Q2 2021 Certara Inc Earnings Call
The conference call.
At this time all participants are in the listen only know the after the speaker presentation. There will be of question and answer session to ask the question during the session you'll need to press the star 1 on your telephone if you require any further assistance. Please press the zero.
I will now like the hand of conference over to speak of today David <unk>.
Please go ahead.
Good afternoon, everyone. Thank you all for participating in today's conference call.
On the call from the Terror, we have willing theory, Chief Executive officer the.
<unk>, the Chief Financial Officer earlier.
Earlier today streetcar released financial results for the quarter ended June 30th 2021.
Copy of the press releases available on the company's website.
Before we begin I'd like to remind you that management will make statements. During the call. The include forward looking statements with the meaning of federal Securities laws, which are made pursuant.
For the Safe Harbor provisions of the private secured the litigation Reform Act 1995 and.
Any statements contained in this call that relate to expectations of predictions of future events results for performance of forward looking statements.
Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors for.
For a list of description of the risks uncertainties associated with their tars business. Please refer the risk factors section of our form 10-K filed with the Securities and Exchange Commission on March 15th 2021, we urge you to consider these factors and you should be aware that the statements should be considered estimates on my and are not a guarantee of future performance.
Also in the remarks or responses to questions management May mentioned, some non-GAAP financial measures.
[noise] Conciliations of adjusted EBITDA, adjusted net income adjusted EPS and certain other non-GAAP financial measures to the most directly comparable gap measures are available on the earnings release.
Which is available on the company's website.
The conference call contains time sensitive information is accurate only as of by of broadcast today August 5th 2021, so tired of disclaims any attention or obligation except as required by law to update of revise any financial projections or forward looking statements, whether because of new information future events or otherwise and with that I will.
Turn the call over to William.
Thank you David.
Good afternoon, everyone.
Thank you for joining so tired of second quarter earnings call, Andrew and I will start with prepared remarks, and then we will take questions.
I'm very pleased with how the sitar of business performed in the second quarter of 2021, as we continue to successfully execute on our strategic and financial plans.
In the quarter, we continued to grow our position of the global leader in Biostimulant by delivering strong financial results.
Revenue in the second quarter grew 15 per cent compared with the second quarter of 2020.
As we achieved another record quarter of revenue.
Justice EBITDA grew 1 per cent compared with the second quarter of 2020.
Just the EBITDA growth was impacted by higher profitability in 2020 due to reduced SG&A spending during the height of the Covid pandemic. In addition to increased public company costs of 2021, which is the did not exist same time last year.
Okay growth in the quarter continued both in software and services with software bookings up 8 per cent year over year and services bookings of 7 per cent year over year.
Because of our quarter to quarter of fluctuations in our bookings we believe looking at trailing 12 month bookings growth as a more accurate way to evaluate our business development activity too.
Total company trailing 12 month bookings is up 26 per cent year over year. Overall, we are pleased with our year to day performance, which is the head of the expectations earlier in the year.
In keeping with our goal to expand the use of cases of by a simulation and grow adoption of our end to end platform earlier.
Second <unk>.
<unk> drug development consultancy and regulatory sciences teams will be able to expand our data standardization and see this compliance service offerings.
Third by Pinnacle 'twenty, 1 software as we were already collaborating with our clients on gathering integrating analyzing and preparing data.
And last but certainly not least the cultural fit is remarkable as we are both passionate about driving innovation and efficiencies throughout the drug development lifecycle using technology.
Working together.
We will integrate and expand the features and tools to accelerate lifesaving therapies to patients.
Clinical 21 has achieved incredible milestones with the top notch team of software developers and see the experts that has built user friendly software to help biopharmaceutical companies deal with complex data standards.
There are pinnacle of 21 community open source software is used by more than 1000 organizations and helps remove barriers to entry and promote innovation, especially amongst smaller biopharma company from startups, while adhering to the complex data standards.
That can be daunting and consume.
Significant time and resources.
This broad user base also creates a robust community of engaged data scientists and bio statisticians, who provide feedback that fuels the development of new features.
As companies become familiar with the significant benefits that pinnacle of 'twenty one's tools deliver many find it valuable to upgrade to the enterprise version, so that they get the most value from their data and ensure compliance to the standards and minimize the risk of regulatory delays.
Clinical 'twenty, 1 has more than 130 enterprise customers, including 22 of the 20 top 25 biopharmaceutical companies by R&D spend as well as the FDA and the P. M D.
They are rapidly growing the number of customers with annual customer value in excess of $100000 from 19 customers in 2018% to 44% in 2020.
When we close clinical 'twenty, 1 will be immediately accretive to <unk> revenue growth and adjusted EBITDA.
We expect the acquisition to close in early fourth quarter.
As we've discussed in the past, we continually seek the right technology people and capabilities to increase the depth and breadth of our end to end platform, which is what we believe pinnacle of 'twenty 1 we'll do.
Andrew will discuss the financial details and the implications of pinnacle of 'twenty, 1 in a few minutes.
Turning back to <unk> overall business, our proven track record of innovation continued in.
The second quarter, as we announced the launch of our new versions of our Immunogenicity in immuno oncology Stimulators. These software platforms help address challenges in the discovery and development of biologics and combination of cancer therapies.
Immunogenicity is the key challenge for developing biologics.
Which now comprise almost 40% of the global biopharmaceutical R&D pipeline.
Researchers use our immunogenicity simulator to understand the Immunogenicity, which is the ability of the therapeutic to trigger an unwanted immune response.
The Immunogenicity of simulator uses in vitro data of drug data and clinical data, if there's anything available to extrapolate into virtual patient populations and predict outcomes at the.
June FDA workshop on Immunogenicity thought leaders at <unk> and our customers presented case examples of our simulator and action, including how it how it helped to advance Covid vaccine development.
Regarding COVID-19 vaccines, we were proud that our vaccine simulator accurately predicted the 8 weeks was the optimal timing between first and second doses of COVID-19 vaccines.
Of the pitch study conducted at Oxford University in the United Kingdom.
Confirmed surcharges the vaccine simulator prediction, which was released 6 months ago back in February.
This further to validate the predictive power of our Biosimilars for software to address critical questions, including predicting which dosing regimens potentially work best before heading into clinical trials.
The immuno oncology the <unk>.
Sheer number of possible therapy combinations requires a robust quality quantitative framework to integrate the complex and dynamic factors that influence efficacy.
Challenges around this complexity have led to the selection of sub optimal combinations.
Our immuno oncology simulator uses virtual patients the test many different therapy combinations to determine the optimal regimen of therapies and dosing.
Version 3.0 of the immuno oncology stimulator vastly expands the number of targets and cell types and also test combinations of chemotherapy and radiotherapy.
The immuno oncology stimulator as Kurt has correctly predicted therapeutic outcomes.
With the use of drugs in various cancer types, including solid tumors and blood cancers.
