Certara (CERT) Q1 2025: FDA Animal-Testing Shift Spurs 23% Software Bookings Jump
Certara’s Q1 was defined by a decisive regulatory tailwind, as the FDA’s animal-testing phase-out fueled a surge in software bookings and customer engagement. While end-market headwinds persisted, the company’s rapid product innovation, robust commercial execution, and new share repurchase authorization signal a business positioning for structural growth. With biosimulation adoption accelerating and AI integration deepening, Certara’s platform is set for a pivotal year.
Summary
- Regulatory Tailwind Accelerates Demand: FDA’s move to phase out animal testing has triggered broad customer interest in Certara’s biosimulation platform.
- Commercial Execution Drives Bookings: Double-digit software and service bookings growth reflects solid uptake across customer tiers and new cross-sell from ChemAxon.
- Strategic Capital Deployment: Share repurchase and M&A flexibility underscore confidence in long-term platform expansion.
Performance Analysis
Certara delivered a balanced quarter, with total revenue up 10% year-over-year, driven by software revenue growth of 18% and services up 4%. The standout was software bookings, rising 23%, reflecting strong momentum from both core biosimulation solutions and the ChemAxon, cheminformatics software, acquisition. Ratable and subscription revenue made up over half of software revenue, reinforcing a durable, recurring revenue base.
Services bookings also grew, but with a notable mix: regulatory services rebounded for a second consecutive quarter, while biosimulation services saw Tier 1 softness offset by Tier 2 and 3 strength. Adjusted EBITDA margin reached 33%, ahead of expectations due to slower hiring, a benefit expected to normalize as R&D investment picks up. The company ended the quarter with $179 million in cash and initiated a $100 million share repurchase program, deploying $25 million already, signaling strategic capital flexibility.
- Software Bookings Surge: 23% YoY growth, with ChemAxon integration and Tier 1/3 demand as key drivers.
- Regulatory Services Outperform: Regulatory bookings and revenue outpaced biosimulation services, aided by improved commercial execution and easier comps.
- Margin Outperformance is Temporary: Elevated EBITDA margin reflects slower hiring, with normalization expected as R&D ramps.
Underlying demand signals are robust, but management remains cautious on end-market recovery, especially given ongoing biotech funding constraints and large pharma’s conservative spending posture.
Executive Commentary
"We are pleased with our start to the year, delivering financial results consistent with our expectations, driven by strong commercial execution across both software and services... Tailwinds include the recent FDA announcement about phasing out animal testing, a general willingness to expand the use of modeling in pharmaceutical development, and an increasing spending on artificial intelligence solutions among our customers."
William Ferry, Chief Executive Officer
"Adjusted EBITDA margin in the quarter was 33%, which came in ahead of our expectations... We expect hiring to pick up through the middle of the year, which will align margins more closely with our guidance expectations over the next several quarters."
John Gallagher, Chief Financial Officer
Strategic Positioning
1. Regulatory Shift Unlocks New Market
The FDA’s plan to phase out animal testing for monoclonal antibodies is a structural catalyst for Certara’s biosimulation platform. The company’s Non-Animal Navigator, built on Simcyp, biosimulation software, and QSP, quantitative systems pharmacology, models, is seeing significant inbound interest from both large pharma and biotechs. This regulatory clarity is driving customer engagement and could accelerate biosimulation adoption in preclinical drug development.
2. Platform Expansion and AI Integration
Certara continues to invest in integrating AI across its software suite, with products like CoAuthor, AI-powered regulatory writing, already generating meaningful revenue. The company is also enhancing its Simcyp platform, now in its 24th version, and leveraging ChemAxon for cross-sell and discovery-stage expansion. These moves deepen Certara’s value proposition as a comprehensive, data-driven partner across the drug development lifecycle.
3. Commercial Execution and Customer Mix
Healthy bookings growth is broad-based, with Tier 1 and Tier 3 software customers showing particular strength, and regulatory services rebounding after a period of underperformance. Cross-selling ChemAxon has begun to yield results, and the Phoenix-to-Cloud migration is expanding platform engagement, especially as more customers renew licenses and access the Certara Cloud, cloud-based software delivery, offering.
