Q2 2023 Certara Inc Earnings Call
Yes.
Good day, and thank you for standing by and welcome to the city for a second quarter of 2023 earnings call. At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Your question. Please press star one again please.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, David that Greg. Please go ahead.
Good afternoon, everyone. Thank you all for participating in today's conference call on the Coffers retired we have grown ferry Chief Executive Officer, and John Gallagher Chief Financial Officer earlier Today's chart released financial results for the quarter ended June 30th 2023.
The press release is available on the company's website.
Before we begin I would like to remind you 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.
You should refer to slide two and the accompanying materials for additional information, which you can find on the company's Investor Relations website.
In our remarks or responses to questions management may mention some non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in our recent earnings press release available on the company's web site for additional information. Please refer to the reconciliation tables and accompanying materials.
This conference call contains time sensitive information and is accurate only as a black broadcast state.
Today August eight 2023.
<unk> 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.
I'll turn the call over to Juan.
Thank you David.
Good afternoon, everyone and thank you for joining <unk> second quarter 2023 earnings call.
Jonathan I will start with prepared remarks, and then we will take your questions.
In the second quarter, we delivered software revenue of $33 7 million growing 17% versus last year.
Services revenue of $56 $7 million.
Representing 5% growth versus last year.
Total company revenue results were $95 million.
9% growth.
Compared with the second quarter last year.
Second quarter software bookings were $35 $7 million and services bookings were $52 million.
The results this quarter were disappointing and primarily resulted from cautious spending amongst smaller biotech customers, who primarily by our services as well as a slow recovery in our regulatory business.
While we are not satisfied with this quarter's results and they have let us to restate our outlook for 2023 based on current market dynamics, we believe the fundamental health of the pharmaceutical development market and the increasing acceptance of Biosimilars and technology provided excellent opportunity for us to continue to invest in the growth of.
Tara.
Okay.
During the second quarter, our software business continued to perform well as we expand our deep relationships with customers and drove new product introductions, our customer base continues to renew at a higher rate.
With an IRR of 93% and a net retention rate of 112%.
On top of the strong renewals, we are generating demand with our newer products, which include preemptive discovery sand explore and new clinical 21 modules.
Customer interest in bio stimulant software remained strong during the quarter. We passed the milestone of 300 approved drugs with label claims that directly referenced Simpson.
During Q1, we acquired the asset in artificial intelligence software.
Software company, which has given us the opportunity to extend AI capabilities across several of our existing products.
We call it so Tara dot AI.
We are rapidly enhance the development plans for many of our software products with this new AI capability and so tired that AI is already beginning to generate customer traction.
The situation during the quarter and our services business was very different chat.
Challenges in growing our regulatory business have persisted longer than we anticipated during the quarter. We saw an unexpected slowdown in services bookings primarily from our smaller biotechs clients, but also including a handful of large pharma customers who are reevaluating their portfolios.
As biotech companies expanded over the last several years.
We successfully supported many of them with bio stimulation services, but.
But they are funding situation has become much more tight.
Although services bookings slowed rapidly our services revenue continued to grow during the quarter basis based on the strength of our backlog.
Keep in mind that we are typically actively working on 800 to 1000 and services projects at any given month. So we have a broad footprint across the drug development market.
We have seen recent month over month improvements in services bookings, but we remain cautious in our near term outlook based on these market disruptions.
Okay.
We are not satisfied with our performance in services during the quarter I believe the long term health of the pharma industry and interest in <unk> by a stimulation technology indicates that we can do better.
Following an internal review of our performance and the current market situation, we are making some changes to help <unk> grow to the next level.
The first major change is that we are combining our services groups, including both our regulatory group and our integrated drug development groups into one unified services business with one management team led by Dr. Patrick Smith.
By doing this we can take advantage of operational operational synergies and scale benefits of having a single services organization with over 700 people and.
And we can more effectively offer the full array of <unk> capabilities to our customers projects.
The second major change we are announcing is that we are creating a single integrated sales force that will combine that several specialized sales groups. We currently have in <unk>.
I have asked life Peterson to become the Chief commercial officer, and all sales resources across our <unk>, including both software and services will report to him.
This change will enable certain hard to bring the right offering at the right time to the right customers to offer combined software and services projects to become more efficient in our deployment of resources.
To provide strategic focus on key accounts.