Turning to services, our technology enabled services business continues to grow well in excess of our stated long term goal.
Driven by the expansion of our work with existing customers and the growth of partnerships with new biotechnology customers.
Our services offerings powered by our proprietary technologies are highly differentiated and profitable.
We are incredibly proud of our team of scientists and experts who are well known in the industry as thought leaders at the forefront of Biosimilars <unk> regulatory science and market access.
So tahira also continues to add to our expert team worldwide with more than 975 employees currently growing 5% year to date.
Our turnover remains low relative to the industry and we are generally viewed as an employer of choice within the bio stimulant industry.
More than 60% of our new hires in the second quarter, where scientists and subject matter experts.
Over the past few months <unk> board of directors welcomed 3 new members.
Into the second quarter I would like to touch on the financial highlight of our acquisition of clinical 'twenty 1.
As William highlighted we are excited to start work with clinical 'twenty, 1 and integrate them interest retire.
The company is a strong financial fit and subject to close the deal is expected to be immediately accretive to sitars revenue.
Growth.
And adjusted EBITDA.
We expect pinnacle 'twenty, 1 to contribute $30 million to $31 million of revenue in 2022 growing at approximately 30% not including the effects of purchase accounting.
Now to <unk> results.
Total revenue for the 3 months ended June 32021 was $70.1 million representing year over year growth of 15%.
Software revenue was $20.1 million, which increased 12% over the prior year period as a result of solid second quarter bookings the early renewals in Q1 and expansions on renewals.
Software bookings were $19.4 million, which increased 8% from the prior year period and the aggregate renewal rate was 90 per cent.
Year to date software bookings grew 15%.
The growth of in the quarter and year to date was driven by our Biosimilars and software Simpson from Phoenix.
Services revenue was $50 million, which increased 16% over the prior year period.
The growth in services revenue was driven by growth in the biosimilars for and offerings.
Services bookings for $55.7 million, which increased 7% from the prior year period.
Year to date services bookings grew 21%.
Total cost of revenue for the second quarter of 2021 was $27.5 million.
An increase from $20.6 million in the second quarter of 2020.
Primarily due to increases in employee related costs, resulting from headcount growth and stock based compensation.
Total operating expenses for the second quarter of 2021 were $37.3 million.
An increase from $26.9 million in the second quarter of 2020.
The components of operating expenses are as follows.
Sales and marketing expenses for $4.6 million compared to $2.7 million for the second quarter of 2020.
Due to a $1.1 million increase in employee related costs, resulting from headcount growth.
And of <unk> 6 million of stock based compensation.
R&D expenses were $4.6 million compared to $3 million for the second quarter of 2020.
The increase in R&D expenses was primarily due to a $1.3 million increase in employee related costs, resulting from headcount growth.
And <unk> 5 million increase in stock based compensation.
Both of which were partially offset by smaller reductions in other line items.
G&A expenses for $18 million compared to $11.2 million for the second quarter of 2020.
The increase was primarily due to a $4.4 million increase in stock based compensation.
<unk> 7 million increase in insurance expenses.
And 0.6 million increase in acquisition costs.
Also contributing to the increase for public company costs.
Intangible asset amortization was $9.5 million.
And depreciation and amortization expense was <unk> 6 million for the second quarter.
There were no significant changes in either line items.
Continuing down the P&L.
Interest expense during the second quarter was $6.3 million compared to $7 million for the second quarter of 2021.
The year over year reduction in interest expense is due to the repayment of our holdco loan offset by a noncash interest expense re class from other comprehensive income due to hedge ineffectiveness.
Income tax expense was $1.5 million due to the tax effect of U S. Pre tax income non deductible items the effects of tax elections made on U K earnings and the relative mix of domestic and international earnings.
And discrete tax items.
Net loss for the second quarter of 2021 was $2.9 million compared to a net income of $2.8 million in the second quarter of 2020 due.
Due primarily to the increase in stock based compensation expense.
Diluted loss per share for the second quarter of 2021 was <unk>.
As compared to earnings per share of <unk> in the second quarter of 2020.
Adjusted EBITDA for the second quarter of 2021 was $25.5 million.
For it to $25.3 million for the second quarter of 2020, representing 1% growth.
William discussed some of the dynamics impacting the comparison to last year, such as lower SG&A public company costs, and we had some high margin projects completed in the second quarter of last year.
We are performing well against our plan and have some upward adjustments to guidance based on the first half performance.
Adjusted net income for the second quarter of 2021 was $5.6 million compared to $3.8 million for the second quarter of 2020.
Adjusted diluted earnings per share for the second quarter of 2021 was <unk> <unk> compared to <unk> for the second quarter of 2020.
Now moving to the balance sheet, we ended the quarter with $267.8 million of cash and cash equivalents.
Our total debt outstanding was $295.6 million net of deferred financing fees of $6.4 million as of June 30 of 2021.
We restated and amended our credit agreement in the quarter, increasing the size of our revolver to $100 million and extending the maturity date on the term loans to 2026.
Regarding financial outlook, we are increasing our previously reported guidance for the full year 2021 for revenue adjusted EBITDA and adjusted EPS.
First of all of Taro without the effects of the acquisition of clinical 'twenty 1.
The revenue will be in the range of $283 million to 289 million.
Adjusted EBITDA to be in the range of $101 million to 103 million of.
Adjusted earnings per share to be in the range of 21 to 25 per share.
We will update our guidance for the effects of clinical 21, when the transaction closes, which we assume will occur in the fourth quarter.
Thank you now I'll turn it back to our CEO William theory.
And labor, but I'm wondering how how you're hiring activities are progressing what kind of.
You know the competition for for labor and the and the markets that you need to add perhaps both functionally as well as geographically. Thanks.
Thank you David appreciate the question well you know I think any C O in in the business like ours would always have to say that you wake up thinking about it and good people in the business and we do we are basically on on our plan for hiring for the year.
So I would say that the.
We're competing while and we're doing well I think.
<unk> is viewed as.
The the good place to go you know for for for careers.
So, but you know every day, we're out there trying to find the more of the software and drug development experts and.
I think as we go forward.
We'll we'll continue the can be well.
And are there differences between you know for example of your your competitor talked about some difficulty in the in hiring in the regulatory area are there are you are you seeing that and are there differences in relative tightness of the market between your biased emulation versus <unk>.
Egg and market access.
On that I I won't come out of what the competitors said, but the.
In General you know as the activity in the pharmaceutical industry has picked up there has been a greater demand for people like.
Regular like regulatory writers and a few skills like that.
But you know sort of Tara is.
Not the.
We're not a huge fraction of the industry by head count So you know the.
The kind of the the top quality of people that we want to.
Attract here, we've still been very very fortunate to be able to do that so we we haven't seen the.
