Certara Inc. Q1 2023 Earnings Call
Okay.
Good day and thank you for standing by welcome to the sector first quarter 2023 earnings Conference call.
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I'd now like to hand, the conference over to your Speaker today, David Taylor Investor Relations.
Please go ahead.
Good afternoon, everyone. Thank you all for participating in today's conference call on the call from Sweetheart, We have William Furry, Chief Executive Officer, and John Gallagher, Chief Financial Officer earlier today Sitar released financial results for the quarter ended March 31, 2023 copy.
A copy of the press release is available on the company's website.
Before we begin I would like to remind you that management will make statements. During this call that include forward looking statements and actual results may differ materially from those expressed or implied in the forward looking statements. Please refer to slide two and the accompanying materials for additional information, which you can find on the company's Investor Relations site.
In our remarks or responses to questions management made mention some non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available on the recent earnings release available on the Companys website.
For additional information please refer to the reconciliation tables and the accompanying materials. This conference call contains time sensitive information and is accurate only as of the last broadcast today may eight 2023, soutar disclaims any obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
And with that I'll turn the call over to William.
Thank you David Good afternoon, everyone. Thank you for joining <unk> first quarter 2023 earnings call, John and I will start with prepared remarks, and then we will take your questions.
We are pleased with our start to 2023, which positions us well for the remainder of this year and beyond.
Our team is focused on executing sitars mission to accelerate medicines to patients using bio stimulation software and services.
We continue to see expanded interest from customers looking to safely accelerates the drug development process through the use of bio stimulant.
We deliver information and analysis that informs critical decision, making that will lower the cost of development and increase the probability of success in clinical trials.
Ultimately, improving the health and wellbeing of millions of people globally.
Before discussing our first quarter results I'd like to formally welcome John Gallagher as <unk> New CFO .
John joined <unk>, a little over a month ago and it's already been a valuable addition to the leadership team John .
John will play an important role in surcharges future growth and financial success and I'm thrilled to have him onboard.
There's a lot to be excited about at <unk> at the pace of adoption and awareness sitars.
The relation platform continues to expand around the world just a few weeks ago, we announced that two cars Pvp case simulator has now been used to inform more than 300 drug label claims for over 100 novel drugs in lieu of conducting clinical studies.
In addition in 2022 and for the ninth consecutive year, we're proud to say that 90% of U S. FDA, new drug approvals were received by <unk> customers, who use our bias simulation software and technology driven services.
Shifting to our first quarter performance, we are pleased with our financial results, which met our revenue and profitability expectations for the quarter.
<unk> total revenue of $93 million grew by 11% year over year on a reported basis and 13% on a constant currency basis.
<unk> growth was driven by software and by a simulation services as we continue to see strong demand across all customer categories.
First quarter software revenue of $33 million represented 13% year over year growth on a reported basis and 16% on a constant currency basis.
We continue to see strong performance from our core by stimulation software since it and Phoenix as well as clinical 21.
These three software platforms represent the majority of our software revenues.
In early March we announced our annual update of censorship now one version 22. This.
This year, we added the ability to model more diverse populations expanded our library of therapeutic compounds and unveil since the designer tool that will help users develop their own pharmacodynamic and TSP models.
Our continued investment and commitment to innovating our core software platform with new features to support and expand use cases is what continues to strengthen our relationships with our pharmaceutical and biotech customers.
Following the close of the asset transaction. Our team has worked hard to integrate their cutting edge deep learning AI technology throughout the sitar our platform.
We recently announced the rollout of our updated <unk> hundred 60 software, which incorporate AI and enables the development of predictive models that are trained on both public and proprietary data.
These enhanced <unk> hundred 60, <unk> capabilities include automated property prediction novel chemical structure generation and analysis of unstructured data.
We're excited by the speed at which our software team was able to make these upgrades and we are encouraged by the early traction with customers.
At the year, our team will continue to find new applications for this deep learning technology across our software product offerings.
<unk> first quarter technology, driven services revenue was $57 3 million.
Which grew 9% on a reported basis and 11% on a constant currency basis compared with the first quarter of 2022.
