half. 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 the many exciting developments of Certara in the second quarter. and we remain focused on executing our growth and profitability goals in 2025. We continue to make good progress on the software development front, and I am looking forward to sharing further updates following some new product launches in the fall. Operator, can you please open the line for questions?

[Operator Instructions] Our first question comes from the line of Joe Vruwink of Baird.

Just a quick clarification. Multibillion dollar addressable market opportunity you cited around NAMs. Is that incremental to the low single-digit billion TAM you traditionally have discussed for biosimulation software?

Yes. We're looking at that as what would be additional opportunity, Joe, based on trying to ring-fence what we think the long-term opportunity is for NAM.

Okay. That's great. And then I thought it was interesting. Certara had a webinar during the quarter and during the webinar they ask respondents just what they're currently using around NAMs and I think 40% cited nothing. So that seems like a good opportunity. But 30% cited PD/PK modeling, 12% with QSP. I guess I would have expected the QSP responses to be a lot higher. What's kind of your interpretation of just how kind of the thinking is settling out? Does Certara need to do more marketing on their part to educate customers around maybe the best course of action? Just how are you seeing kind of customer decision-making change now that we're a few months further in.

So Joe, as it relates to QSP, QSP is one of the bright spots on the quarter for us. So I think that those results would also surprise us as far as that's a pocket of the business along with Simcyp, where we would see additional opportunity going forward. So that QSP is a growing area in general. And our combination of our existing practice along with applied biomass makes us the market leader in that spot. So I would expect that ratio that you cited to grow into the future.

Yes, Joe, I think the other thing that we'll be aware of, it's still pretty early days, in terms of the markets thinking about what this announcement means and how it's going to play out as drug programs move forward. The reality is QSP and PD/PK are often quite closely linked. And so I think people may answer the question a little bit differently depending on sort of what they're more familiar with when they go in. QSP is sort of a newer branch of model-informed drug development. And so the number that you cited doesn't really concern us, obviously, we're pretty big in both of them. But I think it's -- the way I think about it is as up to 70% of people that are using technologies that we're pretty good in.

Our next question comes from the line of Luke Sergott of Barclays.

This is Anna Kruszenski on for Luke. I was wondering if you could give any color on the demand drivers for software versus services bookings? We would think that the services booking strength is like a better leading indicator of future spend and adoption. So it would be great to get your sense of this.

Yes. I think it's a good question. We don't -- I think that might not be quite the right way to look at it. I think the demand drivers are software, to some extent, companies need the software as part of the R&D infrastructure, so that continues. But we have also put quite a bit of R&D resources over the last periods into new products, which is driving some of that demand there. Services, it's come back nicely in the quarter, particularly compared with where we were last year. I think there are several things going on there. One of them has been particularly high demand for QSP services, which is kind of a new growing area as I talked before, second piece has been the linkage of the services to some of the software that I just talked about, the people are buying. So -- we talk about software and services as separate lines, but in fact, they're often quite closely intertwined when we're actually making sales to customers, and so they're -- one drives the other.

That is super helpful. One quick follow-up. Can you share a little bit more on the dynamics that you saw across customer peers? The biggest difference is between Tier 1 behavior versus Tier 2 and 3, particularly on the software side?

Yes, sure. So we did see Tier 1 software, as you saw on the chart, was impacted by timing of renewals. But as we look at the full year basis and in the second half, we have high confidence and good visibility into being able to achieve those renewals. So that was the one spot on the customer tiering to call out. But then as you look at Tier 3, despite the funding environment, then we've had strong performance on both software and services in Tier 3. So we've been pleased with that. And we had a particular -- as Bill mentioned, we had a particularly strong quarter on services, both biosim services on the Tier 1 side that both biosim services and in reg that was helping our overall growth rate there.

Our next question comes from the line of Jeff Garro of Stephens.

Yes. I wanted to ask about the new AI MIDD platform. Curious if you could provide any more detail on how we should think of the glide path for customers as they might adopt that new platform in the future? More specifically, does the delivery model or economics between you guys and customers look any different? And lastly, there, any concern over potentially pushing out demand ahead of an exciting new product launch?