We haven't how do I say this I mean look it's never easy to get good people, but we were competing well and we're in we're having the the size of the work force that we'd expected to have at this point of the year got it great. That's that's great. Thank you for the answer.
In terms of the C D C disc.
Data validation and streamlining can you perhaps.
The pain, a little picture for us in terms of how.
How this dovetails with the projects that that you're called in to do is this a really tight cross sell is it predominantly applied to clinical trial data or is there even.
Yeah. Some standardization for analysis of real World data that would that would go into that as well I'm just trying to understand a little better how it fits.
Yeah, that's great questions. So we have.
Known about political 21, and certainly about <unk> for a long time, so we participate.
We're platinum members of the sea. This organization, we've been there for a long time, and obviously, because we help our clients submit their data and the regulatory filings to the FDA, where we're part of the.
The industry effort to get get.
Everything compliant with that.
What we see and this is an opportunity for further data standardization that will help sort of tar as a whole so the FDA like the FDA basically was 1 of the big proponents of the C. Disk in my view of of that is because when you standardized data.
You.
Make it a whole lot easier to do the types of of analysis that you want to do to ask questions about that data. So the FDA would like obviously the questions about the data is being submitted and when they get in the in a format that.
<unk> it makes it the whole lot easier, but we see an opportunity as we go even farther to think about if we can standardize more of the date of its coming in the clinical.
Faith in the preclinical phase and as you also pointed out even in.
In the market access fees than than the whole the whole industry benefits. It makes it easier to adapt biased towards like by a simulation. If the data we get is in the standard format and so we think that this is the best in class solution.
That enables kind of of bigger trend that we think is going to play out of in pharma over quite a long time.
Very interesting thanks for the the answer all of all of the guilt for the floor. Thank you.
Thank you David.
Our next question comes the line of Michael Riskin from Bank of America.
May begin.
Thanks for.
Thanks for taking the question I want to pick up exactly of where day of left the author of on the clinical of 21 offering in house that some of the Earl business. Just curious if you could talk a little bit of in terms of.
Customer overlap, obviously, you talked about how software tools are being used by the by the 22 I believe of the top 25 form of customers to just talk a little more about the tail. There do you see a lot of across the of opportunities are there any revenue synergies your your accounting for or sort of just help us bridge the math between.
Between your comments on being accretive to the adjusted EBITDA margin.
Yeah, I I can start and then.
Hi, there can comment a little bit about the margins. So they obviously since day of 22. The about 25, we have many of the same customers. There is a significant customer overlap.
But.
There's also a lot of opportunity for cross selling and also of combining with our products.
The.
There is an opportunity for us to consider adding.
Adding to our tech enabled services by doing services with with the political 21 software.
There is an opportunity to combine it with some of the software we have there's a product we have called integral that works.
The the clinical data repository that's.
Compliant with the 22 CFR part of 11.
And so of combining a compliant data repository with validation.
<unk> software it makes a lot of sense.
And.
We think that there's a lot of opportunity as we add the.
Our sales and marketing capabilities, which are which we're investing in.
As we go along the route of the year. The vehicle 20 wanted to continue to expand its adoption and reach through the through the global pharmaceutical industry.
Okay, and I'm gonna of dealing with.
Sorry, No go ahead go ahead.
No. Please go ahead this fine I think the covenant.
I was gonna might of the question was going to be sort of on the on the fiscal year of guide Reyes check.
Check your results came in just sort of nominally ahead of all of our expectations I think of broad consensus, but yet you had a nice little second bump to the fiscal you're out of luck I'm just wondering what giving you confidence in that you know as of the trail and 12 months net bookings you are talking about or something you are seeing in the markets just give us all of the of flavor on on what Bro.
The Guy change.
It's a combination of of of the the we still see a you know.
Part of the industry there is.
There's a lot of trials going on.
Certainly R&D are the activity is quite healthy and and.
And there's a lot of investment capital of going in to to me by a text as well.
Great. Thanks.
I'm, sorry, I didn't mean to cut you off for you still guy.
No. Please go ahead, Okay second question related to Covid work.
Should we assume that Covid is still contributing to your top line at all and as we think about the second half of the year.
That kind of.
Skew the comparisons that are given I think that was a little bit of of contributor last year in the second half.
Yeah I'll take the first part and then I'll ask any of the comment a little bit of costs. So certainly as we were in the second quarter last year.
Constantly travel costs.
When quite low light as they did in the.
Some of them are slowly come back.
On the other hand, we've also gained deficiencies. So I think we're intending to offset most of that as we as we go forward in the year, but Andrew or do you want to comment on that.
Yeah. We saw the we saw you saw the benefit of the of the of the SG&A coughs really in the in the second quarter last year, but we shifted investment in in the latter quarters I think you can see that.
And the.
The adjusted EBITDA margin trends for last year. This year, we factored in you know of <unk>.
A resumption of of travel expenses.
Into the into our plans. So so the total incorporated into our age of our expectations for the year.
Okay. Thanks, and the 1 last 1 in clinical 21, when that closes can you hit the ground immediately with with cross selling and sort of playing into your broader platform or is there should we assume there's a period of time, where you've got to do the software integration before you can really get the full benefit.
So I think that there is a significant opportunity and the.
Immediately to add to the sales and marketing capability of Pinnacle of 21, using some cars capability, which is which is larger and we just have a very broad customer base.
And then over time, we will do we should talk about with all of US who can take a look for the time.
Do software integration. So we we think there's.
There's.
Both short and longer term opportunities here with this.
Any.
Okay, great. Thanks.
Thanks.
On the question on from from the line of a chrome per head Sloan Morgan Stanley leave again.
Great. Thanks for taking my question I, just had a quick 1 on geographic expansion.
You previously discussed interesting opportunity of China. So I just wanted to see if you could update us on how that's progressing and what some of the next milestones are milestones are there to court of your presence of that part of the world.
And also I wanted to see if the broader emergence.
Of the Delta variant has had any impact here plans to expand of China or anywhere else for you is that you may have previously found interesting.
Yeah, So we're continuing to hire in China.
We think it's the long term, it's a good opportunity for us.
<unk>.
Andrew Andrew can comment on all of our reporting for by region, where.
Ending our business there, although it's still relatively small base.
To your question, though about Covid certainly.
It's certainly difficult to.
To expand as fast as we want to given the difficulties of true.
In and out of the China.
I buy.
The handicap of assessing we're doing pretty well, but but.
We probably will be ahead of this of.
If it was on for more than the a lot of activity. There is a lot of.
There's a lot of demand and it's just.
Makes it just the little bit harder it since you can't.
No.
Send people back and forth quite as easily as we used to.
I think that the level of color on your question of Andrew do you want to come in on the growth in China.
No just I would just add that we continue to see strong growth in China.
And that's reflected in our our geographic split in Asia pack, we saw of 50 per cent of <unk> 50 per cent growth rate.
Got it and is a quick follow up.