Bio stimulant services growth remained an area of strength growing our comparable levels experienced throughout 2022, and we expect continued strength throughout 2023 due to an encouraging bookings trend throughout the past 12 months.
We continue to see strong demand for by accumulation services as our clients expand its use across biologics cell and gene therapies and small molecules.
Our regulatory businesses continues to be a headwind to services growth, but they are performing within the range of our expectations as we navigate a challenging market environment.
The pace of recovery and regulatory is moving slower than initially anticipated.
And growth is expected to be weighted more towards the second half of the year.
Our regulatory team is focused on strengthening the pipeline and we remain encouraged by the progress made so far.
To close we're pleased with our first quarter results. We believe that our team is well positioned to continue our success throughout 2023 and over the long term as we support and catalyze the adoption of Biosimilars <unk> for drug research and development.
I would like to close my remarks by extending my deepest appreciation to the entire organization of <unk> for their dedication and hard work.
I will now turn it over to our CFO , John Gallagher to discuss our first quarter financial results in more detail.
Thank you William Hello, everyone before reviewing our financial results I would like to thank William and the entire team at Targa for the opportunity to join such an exciting and innovative company.
Andy has been helped both EMEA as we work our way through an orderly transition of responsibility, which is expected to be completed later this quarter.
Moving to our financial results total revenue for the three months ended March 31, 2023 with $93 million.
Representing year over year growth of 11% on a reported basis and 13% on a constant currency basis.
As discussed overall demand for bio stimulation remains strong and the insulated from concerns in the industry around funding.
Specifically, we recently performed an analysis of our accounts receivables for 2022 and found that less than 1% of our total revenues were transferred to banks typically.
Associated with venture early stage company.
Software revenue was $33 million in the first quarter, which increased 13% over the prior year period on a reported basis and 16% on a constant currency basis.
Growth in the quarter was driven by higher simulation software and Pinnacle 'twenty one.
Ratable and subscription revenue accounted for 59% of first quarter software revenues.
Software bookings were $30 $7 million in the first quarter, which increased 4% from the prior year period.
We experienced timing related delays that pushed some first quarter deals into the second quarter Theres been no impact of our annual plan due to this timing.
Overall health of our software bookings remained strong and trailing 12 months software bookings were $126 1 million up 24% year over year.
The software aggregate renewal rate was 90% in the first quarter, which is in line with our plan.
Services revenue was $57 $3 million in the first quarter, which increased 9% over the prior year period on a reported basis and 11% on a constant currency basis.
Stimulation services continued to perform well growing in the mid to high teens range, while regulatory services remains a headwind to the overall growth rate.
Technology, driven services bookings for the first quarter were $82 million, which increased 4% from the prior year period.
Trailing 12 month services bookings were $287 million, which increased 8% as compared to the prior year.
<unk> emulation and services bookings momentum continued to be robust and an encouraging indicator for the adoption of buyouts of DLH.
In addition, we are focused on improving our regulatory services performance against a difficult market backdrop.
Regulatory remains a high priority for our commercial team and we're focused on strengthening our business pipeline in 2023.
Total cost of revenue for the first quarter of 2023 was $34 $9 million an increase.
<unk> from $32 8 million in the first quarter of 2022, primarily due to employee costs related to billable head count growth as well as software licenses.
Total operating expenses for the first quarter of 2023 were $48 million, an increase from $42 6 million in the first quarter quarter of 2022.
The components of operating expenses are as follows.
Sales and marketing expenses were $8 million compared to $6 1 million for the first quarter of 2022. This increase was primarily due to employee costs related to expanding the sales and marketing team.
R&D expenses were $9 $3 million compared to $7 5 million for the first quarter of 2022.
R&D expenses were up primarily due to employee related cost for software development.
G&A expenses were $19 8 million compared to $18 3 million for the first quarter of 2022 excluding.
Excluding the impact of acquisition expenses, including a change in fair value estimate for contingent consideration G&A was flat year over year.
And Hedgeable asset amortization was $10 5 million compared to $10 $1 million in the first quarter of 2022.