Because our confidence in the long term health of our market and the underlying demand for Biosimilar <unk> remains very high.
We are continuing with our investments in new products, which can further benefit this market.
Additionally, AI technology into our portfolio has led to a transformation of many of our product plans as we raised to incorporate the technology in our existing products the.
The first product that we enhanced with <unk> hundred 60, which now has AI models for analysis and prediction of new drug discovery targets. This product is already in the hands of customers who have provided positive feedback.
Another early example is our codex clinical trial outcomes database, which now include the state of the art AI powered interface for performing meta analysis and comparison on new drugs.
We are moving very quickly with generative AI technology and have conducted a full review of our existing product plan to incorporate transformational features and upgrades across surcharge platform.
More to come as we launched new versions and upgrades.
As we proceed through the remainder of the year our focus is on three priorities.
We are actively assessing our existing backlog of projects to accelerate projects that were previously delayed and to identify further opportunities to serve those customers.
We are uniting our salesforce into one organization and investing in marketing to increase our new bookings.
And we are making important investments in new products that will continue to accelerate the impact of bias stimulation at the pharma industry continues to invest in development.
So Tara has an excellent position in an important technology that will continue to be adopted by the pharmaceutical industry and an impressive team of people who are committed to invest and grow our company.
Unpredictable market dynamics have led to some softness this quarter and we have evaluated the situation and are reacting accordingly, but we also continue to see a very bright future with the opportunity to make by a simulation even more important to drug development than it is today.
I am confident in our ability to execute on a revised plan.
Cited about our long term commitment to expand the use of Biosimilars <unk> worldwide.
With that I will now turn the call over to John Gallagher to go over our financial results.
Thank you William Hello, everyone.
Total revenue for the three months ended June 32023 was $95 million representing year over year growth of 9% on a reported basis and 10% on a constant currency basis.
Software revenue was $33 $7 million in the second quarter, which increased 17% over the prior year period on a reported basis and 18% on a constant currency basis.
Growth in the quarter was driven by bio simulation software and clinical 'twenty one.
Ratable and subscription revenue accounted for 57% second quarter software revenues.
We are pleased with the year to date performance and software, which is growing as expected.
Software bookings were $35 $7 million in the second quarter, which increased 17% from the prior year period.
Trailing 12 months software bookings were $131 3 million, which increased 16% as compared to the prior year.
As William mentioned earlier <unk> total bookings in the quarter were challenged by evolving dynamics surrounding customer spending.
With that said software bookings have maintained strength and growing at or ahead of historical levels.
The software aggregate renewal rate was 93% in the second quarter, which is in line with our plan.
Services revenue was $56 $7 million in the second quarter, which increased 5% versus the prior year period on a reported basis and on a constant currency basis.
Services bookings in the second quarter were $52 million, which decreased 28% from the prior year period.
Trailing 12 month services bookings were $267 5 million, which decreased 5% as compared to the prior year.
Our services bookings were significantly impacted by the dynamics William described earlier.
In reviewing the underlying drivers of services performance, we see continued weakness in regulatory if the primary source of our lower full year outlook.
We had previously anticipated a low single digit revenue growth outlook and we are now looking at a decline in the regulatory business book.
Bookings conversion to revenue is also elongated versus historical trends of customers delayed execution on previously both projects.
Regulatory has been a headwind to our revenue and bookings growth. So far in 2023, which we expect to continue for the remainder of the year.
The pipeline of opportunities and regulatory remains active but the timing of revenue and bookings have been very hard to predict.
Outside of regulatory weak services bookings, we're seeing among tier three customers, which we define as having up to $100 million in revenue and includes non revenue generating company.
Bookings acquisition and this year has been more challenging as a result of macro related concerns and could potentially be related to temporary cash conservation efforts.
Our tier one services bookings, which are bookings from those customers with revenue above $5 billion.
I have not been immune from macroeconomic uncertainty as well and their spend appears conservative and less urgent.
Our commercial team remains highly engaged with our customers and our customers remain highly engaged with <unk> as well.
Total cost of revenue for the second quarter of 2023 was $36 $2 million, an increase from $35 2 million in the second quarter of 2022, primarily due to employee costs related to <unk> services billable head count growth.
Total operating expenses for the second quarter of 2003 were $41 $2 million a decrease from $43 4 million in the second quarter of 2002.