Is there any sort of.
In total goal or in total Bill do you have for.
How you would like to see the U S vs X U S mix of revenue shifts over the coming years or do you expect it to be pretty consistent with what it is now.
I think.
Think we have.
North of let's say roughly 70 per cent of our of business in the U S.
I think of that as some of our investments and.
China in Europe pick up we will see a little bit of.
A shift in terms of the overall percentage, but it won't be it won't be enormous because of the way I think about it as I want.
So tired of revenue of we're doing a good job should kind of the match the R&D for.
Print of the pharmaceutical industry the whole.
So I think it will come down a little bit of in the U S. As in the overall percentage, but but.
But still that's likely to be our biggest basis from go forward.
Okay got it thank you.
The next question I would come from the big wrong, Chris of Butler from our.
R W Big maybe again.
Yeah. Thank you for taking the question I guess, just first now on the back of the Pinnacle acquisition curious if you can give us some updated thoughts on your approach to capital deployment through the balance of this year and at the 2022, if there's any other particular areas of capabilities that you're looking at the at the platform.
Yeah I think.
As they were coming out of the IPO. That's a lot of about this and what we said was that you should expect us to do.
The series of.
We have a history of of doing little bolt on acquisitions.
Which we've done a little bit very.
A very small ones when we see good opportunities to add to our our talent base at a good price or something like that.
And then occasionally there might be something that looks strategic which I think certainly pinnacle of 21 falls into.
So going forward I kind of think the same way we will do some will do little bolt on acquisitions, where they look attractive.
Certainly I think our number 1 goal right now is to make sure that we integrate pinnacle of 21, and we do a really good job.
Growing that business in <unk> and welcome those people and growing the organization. So can we our main focus.
So I don't feel the need to go out and do it.
The other acquisition right away or anything like that but.
But at the same time, we're in we're in of growing very interesting in an industry and.
If it's something important and strategic became available we would certainly take a look at it. So there's no plans right now and frankly and no real need to as we do this as we do the disintegration.
But kind of of the same same plan that we've talked about as we were coming out of it to the IPO.
Okay, Great and then maybe just the follow up I'm curious is based on the mix of software and services that you're seeing your bookings right now and the updated thoughts on how we should think about the growth of each of those lines going forward.
Well we.
Yeah, we talked about.
Oh, the mid teens growth for software.
Mid to high teens growth for services. So clearly the addition of of clinical 21, which I, which I mentioned in the course of remarks.
Expected to grow at the rate of around 30 per cent, it's going to be.
Additive to the overall.
Growth rate us for Tara by approximately 100 basis points and.
We will ship the mix of the <unk>.
Software the services by about for hundreds of 500 basis points. So, we'll see a little bit higher growth in the the software relative to what I had previously stated low to the team.
Okay, great. Thank you.
Thank you [noise].
Once again, that's for 1 for any questions Darwin.
[noise], we have a question from Katie.
Alright from credit Suisse may begin.
Hi, Thanks for taking my question lost putting you highlight of October.
Part of October and claim the goes I'm 20th for.
I can very intelligent offer offering and what has the reception been for those offerings today and how they come for informing relative care of expectation and more Bravo. How can we think of that innovation and new product of options are expansion.
Adam Congrats going for it.
Yeah. Thanks for the question.
So.
To answer the questions of the talk about the price you talk about since it version 20 is the is driving a lot of our current since of revenues right now.
The customers.
That quite strongly and it's opened up new opportunities to serve new new customers.
The tech area.
Our secondary intelligence is a stiff.
Still on.
An early stage product.
We are currently launching.
I guess would you call.
Sort of the next the next version of it which is expanded.
The number of of targets debt.
That it can cover and we're actively marketing that we think this is the unique product.
So.
We've got some introduction into the.
The introductory marketing work to do to the industry, but I think we'll see some some some significant interest there.
And then more broadly of your question we're spending.
A fair amount of money and sitar on R&D.
There are many opportunities I think too.
2.
Expand our.
Uh-huh expand our product base the kind of.
The hit more of therapeutic areas and to take into account different technologies and ideas that are out there. So.
We've been trying to do this year is just kind of highlight.
Just how many.
How many product launches in product additions, we've been we've been focused on.
Some of those who will take a year or 2 as they as they kind of get an introduced of this industry and the and they take off.
But overall I think.
They are kind of indicative of what we've been doing with the company of long time, and how we've gotten the growth rate. We've we've got from continuing to continue to invest in the future.
Okay, great. Thanks.
Thank you.
Yeah.
Thank you I'm not showing any for the questions in the queue.
Oh.
And this concludes today's conference call. Thank you for participating you may not today ma'am.
Thank you.
[music].
[music].
[music].
Good day, and thank you for standing by and welcome to the circa of second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask the question. During the session you will need to press the star 1 on your telephone.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker today, David Beucler. Please go ahead.
Good afternoon, everyone.
You all for participating in today's conference call.
On the call from <unk>, we have William Furry, Chief Executive Officer, They understand the Chief Financial Officer earlier today <unk> released financial results for the quarter ended June 32021.
A copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements with the meaning of federal Securities laws, which are made pursuant.
For the Safe Harbor provision.
Private Securities Litigation Reform Act of 1995 any statements contained in this call that relate to expectations or predictions of future events results or performance of our forward looking statements actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors for a list and description of the risks and uncertainties associated with your towers business. Please.
For the risk factors section of our form 10-K filed with the Securities and Exchange Commission on March 15th 2021, we urge you to consider these factors and you should be aware that the statements should be considered estimates only and are not a guarantee of future performance of.
Also in the remarks or responses to questions management may mention some non-GAAP financial measures.
Reconciliations of adjusted EBITDA, adjusted net income adjusted EPS and certain other non-GAAP financial measures to the most directly comparable GAAP measures are available in the earnings release.
Which is available on the company's website.
The conference call contains time sensitive information and is accurate only as of by broadcast today August 5.2021, sitar disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
With that I will turn the call over to William.
Thank you David good.
Good afternoon, everyone.
Thank you for joining <unk> second quarter earnings call, Andrew and I will start with prepared remarks, and then we will take questions.
I'm very pleased with how thats the tire business performed in the second quarter of 2021, as we continued to successfully execute on our strategic and financial plans.
In the quarter, we continued to grow our position as the global leader in Biosimilars <unk> by delivering strong financial results.
Revenue in the second quarter grew 15% compared with the second quarter of 2020.
As we achieved another record quarter of revenue adjusted EBITDA grew 1% compared with the second quarter of 2020.
Adjusted EBITDA growth was impacted by higher profitability in 2020 due to reduced SG&A spending during the height of the Covid pandemic. In addition to increased public company costs in 2021, which did not exist same time last year.
Bookings growth in the quarter continued both in software and services with software bookings up 8% year over year and services bookings up 7% year over year.