Depreciation and amortization expense was $4 million compared to $5 million in the first quarter of 2022.
Continuing down the P&L interest expense was $5 5 million compared to $3 2 million for the first quarter of 2022 due to higher interest expense relating to our floating rate term loan.
As a reminder, we have about 78% of our debt fixed at 638% and roughly 22% floating at LIBOR plus $3 50, which is about eight 5% at today's rate.
Miscellaneous income was $5 million compared to $8 million in the first quarter of 2022 due to higher interest income offset by foreign currency expenses.
Income tax expense was $1 1 million compared to $1 5 million for the first quarter of 2022.
Net income for the first quarter of 2023 was $1 4 million compared.
Compared to $2 $2 million for the first quarter of 2022.
Reported adjusted EBITDA for the first quarter of 2023 with $32 3 million compared to $27 7 million for the first quarter of 2022, representing 17% growth adjusted.
EBITDA margin was 36% in the first quarter of 2023.
Reported adjusted net income for the first quarter of 2023 was $19 3 million compared to $16 9 million for the first quarter of 2022.
Diluted earnings per share was one penny in the first quarter of both 2023 and 2022.
Adjusted dilutive earnings per share for the first quarter of 2023 was <unk> 12 compared to <unk> 11.
For the first quarter of 2022.
Now moving to the balance sheet, we ended the quarter with $244 $1 million of cash and cash equivalents.
As of March 31, 2023, we had $296 $7 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.
Turning to the guidance for full year 2023.
We are reiterating our previously issued guidance of total revenue in the range of $370 million to $385 million representing growth of 10% to 15% compared with 2022.
Our revenue guidance assumes continued strength in software and Biosimilar <unk> services, where we have good visibility given our trailing 12 months bookings.
The guidance also assumes regulatory services growth in the low single digits as compared to 2022, which is expected to be more second half weighted than originally anticipated and software subscription revenue continues to increase as a percentage of total software revenues.
We expect adjusted EBITDA in the range of 131% to $137 million adjusted EPS in the range of 50 to 55 per share fully diluted shares in the range of $159 million to $162 million.
And the tax rate in the range of 25% to 30%.
I will now turn the call back over to our CEO William Berry for closing remarks.
Thank you John to.
To summarize our message today, we are pleased with our first quarter results and we believe that <unk> is well positioned for growth this year and in the future as we continue as a global leader in Biosimilars.
We will now open the line for questions. Operator can you open the line.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, please standby, while we compile the Q&A roster.
Our first line. Our first question comes from the line of David Windley of Jefferies. Your line is now open.
Alright, Thanks for taking my questions. Good afternoon, I wanted to start.
Bill on the customer adds and just curious about I appreciate the comments around.
<unk>.
Payment transfers from banks.
That John mentioned.
I'm wondering if you could talk about.
What your new customer add trends have looked like.
And if those are predominantly small companies I would assume typically small companies and how that how that's progressed in a more challenging funding environment for those small companies.
Yes, Hi, John .
John .
Yes look as we look at the new customers that we're adding we're seeing good contribution actually across all the categories.
As I mentioned in the remarks, we had a 90% renewal rate in line with plan.
Net retention rate.
There is also in line with historical averages in fact, when you look at the software.
Growth of 13%.
Then.
And you take that apart then it's about 10% growth.
In existing and expanding customers and about 3% from new logos, new logos are growing.
They are about in line with what we've seen on annual historical averages.
And given that you.
Half the top biopharma companies as our customers already you've got you've got a mix of sort of tier two and tier three in there for sure.
Got it Okay and then.
The comment about.
Maybe im off the beaten path question, but the comment about the 90% of customers.
Or 90% of the excuse me approvals.
Coming from your customers and that being the seventh year in a row I believe is what you said.
How is it possible to.
Quantify or perhaps.
Quantify it or talk talking qualitative terms, how those customers are.
Using more simulation in those programs as they.
Trend to approval how might we measure how bias biosimilar <unk> is growing in importance within those approval journeys.
Yes, David.