The components of operating expenses are as follows.
Sales and marketing expenses were $8 1 million compared to $7 1 million in the second quarter of 2002. This increase was primarily due to employee costs related to expanding the sales and marketing team.
R&D expenses were $7 9 million compared to $7 7 million for the second quarter of 2022.
<unk> expenses were up primarily due to employee related costs for software development.
G&A expenses were $14 2 million compared to $17 8 million for the second quarter of 2022.
The decrease was primarily due to lower stock based compensation.
Intangible asset amortization was up to $10 6 million compared to $10 4 million in the second quarter of 2022.
Depreciation and amortization expense was $400000, which is flat to prior year.
Continuing down the P&L interest expense was $5 7 million compared to interest expense of $3 9 million for the second quarter of 2020 to.
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 350.
Miscellaneous income was $1 million compared to $2 5 million for the second quarter of 2020 to income tax expense was $3 7 million compared to $3 4 million for the second quarter of 2022.
Net income for the second quarter of 2003 was $4 $7 million compared to a loss of $600000 in the second quarter of 'twenty two.
Reported adjusted EBITDA was $32 4 million compared to $28 million in the second quarter of 2022, representing 16% growth.
Adjusted EBITDA margin was 35, 8% in the second quarter of 2023.
Reported adjusted net income for the second quarter of 2023 was $18 4 million compared to $14 6 million for the second quarter of 2022.
Diluted earnings per share for the second quarter was three.
Compared to zero in the second quarter of 2022.
Adjusted diluted earnings per share for the second quarter of 2023 was <unk> <unk> compared to nine in the second quarter last year.
Now moving to the balance sheet, we ended the quarter with $245 $2 million of cash and cash equivalents.
As of June 32023, we had $289 $1 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.
Turning to the guidance for the full year, we are adjusting our 2023 guidance to reflect evolving bookings acquisitions. So far this year.
We now expect total revenues between $345 to $360 million representing year over year growth of three 7%.
We expect software revenue to grow at the rate of our historical targets.
<unk> services revenue is expected to grow in the low double digits for the year, while regulatory services revenue is expected to decline from 2022.
We are committed to maintaining our mid <unk> adjusted EBITDA margin performance, despite lower expectations for revenue.
We now expect adjusted EBITDA in the range of $120 million to $128 million.
We expect adjusted EPS in the range of 44 to <unk> 48 per share.
Fully diluted shares in the range of 159% to $162 million and a tax rate in the range of 25% to 30%.
We also wanted to provide some context on our expectations for bookings performance for the remainder of 2023, we now expect 2023 bookings to be down low single digits as compared to 2022.
As William highlighted our conversations with customers about Biosimilars <unk> continue at a strong pace and implementing certain cars biosimilar remains a priority for customers.
As we work to execute on a more integrated commercial strategy and focus on pipeline conversion with our customers, we will look to improve our revenue and bookings performance.
I will now turn the call back over to William theory for closing remarks.
Thank you John .
Summarize our message today, we are operating in a challenging environment that has evolved throughout 2023.
We believe this experience to be transitory and are taking a more balanced view of the second half of the year.
I am encouraged by the continued high level of performance from our team and the innovation that is coming out of this or Tara.
We have reasons to be optimistic about the changes we are making in the commercial organization.
But timing was such changes is a little tricky to forecast.
Our medium and long term view on the Biosimilars from industry and the value of stars end to end products and services to our customers remains as compelling as ever.
We're confident that <unk> is well positioned for growth and profitability over time as the global leader in Biosimilars.
We will now open the line for questions. Operator can you. Please open the line.
Thank you.
At this time, we will conduct a question and answer session.
To ask a question press star one on your telephone.
Your name to be announced Tuesday. Your question. Please press star one again, please standby, while we compile the Q&A.
Your first question comes from David Windley of Jefferies. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
I wanted to first start on.
The bookings revenue cycle could you talk about your typical cycle time from from booking to revenue.
Just thinking about.
How should we I mean, youre, giving us updated guidance admittedly, but but how should we think about.
Uh huh.
The lower bookings feathering to revenue over the next maybe two quarters thing.
Yes, Hi, David It's John .
As far as so as you mentioned, we've really guided here in the way that we look at our bookings coming in as we're looking at the pipeline.
And then conversion of the pipeline into bookings and then ultimately the bookings conversion.