Because there are quarter to quarter fluctuations in our bookings we believe looking at trailing 12 month bookings growth is the more accurate way to evaluate our business development activity.
Total company trailing 12 month bookings was up 26% year over year. Overall, we are pleased with our year to date performance, which is ahead of the expectations earlier in the year.
Keeping with our goal to expand the use cases of Biosimilar <unk> and grow adoption of our end to end platform.
Earlier today, we were thrilled to announce the acquisition of Pinnacle 'twenty, 1 the largest acquisition in our history for the $310 million in cash and stock.
Political of 'twenty, 1 it's the privately held company with industry, leading data standardization software for pharmaceutical clinical data there.
<unk> SaaS based solutions are used for managing compliance to the ceded standards and increasing preclinical and clinical data quality.
C disc also known as the clinical data interchange standards of consortium.
Has developed a set of global data standards for regulatory submissions comply.
Compliance to the standards is required for regulatory submissions to the U S FDA and Japan's pharmaceuticals, and medical devices. The agencies. So that these agencies can efficiently makes sense of the data the receipt and evaluated during the review process.
The C. The standards or the also the preferred standards for electronic data submissions in China.
Clinical software is used by the FDA and the PM day to validate all incoming submissions data.
This acquisition is an ideal fit for setara on many levels for.
First pinnacle of 'twenty one's proprietary validation software perfectly complements our biosimilar <unk> and regulatory software.
Global regulatory submissions require of consistent and compliant datasets to minimize costly delays.
Additionally, Davis standardization advance of scientific research as data is collected and combined from the increasingly more and more diverse sources, and then organized and analyzed with Biosimilar <unk> and other methods.
Second.
The <unk> drug development consultancy and regulatory sciences teams will be able to expand our data standardization and feed this compliance service offerings powered by Pinnacle of 'twenty..1 software as we are already collaborating with our clients on gathering integrating analyzing and preparing data.
And last but certainly not least the culture fit is remarkable as we are both passionate about driving innovation and efficiencies throughout the drug development lifecycle using technology.
Working together we.
We'll integrate and expand the features and tools to accelerate lifesaving therapies to patients.
Clinical 21 has achieved incredible milestones with the top notch team of software developers and see the experts.
That has built user friendly software to help biopharmaceutical companies deal with complex data standards.
There are pinnacle of 'twenty, 1 community open source software is used by more than 1000 organizations and helps remove barriers to entry and promote innovation, especially amongst smaller biopharma company from startups, while adhering to the complex data standards.
That can be daunting and consume.
Significant time and resources.
This broad user base also creates a robust community of engaged data scientists and bio statisticians, who provide feedback that fuels the development of new features.
As companies become familiar with the significant benefits that pinnacle of 'twenty one's tools deliver many find it valuable the upgrade to the enterprise version so that they get the most value from the data ensure compliance to the standards and minimize the risk of regulatory delays.
Clinical 'twenty, 1 has more than 130 enterprise customers, including 22 of the 20 top 25 biopharmaceutical companies by R&D spend as well as the FDA and the P. M D.
They are rapidly growing the number of customers with annual customer value in excess of $100000 from 19 customers in 2018% to 44% in 2020.
When we close clinical of 'twenty, 1 will be immediately accretive to <unk> revenue growth and adjusted EBITDA.
We expect the acquisition to close in early fourth quarter.
As we've discussed in the past, we continually seek the right technology people and capabilities to increase the depth and breadth of our end to end platform, which is what we believe clinical 'twenty 1 we'll do.
Andrew will discuss the financial details and the implications of pinnacle of 'twenty, 1 in a few minutes.
Turning back to <unk> overall business, our proven track record of innovation continued in.
The second quarter, as we announced the launch of our new versions of our Immunogenicity in immuno oncology Stimulators. These software platforms help address challenges in the discovery and development of biologics and combination of cancer therapies.
Immunogenicity is the key challenge for developing biologics.
Which now comprise almost 40% of the global biopharmaceutical R&D pipeline.
Researchers use our immunogenicity stimulator to understand Immunogenicity, which is the ability of the therapeutic to trigger an unwanted immune response.
The Immunogenicity of simulator uses in vitro data of drug data and clinical data, if there's anything available to extrapolate into virtual patient populations and predict outcomes.
For the June FDA workshop on Immunogenicity thought leaders at <unk> and our customers presented case examples of our stimulator in action, including how it how it helped to advance Covid vaccine development.
Regarding COVID-19 vaccines, we were proud that our vaccine simulator accurately predicted the 8 weeks was the optimal timing between first and second doses of COVID-19 vaccines the.
Of the pitch study conducted at Oxford University in the United Kingdom.
Confirmed surcharge the vaccine simulator prediction, which was released 6 months ago back in February.
This further to validate the predictive power of our Biosimilar <unk> software to address critical questions, including predicting which dosing regimens potentially work best before heading into clinical trials.
The immuno oncology the <unk>.
Sheer number of possible therapy combinations requires a robust quality quantitative framework to integrate the complex and dynamic factors that influence efficacy.
Challenges around this complexity have led to the selection of sub optimal combinations.
Immuno oncology simulator uses virtual patients the test many different therapy combinations to determine the optimal regimen of therapies and dosing.
<unk> 3 point all of the immuno oncology stimulator vastly expands the number of targets and cell types and also test combinations of chemotherapy and radiotherapy.
The immuno oncology stimulator as Kurt has correctly predicted therapeutic outcomes.
With the use of drugs in various cancer types, including solid tumors and blood cancers.
Turning to services, our technology enabled services business continues to grow well in excess of our stated long term goal driven.
Driven by the expansion of our work with existing customers and the growth of partnerships with new biotechnology customers.
Our services offerings powered by our proprietary technologies are highly differentiated and profitable.
We are incredibly proud of our team of scientists and experts who are well known in the industry as thought leaders at the forefront of Biosimilars <unk> regulatory science and market access.
So tahira also continues to add to our expert team worldwide with more than 975 employees currently growing 5% year to date.
Our turnover remains low relative to the industry and we are generally viewed as an employer of choice within the bio stimulant industry.
More than 60% of our new hires in the second quarter, where scientists and subject matter experts.
Over the past few months <unk> board of directors welcomed 3 new members.
Dr Carol Gallagher, Nancy Killefer and Cynthia Collins.
Each of these new board members brings a wealth of knowledge and extensive corporate board and leadership experience will be invaluable sort of.
So tomorrow as we expand our business.
In addition, as we announced last week Mubadala investment company invested approximately $250 million of <unk> Tara through a direct purchase on August 2nd of more than 961 million shares from existing institutional shareholders of so tara including of stakeholder of affiliated with EQT.
<unk>.
EQT remains of significant and important shareholder in <unk>.
We are excited to welcome will bottler and recognized its investment as the vote of confidence in our people strategy and financial performance.