Thanks for the question.
A couple a couple of points. We also gave some statistics about the use of <unk>.
<unk> recently passed.
If you just look at public records.
100, 100 drugs its been used on so that's one one measure and within that there has been over 300 label claims. So these are documented cases in which by assimilation was used to avoid some number of clinical trials during the development of an approved drug.
The other thing we can point to us.
The demand.
For our services has been.
Quite strong and not just recently, but over over the last few years and that's the reflection of the fact that.
We're working biosimilars, becoming more accepted in and.
<unk>.
We are.
Playing a bigger part.
And drugs that have been approved.
Got it thanks for the answers yield the floor. Thank you. Thank.
Thanks, David.
Please standby, while we get our next caller.
Our next question comes from the line of Vikram appear Rohit of Morgan Stanley . Your line is now open.
Hi, good afternoon, thanks for taking our questions.
Our first one is on the regulatory services side of the business I believe you mentioned that the recovery there has.
Been a bit slower than you expected earlier could you just unpack for us a bit more detail.
Has unfolded differently versus your prior expectations and what factors you think could lead to an uptick in the second half of the year.
Yes, Thanks Vikram.
So regulatory services.
A bit behind what we had planned for the first quarter.
It was.
Roughly flat with last year first quarter and we're expecting.
Single digit growth for the year. So we are.
Building up our pipeline.
And <unk>.
<unk> increased interest for it so we do believe that we will.
We will catch up as we move through the year as you know we've made some changes last year to the management and the.
Sales organization, there and so it's taken us a little bit of time too.
To rebuild the pipeline.
But.
We still think that it's a good business for us, it's quite profitable and it fits nicely and with a lot of the.
Biosimilars <unk> software and services that we haven't sort of terror.
Got it and as a follow up on a different topic, we wanted to ask quickly about capital allocation, particularly given the.
As we said the CFO transition I just wanted to see if there's any changes in thinking or priorities. When you think about just development or competencies you'd like to bring in bringing it in house.
You want me to start John and then you can you can chime in there yeah, Yeah sure Bill Yeah. So we're not expecting at Cigna.
Significant changes.
We.
We.
Our.
We have a healthy balance sheet.
That we're running conservatively and we have a successful obviously we have a.
Successful history of doing M&A, and we've shown I think that we've been quite judicious in both what we have chosen to acquire and the prices, we paid and our ability to sit and do nothing.
When when the when the time isn't right.
That said.
In cases like Pinnacle 'twenty. One we've also shown that there's interesting things in a market where.
If we have the ability to move that can be that can be very valuable for our shareholders. So we think.
Our capital allocation has been.
Has been successful so far in a good place to stay.
Maybe I'll turn it over to John to talk a little bit about the.
What he wants how he sees the organization of what he wants to bring in.
Yes, Thanks Bill.
As Bill mentioned.
We're not seeing.
Any strategic change from what what what you've seen here.
Obviously the company has had a very good track record on the M&A front and Bill mentioned, we'll continue to evaluate.
We approach those from a position of strength.
Because of our healthy balance sheet, we're really pleased to have the cash on hand, so we won't shy of $244 million of cash and equivalents.
At a time when the macroeconomic climate is very uncertain. So we think that it's important to have that cash at our disposal.
Especially with the funding environment the way that it is so strong that strong balance sheet. The M&A acumen that exists and then plus the internal opportunities that we have as an organization.
Or sort of the key to capital allocation.
We are coming in as well.
Got it.
Thank you.
Okay.
Please standby for our next question.
Our next question comes from the line of Jeff Garro of Stephens, Inc. Your line is now open.
Yeah. Good afternoon, guys. Thanks for taking the questions maybe start with a two parter on regulatory services, just curious to what extent are large projects needed to reach that low single digit revenue growth expectation for the regulatory and market access piece of the business and then also on that front curious.
The impact of the regulatory services market that you described.
The first quarter services bookings.
So.
Thanks, Jeff So let me break let me just understand your question. The first part was around the bookings they are saying.
