Q1 2022 Simulations Plus Inc Earnings Call

January 6, 2022

Greetings and welcome to the Simulations Plus first quarter fiscal 2022 financial results Conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Siegel from Hayden IR. Thank you, Mr. Siegel, you may now begin.

Mr. Siegel you may now begin.

Good afternoon, everyone. Welcome to our first quarter of fiscal 2022 financial results conference call. Hosting the call today are Simulations Plus' CEO, Shawn O'Connor and CFO Will Frederick. An opportunity to ask questions will follow today's presentation.

An opportunity to ask questions will follow today's presentation.

Moving to slide two. Before beginning, I would like to remind everyone that except for historical information. The matters discussed in this presentation are forward-looking statements that involve a number of risks and uncertainties. Words like believe, expect and anticipate mean that these are our best estimates at this time, but that there can be no assurance unexpected or anticipated results or events will actually take place. So our actual future results could differ significantly from those statements.

Words like believe expect anticipate mean that these are our best estimates at this time, but that there can be no assurance as unexpected or anticipated results or events will actually take place. So our actual future results could differ significantly from those statements.

Factors that could cause or contribute to such differences include but are not limited to our ability to maintain our competitive advantages, acceptance of new software and improved versions of our existing software by our customers. The general economics of the pharmaceutical industry, our ability to finance growth our ability to continue to attract and retain highly qualified technical staff, our ability to identify and close acquisitions on terms favorable to the company and a sustainable markets.

<unk> to attract and retain highly qualified technical staff, our ability to identify and close acquisitions on terms favorable to the company and a sustainable markets.

Further information on the company's risk factors is contained in the company's quarterly and annual reports filed with the Securities Exchange Commission. With that said, I'd like to turn the call over to Shawn O'Connor. Shawn. Thank you, Brian. We began the first fiscal year with an excellent first quarter as both segments of our business delivered solid growth leading to total revenue growth of 16%.

Thank you Brian.

Began the first fiscal or with the fiscal year with an excellent first quarter as both segments of our business delivered solid growth leading to total revenue growth of 16%.

Our software business was up 19% year over year in the first quarter and we continued to see strength across each of our three core product lines with bookings exceeding expectations and significant cross-selling progress. From an innovation standpoint, we continue to release new versions that we will we believe will continue to build on our leadership positions.

From an innovation standpoint, we continue to release new versions that we will we believe will continue to build on our leadership positions.

Our service business returned to positive growth up 13% year over year. This portion of our business also continued to grow its backlog recovering from the pandemic impacted challenges of the second half of last year. Diluted EPS grew at a faster pace than revenue up 25% from last year, driven by mix and the operating leverage inherent in our model. Overall, this was a strong start to the new fiscal year.

This portion of our business also continued to grow its backlog recovering from the pandemic impacted challenges of the second half of last year.

Diluted EPS grew at a fast at a pace faster pace than revenue up 25% from last year, driven by mix and the operating leverage inherent in our model.

Overall this was a strong start to the new fiscal year.

As I mentioned, our software business had a strong quarter. Gastro plus revenue increased 19% year over year this quarter. We had 16 new 100, K plus customers in the quarter and nine new small biotechs pharma companies CROWs and incubators. This is a rapidly growing segment of the market and we are experiencing robust growth in this area. We also saw customer success with 21 upsells to existing customers in the quarter.

This is a rapidly growing segment of the market and we are experiencing robust growth in this area.

We also saw customer success with 'twenty, one up sells to existing customers in the quarter.

A significant accomplishment that we announced during the quarter was the award from the FDA to Hanse and validate mechanistic in vitro in vivo correlation where [IV IBC] methods for long-acting injectable formulations to accelerate innovator and generic product development and regulatory assessment. This was a joint proposal with the University of Connecticut's Department of pharmaceutical services and we are now engaged with the FDA on four different funded programs validating the widespread embracing of modeling and simulation technology as an important tool in drug development. [inaudible] sales continue to set the pace for our software segment. Sales of this product increased 35% this quarter.

A b C methods for a long acting injectable formulations to accelerate innovator and generic product development and regulatory assessment.

This was a joint proposal with the University of Connecticut Department of pharmaceutical services and we are now engaged with the FDA on four different funded programs validating the widespread embracing a modeling and simulation technology as an important tool in drug development.

<unk> sales continue to set the pace for our software segment sales of this product increased 35% this quarter.

Our efforts to expand the addressable market for Monolix suite in Asia are starting to bear fruit as we signed our first deals in China and added Northern science consulting in Japan as a distributor. Renewals for the Monolix suite remain robust and our recently released updates are more than 1000 downloads in the first 10 days. As I mentioned on prior calls, we believe Monolix suite is taking market share and we are confident in our ability to innovate and maintain our technological advantages.

Renewals for the Monolith suite remain robust and our recently released updates are more than 1000 downloads in the first 10 days.

As I mentioned on prior calls we believe monolithic suite is taking market share and we are confident in our ability to innovate and maintain our technological advantages.

ADMET predictor delivered 24% revenue growth in the quarter. During the quarter, we released a new version of the product APX three which is generating increased demand from our customers. We also closed two artificial intelligence drug-driven drug design or AIDD module deals with customers. The phase two of our AIDD collaboration continues to be successful attracting greater interest from current and potential customers.

As with customers.

The phase two of our AA AI D. D collaboration continues to be successful attracting greater interest from current and potential potential customers.

Turning to our services offering. Our PK PD services revenue this quarter increased 4% as the relatively high number of project disruptions that impacted the business during the second half of last fiscal year are returning to normalized levels. While PK PD bookings were still slower than prior quarters as the industry continues to navigate the pandemic and its impact on the FDA pipeline, we entered the second quarter with a robust pipeline of sales opportunities for this business.

PK PD services revenue this quarter increased 4% as the relatively high number of project disruptions that impacted the business. During the second half of last fiscal year are returning to normalized levels, while PK PD bookings were still slow slower than prior quarters as the industry continues to navigate.

The pandemic and its impact on the FTA pipe pipeline, we entered the second quarter with a robust pipeline of sales opportunities for this business.

We had some meaningful accomplishments for the quarter that I'd like to highlight with the following two examples. First, we help the Fortune 100 pharma clients develop a treatment for patients with COVID-19. Our work involved performing a population analysis using data collected in healthy individuals and in patients with the virus. Our goal was to identify and quantify the effects of patient factors on drug exposure in order to confirm and support dose selection for the next phase of development and determine whether dose adjustment was required in any specific population.

First we help the fortune 100 pharma clients develop a treatment for patients with COVID-19.

Our work involved performing a population analysis using data collected in healthy individuals and in patients with the virus.

Our goal was to identify and quantify the effects of patient factors on drug exposure in order to confirm and support dose selection for the next phase of development and determine whether dose adjustment was required in any specific population.