Okay. Yes. Thank you, Jeff. Appreciate the question. So several questions there. Look, we're creating -- we believe that we have the industry-leading technology around biosimulation. And as I said in the call, we've made some very strategic acquisitions in the AI area. The opportunity there is to create a bigger platform that unites a number of our software solutions that work in different areas of drug development into 1 platform, so that drugs can be optimized according to multi parameters. And basically, our customers can make a better decision about which molecules to bring forward. We're really excited about this. We think that there's a very significant opportunity for the company. And frankly, for our customers to make much better decisions on which drugs to bring forward, that's an opportunity here. And the reason we highlighted it now is not so much to kind of preannounce the product, but we are spending a fair amount of R&D to produce this. We've got a plan to launch this over the next year, as I said. I'm not particularly worried about your concern about customers kind of waiting it out. Most of our customers are pretty highly interested in using our existing products on their current drug development products. It's become -- for a lot of people, really part of the standard way that you do some of the key technical parts in MIDD. So I don't think we'll see people pause that. This is going to be a new product that's going to be over on top of what we sell today. It's got capabilities that are beyond what we have today. Like a lot of companies, the advent of the AI advances that have happened recently have kind of changed the game in terms of what's possible, and we're going to implement that in. So stay tuned. We haven't fully announced the product. The first part is -- the first part, however, is in fact being launched in Q4 and is in the hands of customers, but there'll be more to that as we go forward over the next year.

Great. Appreciate that. Really helpful. And maybe to kind of translate some of the key themes there to the financial model, not just this new platform, but you've had CoAuthor released kind of last year and growing this year, you have regular releases of your existing products and some other new ones as well. I just want to get your viewpoint on whether product launches alone are sufficient to drive organic growth out of the -- the low single-digit to mid-single-digit range that the company has been in the last few years? Or if you really do need a better macro environment on top of that?

Yes. Thanks for the question. We -- while we would love a better macroeconomic environment, we are not planning on that, and we're not dependent on that. We believe that the company is in a very unique and valuable spot where it's kind of a combination of maturity of technology and understanding by a lot of the industry and how to use this and acceptance by the regulators. All of them are coming together in a good way at the same time. And so as we can -- this is a good time for us to expand our product suite because the possibilities of what we can do are expanding, but we don't need any kind of recovery of the market in order to deliver the results that we're expecting. Now at some point, markets go up and markets go down, some markets will go up, and that will be great, but that's not necessary for our model.

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

Great. This is Dan Clark on for Mike. Just had a question on the EMA qualification for Simcyp. I know this just came out, but how are you thinking about that in terms of differentiating your product, any early customer feedback on receiving that would be great to hear?

Yes. Thanks for the question. I think that's been a real accomplishment by our teams. Our teams seen both at the EMA and Certara. We've been working on this for a better part of 2 years right now to get this qualification. This is a significant -- the way I would explain this is the EMA, like other regulatory agencies has accepted the use of Simcyp in drug applications for some time now. However, the EMA really consists of 27 member nations, and there was no particular qualification of any product there. So for a lot of our customers, it would depend a little bit on what reviewer you got and what questions they asked and that added time and some uncertainty to the overall process. So reviewers reasonably want to know what's in the models and they want to go qualify it. What this does is that it basically provides a prequalification. So the EMA is effectively saying that Simcyp has been -- all of the underpinnings of Simcyp have been explained and examined and you don't need to do that, an approver does not need to do that again in the middle of a drug application. So no one else has achieved this. It's certainly not easy to do the -- I mean it was a really expensive review. And it's not easy to get there. But for our customers, this adds 2 things. I think one is it's kind of a sign of what the regulators think about the software. So they've looked hard at it and accepted it. And the second one is just from a practical standpoint, it ups the consistency of what you can expect when you go into a review process because you don't have to worry about what questions you might get about the underpinnings of Simcyp, that's already kind of taken care of before we've gotten there and it just makes it a whole lot easier to use the software in the review process and to expect consistent results.

Our next question comes from the line of Kyle Crews of UBS.

The software bookings declined organically, but it sounds like it's related to a timing issue with Tier 1 customers where you have more visibility into 2H. Beyond 2H and given kind of a heightened visibility in future orders, could you provide early framing thoughts on 2026 relating to the headwinds with pharma tariffs, potential MFN and a potential reduction in pharma R&D spend offset by the continued regulatory push for Model Informed Drug Development and if you expect growth to accelerate into 2026 and how much? And any early qualitative planning thoughts there?

Kyle, yes, I think the right way to think about this is in terms of the investments that we're making in R&D and the product launches that Bill has been referring to and the expectation that we don't rely on or expect the end market environment to necessarily improve in the near term, but we do intend to grow the business in the face of that. And so as we look at products that we've rolled out recently, we look at the strength of the existing platforms of call out Simcyp as a key highlight in this quarter in that sense. And then you combine that with the product launches that we're heading toward inside of this year, then that sets up a nice platform for growth as we look at next year.

Great. And then maybe could you discuss how you aim to get regulators comfortable with incorporating AI into Model Informed Drug Development?

