Christine Rains

Christine Rains asked Certara to detail the relative magnitude of factors driving the expected step down in Adjusted EBITDA margin in 2026, including revenue, headcount growth, innovation investments, and strategic/commercial change programs. She also inquired about CapEx and free cash flow assumptions for the year given the innovation ramp.

Answer

CFO John Gallagher explained that the 30%-32% Adjusted EBITDA margin guidance for 2026 is similar to the prior year's investment-heavy guidance. He noted further investments in R&D for MIDD and platform unification, including launching new software and enhancements. Gallagher highlighted identified cost avoidance of $10 million in the 2026 plan to manage these investments. He stated that CapEx and free cash flow metrics are not guided, but capitalized expense levels in 2026 are expected to be similar to 2025 due to ongoing R&D investments in software development and platform unification.

Speaking for Max Smock, Christine Rains asked about the current customer penetration for preclinical applications versus clinical, planned investments in preclinical offerings, and whether the Non-animal Navigator is a repackaging of existing tools or a new solution.

Answer

CFO John Gallagher stated that while specific figures aren't disclosed, the majority of revenue has historically been from the clinical phase. CEO William Feehery described Non-animal Navigator as a combination of aggressively developed QSP technology with drug development and regulatory strategists to create a comprehensive solution. Gallagher added that the late 2023 acquisition of Applied BioMath significantly strengthened their market-leading QSP position, a key component of the offering.

Christine Rains, on for Max Smock, asked about the drivers behind the recent downtick in the software net retention rate and sought clarification on the calculation and drivers for the expected acceleration in 2025 organic growth.

Answer

CFO John Gallagher confirmed the Q4 software net retention rate was 106% and attributed the dip to the spending patterns of Tier 1 customers, including slower decision-making and portfolio reprioritization. He clarified that the 2025 organic growth guidance is 4% to 6%, with the acceleration from 2024's 2% rate primarily driven by the expectation that the regulatory services business will be flat to low-single-digit growth, compared to its decline in 2024.

Christine Rains asked about the X-ray facility, specifically its customer utilization target of 40% before groundbreaking, how current commitments compare to this benchmark, and if any margin dilution for the Sterigenics segment is anticipated in 2027 until utilization ramps up. She also sought clarification on the sterilization modality for the second growth project mentioned in the company's presentation.

Answer

Chairman and CEO Michael Petras clarified that while the target is 40% utilization, the X-ray facility's current commitments are lighter, and its IRR will be below the typical 20% target for greenfield projects. He confirmed that Sterigenics' slight margin improvements in 2026 account for initial costs and low volumes from the X-ray facility, with this trend continuing into 2027. Mr. Petras stated that the sterilization modality and location for the second facility have not been publicly released yet.

Christine Rains inquired about the X-ray facility's customer utilization, noting that the typical target before groundbreaking is 40%, and asked if current utilization is below this benchmark. She also questioned if margin dilution for Sterigenics is anticipated in 2027 due to the ramp-up and sought clarification on the sterilization modality for the company's *other* planned facility build.

Answer

Chairman and CEO Michael Petras confirmed that the X-ray facility's current utilization is lighter than the 40% target, and its Internal Rate of Return (IRR) will be below the typical 20% for greenfield projects, though it is strategically important. He stated that Sterigenics' slight margin improvements in 2026 account for initial costs associated with low X-ray volumes, a phenomenon expected to continue into 2027. Mr. Petras added that the sterilization modality for the *other* facility has not yet been publicly released.

Christine Rains from William Blair asked for context on DSA cancellations in the fourth quarter of 2025, specifically whether they were within the normal range and if the distribution of reasons (client funding vs. clinical/competitive) aligned with expectations. She also requested a reminder of the company's historical normal range for cancellations.

Answer

Chair, President, and CEO Jim Foster explained that cancellations and 'slippage' (delayed study starts) are inherent to the business, driven by factors like changing priorities or drug performance. He noted that the company has penalties for insufficient notice and manages cancellations effectively with a healthy backlog. Mr. Foster confirmed that cancellations were back to 'normal, expected, anticipated levels' in Q4 2025, having previously been higher a couple of years ago. He reiterated that the company does not disclose specific percentages or dollar amounts for cancellations but expressed confidence that current market dynamics, including biotech funding and pharma portfolio adjustments, suggest no significant increase in cancellations going forward.

Christine Rains asked for context on DSA cancellations in the quarter, specifically if they were within the normal range, what that normal range typically is, and if the distribution of cancellations (client funding vs. clinical/competitive reasons) aligned with expectations.

Answer

James Foster, Chair, President, and Chief Executive Officer, explained that cancellations and slippage are inherent to the business, with penalties for insufficient notice. He confirmed that cancellations are now back to 'normal, expected, anticipated levels,' having been higher a couple of years ago. He noted that a decent backlog allows the company to manage cancellations effectively by slotting in other work, and he does not anticipate a significant increase given current market dynamics.

Christine Rains asked about Medpace's 2026 revenue growth guidance, specifically for direct fee revenue excluding pass-throughs, and the expected cadence. She also inquired about the anticipated headcount growth for 2026 and whether the current mid-single-digit growth cadence would continue or accelerate to support the outlook.