These analyses were helpful in supporting the achievement of regulatory milestones in obtaining emergency use authorization for the compound. Second, we supported a biotech company by helping them to gain greater understanding and insight into the risk profile for it they're compound, which is intended to treat patients with type two diabetes and inadequate glycemic control. We developed a population model and use the resulting estimates of individual patients' drug exposure to explore relationships between exposure and efficacy.

Second we supported a biotech company by helping them to gain greater understanding and insight into the risk profile for it they're compound, which is intended to treat patients with type two diabetes and inadequate glycemic control.

We developed a population model and use the resulting estimates of individual patient's drug exposure to explore relationships between exposure and efficacy.

As well as between drug exposure and the occurrence of a particular type of adverse event. This understanding was used to support the need for dose adjustments and special populations and to assist in preventing these particular adverse events. These are just two of many examples of the important work we do for customers large and small advancing their drug development and regulatory approval efforts. Our [QSP, QSD] revenue was up 31% for the quarter. Even with this strong growth our backlog increased by 124%. Giving us confidence in this business over the next few quarters.

Just understanding was used to support the need for dose adjustments and special populations and to assist in preventing these particular adverse events.

These are just two of many examples of the important work, we do for customers large and small advancing their drug development and regulatory approval efforts.

Our Q S peak USD revenue was up 31% for the quarter.

Even with this strong growth our backlog increased by 124%.

Giving us confidence in this business over the next few quarters.

During the quarter, we released Rina Sem version 1A, the novel quantitative system's toxicology software for predicting and investigating drug-induced kidney injury. The information from [inaudible] modeling will help guide go no go decisions on drug development projects potentially avoiding the disastrous financial effects of failed clinical trials or better providing assurances as a path to FDA approval. Green ascend was developed with SPAR funding from the National Institutes of Health National Institute of diabetes, and digestive and kidney diseases Division.

The information from Raymond Marino M modeling will help guide go no go decisions on drug development projects potentially avoiding the disastrous financial effects of failed clinical trials or better at providing assurances as a path to FDA approval green.

Green ascend was developed with S. P. A R funding from the National Institutes of Health National Institute of diabetes, and digestive and kidney diseases Division.

During November we presented breakthrough scientific data at a top liver disease conference, helping to explain the relatively high positive response rates and placebo cohorts related to potential treatment of non-alcoholic steadier hepatitis or Nash. Our research found that small changes to the diet patterns and patient behavior can lead to reductions in fibrosis scores, a key metric of efficacy for Nash treatments.

Changes to the diet patterns and patient behavior can lead to reductions in fibrosis scores, our key metric of efficacy for Nash treatments.

This insight can help Nash clinical scientists better understand the clinical trial results and should keep potential treatments on track to be delivered to patients in short order. Finally, our PBPK revenue was also up 37% this quarter and backlog increased by 56%. Of note, we announced a new grant from the FDA to enhance the transdermal compartmental absorption in transit or T cat model in GastroPlus.

Finally, our PB PK revenue was also up 37% this quarter and backlog increased by 56%.

Of note, we announced a new grant from the FDA to enhance the transdermal compartmental absorption in transit or T cat.

Model in Gastro plus.

Overall, our services revenue grew 13% and backlog increased 31% during the quarter. Good progress in moving beyond the disruptions from the second half of last year. Looking to our fiscal year 2022 outlook, we are maintaining our guidance for the fiscal year. Our software business continues to deliver accelerated growth rates and we're seeing continued recovery in our consulting business. Accordingly, we should exit fiscal year 2022 at a pace that supports our longer term expectations for 15% or better organic growth with any acquisitions incremental to this number. With respect to M&A, we continue to look for strategic opportunities to increase our total addressable market and accelerate our growth rates. Let me now turn the call to our CFO Will Fredrik to discuss the financial results.

Good progress in moving beyond the disruptions from the second half of last year.

Looking to our fiscal year 2022 outlook, we are maintaining our guidance for the fiscal year. Our software business continues to deliver accelerated growth rates and we're seeing continued recovery in our consulting business. Accordingly, we should exit fiscal year 2022 at a pace that supports our long.

expectations for 15% or better organic growth with any acquisitions incremental to this number.

With respect to M&A, we continue to look for strategic opportunities to increase our total addressable market and accelerate our growth rates. Let me now turn the call to our CFO Will Fredrik to discuss the financial results.

Let me now turn the call to our CFO will fredrik to discuss the financial results.

Thank you, Sean. As you may have seen in our press release earlier today, we have expanded our financial disclosures to give a more complete picture of the business by providing adjusted EBITDA. While this isn't a metric we've previously provided, it has become commonplace with our companies and we felt it appropriate to provide for our current and prospective investors. Our adjusted EBITDA is currently calculated by adding back stock-based compensation expense and in the future, we'll add back any expenses related to M&A or other non-cash non-operating expenses that may occur.

As you may have seen in our press release earlier today, we have expanded our financial disclosures to give a more complete picture of the business by providing adjusted EBITDA.

Well this isn't a metric we've previously provided it has become commonplace with our companies and we felt it appropriate to provide for our current and prospective investors.

Our adjusted EBITA is currently calculated by adding back stock based compensation expense and in the future, we'll add back any expenses related to M&A or other non cash non operating expenses that may occur.

We provide a reconciliation of this non-GAAP metric to net income the relevant GAAP metric in the press release announcing our results and it can be found on our website as well. Our total revenue growth rate was 16% in the quarter. The strong growth of 19% in our software business positively impacted our mix, which was at the high end of our 55% to 60% guidance range for the fiscal year. Our services business grew at 13% and its share of the mix was at the lower end of the 40% to 45% guidance range.

Our total revenue growth rate was 16% in the quarter.

The strong growth of 19% in our software business positively impacted our mix, which was at the high end of our 55% to 60% guidance range for the fiscal year.

Our services business grew at 13% and its share of the mix was at the lower end of the 40% to 45% guidance range.

Our software gross margin was 90% for the quarter up from 87% last fiscal year due to increased revenue and slightly lower cost of revenue. Our services margin was 60% down from 64% last fiscal year due to increased salaries and an increase in lower margin services projects, including training and international workshops in China and Brazil. Our total gross margin increased slightly year over year to 78% as a result of the improving software revenue mix. We continue to enjoy a diverse mix of software revenue in the quarter with solid growth across our entire product portfolio.

Our services margin was 60% down from 64% last fiscal year due to increased salaries and an increase in lower margin services projects, including training and international workshops in China and Brazil.

Our total gross margin increased slightly year over year to 78% as a result of the improving software revenue mix.

We continue to enjoy a diverse mix of software revenue in the quarter with solid growth across our entire product portfolio.