Yes. We'll talk more about that as we launch this. But I think the -- just saying AI and Model Informed Drug Development doesn't cover all of the possibilities. So I think a, as a regulator, I think you have to be questioning any kind of a black box where an AI is making a recommendation that you don't understand how they got there. We're well aware of that, and that's not what this does. What this type of technology does is it allows AI to process a lot of the scientific information we need to create models, and it allows us to build models much more quickly with our experts, but still in an explainable way. So in MIDD, the name of the game is really explainability. We have to explain what's in the model, why do the -- where do we get it? What are the equations, where is the data that backs us up. And that's not going to change. And so I think that regulators could feel comfortable about that. But the process of how you get there and the process of how you use some of the really top experts that we have in Certara can get a lot better. Basically, we can bring down the cost of creating these models, we can bring down the time of creating them and we can speed up the overall cycle that's -- that they're used on in the drug development process.

Our next question comes from the line of Brendan Smith of TD Cowen.

I wanted to ask just another one actually about some of the new customer inbounds in the wake of FDA's pushing animal testing. I think you called out a 50% of new licenses in the quarter were kind of in that biologics biosim for non-animal testing arena. So I guess, can you just maybe remind us how we should think about kind of the cadence over the next couple of quarters really how and when some of the new bookings are or even, I guess, new preliminary inquiries could translate into any upside. I mean I totally understand there's always some variability in customer timing and all that, but just trying to understand some of your internal assumptions around a brand new customer comes to you specifically because of FDA, what you expect kind of average time from first outreach to revenue recognition for you all looks like? And maybe what some of those considerations have been this quarter?

Yes. Well, probably the first thing to highlight, Brendan, would be the QSP business and the Simcyp business, we've said previously, would be the areas that would be sort of the initial beneficiaries here. That being said, we do think it's a long-term conversion, as we discussed earlier in the call. But we've seen strength in QSP and Simcyp, as we mentioned earlier, in the quarter, and as we look at the remainder of the year, there's certainly potential upside in those 2 areas, which is book services on QSP services and Simcyp software. So the customer conversations have been good. And I think that we're increasing the dialogue while at the same time, those businesses are outperforming our expectations on the year.

Our next question comes from Steven Dechert of KeyBanc.

I just want to dig into the Tier 1 slowing of software renewals. Anything specific to point to there?

No. The way to think about it is that bookings are lumpy on a quarterly basis. We've certainly seen that historically. Revenue was strong, organic revenue at 9%. TTM organic bookings were at 11%. So that's indicative of what we've been booking, and we have good visibility into the second half renewals during the year. So that gives us a lot of confidence as we approach the remainder of 2025.

Okay. And then given the strength you're seeing in QSP, what's the profitability of that product relative to your other offerings?

Well, keep in mind, to QSP, as it stands right now is services. So we've -- and it's a combination of our existing practice along with Applied BioMath, which was an acquisition from 2023, which gives us a market-leading position there. Profitability profile is what you'd expect of a services business. And as Bill mentioned earlier on the call, then too, we're actively working to roll out some software associated with QSP in the form of CertaraIQ later this year.

[Operator Instructions] Our next question comes from the line of Max Smock of William Blair.

Maybe just following up on an earlier question around QSP, and you flagged the 50% of new engagements tied to mAbs just kind of a proxy for, the uptick in demand you think you've seen since the FDA guidance is released. But just wonder if you can give some more context around what the breakdown of therapeutic modality looked like for QSP pre-FDA guidance? And then any context you have around what portion of those engagements that you flagged in the quarter wouldn't have been on, in your opinion, without that FDA guidance.

Yes. Thanks, Max, for the question. So QSP has been working heavily on mAbs for some time. The FDA made an announcement, which I think, is a result of the fact that there is a -- I'm guessing as a result of the fact that there is so much modeling going on in mAbs and you can get some pretty good answers out of that. I would -- I'm not going to give you the specific numbers, but there's been somewhat of an uptick since the FDA made their announcement. I think, however, there wasn't like an FDA announcement in the next day, all of a sudden, everybody switched to using QSP, there's been a process since the announcement kind of started with one of the webinars that we very well-attended webinars that we gave right after the FDA announcement, where companies have been exploring what's the possibility and what's the meaning of what the FDA is talking about. And during that process, a lot of them learned about the benefits of QSP and we picked up from there. So it's been good for business so far. Is it -- is it like at the maximum rate. Now it's going to take some time for the market to really build up and gain confidence about exactly how the FDA want this to play forward, but it's definitely driven a lot of interest in that type of modeling and has driven revenues to the company. So I'll just leave it there.