Looking forward to the second half of the year, we will host a business overview day for the analyst in the Investor community, where we will dive deeper into the business and so Taurus and markets. Please mark your calendars for the afternoon of December 15th in New York City for this event.
In summary, so Tara had a strong second quarter.
We announced a strategic acquisition today.
And we are focused on continuing to deliver against our strategic and financial objectives.
I will now turn it over to our CFO Andrew to discuss the financial details of our acquisition and the financial results for the second quarter.
Thank you William Hello, everyone.
Before getting into the second quarter I would like to touch on the financial highlight of our acquisition of clinical 'twenty 1.
As William highlighted we are excited to start work with clinical 'twenty, 1 and integrate them interest retire.
The company in a strong financial debt and subject to close the deal is expected to be immediately accretive to <unk> revenue.
Growth in.
And adjusted EBITDA.
We expect pinnacle 'twenty, 1 to contribute $30 million to $31 million of revenue in 2022 growing at approximately 30% non.
Not including the effects of purchase accounting.
Now to <unk> results.
Total revenue for the 3 months ended June 32021 was $70.1 million representing year over year growth of 15%.
Software revenue was $20.1 million, which increased 12% over the prior year period as a result of solid second quarter bookings the early renewals in Q1 and expansions on renewals.
Software bookings were $19.4 million, which increased 8% from the prior year period and the aggregate renewal rate was 90 per cent.
Year to date software bookings grew 15%.
The growth in the quarter and year to date was driven by our Biosimilars and software since Ive been Phoenix.
Services revenue was $50 million, which increased 16% over the prior year period.
The growth in services revenue was driven by growth in the bio stimulant offerings.
Services bookings were $55.7 million, which increased 7% from the prior year period.
Year to date services bookings grew 21%.
Total cost of revenue for the second quarter of 2021 was $27.5 million.
An increase from $20.6 million in the second quarter of 2020.
Primarily due to increases in employee related costs, resulting from head count growth and stock based compensation.
Total operating expenses for the second quarter of 2021 were $37.3 million.
An increase from $26.9 million in the second quarter of 2020.
The components of operating expenses are as follows.
Sales and marketing expenses were $4.6 million compared to $2.7 million for the second quarter of 2020.
Q2 of $1.1 million increase in employee related costs, resulting from head count growth.
And the <unk> 6 million of stock based compensation.
R&D expenses were $4.6 million compared to $3 million from the second quarter of 2020.
The increase in R&D expenses was primarily due to a $1.3 million increase in employee related costs, resulting from headcount growth.
And of <unk> 5 million increase in stock based compensation.
Both of which were partially offset by smaller reductions in other line items.
G&A expenses for $18 million compared to $11.2 million for the second quarter of 2020.
The increase was primarily due to a $4.4 million increase in stock based compensation.
<unk> 7 million increase in insurance expenses.
And <unk> 6 million increase in acquisition costs.
Also contributing to the increase for public company costs.
Intangible asset amortization was $9.5 million.
And depreciation and amortization expense was <unk> 6 million for the second quarter.
There were no significant changes in either line item.
Continuing down the P&L.
Interest expense during the second quarter was $6.3 million compared to $7 million for the second quarter of 2021.
The year over year reduction in interest expense for each of the repayment of our Holdco loan offset by a noncash interest expense re class from other comprehensive income due to hedge ineffectiveness.
Income tax expense was $1.5 million due to the tax effect of U S. Pre tax income non deductible items and the effects of tax elections made on U K earnings and the relative mix of domestic and international earnings.
And discrete tax items.
Net loss for the second quarter of 2021 was $2.9 million compared to a net income of $2.8 million in the second quarter of 2020 due.
Due primarily to the increase in stock based compensation expense.
Diluted loss per share for the second quarter of 2021 was <unk> as compared to earnings per share of <unk> in the second quarter of 2020.
Adjusted EBITDA for the second quarter of 2021 was $25.5 million per.
For it to $25.3 million for the second quarter of 2020, representing 1% growth.
William discussed some of the dynamics impacting the comparison to last year, such as lower SG&A public company costs, and we had some high margin projects completed in the second quarter of last year.
We are performing well against our plan and have some upward adjustments the guidance based on the first half performance.
Adjusted net income for the second quarter of 2021 was $5.6 million compared to $3.8 million for the second quarter of 2020.
Adjusted diluted earnings per share for the second quarter of 2021 was <unk> <unk> compared to <unk> for the second quarter of 2020.
Now moving to the balance sheet, we ended the quarter with $267.8 million of cash and cash equivalents.
Our total debt outstanding was $295.6 million net of deferred financing fees of $6.4 million as of June 32021.
We restated and amended our credit agreement in the quarter, increasing the size of our revolver to $100 million and extending the maturity date on the term loans for 2026.
Regarding financial outlook, we are increasing our previously reported guidance for the full year 2021 for revenue adjusted EBITDA and adjusted EPS.
First of all of Taro without the effects of the acquisition of clinical 'twenty 1.
Revenue will be in the range of 283 million for $289 million.
Adjusted EBITDA to be in the range of $101 million to $103 million.
Adjusted earnings per share to be in the range of 21 to 25 per share.
We will update our guidance for the effects of clinical 21, when the transaction closes, which we assume will occur in the fourth quarter.
Thank you now I'll turn it back to our CEO William feared.
Thank you Andrew.
In summary, so tower had a strong second quarter.
And announced the very exciting acquisition in Pinnacle's <unk> 'twenty 1.
Our <unk> team continues to focus on our commitments to customers and deliver strong growth for our shareholders.
We believe that our end to end platform is well positioned to continue benefiting from solid market trends.
We expect to capture a larger share of overall biopharmaceutical R&D spend as we continue to innovate acquire and add new solutions to our end to end platform.
At this point, we will open up the call for questions.
Operator can you please open up the line.
As a reminder to ask the question.
The need to press star 1 on your telephone till the.
Drilling of question press the pound key plays.
Please standby well the compile the Q&A roster.
Our first question will come from the line of Dave Windley from Jefferies. You may begin.
Hi, Good afternoon, gentlemen, thanks for taking my question I wanted to ask about your.
The staffing the labor environment, I think you talked about the 5 ish percent increase.
And labor, but I'm wondering how how your hiring activities are progressing what kind of.
Competition for labor in the in the markets that you need to add perhaps both functionally as well as geographically. Thanks.
Thanks, David I appreciate the question.
Well I think.
Any CEO in a business like ours would always have to say that you know you wake up thinking about it in good people in the business and we do we are basically on.
On our plan for hiring for the year so.
Say that we're competing well and we're doing well I think.
So <unk> is viewed as the.
As a as a good place to go for.
For.
For for careers.
So every day, we're out there trying to find.
More of the software and drug development experts and.
Sure.
I think as we go forward.
We will continue to compete well.