For the quarter, GastroPlus represented 54% of our software revenue. Monolix suite was 21%. ADMET predictor was 20% and other software was 5%. This quarter, we saw Monolix suite climb to our second highest revenue software product. For the quarter, our renewal rate for commercial customers with 96% based on fees and 93% based on accounts. As a reminder, our renewal rates fluctuate quarter to quarter due to customers who either renew early in the quarter before their license term ends or late in the following quarter after their license term ends. Renewal rates for commercial customers on average continue to be in line with historical rates in the mid-nineties.

Monolithic suite was 21%.

Predictor was 20% and other software was 5%.

This quarter, we saw monolithic suite climbed to our second highest revenue software product.

For the quarter, our renewal rate for commercial customers with 96% based on fees and 93% based on accounts.

As a reminder, our renewal rates fluctuate quarter to quarter due to customers, who either renew early in the quarter before their license term ends or late in the following quarter. After their license term ends.

Renewal rates for commercial customers on average continue to be in line with historical rates in the mid nineties.

We saw a slight decline in our average revenue per customer this quarter compared to the prior-year quarter. This change reflects our normal price increases and ongoing upselling efforts offset by changes to our discount structure for multi-year deals. We also now have 92 University plus customers in 26 countries. The University plus program offers free access to our software for students and educators as part of our ongoing support of academic research training and collaborations.

We also now have 92 University plus customers in 26 countries the.

The University plus program offers free access to our software for students and educators as part of our ongoing support of academic research training and collaborations.

And we believe this program will help prepare the next generation of scientists and contribute to the rapid development of safer lower cost treatments for patients worldwide. Let me shift now to our services business. For the quarter, our services revenue breakdown was as follows. 46% from PK PD services, 29% from QSP QST services. 17% from PDPK services. And 8% from other services. With regard to a couple of key service metrics. Total service projects increased 48% this quarter and we ended the quarter with $15 million in backlog up $3 million from the prior-year quarter.

Let me shift now to our services business for.

For the quarter, our services revenue breakdown was as follows.

46% from PK PD services, 29% from Q S. P. Qs T services.

17% from PV PK services.

<unk>, 8% from other services.

With regard to a couple of key service metrics.

Total service projects increased 48% this quarter and we ended the quarter with $15 million in backlog up $3 million from the prior year quarter.

Now turning to our consolidated income statement. Total R&D costs for the quarter were $1.7 million or 14% of revenue compared to $1.5 million also 14% of revenue in the same period last fiscal year. R&D expenses for the quarter were $29 million or 7% of revenue compared to $28 million or 8% of revenue in the same period last fiscal year. Capitalized R&D for the quarter was $.8 million or 7% of revenue compared to $.7 million or 6% of revenue in the same period last fiscal year. SG&A expense for the quarter was $5 million or 40% of revenue compared to $4.4 million or 41% of revenue in the same period last fiscal year.

Total R&D costs for the quarter were $1 $7 million or 14% of revenue compared to $1 $5 million also 14% of revenue in the same period last fiscal year.

R&D expenses for the quarter were $29 million or 7% of revenue compared to $28 million or 8% of revenue in the same period last fiscal year.

Capitalized R&D for the quarter was <unk> $8 million or 7% of revenue compared to $7 million or 6% of revenue in the same period last fiscal year.

SG&A expense for the quarter was $5 million or 40% of revenue compared to $4 $4 million or 41% of revenue in the same period last fiscal year.

The increase in SG&A expense was primarily due to higher payroll costs, increased insurance expense and increased commission costs. Income from operations was $3.8 million, an increase of 24%. And operating margin expanded to 31% from 29% last fiscal year. Income tax expense was $.8 million for an effective tax rate of 22% compared to last fiscal year income tax expense of $25 million and an effective tax rate of 17%.

Income from operations was $3 $8 million, an increase of 24% and operating margin expanded to 31% from 29% last fiscal year.

Income tax expense was <unk> $8 million for an effective tax rate of 22%.

Compared to last fiscal year income tax expense of $25 million and an effective tax rate of 17%.

We saw a lower effective tax rate last fiscal year, primarily driven by the tax benefits associated with disqualifying dispositions. Net income increased 22% to $3 million compared to $2.5 million for the same period last fiscal year. Diluted earnings per share increased 25% to 15 cents compared to 12 cents for the same period last fiscal year. Expenses for interest income taxes, depreciation and amortization and non-cash stock-based compensation included in our net income were $2.3 million compared to $1.8 million for the same period last fiscal year. Adjusted EBITDA, excluding these amounts, was $5.3 million or 42% of revenue compared to $4.3 million or 40% of revenue for the same period last fiscal year.

Net income increased 22% to $3 million compared to $2 $5 million for the same period last fiscal year.

Diluted earnings per share increased 25% to 15 cents compared to 12 cents for the same period last fiscal year.

Expenses for interest income taxes, depreciation and amortization and noncash stock based compensation included in our net income were $2 $3 million compared to $1.8 million for the same period last fiscal year.

Adjusted EBITDA, excluding these amounts was $5 $3 million or 42% of revenue compared to $4 $3 million or 40% of revenue for the same period last fiscal year.

We continue to have a strong balance sheet with significant cash reserves to support our continued expansion through internal investment and potential M&A activity. At the end of the quarter, our cash and short term investments balance grew to $124.3 million and we continue to have no debt. I'll now turn the call back to you, Sean. Thank you, Will. In conclusion, this quarter demonstrates improved momentum relative to the end of fiscal 2021. Our bookings generally exceeded expectations. We grew revenue double digits for both software and services and we expanded our services backlog supporting future growth.

At the end of the quarter, our cash and short term investments balance grew to $124 $3 million and we continue to have no debt.

I'll now turn the call back to you Sean.

Thank you will.

In conclusion this.

This quarter demonstrates improved momentum relative to the end of fiscal 2021, our bookings generally exceeded expectations. We grew revenue double digits for both software and services and we expanded our services backlog supporting future growth our.

Our investments in business development are paying off helping us capture market share, expand into new regions and more effectively cross-sell solutions across our installed base. Recent successful releases of new software and service achievements demonstrate our scientific leadership. Overall, we are well-positioned for continued organic growth. Additionally, strategic M&A remains an important path to augment our organic growth and with a strong balance sheet and a growing leadership position in the industries we serve, we continue to evaluate potential acquisitions. With that, I'll be happy to take your questions, operator.

Recent successful releases of new software and service achievements demonstrate our scientific leadership.

Overall, we are well positioned for continued organic growth.

Additionally, strategic M&A remains an important path to augment our organic growth and with a strong balance sheet and a growing leadership position in the industries. We serve we continue to evaluate potential acquisitions.

With that I'll be happy to take your questions operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one. One moment, please while we poll for questions. Thank you. Our first question is from Franois Brisebois with Oppenheimer. Please proceed with your question.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.

One moment, please while we poll for questions.

Thank you.

Our first question is from Francois Brizzy Boys with Oppenheimer. Please proceed with your question.