Into revenue and what you've seen here.
Some slowness in our tier three customers.
As you would expect and you you'd kind of expect that to be the case.
The biotech funding environment that we're in at the moment and so what that's doing is that's slowing both the pipeline as well as the bookings conversion to revenue.
Compounding that is with their with our tier one customers.
We're seeing some slow so thats alright E. That's the law.
Large pharma is we're seeing.
Some slowness and mind, you not cancellations of projects, but some slowness on the services side.
As Dave.
Taking more time delayed projects.
Even even administrative tasks like getting a contract is signed.
Taken longer in this environment and so are our updated guidance reflects what we've seen.
In Q2, and what we forecast going forward related to the slowness there.
As it relates to.
What the visibility is and the timing of that then for software and you saw the strength of our software business.
Both bookings and revenue growing 17%, we're very pleased with the strength in that business and that's a that's a key proof point in the Biosimilar adoption and use case as it continues.
The visibility for software is good with both SaaS ratable.
Revenue in addition to annual renewal licenses than the visibility is good as it relates to the services side of the business. Then the cycle time is a bit shorter there, which I think is part of your question was going all that being said.
We do have a strong backlog from previous bookings and we're very focused on converting that backlog to revenues in.
In the second half of this year.
Thanks, Thanks for that John So maybe maybe to try to pin you down just a little bit more and thinking about.
The implied guidance for the second half of the year.
Do you expect that to be fairly level third quarter to fourth quarter or third quarter still a little higher because it is still living for bookings from last year, and then fourth quarter drops off more.
Just trying to try to triangulate on cadence.
Yes. So if you look at the second half of the year than.
The primary driver for having the second half.
Decelerate as really the regulatory business.
Where we are.
Sin.
Weakness there in the bookings and the tier three and the end on large deals that historically have come in that we haven't seen as many this year as it relates to the second half and sort of the cadence of it.
It's really two different stories on bookings, we expect Q3 bookings.
Here, we are it's August .
Q3 bookings were.
Expect them to be sort of in line with what we saw in Q2.
As we look at on the Q4, we are expecting an uptick in Q4 and we've seen that historically there is.
We see the software business contain continuing strength.
We see Biosimilars services.
Being able to.
Make some improvements from what we saw in Q2, and then importantly in the in the Reg business. Historically, we have seen larger deals come in during Q4, and so for that reason, we see bookings sort of about the same in Q3, and then an uptick in Q4 as it relates to revenue we expect the quarters.
Of revenue to be to be similar in the back half of the year.
Got it helpful. Thank you one more on.
On the pricing environment I am wondering kind.
I've seen visa.
For inflation really.
And wondering.
If I may.
Theres a little cautious.
If that puts some pressure on passing through normal price increases and then on the flip side for me.
You are not hiring that much but from a labor.
Environment and labor cost environment standpoint has that settled down.
To the point, where you don't need to push through as much inflationary pricing Bruce thanks.
Yes.
Pricing.
We are seeking to be competitive here, we do have as it relates to services. We have large deals that we have visibility to in the pipeline.
Obviously, we have a very keen focus on converting those to bookings and then ultimately to revenue and we seek to be competitive.
And want to win those deals so I think that goes to price a bit on that question.
Right.
Okay I'll leave it at that very much.
Thank you one moment for our next question.
Your next question comes from Sergey <unk> of Barclays. Please go ahead.
Hi, This is Sam on for Luke Thanks.
Thanks for the question. So just to start us off whats your level of communication with customers and what's kind of giving you that confidence that these are push outs versus lost business to the.
The macro so to speak and then.
How long is that process between speaking to the customer and then eventually.
Having them come on with a booking and then lastly, the biotech funding environment has obviously been talked about for the.
In the past few quarters.
In fact, some other companies are starting to see green shoots within the customer base I'm.
I'm just wondering now why.
This is coming up for you guys and what Youre kind of thinking about.
Why this is coming up now versus.
A few quarters ago with the rest of the industry.
Yes, maybe I'll take that last one first.
So as far as.
No.
Why are we seeing tier three pressure I think the way to think about that as the tier two tier three customer.
Weakness.
Not surprising to your point.
One way that we look at it is look the funding.
Some of those biotechs in the pressure they have on them has increased certainly over time.