4. Capital Allocation Flexibility
The $100 million share repurchase authorization and ongoing M&A appetite reflect a balanced approach to capital deployment. While buybacks provide downside protection and signal confidence, management reiterated that M&A and organic investments remain the primary use of capital to drive long-term growth, especially in biosimulation and AI.
5. Regulatory Business Review and Portfolio Focus
The ongoing strategic review of the regulatory business points to a willingness to refine the portfolio for strategic clarity and capital efficiency. While no transaction has been announced, external interest has been confirmed, and any outcome could further sharpen Certara’s focus on its core biosimulation and software platform.
Key Considerations
This quarter’s results highlight Certara’s ability to capitalize on secular tailwinds while managing through persistent market headwinds. Investors should weigh the following:
Key Considerations:
- Regulatory Momentum Is Real: The FDA’s animal-testing phase-out is catalyzing customer engagement and could structurally expand biosimulation’s addressable market.
- Recurring Revenue Foundation: Over half of software revenue is ratable, supporting visibility and resilience, with further upside as ChemAxon and cloud adoption increase.
- AI as a Differentiator: Certara’s early AI product traction is driving both revenue and deeper customer conversations, positioning the company for future workflow integration.
- Capital Deployment Optionality: Buybacks, M&A, and organic R&D investment provide levers to drive shareholder value in a dynamic market environment.
- End-Market Recovery Remains Uncertain: Biotech funding constraints and large pharma budget caution are ongoing risks, tempering near-term upside even as structural drivers improve.
Risks
Certara’s growth remains partially hostage to end-market dynamics, including biotech funding volatility and large pharma’s slow decision cycles. While regulatory changes are a long-term positive, their pace of implementation and customer adoption is uncertain. Margin outperformance in Q1 was aided by slower hiring, which may not persist as R&D investment resumes. Competitive threats from both established and emerging biosimulation providers, as well as evolving regulatory requirements, could also impact future performance.
Forward Outlook
For Q2, Certara guided to:
- Continued revenue growth consistent with full-year guidance.
- Normalized EBITDA margins as hiring accelerates and R&D spend increases.
For full-year 2025, management reiterated guidance:
- Total revenue of $415 to $425 million (8–10% growth).
- Adjusted EBITDA margin of 30–32%.
- ChemAxon to contribute $23–25 million in software revenue.
- Adjusted EPS of $0.42–$0.46 per share.
Management highlighted several factors that will shape the year:
- Customer adoption of biosimulation in preclinical settings, especially as regulatory clarity improves.
- Continued R&D investment to capitalize on AI and cloud platform opportunities.
Takeaways
Certara’s Q1 demonstrates a business in transition, with structural tailwinds from regulatory change and AI adoption offsetting persistent end-market caution.
- Regulatory Shift Is a Game Changer: FDA’s animal-testing shift is driving real customer engagement and could meaningfully expand Certara’s market opportunity, but the timeline for material revenue impact is still evolving.
- Recurring Revenue and Platform Expansion: Subscription-based software, ChemAxon cross-sell, and cloud migration are deepening customer stickiness and broadening Certara’s reach.
- Watch for Execution on AI and Preclinical Growth: The pace of customer adoption, new product launches, and regulatory business review outcomes will be critical to Certara’s trajectory through 2025.
Conclusion
Certara enters the rest of 2025 with clear regulatory tailwinds and a strengthened commercial platform, but must execute through persistent market headwinds and deliver on early promise in AI and preclinical expansion. Long-term value will hinge on the company’s ability to translate structural opportunities into sustained revenue and margin growth.
Industry Read-Through
Certara’s experience this quarter signals a broader inflection for biosimulation and modeling providers, as regulatory agencies accelerate the adoption of non-animal methods in drug development. Vendors with robust AI integration, cloud delivery, and regulatory credibility are best positioned to capture share as pharma R&D workflows evolve. Persistent funding headwinds for biotechs and cautious large pharma spending remain a drag, but the secular shift toward in silico, computer-based, drug development is gaining momentum. Expect increased M&A and partnership activity across the sector as incumbents and disruptors vie for leadership in this new regulatory and technological paradigm.