Alright, thanks for taking the questions and congratulations on a very nice quarter here. The first question I had was just, it says your quarter here that you reported ended in November. A lot of people are you know announcing quarters here fourth quarters in calendar year, they're ending in December and in December you know, we've had a lot of fun with this Omicron variance. So I'm just kind of wondering on your end. You know in terms of guidance, it was a strong quarter. Can you just talk about maybe how you have seen the variant affect different parts of your business if at all at this case?

The first question I had was just your quarter here that you reported ended in November a lot of people are you know announcing quarters here fourth quarters in calendar year, they're ending in December and in December you know, we've had a lot of fun with this omicron variance. So I'm just kind of wondering.

On your and.

You know in terms of guidance. It was a strong quarter. Just can you just talk about maybe how you have seen the variant affect different parts of your business if at all at this case.

Yeah.

Obviously, the results in terms of our bookings sale of revenue drive were great in the quarter ended November. So I can't point to any on the ground impact in that timeframe. It's built up since that point in time in December and here into and into January. And I think we're waiting to see what the impact is back a year and a half ago with the other peaks of the virus, we saw slowdowns in terms of our client company airplane companies and their hiring and the need for more software, more licenses impact in terms of FDA processes and the speed at which clinical trials were concluded.

Yeah.

The results in terms of our bookings sales.

Revenue drive where.

In the quarter ended November so I can't point to any on the ground impact in that timeframe, it's built up since that.

Point in time in December and here into and into January.

And I think we're waiting to see what the impact is back.

A year and a half ago with the other.

Peaks Oh.

All of the virus, we saw slowdowns in terms of the Oh.

Our client company airplane companies and.

They're hiring and the need for more software more licenses impact in terms of the processes and the speed at which clinical trials.

We're concluded.

Some of that impact may be yet to be seen here in a few months, but the coming months. But to date not a lot of impact as yet in terms of [inaudible]. Okay. Okay. That's that's helpful. And then maybe help us understand last time, there was an issue and you guys have rebounded very well from on the services side. In terms of you know in relationship to the pandemic but I just wanted to make sure you know we understand here that what happened is it wasn't that there was not necessarily enough backlog, but was it just the timing of the cancellation of certain products. And it was difficult to get the backlog involved there or what was the reason again for the service issue?

To date are not not not a lot of impact as yet sometime soon.

Okay. Okay. That's that's helpful. And then maybe help US understand last time, there was a an issue and you guys have rebounded very well from on the services side.

In terms of you know in in relationship to the to the <unk>.

N demick, but I just wanted to make sure you know we understand here that what happened is it wasn't that there was not necessarily enough backlog, but was it just the timing of the cancellation of certain products and it was difficult to get the backlog are involved there or what what was the reason again for the service.

Issue.

You know, the primary source of the problem, Franc, was the number of delays in cancellation and holds that came up during the quarter and especially in the third quarter right toward the end of the quarter, the last half of the quarter, which didn't allow us to reach into backlog and pull other projects forward, move our staff to other engagements of the projects that would maintain the lower revenue there. Our backlog is, you know, a mix of projects that some can be moved forward. Many can't be moved forward because it's waiting on, project is waiting on data that comes from the client or a CRO on the conclusion of the clinical trial. So, if that backlog is bigger, as we talked to before, then there's, you know, more probability, more opportunities to move some of those projects forward. Our backlog was short, and the number of cancellations in that third quarter were significantly above what our normal experience is. It happens. It happens every quarter. But the nine that we incurred in the third quarter of last year was well above what would be considered normal. We've seen cancellations this past quarter, but they were not as significant or as numerous. And therefore, it didn't impact us quite significantly.

Number of delays.

Cancellation and holds a that I came up during the quarter and especially in the third quarter right towards the end of the quarter was a loss after the quarter.

She didn't allow us to reach into backlog and quote.

Other projects forward.

Move our staff to other engagements other projects.

<unk> maintained the level of revenue there.

Backlog is a you know.

Mix of objects that are some can be move forward many can't.

Can't be moved forward because it's waiting on project is waiting on data that comes from.

The client or a CRO upon the conclusion of the clinical trials so.

If that backlog gets bigger as we've talked to before.

And there's more profitability more opportunities to move some of those projects, Florida backlog goes with short.

And the number of number of cancellations in the third quarter were significantly above what our normal experience is it happens it happens every quarter.

But then marrying that we incurred in the third quarter of last year was well above what would be considered normal.

We've seen like.

Cancellations this past quarter.

But but they were not as significant or as numerous in.

And therefore, it didnt impact us quite a quite a significant.

Okay. Great. And then, maybe, lastly, at a high level here, we talked about, you know, it's interesting, this is quite a kind of a change here that the use of biosimulation is progressing with the FDA. Can you just talk about the acceptance of biosimulation with the FDA, and whether or not that's accelerated by the pandemic? I understand it makes a lot of sense to save time, especially with the EUA that you guys were involved with. But have you run into the issue where because of the pandemic, the FDA is so busy that maybe they're not ready to accelerate biosimulation as much as you thought? Or does it make a ton of sense and they're all on board?

We talked about you know it's interesting this is quite a kind of a change here that they use of bio stimulation is is progressing with the FDA can you just talk about the acceptance of Biosimilars with D. S D E and whether or not that's accelerated by the pandemic I understand it makes a lot of sense to just save time, especially with the UA that you guys were.

Involved with but have you run into the issue where because of the pandemic. The fda's is so busy that maybe they're not ready to excel.

Accelerate bio simulation as much as you thought or doesn't make a ton of sense and they're all on board.

Well, if anything, we see the impact in terms of their processes around the review of drug candidates and submissions. No impact, certainly, in a negative way on their endorsement and use their own use of modeling and simulation and endorsement of the industry's usage. Again, areas of expanding application of biosimulation techniques, their acceptance, bioequivalents, waivers, etc., continue to expand. So, you know, pandemic can be impactful in terms of the flow or workflow. But certainly, it doesn't slow the rapid adoption of biosimulation and supporting that from the FDA. Impact, you know, through this process modeling and simulation techniques have been used in some of the COVID treatments available that have been in the review process, and in their core, you know, more opportunity to expand its application into few areas, vaccines, etc.

Processes around the review of our.

Drug candidates and submissions.

No impact.

Certainly in a negative way on their endorsement and use their own use of modeling and simulation and endorsement of the industry's usage.

In areas, where they are expanding the application of the.

Our biosimilars techniques are their acceptance, a bioequivalence waivers et cetera continue to expand.

And then Mike can be impactful.

Impactful in terms of the flow of workflow.

But certainly it doesn't slowly.

The rapid adoption of Biosimilars <unk> and <unk>.

<unk> got from the from the FTA impact through this process a modeling and simulation techniques have been used in some of the.

Covid treatments.

Available, but had been in the review process and are in.