Are there differences between for example, your your competitor talked about some difficulty in hiring in the regulatory area are there are you are you seeing that now are there differences in relative tightness of the market between your Biosimilar <unk> versus <unk>.
And market access.
Okay.
All of that.
I won't comment on what the competitors said, but the.
In general.
Has the activity in the pharmaceutical industry has picked up there has been a greater demand for people like.
Like like regulatory writers in the few skills like that.
But sort of Tara is.
Sure.
Not the.
We're not a huge.
The fraction of the industry by head count so the.
The kind of the top quality people that we want to.
Attract here, we've still been very I think very fortunate to be able to do that so we haven't seen that.
We haven't how do I say this I mean look it's never easy to get good people, but we're competing well and we're hitting the the size of the work force that we'd expected to have at this point of the year.
Got it great. That's that's great. Thank you for the answer.
In terms of.
The <unk> C disc.
Data validation and streamlining can you perhaps.
Paint a little picture for us in terms of how.
How this dovetails with the projects that debt you are called in to do is this a really tight cross sell.
Is it predominantly applied to clinical trial data or is there even.
Yes, some standardization for analysis of real World data that would that would go into that as well I'm just trying to understand a little better how it fits.
Yeah, that's a great question. So we have.
Known about a nickel of 'twenty, 1 and certainly by the <unk> for a long time, so we participated.
Where platinum members of the C. This organization, we've been there for a long time, and obviously, because we help our clients submit their data and the regulatory filings to the FDA, where we're part of.
The industry effort to get get everything compliant with that.
What we see and this is an opportunity for further data standardization that will help sort of tar as a whole so the FDA like the.
Basically was 1 of the big proponents of the C disc in my view of that is the.
When you standardized data you.
Make it a whole lot easier to do the types of analysis that you want to do to ask questions about that data. So the FDA would like obviously the questions about the data is being submitted and when they get in the in a format thats recognizable it makes it a whole lot easier, but we see an opportunity as we go even farther to think about if we can.
Standardize more of the data that's coming in the clinical.
Phase in the preclinical phase and as you also pointed out even in.
In the market access fees than than the whole of the whole industry benefits. It makes it easier to adopt by tools.
Tools like Biosimilars <unk>, if the data we get is in the standard format and so we think that this is the best in class solution.
That enables kind of a bigger trend that we think is going to play out of pharma over quite a long time.
Very interesting thanks for the answer all of the all yield for the floor. Thank you.
Thank you David.
Our next question will come from line of Michael Risking from Bank of America, you may begin.
Thanks for.
Thanks for taking the question I wanted to pick up exactly of where Dave left off sort of on the clinical the 'twenty, 1 offering and how it fits in with the URL business I'm. Just curious if you could talk a little bit in terms of cuts.
Customer overlap, obviously, you talked about how software tools are being used by them by the 22 I believe of the top 25 pharma customers.
Talk a little bit more about the tail. There do you see a lot of cross sell opportunities are there any revenue synergies youre accounting for or sort of just help us bridge the math between.
Between your comments on.
Being accretive to the adjusted EBITDA margin.
Yes, I can start and then.
Can you comment a little bit about the margins.
So the obviously since may of 'twenty, 2 the about 25.
And we have many of the same customers there is a significant customer overlap.
But.
There's also a lot of opportunity for cross selling and also combining with our products.
The.
There is an opportunity for us to consider adding.
Adding to our tech enabled services by doing services with with the Pinnacle of 'twenty 1 software.
There is an opportunity to combine it with some of the software we have.
There is a product we have called integral that works.
The the clinical data repository.
The compliant with the 2002 CFR part 11.
So of combining a compliant data repository with.
Validation software it makes a lot of sense.
And we think that Theres a lot of opportunity as we add.
Our sales and marketing capabilities, which are which we're investing in.
No.
As we go along and of the year to clinical 20 wanted to continue to expand its adoption and reach through the through the global pharmaceutical industry.
Yeah.
Okay.
On the go ahead, sorry, no got it got it.
No. Please go ahead of this fine I think the covered it.
I was kind of my other questions are going to be sort of on the on the fiscal year guide raise thank.
<unk> results came in just sort of nominally ahead of our expectation of I think of a broad consensus but yet.
You had a nice little.
The second Bob to the fiscal year outlook I'm just wondering.
What's giving you confidence on that as of the trailing 12 months net.
Bookings youre talking about or something you're seeing in the markets.
Just give us a lot of the of flavor.
What brought about the guide change.
It's a combination of of the.
We still see a.
Positive market environment for the products that we're offering the TTM bookings, but also the narrow it down for the year to date bookings.
Put us in a position to raise the guidance with a high level of confidence.
The slight.
Slight shift in terms of seasonality.
From the first half of the second half of them and we discussed the little last time that we were expecting.
We had strong commercial performance on the regulatory side, but we're going to have a stronger second half in terms of revenue conversion there.
Gives us the uplift and we have visibility into that.
Yes.
Okay. Thanks, I'll get back in the queue as well.
Our next question comes from the line John Kreger from William Blair.
Again.
Thanks, very much of Bill can you just talk a little bit about ACA.
Activity levels that youre, seeing and just kind of reflect on the wins that you had in the quarter I am curious if youre seeing any shift in mix across either client type or the type of services that they're trying to access.
No well I would say.
Say that the trends that we talked about earlier in the year are continuing so we're seeing.
Sort of mid teens growth in our pharmaceutical customers and somewhat higher growth in our biopharma and.
Our biotech customers.
But that's the trend that's been going on.
Not just this quarter, but for some time.
It's a result of the fact I think we're a little bit as I think we talked about earlier, we're probably a little bit less penetrated in the overall biotech market.
And the and there aren't a lot of biotechs out there the overall market is growing pretty well.
I think theres a lot of activity in the pharmaceutical industry.
It's not just not just the entire of it you can see the across the industry. There is a.
There's a lot of trials going on.
R&D R&D activity is quite healthy and.
And Theres a lot of investment capital going in.
To the new biotechs as well.
Great. Thanks.
I'm, sorry, I didn't mean to cut you off for you still guy.
No. Please go ahead, Okay second question related to Covid work.
Should we assume that Covid is still contributing to your top line at all and as we think of about the second half of the year.
That kind of.
The skew the comparisons at all given I think that was a little bit of a contributor last year in the second half.
Yes, I'll take the first part and then I'll ask Andrew to comment a little bit of cost. So certainly as we were in the second quarter last year.
Our.
Cost of like travel costs.
When quite low like as they did.
Some of them are slowly come back.
On the other hand, we have also gained efficiencies. So I think were intended to offset most of that as we as we go forward in the year, but Andrew do you want to comment on that.
Yeah. We saw that we saw you saw the benefit of the of the of the SG&A costs really in the in the second quarter last year, but we shifted investment in in the latter quarters I think you can see that.
In.
The adjusted EBITDA margin trends for last year this year.