The first part in the past you've talked about some kind of outsized projects really at the end of the Fda's mission process and those having a.
A really positive impact when they've hit but sometimes don't have the same visibility.
As the.
Longer duration parts of the regulatory business.
Yes, so our regulatory business.
Thanks for the question our regulatory business has historically been more lumpy than our Biosimilars business for the reasons that you cited because.
Every year, we tend to do a handful of larger projects and the timing and existence of them can kind of make the business move up and down in the quarter.
If I look back over the last.
Four or five years every year.
We generally had a couple of those projects and so it's reasonable to assume that we'll probably have a couple of this year.
What we saw booked in the first quarter were pretty much more of the.
Normal kind of run of course business, which is great business in.
And.
Certainly pays the bills.
We didn't have one of those really large ones come in in the first quarter.
So that maybe that answers your question.
Yeah.
Anthony.
We don't necessarily cook into our assumptions to that.
We're going to get.
Number of very large transactions so to the extent that we get some some larger deals coming in and then that would be upside to our low single digits.
Got it got it that's helpful and follow up for me.
Software bookings.
Just hoping for any more color on the timing impact that was mentioned around software bookings and renewal rate.
And maybe also how we should think about the cadence of software bookings for the rest of the year just recognized.
We recognize the strong trailing 12 months number but trying to think ahead a bit to the tough year over year comparison coming in Q4. Thanks.
Yes, yes.
Oh got it yes.
So on the yes.
So specifically on software and the bookings there as you mentioned, we did experience some timing we mainly see that is.
Timing out of Q1 into Q2 Q3.
And the trailing 12 months.
As you reiterated his is a strong 24% so when we look at that 24% and recognizing our book to Bill ratio continues to be about one point to that.
Gives us confidence that on the full year.
We'll be right in the range of expectations on software revenue.
Yes, so Jeff.
Something we pointed out the quarterly bookings.
Can be somewhat variable, we sometimes have.
Software customers that.
Renewed in the first quarter last year, and we for various reasons didn't sign them up to the second quarter. This year.
That timing difference won't really affect.
The revenues, we get this year.
That's why we point to looking at the trailing 12 months, maybe more accurate.
Estimate of where we're going.
What we saw in the first quarter, where there's a few large customers.
Took a little bit longer to renew them.
Than we had expected they slipped into the second quarter, but we didn't lose anybody significant and we sign them off since then so I.
I don't think there is.
I don't think we're particularly concerned about that right now.
Got it thanks for taking the questions.
Please standby for our next question.
Our next question comes from the line of Luke <unk> of Barclays. Your line is now open.
Hey, guys good afternoon.
I just wanted to follow up on the regulatory services and get an update there.
All the commentary has been helpful. But if you could help size the business and then what pieces actually being impacted.
And then in your guide if you're pushing it out to the second half recovery give us a sense of how that step up looks.
So you are going to start John .
Yes.
Sure I mean from a size of the business, it's about it's about 20% of the business.
Overall.
<unk>.
As Bill had said before it's flat.
On the quarter and we're expecting that in the second half, we get that recovery to growth.
But we didn't change the outlook on the low single digits for for the full year. So that does imply as we've been mentioning that does imply that.
We'll start to see that growth coming in.
In Q3.
Okay and then so.
I guess I get the reason for the push out being mostly on the FDA side.
But can you talk about what your what Youre hearing from your conversations with them on them when they are going to update there.
The regulations.
Okay.
Yes.
We're how do I put this were highly interested like the rest of the industry, but I don't think we have anything.
Anything new to say on it that we've heard from them. So.
Okay.
Waiting right.
We all are right.
Alright.
Okay.
Thank you.
Thank you standby for our next question. Our next question comes from the line of Max Smock of William Blair. Your line is now open.
Hey, guys. Thanks for taking my questions a.
A quick one here from me on the you mentioned did a deep dive on your accounts receivable and I think last quarter, you actually indicated the increase in bad debt Reserve I'm. Just wondering if there was anything to call out there whether you are.
So you saw that trend continue here in the first quarter, maybe some of your smaller customers being more impacted than anything else you would call out from that deep dive of accounts receivable that you did here in the first quarter.