And therefore.

More opportunity to expand its application in two new areas vaccines et cetera.

Okay. Great. Well, thank you very much, and congrats again. Thanks, Franc. Thank you. Our next question is from Matt Hewitt with Craig-Hallum. Please proceed with your question. Good afternoon and congratulations on the good start to the year. Thanks, Matt. First up, it's kind of a two-pronged question. But we've heard a lot about the great resignation that occurred late in the year. Actually, Q3, Q4 a lot of people, you know, switching jobs. And I'm curious what impact, if any, that has had on your customers? Have they seen that type of migration from one company to another? And how does that, how has that impacted your sales? And then separately, at Simulations Plus, you know, where does your hiring sit? Have you been able to find some good people to fill roles as you continue to grow?

Okay, great well, thank you very much and congrats again.

Thanks, Brian.

Thank you. Our next question is from Matt Hewitt with Craig Hallum. Please proceed with your question.

Good afternoon, and congratulations on the good start to the year.

Thanks, Matt.

First up and it's kind of a two pronged question, but we've heard a lot about.

The the great resignation.

Occurred late in the year actually is Q3 Q4, a lot of people switching jobs and I'm curious what impact if any that has had on your customers have they seen that type of migration from one company to another and how does that how has that impacted your sales and then separately.

At simulations, plus you know where where does your hiring said have you been able to find some some good people to fill roles as you continue to grow.

Well, the first part of your question in terms of the activity in the industry and our clients, you know, I don't have a measurement as to comparison to prior time is volume. My sense is that it's up, like it is in a lot of industries out there that movement of staff is more active now kind of as we came out of earlier phases of COVID. As we began, some of our client companies, you know, began to step back in terms of remote working. You know, a number of drivers in terms of the movement there. Some impact in terms of the flow of new sales must come from that as they're, you know, losing people and/or searching for other people. Generally, quite frankly, it's a positive thing for us. When a can of the Simulations Plus moves from company A to company B, oftentimes that creates a new sale opportunity for us, both on the software side as that individual is accustomed to using the tools at their prior job and they need them in the new position, as well as on the service side.

Well the first part of your question in terms of the activity in the.

Industry clients.

You know I don't have a measurement is do a comparison to prior time as volume my sense is that it's up.

It is a lot of industries out there that the movement.

Our staff is a is more active now kind of as we came out of earlier phases of Covid.

As we began some of our client companies began to.

The step back in terms of remote working.

A number of drivers are in terms of the.

The movement there.

Some impact in terms of the.

What was the new sales.

Must come from bad is there.

You know, losing people indoors searching for other people generally quite frankly, it's a positive thing for us.

When they can have the simulations plus moves from company a company B.

Oftentimes that creates a new scale opportunity for us both on the software side.

As that individual is accustomed to using the tools.

At their career prior job and they need them and the new physician as.

As well as on the server side.

They are in a position to control the acquisition of service engagements, deliver those, and acquire them from consulting firms like ourselves. They've been a fan for, of our team previously, then that often translates to a new opportunity at the company that they've moved to. Mostly, a positive impact. It also, in the company that is losing people, creates opportunity where they need to continue to meet deadlines and may create a need to go outside to Simulations Plus to get work done that they might have otherwise done in-house. So, overall, it tends to be a bit of a positive. In terms of, you know, its impact on our own environment, this has been for a long time a very competitive marketplace for talent. Historically, demand has exceeded supply in general for computational biologists and scientists that work in this field, and it continues through today. And we have pretty good historical retention rates in terms of our employees. It's not 100% retention. There are people that we lose from time to time. Often, it is, you know, a consultant that may have come out of a post-doc environment into a company like Simulations Plus, and without any pharma, direct pharma experience, wants to go get that experience into their resume. And in fact, they then become even better consultants down the road with that experience on their resume, and we look forward to them coming back at some point in time. On the recruiting side, we have a very competitive market, but we've generally been able to keep pace with our hiring plan.

Controllably acquisition of service engagements are deliberate those acquired them from consulting firms like ourselves I've been a fan for all of our team previously.

Previously them that often translates to a new opportunity at the company that they've moved up.

Mostly it's mostly a positive impact.

In fact.

It also in the company that is losing people creates opportunity where they need to continue to meet deadlines and may create a need to go outside to simulations plus to get work done that they might have otherwise done in house. So.

Overall, it tends to be a bit of a positive.

In terms of its impact on their own environment.

This has been for a long time, a very competitive marketplace for talent.

Historically.

Demand has exceeded supply.

In general for computational biologists scientists that.

They are working in this field.

And that continues through to today.

And.

Yes, we have a pretty good historical retention rates.

In terms of our employees, it's not 100% retention there are people.

People that we lose from time to time, often it is you know.

A consultant that may have come out of.

A post Doc environment into a company like simulations, plus and without any pharma direct pharma experience wants to go.

Get that experience into their into their resume and are in fact are they then become even better consultants there down the road with that package.

Experience on their resume and.

We look forward to them coming back at some point in time.

On the recruiting side.

Very competitive market.

But we've generally been able to keep pace with that.

Our hiring plan.

But it is a very competitive market and something that we pay close attention to because it is the lifeblood of the business. Our scientific staff and their contributions, both on the software side, as well as the consulting side, key ingredient of our success. That's really helpful. Thank you. I guess reaching out or kind of touching base on the Asia-Pacific region, where you are making a little bit more of an effort there, where do you see that business going, given, I guess, kind of the market there has been growing robustly for the past few years? And I'm just curious, can that become 10% of revenues in a couple of years? Where do you see that going over the mid and long term? Thank you. Yeah, you know, generally, the Asian market in total is, has been contributing about 15% of our revenue.

Of the business our scientific staff in.

And their contributions both on the software side as well so the consulting side key ingredient of our success.

That's that's really helpful. Thank you I guess, reaching out or kind of touching base on the Asia Pacific region, where you are making a little bit more of an effort there.

Where do you see that business going given I guess kind of the market. There has been growing robustly for the past few years and I'm just curious.

Can that become a 10% of revenues in a couple of years, where do you see that going over the mid and long term. Thank you.

Yeah generally the Asian market in total is a bigger contributing about 15% of our revenues.

And so we've got a good presence there historically with the GastroPlus, ADMET Predictor products and especially in Japan, where that long-standing relationship with our distributor there has driven a very good very good revenue growth for many years. Our expansion into other areas in terms of Korea and China, India, those marketplaces a little bit less developed or ourselves and we seek to go seek more opportunities like more opportunity there. And finally, I'd say that are actually in Asia, while it is fast-growing, it was probably the most disrupted through the COVID. And the start-ups in terms of business activity. Once it was probably more impactful there than anywhere geographically. That said, we, on the Monolix side to add a new independent Chinese distributor for the Monolix product several months ago. And the start-up period of time. We've reached the end of it as beyond the scope of this past quarter with the coach licenses through the distributor. And very recently, put the Monolix product into the portfolio of products that are our Japanese distributor reps for us in that marketplace. So expect some uptick there on the Monolix side, which hasn't done some business. But not proportionately appropriate for their overall mix of business, we expect that to be a good growth area for Monolix and in general will contribute to, at that 15% level, and or I think a little bit better than that as we move forward.