We factored in.
The resumption of of travel expenses.
Into our plan so the solid incorporated into our into our expectations for the year.
Okay. Thanks, and then 1 last 1 the pinnacle 'twenty 1 when that closes can you hit the ground.
Lately with the cross selling and sort of playing into your broader platform or is there should we assume there is a period of time, where you've got to do the software integration before you can really get the full benefit.
So I think that there is of significant opportunity in the.
Immediately to add to the sales and marketing capability of it's been about 21, using sitars capability, which is which is larger and we just have a very broad customer base.
And then over time, we will do we should talk about where the obviously take a look for the time.
The software.
The gracious. So we think there is.
There is.
Both short and longer term opportunities here with this.
<unk>.
Okay, great. Thanks.
Thanks.
Our next question comes from the line of the Crown Pruitt from Morgan Stanley moving again.
Great. Thanks for taking my question I, just had a quick 1 on geographic expansion.
You previously discussed interest the opportunity in China. So I just wanted to see if you could update us on how that's progressing and what some of the next milestones are milestones are there 2 quarters.
The presence of that part of the world.
And also I wanted to see if the broader emergence.
Of the Delta Varian has had any impact here plans to expand in China or anywhere ex U S. Debt you may have previously kind of interesting.
Yeah, So we're continuing to hire in China.
We think it's the long term, it's a good opportunity for us.
<unk>.
Andrew can comment on what we're reporting for by region.
Expanding our business there, although it's still a relatively small base.
But to your question, though about Covid certainly.
It's certainly difficult to.
To expand as fast as we want to given the difficulties of the <unk>.
<unk> in and out of China.
If I have to handicap, what's the saying, we're doing pretty well, but.
We probably will be ahead of this.
If it was open for more of it.
Still of lot of activity there is a lot of.
There's a lot of demand it's just.
It makes it just a little bit harder it since you can't.
Then.
Send people back and forth quite as easily as we used to.
I think thats a little bit color on your question, Andrew do you want to comment on our growth in China.
No I would just add that we continue to see strong growth in China.
And that's reflected in our geographic split in Asia Pac, we saw 50% growth 50% growth rate.
Got it and as a quick follow up.
Is there any sort of.
In total goal or in total Bill do you have for.
How you would like to see the U S versus ex U S mix of revenue shifts over the coming years or do you expect it to be pretty consistent with what it is now.
I think.
We have.
North of let's say roughly 70% of our business in the U S.
I think that as some of our investments in.
China and Europe pick up we will see a little bit of a share.
Shift in terms of the overall percentage, but it won't be it won't be enormous because of the way I think about it as I want.
Our.
The surcharge revenue of if we're doing a good job kind of match the R&D.
Footprint of the pharmaceutical industry as a whole.
So I think it will come down a little bit in the U S as an overall percentage, but but but.
But still thats likely to be our biggest basin as we go forward.
Yes.
Okay got it thank you.
Yeah.
Our next question will come from the the Chrome Christopher Butler from.
W. Baird you may begin.
Yes. Thank you for taking the question I guess, just first now on the back of the Pinnacle acquisition curious if you can give us some updated thoughts on your approach to capital deployment through the balance of this year and at the 2022 and if theres any other particular areas of capabilities that youre looking to add to the platform.
Yes, I think.
As we were coming out of the IPO of death, a lot of about this and what we've said was that you should expect us to do.
The series of.
We have a history of doing little bolt on acquisitions.
Which we've done a little bit.
Very small ones when we see good opportunities to add to our talent base at a good price or something like that.
And then occasionally there might be something that looks strategic which I think certainly pinnacle of 'twenty 1 falls into <unk>.
So going forward I kind of think the same way we will do some will do little bolt on acquisitions, where they look attractive.
I certainly I think our number 1 goal right now is to make sure that we integrate pinnacle of 'twenty 1 of them, we do a really good job.
Growing that business in <unk> and welcome those people and growing the organizations coming out of the main focus.
So I don't feel of the need to go out and do another.
The other acquisition right away or anything like that but.
But at the same time, we're in a we're in a growing very interesting industry in.
If it's something important and strategic became available we would certainly take a look at it. So there's no plans right now and frankly, just been no real need to as we do this as we do this integration.
But kind of the same same plan that we've talked about as we were coming out after the IPO.
Okay, Great and then maybe just as a follow up I'm curious just based on the mix of software and services that Youre seeing in your bookings right now just any updated thoughts on how we should think about the growth of each of those lines going forward. Thanks.
Okay.
Okay.
Well we.
Yeah, we've talked about.
Low to mid teens growth for software.
Mid to high teens growth for services. So clearly the addition of Pinnacle 'twenty, 1, which at which I've mentioned in the prepared remarks.
Expect it to grow at a rate of around 30%, it's going to be.
Additive to the overall <unk>.
Both rate of <unk> by approximately 100 basis points, and we will shift the mix of software to services by about 400 to 500 basis points. So we'll see a little bit higher growth in the the software relative to what I had previously stated low to mid teen.
Okay, great. Thank you.
Yes.
Thank you.
Once again Thats star 1 for any questions Taiwan.
Okay.
Okay.
We have a question from Katy.
That range from credit Suisse may begin.
Hi, Thanks for taking my question.
Last quarter, you highlighted a couple of new product box or the third bancorp and creating the goes from 28.
And the secondary intelligent offer offering and what else.
The reception for those offerings of today and how is the best performing relative to your expectation.
And more broadly how should we think about innovation and new product launches are expansion of Adam.
So growth going forward.
Yes, thanks for the question.
So.
To answer the questions of the.
Talk about the products you're talking about so sensitive version of <unk> 'twenty is the is driving a lot of our current since the revenues right now custom.
Customers of.
Net quite strongly and it has opened up new opportunities to serve new new customers of the biotech area.
Our secondary intelligence as a.
Still.
An early stage product.
We are currently launching.
I guess would you call.
Sort of the next the next version of it which is expanded.
For the number of targets debt.
That it can cover and we're actively marketing that we think this is a unique product.
So.
We've got some introduction.
The introductory marketing work to do to the industry, but I think we'll see some some some significant interest there.
And then more broadly of your question we're spending.
Fair amount of money in Setara on R&D.
There are many opportunities I think to.
2.
Expand our.
To expand our product base the kind of.
The hit more of therapeutic areas and to take into account different technologies and ideas that are out there. So.
What we've been trying to do this year is just kind of highlight.
Just how many.
How many product launches and product additions we've been we've been focused on.
Some of those will take a year or 2 as they as they kind of get introduced to this industry and they take off.
But overall I think there.
They're kind of indicative of what we've been doing with the company a long time and how we've gotten the growth rate. We've we've got so we're continuing to we're continuing to invest in our future.
Yes.
Okay great.
Thank you.
Sure.
Thank you.
Showing any further questions in the queue.
No.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Thank you.