Yeah, Yeah sure. So just to put it in context, so first of all bad debt reserve to put it in context, we did.
We have about $80 million of accounts receivable and the bad debt reserve actually came down in sequential quarters.
$700000. So while in subsequent periods, we did increase it a bit just to give you a sense of order of magnitude. It's it is relatively small.
We did take a look of course with some of the <unk>.
Turning with with regional banks and banks exposed to.
Some of the more emerging biotech. So we took a look through our accounts receivables and what you heard in the prepared remarks.
We concluded that.
Any exposure that we have is pretty immaterial given that less than 1% of our receivables are running through banks that have any exposure to venture or early stage biotech funding.
Okay.
So the other thing.
The other thing I'd just add to that.
We werent surprised by this.
Yes, the way that sitars.
Business is structured we are.
Interested in acquiring new customers, but there are the <unk>.
<unk> early stage companies.
Don't don't purchase a ton from us we tend to get over 70% of our revenues.
They are in clinical phase, which by definition means drug has got a lot of.
A lot of promise in a lot of spending behind it.
Okay. It makes sense.
The head count additions over the last couple of years here.
Why have we not seen the rate at which the services bookings convert to revenue why have we seen that may slow down or at least not pick up at all or is that just due to some cash conscious decision, making from customers on regulatory services.
Moving forward do you think you have an opportunity to step up productivity and drive a higher bearing within that existing services backlog moving forward and kind of more in line with what we saw in 2021 or do you expect that to be kind of depressed here given the slowdown in demand on regulatory services in particular.
Well a couple of comments on head count.
First.
We are seeing growth in head count both on a year over year basis.
The last head count number that we disclosed in.
In the 10-K, so sequentially, we're seeing growth in head count and the people that we're adding are billable consultants for Biosimilars and services.
As well as software developers so that obviously is going to going to help us meet the strong demand that we've been talking about as it relates to both the revenue growth in the bookings.
In that space.
So.
To answer the second part of your question.
There is a chunk of our backlog, which are basically delayed projects and regulatory.
Sometimes the customer is waiting for.
An answer from the FDA before we do the next phase of work or some of them are waiting for clinical trial data to come back it's not always predictable by the customer.
That has tended to grow.
Over the last couple of years.
There is an opportunity at some point for it to come back.
Most of those customers are still there and still active.
They are already booked to work so it's a question of when it starts.
But I don't want to get in the.
Business that trying to predict exactly when all of that is going to win.
All of that's going to happen.
No understood. That's really helpful commentary. Thank you again for taking my questions.
Please standby for our next question.
Our next question comes from the line of Mike Rice skin of Bofa. Your line is now open.
Hi, This is wolf janoff on for Mike Thanks for taking the questions.
Yeah.
The company will start with a bit of a bigger picture one I think theres been a lot of notable.
M&A in the biotech space, primarily from larger acquirers and given your presence among larger farmers I was wondering if you could walk us through the dynamics that you typically see as a result of less through the acquirers broadly rollouts or <unk> offerings to their targets is there something that takes a multiyear.
Process, just any color here would be great. Thanks.
Yes, thanks for the question.
Yes.
Generally the acquirers are the bigger companies, which are already our customers. So we're not seeking to have used M&A as a way to penetrate them we're already there.
But what you do tend to have happen is if we've been working on the drug.
For a company that's been acquired.
We we kind of go along with the acquisition so.
Usually the acquirer is one wants to add.
Accelerate things and spend more and we're part of it so.
So usually it.
Well, let's just say normally that is a net positive for us when it happens.
You have an asset that.
But basically if someone's going to invest more in and we're already we're already involved with it. So we're going to get pulled along with that as it goes into approval.
That's helpful.
Yes that makes sense and then just slightly.
Slightly more technical question are there any changes to your thoughts about the progression EBIT margin progression throughout the year, just given where you came in at <unk> and the fact that you've reiterated guidance love to hear how you're thinking about the balance of the year.