The Gastroplasty predictor products.

And especially in Japan, where.

That long standing relationship with our distributor there.

Has driven a very good very good revenue growth for many years.

Expansion into other areas in terms of Korea and China.

India those marketplace is a little bit less.

<unk> developed.

<unk> or ourselves and we seek to go seek more opportunities like more opportunity there.

And finally, I'd say that are actually in Asia, while it is fast growing it was probably the most disrupted through the Covid and Blair starts stops in terms of business activity.

Once it was probably more impactful there than anywhere.

Geographically.

That said we are on.

On the modeling side to add a new independent.

And then China Chinese distributor.

For the modeling to split our product several months ago and the start up period of time.

We've reached the end of it is beyond the scope of this past quarter with the coach licenses through the distributor.

And very recently.

The model X product into the portfolio.

<unk> that are our Japanese distributor rep.

Reps for us in that marketplace. So expect some uptick there on the modeling side, which hasn't done some business but.

But not proportionately appropriate for their overall mix of business, we expect that to be a good growth area for monolith and in general will will contribute to.

At that 15% level, and or or I think a little bit better than that as we move forward.

That's great. Thank you very much for answering the questions, and congrats again on the good start to the year. Thanks, Matt. Thank you. Our next question is from Dane Leone with Raymond James. Please proceed with your question. Thank you for taking the questions, and congratulations on the results. Maybe you could provide a bit more color in terms of the competitive share gains that you quoted with Monolix, just where those share gains are coming from, what the competitive products are. And then, could you just, you get asked this question a lot, just your view of how active you can be in organic growth in acquiring other businesses, either in the service or software side over the course of 2022. Thank you.

Thanks, Matt.

Thank you. Our next question is from Dane Leone with Raymond James. Please proceed with your question.

Thank you for taking the questions and congratulations on the results.

Maybe you could provide a bit more color in terms of the competitive share gains that you quoted with model X.

Just where those share gains are coming from but what the competitive products are.

But bad could you just you asked this question a lot.

Just your view of how active you can be and in organic growth and acquiring other businesses either in the service or software side over the course of 2022.

Yeah.

Okay.

Sure, Dane. You know, I'll go backwards in terms of the M&A question, active search out there in terms of ways in which we can contribute to our TAM in the long run by adding incremental products and services. We've got a pretty strict criteria. It's been applied in our previous acquisitions, and, you know, a lot of activity there, a lot, like, you know, earlier in the year, we commented on the fact that valuation was a challenge in the marketplace for us. That has, you know, opened up a bit. It's always a challenge. It never goes away. But I think that barrier has improved. We're certainly looking at a number of potential acquisition candidates that are out there. And, you know, while unpredictable, I would hope that we are able to find and come to an agreement in terms of an acquisition in this time frame. But it's got to be the right fit and meet our criteria, both in terms of product fit and cultural fit, as well as the accretive and appropriate valuation. And those opportunities do exist out there. And I'm confident that we will at some point achieve that.

Long run.

Metal products and services.

We've got a pretty strict criteria and it's been applied in our previous acquisitions.

And a lot of activity there a lot earlier in the year. We commented on the fact that our valuation was.

It was a challenge.

In the marketplace for us.

That has opened.

Opened up a bit it's always a challenge.

It goes away, but I think that area is.

It's improved our voice.

Certainly looking at.

Number of the potential acquisition.

The dates are that are out there and oh, well unpredictable I would hope that we are able to a point.

And come to come to an agreement are there in terms of an acquisition.

In this timeframe, but.

It's got to be the right.

Right Sir.

Meet our criteria both in terms of the product fit and cultural fit.

As well as being accretive and at an appropriate valuation and are those opportunities do exist out there.

I'm confident that we will at some point to achieve that.

First question in terms of Monolix and our market share gain there, the NLME modeling tool market is dominated by NONMEM long-term early product introduction at the beginning of modeling and simulation 20-plus years ago, largest installed base in that software segment. And we believe, today, we are taking, based upon our growth at 30-plus percent in Monolix, that's much higher than the overall market growth rate for that product area, and therefore, must be taking our market share from the largest candidate in that space in NONMEM. Thank you. Our next question is from Mitra Ramgopal with Sidoti. Please proceed with your question. Yes. Hi, good afternoon. Congrats on great quarter. Just a couple of questions. First, I was just curious, the balance sheet is very strong. And as you're building cash, absent acquisitions, if maybe you can just let us know how you're prioritizing capital allocation as it relates to maybe R&D or expanding sales, etc.?

Let me modeling tool market is dominated by.

Non them long.

Long term early the early product introduction at the beginning of modeling and simulation 20, plus years ago, our largest installed base in both the.

Software segment.

And we believe we are taking based upon.

Our gross debt of 30, plus percent and and model X.

It's much higher than the overall market growth rate towards that product area.

And therefore must be taking our.

Our market share.

From the largest candidate and that are in that space.

Thank you.

Yeah.

Thank you.

Our next question is from Mitra <unk> with Sidoti. Please proceed with your question.

Yes, hi, good afternoon I congrats on a great quarter, just a couple of questions first I was just curious.

The balance sheet is very strong and as you're building cash absent acquisitions. If maybe you can just let us know how youre prioritizing our capital allocation as it relates to them it would be R&D or expanding.

Expanding sales etcetera.

Sure, Mitra. You know, we certainly are focused, in terms of the capital allocation, first and foremost on finding an acquisition opportunity to utilize those funds in that direction. R&D investments in our business development organization are certainly investments that we're making. We are making those investments really sort of under the profile of our, you know, traditional allocation of expenses to our income statement and maintaining our profitability with them, you know, making our, doing our investments in business development in R&D within that profitability profile. And, you know, we're confident that the M&A opportunities will exist near term, and we'll translate those funds into a more revenue-generating asset.

We certainly are a focus for me in terms of the capital allocation first and most important most on finding an acquisition opportunity.

To utilize those those funds in that direction.

R&D investment.

Investments into our doesn't spell of an organization.

Certainly investments that we're making we are making those investments are really sort of under the <unk>.

The profile of our traditional allocation of expenses to our income statement are maintaining our profitability.

Hum.

Then you can make anything you are doing or investments in business development and R&D within that profitability profile.

And you know.

Where are we are confident that M&A opportunities will exist near term and will translate to those funds into more revenue generating assets.