We generally work with them on later stage drug development projects and therefore, it might hit us a little bit later I think more importantly, though I think what's happening is it's the compounding effect of some weakness in tier three compounded by some of the weakness that I talked about in tier one and when you take those two things together.
There is no offset there and thats whats and Thats really what you saw in the results at Q2.
The conversations with customers as I mentioned before our visibility into the pipeline is actually really good for some large transactions in both <unk> services as well as in the <unk> business.
But we need to convert those and what is the time I think the time varies quite a bit based on whether it's a big or a small contract.
But I can tell you that sort of the total cycle time for projects and services, it's shorter than the sales cycle and software.
And I'd say look guys bill but.
Yes, it's an interesting question about <unk>.
<unk> hit us later than some other.
Others have reported but the fact is that based on published data.
Funding that's not.
Not public biotechs not just early stage once the later stage down two.
<unk> thousand 30% year over year, we saw that right cultural fit.
And the behavior of that segment of our customers this quarter.
Awesome that's helpful.
And then one last one what is your guide right now contemplating at the low end.
The scenario, where things kind of worsen or.
Just any any other color around.
That would be helpful. Thanks.
Yes, the low end of the guide is to your point it is.
A couple of things would have to happen that worsen.
And that would be if we saw the regulatory business, which as we've said in the remarks, we do expect to contract on a year over year basis, but if that business was declined more and and also if biosimilars services saw additional weakness.
That would put you at the lower end.
So that's the way to think about it.
Awesome, that's all for me thank you.
Yes.
Thank you.
Turning next question.
Your next question comes from Vikram <unk>.
Stanley. Please go ahead.
Hi, good afternoon, thanks for taking our questions.
So we had.
Two one on the services business, you talked quite a bit about the impact of Q3 clients in tier one client being impacted as well, but any color you can provide on the relative.
Impact contribution from those two.
Client sets and your expectation on.
How likely each category of clients are too.
End up either canceling projects or simply just pushing out projects into 2024 that they would have wanted to do in 2023. So that's question. One and then secondly, just wanted to see if you could talk a bit more about.
The sales force consolidation and how you think that might.
Help the business overall kind of at the point of sale basis. Thank you.
Yes, sure so on the.
On the services side.
And how we're looking at that I meant as you said to you I mentioned, the tier threes, which is not totally surprising I think in the tier one space. That's really was creeping in a compounding that during Q2 as far as the size of it.
Yes.
<unk> tier ones are representative of more than half of our revenue. So I guess the way to think about that is.
A small a small delay or some small timing can have a larger dollar impact.
And then what you would expected tier three because the tier three business just from a sizing perspective.
Tier ones like et cetera, more than 50% tier threes are maybe about 30% of the business and so.
We can aggregate more of those to have a similar impact as far as.
Timing on projects.
The timing, we don't see timing flipping into 2024, Thats not really the issue here I think what we're finding is that deals in the pipeline that we wanted to get signed and have them become bookings seeing some delays even just administrative delays in getting that site. Once they are bookings.
Especially on the services side, turning them into revenue is typically a one to two quarter kind of exercise so.
We are not at this moment, suggesting or thinking that project timing slipping into 2024.
Yes.
I'll take the second questions Bill.
You asked about sales force consolidations, so so tired from its beginning.
The software and services company.
Are in fact tied together.
We believe that we can basically gain both operational synergy.
Synergies.
And also.
Priced our offer.
<unk>, our offerings better by bringing our Salesforce together I mean, a lot of cases, our services evolve our software.
A lot of our software clients could become services customers.
We don't feel like we fully.
Taking advantage of that in the past.
More to go there so we think that by bringing this together and having a companywide.
Salesforce.
All app.
Better ability to serve those customers.
Yes, better efficiency in terms of in terms of how we treat Blake for Sapphire.
Our key accounts.
Understood Thanks very much.
Okay. Thank you one minute for your next question.
Our next question comes from Jeff <unk>.
Stephens incorporated please go ahead.
Yes, good afternoon, and thanks for taking the question wanted to ask about the work you referenced on analyzing the health of the backlog.
Given several comments on kind of cancellations versus delays, but just curious what.
Assessment that you have.
Come to after looking into that a little bit more.
And your ability to influence client behavior, where you see a clear ROI on projects that are under contract, but not underway generating revenue yet.
Yes, Jeff.