Yeah right. Thanks for the question. So on EBITDA margin in Q1, we were at 36% on the EBITDA margin. We've stated before mid Thirty's is kind of our goal.
I know looking back at last year.
We have a little bit up due to some investments we had some imbalance.
First half second half.
<unk>.
You Shouldnt expect that to happen this year. So instead of as we look at the remaining quarters in 2023 and on the EBITDA margin, we expect it to come in.
Sort of Ratably.
And in line with the mid <unk> for each of those quarters.
Great that's super helpful. Thanks, guys.
Mhm.
Please standby for our next question.
Our next question comes from the line of Joy Zhang SVP Securities. Your line is now open.
Hey, guys. Thanks for taking my question.
My first one.
I think we've heard from here or was this.
Earnings quarter at calling out higher cancellation rates than expected.
And any sort of downstream impacts from that.
And it is not an impact that you see.
Would it be sort of a potential negative impact on.
Business or anything else.
Call out if things get worse.
Thanks Joey.
Part of our business as there always are some sounds like they've cancellations. This is the way the drug industry works.
I would say for our business and by a stimulation.
There are so many projects that doesn't generally.
It doesn't generally affect us and regulatory it can move the numbers up or down a little bit depending on how big that project is and what the exact circumstances are.
I don't think we saw this as a particular.
Impact to us in the first quarter.
That's super helpful.
Just a follow up I appreciate your earlier comment about new customers coming from both the small that's exciting large pharma side.
Just curious if you can dig into if there's anything to call out in terms of cash lane.
Thanks, Bill cycles for these groups of customers.
Okay.
Given the cash conservation pricing on that.
Barbara.
Well, maybe the other thing I'd add on customers. In addition to the comments already would be that.
<unk>.
Amongst our larger customer account values.
This is the this is the accounts that are greater than $1 million and the accounts that are greater than a 100 K both of those categories.
We're growing the number of customers.
Since since what we reported at year end. So in Q1, we grew both of those categories.
Given given what we said about the revenue results.
When you look at the <unk> services in the mid to high teens.
And the core software products.
Tim.
Phoenix and Pinnacle 'twenty one growing.
In the mid teens then.
At this moment, we're not seeing.
The impact Fortunately.
Continuing to see very strong results in.
In adding customers and the growth rates on our revenues.
So if I could add onto what Jon said there actually.
I think there's really two.
Two effects going on in the market right now so one is.
The time to close deals in software and services is probably lengthening a bit and it's what we've seen with some of what companies have reported.
Counterbalancing that has been the strong demand for Biosimilar, <unk>, which has been growing so I think when you see our results.
We don't see a result of that.
Probably because the ones kind of balancing out the other one right now.
That's great to hear thanks for taking my questions.
Okay.
Please standby for our next question.
Our next question comes from the line of Gaurav built around you.
<unk> capital markets. Your line is now open.
Hey, guys. Thanks for taking my questions just two quick ones for me.
What would have to happen with the regulatory services to help you hit the higher end.
Guidance that you maintained is reaching the top end possible for example, with regulatory doesn't recover from levels in Q1, even if you see favorable expansion in existing customers in other segments just trying to.
See what would contribute to the top of that here.
Yes.
So what we said for Reg was low single digits on the full year.
And in order to get to the higher end of that or exceed it.
Based on what I was saying earlier, what we don't have <unk>.
The large number of the larger.
Deals are transactions, which can occur in Reg so.
<unk>.
If we get some alignment and we get a few of those and that would have us at the higher end.
And we were flattish on the quarter so.
As we start to approach Q3.
We would we would expect to start to see growth in the second half of the year.
Got it and then just a quick follow up.
New products like extensive discovery driven interest more so from new customers not yet on the platform or more so from active users that are looking to expand their consumption of software. It and again. This is for new modules and new products that you add to the platform.
Yes. Thanks for the question simply discovery the answer is both we have seen.
We've seen in a set of new customers come in.
That are using <unk> and other parts of the organization using this product and.
And we've also seen some of our existing customers pick it up.
Not as a substitute for <unk>, but.
For us basically for.