Okay. Thanks. And then, quickly on targeting new customer growth and to focus, I mean, most of the focus is still in the U.S. But as you look toward Europe and Asia, is the pandemic or omicron variant have been affecting you on that front as you look to expand overseas? Well, I think we're all hoping that this wave is a quicker wave that passes. But is it impacting us now? Yeah, I mean, to a certain degree, I mean, you know business activity and flow starts to be impacted as, you know, people shut down, depending on how drastic each geography implements their response. Generally, I think the world has gotten, improved their ability to continue workflow within these environments. But it is disruptive, but, you know, we've managed our way through today without a significant impact. But we've got to wait and see. That's been the challenge of the impact of COVID throughout, is, you know, it rises and flows up and down there. Okay. Thanks for taking the questions. Sure. Take care.

Well I think we're all hoping that this wave is a it is a quicker way, but passes but is it impacting us now.

Yeah, I mean to a certain degree in business activity and flows search too.

The impacted as.

You know people shut down depending on our drastic each geography implements their response.

Generally I think the world has gotten improve their their their ability to continue workflow.

Within these environments, but it is it is disruptive.

Yeah.

We manage our way through to two days without a single forget them.

But we got to wait and see where that's been the challenge is.

The impacts of Covid routers.

He was writing them close close up and down.

Okay. Thanks for taking the questions.

Yeah.

Sure It's Kent.

Thank you. Our next question is from David Larsen with BTIG. Please proceed with your question. Hi. Can you talk about the rebound in professional service revenue? What drove that? And really, what are your expectations for that line item going forward? And then, with respect to omicron and the clinical trial activity, like, it's sort of my understanding that omicron, it's a much shorter duration. When you look at data from South Africa, it looks like maybe one month compared to delta, which was like four months. Like, have you heard of clinical trials being stalled or delayed or shut down at all? Just, thanks. Thanks very much for that. Appreciate it. Sure, sure. No, haven't gotten, you know, big input. You know, where we would see the impact of that is in our delays, cancellations, and holds in terms of workflow on the service side. And, you know, they came down. They still exist on a quarter-to-quarter basis, but they came down this past quarter. Now, will we see an uptick that in the second quarter, more relevant in the time frame to omicron increasing? You know, perhaps. We're in a little bit better position to respond to that with our backlog, having grown quite significantly versus where it was midpoint of last year.

Hi can you talk about the rebound of professional service revenue what drove that and really what are your expectations for that line item.

Going forward and then with respect our army Kron in the clinical trial activity like it's sort of my understanding that omicron. It's a much shorter duration. When you look at the data from South Africa looks like maybe one month compared to Delta, which was like four months people like have you heard of clinical trials being <unk>.

All are delayed or shut down at all just thanks, thanks very much I appreciate it.

Sure sure.

No they havent gotten no big input.

Wherever you would see the impact of baggage or delays.

Cancellations and holds in terms of workflow on the on the service side.

No. They they came down we're still exist on a quarter to quarter basis, but they came down this past quarter.

Now will we see an uptick that are in the second quarter more relevant some time frame to the.

On the crop.

Increasing you know, perhaps a we're in a little bit better positioned to respond to that with our backlog.

Having grown quite significantly versus where it was mid point.

Sure.

So, I think we'll be able to respond to that a little bit better. But no big signals as yet. And as you say, the time duration of the impact based upon South Africa experience looks to be favorable. But totally this will be a little bit more short-lived and lesser in terms of its impact. Service revenues, in general, you know, the two, three sources of our service business, PK/PD, QSP/QST, and PBPK, you know, all stepped up in terms of their revenue growth compared to the latter part of last year. The step-up to a positive service growth was really on the back of QSP/QST engagements where we grew quite significantly and grew backlog 124%. So, there, the flow of both toxicology projects, as well as QSP projects, both saw improvement versus the latter part of last year. And that backlog pickup gives us a little bit more confidence in terms of their ability to continue to grow quite nicely, and certainly much better than they did last year. PBPK business grew as well. PK/PD side turned a corner and improved in terms of their growth rate, but probably lags in terms of the increase in sales activity and, you know, backlog growth compared to the other two. But we're seeing pretty full pipeline right now in that area that we anticipate will contribute to more success in the second quarter from their rebound. I mean, overall, after, you know, a couple of quarters of negative growth in the service side, getting to 13% growth in the first quarter is a very good sign and gives us confidence as we move into the remaining parts of the fiscal year '22.

The impact based upon.

South Africa experience looks to be favorable, but hopefully this will be a little bit more short lived.

Less room in terms of the Turnpike serves.

Service revenues in General you know the.

233 sources of our service business P. J P. D U S. TQ S. T N P D T K.

All stepped up in terms of their revenue growth.

To the latter part of last year.

The step up to a positive service growth was really on the back of U S ski and Qs T a engagements where.

We grew quite significantly and grew backlog of 124%.

So there be flow of both types of psychology projects.

Projects as well as U S. P projects, both saw improvement versus the latter part of last year and that backlog pick up it gives us a little bit more confidence in terms of the durability.

Durability.

Two to continue to grow quite nicely and certainly much better than they did last year D. D D K.

Our business grew as well he can't P D side.

Turning the corner.

And improved in terms of their growth.

Growth rate, but probably lags in terms of the.

The increase in sales.

Sales activity in <unk>.

Our backlog growth when compared to the other two but we're seeing pretty cool full pipeline right now.

That area that are.

Batesville, Oh will contribute to more success in the second quarter on the rebound I mean overall well after a couple of quarters of negative Grubhub seamless service side.

Getting to a 13% growth in the first quarter is a very good sign anything and gives us confidence as we move into the remaining parts of that fiscal year 'twenty two.

That's fantastic and that's encouraging. Just one other question for me. The EBITDA margin looked really good. Was that 42%? And then, what are your expectations for your EBITDA margin both in the near term and in the longer term? Thanks. Yes, it's not a line item we give guidance on, but the business has been pretty consistent in terms of its EBITDA percentage over time. A little bit of fluctuation, but we feel very good in terms of the fast-paced growth of our software side, which contributes to, I guess, positive push to our profitability and EBITDA percentage. You know, and so, with the software business growing at a pace faster than the service growth, I think we could see some continued leverage resulting from that. Okay. Great. Thanks very much. Congrats on a good quarter. Take care, David.

Both in the near term and in the longer term. Thanks.

Yeah, it's not a not a line item, we give guidance on <unk>, but the business has been pretty consistent in terms of its EBITDA.

Percentage over overtime, a little bit of fluctuation, but are we still are very good in terms of the fast paced growth of our software side, which contributes a positive push.

Two of our profitability and EBITDA percentage, Oh, I'm, so well.

The software business growing at a pace faster than the service growth.

I think we are we could see some continued leverage.

Resulting from that.

Okay, great. Thanks, very much congrats on a good quarter.

I think I didn't.

Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. Our next question is from David Windley with Jefferies. Please proceed with your question. Hi. Good afternoon. Thanks for taking my question. Shawn, there's been a number of new, a lot of new company formation in your biotech target customer base and moreover, you know, funding to those companies that are moving forward. Is there a size or a maturity sweet spot where they become a really kind of, they become kind of the perfect target for your salesforce and software sales? Or kind of is anybody fair game? I'm wondering, like, how mature do they need to get before they really are ready to expend capital on your software?

Our next question is from David Windley with Jefferies. Please proceed with your question.

Hi, good afternoon. Thanks for taking my question Shaun Theres been a number of a new car lot and do New company formation in your your biotech target customer base and Moreover, you know funding to those companies that are moving forward.

Is there a size or a maturity sweet spot, where they become a really kind of that they they become kind of the perfect target for your sales force and software sales or we kind of as is anybody fair game I'm wondering like how mature do they need to get before they they really are ready to.

Expend capital.

Capital on your software.

Yeah, good question. You know, we saw in this first quarter some increase in terms of the biotech companies segment of our sales, as well as incubator sales, which was very pleasing to see. I think it's indicative of adoption of modeling and simulation in those early, earliest of stages, which historically hasn't been that great. You know, when do they become a candidate for a software sale? Well, they got to have someone hired and brought onboard to operate the software. So, you know, that's the litmus test in terms of whether we send a software expertise business development person on that, into that account or a service business development person to the account. But we've been very pleased to see their use of modeling and simulation picking up. And that often begins with service engagements. but they are more quickly, in their timeline, hiring a modeling and simulation person into the group. We see, to the earlier question on the call here, we see a good flow of, you know, large pharma modeling and simulation scientists stepping out of large pharma to become the department, the modeling and simulation department, at earlier-stage smaller biotech companies. And that's a good sign, and an example of where, as I mentioned before, movement of a good Simulations Plus user into a smaller organization creates a very positive sales opportunity for us.

Yeah. We are we saw in this first quarter.

Some increase in terms of the biotech companies.

Segment of our sales as well as our incubator sales, which was very pleasing to see.

I think it's indicative of the adopt.

Adoption of modeling and simulation in those early earliest stages, which historically.

Hasn't been that great.

When when do they become a candidate for a software sale well.

They got to have someone hired and brought on board two to operate the software so that's that.

The litmus.

Witness test in terms of whether we send our software.

Expertise business development person on that account for or a service business.

Business development person to the accounts, but we've been very pleased to see their their use of modeling and simulation picking up.

And that often begins with service engagements.

Engagements.

But they are more quickly in their timelines.

Hiring.

Our modeling and simulation person.

The group, we see to the earlier question on the call here, we see a good flow of club.

Large pharma modeling and simulation scientists are stepping out of large pharma to become.

The department the modeling and simulation department that are earlier stage smaller biotech companies and that so that's a good sign and when they make a sample of where as I mentioned before the movement of the.

Good simulations plus user.

Into a smaller organization creates a very positive sales opportunities before us.

Great. I appreciate that answer. Another question, kind of a slightly different access around growth is I'm wondering, thinking about the phases of the molecules development life cycle, where is the peak intensity of use of your products? And maybe it's different by product, but more importantly, to the question, are there areas of the life cycle where there are use case opportunities but the intensity of modeling is really, you know, hasn't picked up yet that you see as, I'll call it, the next frontier, although that's maybe a little too Pollyanna, but the next frontier for the intensity of modeling use to really increase?

Where is the peak intensity.

Of our views of your products and maybe it's different by product, but but more importantly to the question are there are there areas of the lifecycle, where there are use case opportunities, but the intensity of modeling is really.

It hasn't picked up yet that you see as you know I'll call. It a next frontier, although that's maybe a little too pollyanna, but but the next frontier for the intensity of modeling used to really increase.

Yes, it's a fair question. You know, our products and services span from discovery to submission and approval. So, you know, it's sort of anecdotal in terms of the use of our products. You know, discovery space is very fast growing in terms of its adoption of modeling and simulation. We're seeing a lot of new biotechs. I think that's where those start. And so, there's a robust growth in that phase of development. You know, translation into clinic is one of the pain points in the drug development process in terms of being more predictive of successful candidates and improving the batting average of those that began the clinical process and succeed. And modeling and simulation is a primary tool in terms of improving that batting average and selection of candidates to move into the clinic, identifying through clinical trial phases, and looking for improved dosing regimens for patient populations.

You know our products and services span from discovery to.

Submission and approval.

So.

It's sort of anecdotal in terms of the use of our products are you know discovery spaces at a very fast growing in terms of its adoption of modeling and simulation.

We're seeing a lot of.

New biotechs.

Were those start and so.

There's a robust growth.

In that phase of development.

The translation into clinic.

Is one of the pain points in the drug development process.

In terms of being more predictive of successful candidates.

And improving the batting average of those that began the clinical process and.

And succeed.

And modeling and simulation as a primary tool in terms of improving that.

Adding average and selection of candidates to move into the clinic.

Identifying through.

Clinical trial.

Phases and are looking for.

The improved dosing regimens for.

The patient.

Populations.

We're developing drugs that are a little bit more smaller markets, and that often means drugs that are applicable in smaller populations. And modeling and simulation has great application in that regard. And then, obviously, you know, improving the success of clinical trial is where the disproportionate amount of drug development expenditure takes place. And that translates into the biggest opportunity to save money. If you take the right candidate into Phase 3, you design the trial appropriately, and then, as is often the case, the results of that clinical trial, how can they be fashioned in a way that improves probability of the FDA approval afterwards. So, you know, I, we see growth in all areas and modeling and simulations of application in each space. Got it. I appreciate the answers. Thank you. I'll leave it at that.

And that often means drugs that are applicable in smaller populations.

And modeling and simulation is great application in that regard.

And then obviously you know improving be successful clinical trial, and so where the disproportionate amount of drug development expenditure takes place and.

That translates into the biggest opportunity to save money.

If you take the right candidates into phase III.

Do you designed the trial appropriately.

Is that as is often the case the results of that clinical trial, how can they be faster and in a way that improves the probability of that.

But Google afterwards so.

We see growth in all areas.

And.

The modeling and simulation applications.

Hum.

Each phase.

I appreciate the answers. Thank you I'll leave it at that.

Alright. There are no further questions at this time. I would like to turn the floor back over to Mr. Shawn O'Connor for closing comments. Very good. Appreciate you joining us today and hearing our news, and we look forward to updating you again in a few months with our second-quarter results. Take care, everyone. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

There are no further questions at this time I would like to turn the floor back over to Mr. Sean O'connor for closing comments.

Yeah.

Very good.

I appreciate you joining us today.

And hearing or are those.

And look forward to.

Updating you again in a few months with the with our second quarter results take care everyone.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Yeah.

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Q1 2022 Simulations Plus Inc Earnings Call

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