That's helpful. Understood. Maybe turning to margins. The midpoint of the guide implies about 30% in the second half, kind of well below you did 32% in the first half. And I know you talked about hiring being a driver there. But -- can you just walk through any of the other kind of factors that are leading to that step down in 2H in the second half of the year here, and then the cadence between the third quarter and fourth quarter. And then, John, I think more importantly, is 4Q going to be a good jumping off point for thinking about margins next year? Or are you going to moderate investments to make sure that you're protecting margins in 2026?

Yes. Max. So first half was impacted by some slower hiring in Q1. So the best way to model for the remainder of the year, Q2 is a good jumping off point. So our 13.5% margin in Q2 is a good way to think that as we ramp -- as we continue to ramp the investment coming out of Q2 and into Q3 and Q4, then that's the Q2 margin is a good proxy. And Q1 is less so, so I put it more in the quarter than the first half. That's the way to think about how to model the full year from a margin perspective because of those investments coming in. And then as far as the jumping off point for the margin next year, sort of aligned with what I was just saying, the investments that we're making are -- that hiring is going to take place during -- some of it was in 2Q. There will be more of it in Q3 and into Q4. So I would say that Q4 would be a decent proxy for where we go ahead into the next year.

Our next question comes from the line of Gabriel Weiner of Jefferies.

Dave Windley here. Is it me? I think it's probably me. if you can hear me?

Yes.

So I wanted to ask around kind of adoption curve. So Certara has been in this modeling business for a couple of decades, probably seeing several adoption curves. And so my question is, what are the telltale signs of clients that are on the cusp of, say, climbing the steeper looking at adoption curve? Is it hiring more people in their quantitative sciences divisions? Is it running pilot programs? What might that look like? And I'm asking as something to look for as it relates to the NAMs and how we might try to observe pharma companies stepping into adoption of NAMs?

Yes. Thank you, David. It's a complicated question because of the many different players in this market and frankly, there lots of just the technical aspects of where biosimulation is used. But if I want to generalize we often start with services. So a company I don't -- it's not exactly a pilot program, but the first one through often is a project that gets conducted by Certara, and then as companies get excited and feel confident in what we're doing, they become -- they become software customers as we go forward. So if we look at that on NAMs, I don't -- I guess, say NAMs is kind of an interesting thing because it's only this whole announcement from the FDA has only been around a few months, which is really no time in the way pharma operates, yet there has been a tremendous amount of interest. We've been hired to do everything from additional QSP projects to strategy projects around what does this mean for my drug and how do I change the way I think about bringing it forward -- and that's happened very, very quickly. So we're sort of trying to project off just a few months as to how this is going to play out over a multiyear process going forward here. But I think -- in this case, what we see is, number one, companies are very interested in NAMs, right? A number of them kind of combine this with a test of additional modeling or biosimulation in their projects. So it's all good in terms of it's driving business to us, but it's a little bit convoluted about maybe the -- don't oftentimes try to do multiple things when they start working with this.

Yes. Maybe as a follow-up to that is -- are and -- trying to understand how the client might use or might try to arrive at the answers that they're trying to achieve without using animal models and insomuch as Simcyp is an area that you're pointing to as being invoked by this QSP lie newer, but like let's focus on Simcyp, is the client using Simcyp in a different way to produce different answers than the clients have typically used Simcyp to do? Or are they kind of running similar maybe more intensive, but similar types of analyses modeling, as they've done with Simcyp in the past, but just our -- say trusting those answers more and moving on without, say, verifying in animals.

So the way I can explain it is this for some time, many of our customers have been doing modeling in monoclonal antibodies in parallel to their animal testing. And there -- the modeling has produced results that if the FDA allows it, and now they're fostering it can be used to reduce, maybe not totally eliminate the use of animals. So they've done that. Why are they doing that modeling in parallel? Well, really, it's being done in parallel because it produces useful information that is kind of difficult to get from animals. So for example, if you're trying to do first-in-human dosing, it's one thing to try that on a primate, but you can get a much better answer if you use modeling. And if you get a better answer, you're more likely to make better use of your Phase I trials where you're trying to figure out the effective dosing range. So that's why they're doing that. That data, however, now everybody is looking at it and saying, wow, we can use some of this data and we can -- if the FDA allows us, we can reduce the number of animals as we go forward. So that's good. Those are our customers that are already working on it. They're taking some of the modeling, they were doing the other reasons and they're sort of like getting some additional benefit. And then other companies that were maybe on the fence about doing that are saying, well, we ought to start taking a look at QSP as well. So that's why we say that this has been good for business so far. There's still some quite -- I mean, I don't think anybody has actually gotten to the point of taking a drug application to the FDA with reduced use of animals so far is -- like I said, it's only in a few months, hopefully, as that happens, then we'll see some kind of a snowballing effect as that drives even more interest.