Answer

CFO Kevin Brady stated that Medpace does not provide guidance on direct service revenue but expects reimbursable costs to be 41%-42% of revenue in 2026, starting higher and leading to flatter top-line growth throughout the year. President Jesse Geiger added that Medpace anticipates accelerated hiring in 2026, projecting mid to high single-digit growth, which is above 2025 levels.

Christine Raines asked about Medpace's guidance for revenue growth excluding pass-throughs, specifically direct fee revenue growth expectations for 2026 and the anticipated cadence of this revenue growth. She also inquired about expected headcount growth for 2026, asking if the mid-single-digit growth cadence would continue or if an acceleration in hiring would be needed to support the 2026 outlook.

Answer

CFO Kevin Brady stated that Medpace does not provide guidance on direct service revenue but expects reimbursable costs to be 41%-42% of revenue in 2026, slightly higher than 2025, with a flatter top-line growth cadence throughout the year. President Jesse Geiger added that Medpace anticipates accelerated hiring in 2026, expecting mid to high single-digit growth, which is above 2025 levels.

Christine Rains asked for context on the software renewal rate remaining below previous years on a fee basis, the factors weighing on renewals, and expectations for its return to the 90% range. She also sought details on the EBITDA margin guide, including gross margin breakdown and cadence for fiscal 2026.

Answer

CEO Shawn O'Connor attributed the lower renewal rate to impactful consolidations and increased client scrutiny of module configurations, expecting improvement as scrutiny lessens and higher price increases take effect. He explained that the EBITDA margin guide reflects the benefit of the reduction in force but limited leverage from 0-4% top-line growth, with a 35% target requiring higher revenue growth.

Christine Rains inquired about the software renewal rate remaining below previous years on a fee basis, the factors weighing on renewals, and the expectation for a return to the 90% ballpark, as well as what is baked into the EBITDA margin guide for gross margin and the margin cadence for fiscal 2026.

Answer

Shawn O'Connor (CEO, Simulations Plus) attributed the lower software renewal rate to impactful consolidations and increased client scrutiny of module configurations, expecting improvement as these factors diminish and a more aggressive price increase takes effect. He explained that the $4 million reduction in force benefits fiscal 2026, but 0-4% top-line growth limits EBITDA leverage against rising expenses, with greater improvement requiring higher top-line growth.

Christine Rains of William Blair sought more clarity on the Q4 adjusted EBITDA margin decline, the timeline to return to the low-30% range, and the implied Q4 revenue mix between software and services.

Answer

CEO Shawn O’Connor and CFO Will Frederick clarified the Q4 margin drop is due to lower revenue against a largely fixed cost base, with some higher marketing expenses. O'Connor stated the long-term 35% adjusted EBITDA target is unchanged but the timeline is uncertain. He also corrected the premise of the final question, stating the Q4 revenue decline is driven primarily by services, not software.

Christine Rains, on behalf of Max Smock at William Blair, asked about services revenue visibility for the second half of the year, the potential impact of FDA turnover on biosimulation adoption, and the high-level outlook for fiscal 2026 amid macro headwinds.

Answer

Executive William Frederick stated that backlog characteristics are consistent with the past, where about 90% is typically realizable within 12 months, but did not provide a specific H2 coverage figure. Executive Shawn O'Connor acknowledged the disruption at the FDA but believes it will not slow biosimulation adoption, as the process is largely fee-funded and industry adoption is driven by efficiency gains. For fiscal 2026, O'Connor indicated the outlook is highly dependent on the broader market environment improving, though he expects the software business to remain resilient.

Christine Rains, on for Max Smock, asked for an update on conversations with large pharma regarding their 2025 budgets and whether demand has bottomed out. She also requested the revenue and margin contribution from the Pro-ficiency acquisition and more details on the client-driven data delays impacting the Services segment.

Answer

Executive Shawn O'Connor expressed cautious optimism, noting strong client commitment to modeling and simulation but acknowledged that budget rollouts are gradual. He believes the environment will be somewhat better than last year. Executive William Frederick specified the quarterly contribution from the acquired business units was approximately $1.8 million in Software and $1.9 million in Services. O'Connor added that data delays are an ongoing reality in drug development due to clients' 'fail fast' strategies and not a one-time issue.

Christine Rains asked if ICON plc is still observing strength in early-phase work, as previously noted, or if there has been a shift towards late-phase work.

Answer

CEO Barry Balfe confirmed continued strong activity in the early-phase business, reporting double-digit growth on both a year-over-year and sequential basis, with an intention to sustain and improve this growth.

Christine Rains of William Blair & Company asked for quantification on delays for new clinical projects, referencing a figure from the previous quarter and asking if the timeline from RFP to decision had improved.

Answer

CEO & Chairman Ari Bousbib stated that the decision-making environment remains 'more or less similar,' with timelines still 'more elongated than usual.' He emphasized that IQVIA's improved booking performance was not due to a broad market recovery but rather the success of its proactive 'see more, win more' strategy, which has been extremely successful in generating and winning opportunities despite the challenging environment.