Basically expanding the use of <unk> within the organization to different parts of it that didn't use it.
Got it makes sense, thanks, guys I appreciate it.
Please standby for our next question.
Our next question comes from the line of Joe.
Wink of Baird. Your line is now open.
Hi, Greg Hi, everyone, maybe I'll start with my question just on market opportunity I noticed in your investor materials today.
The size of the buyers and software Tam had increase just relative the sizing I think you've used in the past maybe you can walk through what doses of <unk>.
Just mentioned the new product new products, you've launched since the IPO is there may be evidence that spend per account is greater or are there. Some other factors at play.
Yeah, so listen on the on the Tam piece of your question. There then.
What we're seeing as you are basically seeing an expansion because of the growth in the overall adoption.
Biosimilar <unk> so.
That's.
That's the answer as to why you would see growth in the Tam. It's because we are experiencing mid teens growth in the space.
Okay. So that's first.
The normal evolution of the market now and in fact are from new product or maybe going after <unk>.
Early stage development or discovery in Denmark.
That's correct, yes, that's correct.
The vast majority of our revenue continues to be has been and continues to be in the clinical phase of.
Drug discovery, so its not that theres, an entering into the or not drug discovery drug development. So there is.
So theres not an emptying into discovery really what youre seeing there is just continued growth and adoption of biosimilars in the drug development and clinical phase.
Okay I understand.
And then.
Just as a follow up.
I know there has been this ongoing.
Within the software revenue mix towards ratable.
Thank you.
That's been impacting bookings or revenue.
And maybe a better way relative to your expectations. Obviously subscriptions are only good for customer lifetime value, but wondering if that creates any more variability in kind of a quarterly disclosures.
Yes, sure so on software revenue.
We report the reported revenue for software was 13%.
That was impacted as we mentioned before by a little bit of timing on the quarter out of Q1 and into Q2, but it was.
Also a piece of the headwind there, though is what what you're describing which is.
Conversion to subscription so that would impact.
Revenues it is a growth headwind that conversion we were at.
At 59% in Q1 up software revenues and that's up from 54% in the year prior.
Is that a headwind yes is it material no not really it's more of a modest headwind to overall growth.
Okay. Thank you very much.
Thank you Sir our next question.
Our next question comes from the line of Kyle Cruze as Credit Suisse Financial services. Your line is now open.
Hey, guys. Thank you for taking the question could you maybe provide some more color on the organic trailing 12 bulk software bookings, excluding the political 21 acquisition.
Yeah.
Yes sure so.
We've now annualized pinnacle, we're not we're not going to.
Continued to break it out and talk about ex.
Pinnacle, but what I did say before is hey look the software our trailing 12 month bookings are at 24% at the strong number pinnacle's continues to be.
A good addition to the portfolio and as and as the and as a driver of the overall growth that we're seeing in trailing 12 month bookings.
And then maybe an unrelated follow up with 70% of your revenues from the clinical business have you seen a distinction in the growth.
Kind of clinical business and the other portion of your revenues that are preclinical.
So I'm sorry to have we seen a distinction.
Yes, I guess, maybe clarify is your preclinical business has it been kind of growing faster than the clinical part of the business or have they been growing similarly.
Yes.
I would say that the preclinical is probably growing a little bit faster than it used to because we launched a few products in that area. So we are seeing the benefits of that but it hasnt.
I don't think we would change what we've reported is the overall mix of our revenue between the two right now.
Great. Thank you.
Yeah.
I would now like to turn the call back over to Williams' theory, CEO , Ed <unk> for closing remarks.
Well. Thank you everybody for joining our first quarter conference call.
I think that.
We would say at <unk>, we had a good first quarter.
We are very excited about the.
Progress and the prospects for Biosimilar <unk> as we go forward, there's a lot of interest in what we're doing and we're very pleased with.
That.
Attention that we get from the industry.
We feel good about.
Our future and we look forward to talking to you all next quarter. Thank you very much and I think this will end the call. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Thank you.
Okay.
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Okay.
Okay.
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Yes.
Okay.