Yes, as far as the reference to the backlog than what we've seen with the services piece of the business is.
We had put up significant bookings over previous quarters.
And.
And our conversion of the backlog historically has been.
Good and so although we see the bookings weakness here and we've spent a lot of time discussing what that looks like.
The backlog for <unk> services in particular more so than regulatory.
Large and not something that is actionable.
By us.
Especially looking at our utilization.
As something that.
It's going to help us achieve the guidance that we just laid out. So so we do the reason why we brought that up is that we wanted to make sure. We we noted that <unk>.
Previous bookings are still something that.
Is something that we are able to work through as an organization that is something that we're focused on in addition to generating the pipeline and the bookings.
Got it that helps and then on another.
A question maybe to dive a little bit deeper on the regulatory business and some of the pressures there.
You described regulatory is kind of a category, but I think there are a few different product lines within that so the extent that you could distinguish between some of the larger projects versus more regular course of business regulatory work and what might be closer to your biosimilar <unk>.
Versus more generic medical writing as well as the market access piece would be helpful. And if you could comment on your ability to compete with <unk> for regulatory work in an environment, where demand seems to be a little bit softer.
Yes, Jeff.
It's a competitive space.
You know in a large market and.
One of the challenges that we're seeing in that business is.
Historically, we have been able to get.
I'll call it several large deals or.
Our bookings done in any given year by large were saying.
More than $1 million.
This year we.
We haven't seen that although as I mentioned earlier, we do have visibility in the pipeline that some of those so that gives us.
Encouragement that we've got a focus we've got to be competitive and.
And historically, we have turned in terms of some of those into bookings in Q4, which historically has been our heaviest quarter for some of those larger deals in the <unk> business.
Yes, I would say also.
Originally out of this business is not the peak crows.
Gross.
Medical writing so we have a.
Hi, Ed.
Im sure Tech enabled business that appeals to a certain segment.
We believe we can price competitively, what we need to but.
Of the business is supposed to go after work that we get because of our Biosimilars business and.
That is one of the key reasons why we want to combine the sales forces here, so that where we're taking advantage of all of those opportunities.
Okay.
Understood. Thanks again.
Thank you.
Thank you next.
Next question please.
The next question comes from Karl.
Financial services. Please go ahead.
Thank you for taking the questions looking specifically at software bookings growth when you look at the 16% trailing 12 months bookings growth.
Software it appears that the prior year trailing 12 month bookings would have one quarter without clinical 21 bookings as compared to the current year, which would have the full year with the acquisition bookings all year bookings from that acquisition could you. Please explain the impact of how how big one additional quarter uptake with 21 bookings impacts the 60% year over year.
<unk> bookings growth and maybe provide some broader color on how to look at software bookings growth going forward.
Yes. Thanks for your question so.
Yes, we've been very.
Pleased with the strength of the software business, we've talked a lot about services here for good reason.
But as you pointed out both trailing 12 month bookings for software and then also for the quarter.
Grew.
We grew at 16 and 17% respectively.
And then revenue grew 17% also so that's really if you look at it.
The head of our of our expectations and where we're pleased with the with the strength there. The pinnacle 'twenty. One business you mentioned that was an acquisition we did back in 2021 and it.
And it's continued to perform well it's been a good transaction.
Great business to add to the portfolio and its growth has continued.
Far as impact on the growth rate.
We annualized pinnacle 'twenty one.
So I think what I would point you toward is looking at looking at the both the current trailing 12 months as well as the current performance in the quarter on both bookings.
And revenue as a key indicator on software and as we look forward I think the last part of your question was.
How do we think about software going forward, we expect the strength that we saw in software to continue add.
For the remainder of the year and we've got good line of sight there both on a on a ratable or SaaS.
<unk> business as well as annual license renewals.
And.
Again, we think that's a key indicator.
The value proposition around Biosimilars Shen remains firmly intact. So despite the fact that we do have some.
What we would consider to be sort of transitory near term disruptions in the business mainly centered in Reg and services software is a good indicator that.
Biosimilar Asian.
<unk> products and the services that go with it.
We remain a key.
A key item for our customers to look at and lowering the cost and shortening the timeframe for drug development.
Thank you.
Thank you our next.
Next question.
Okay.
Your next question comes from Max Smock of William Blair. Please go ahead.
Hey, good afternoon, thanks for taking our questions just following up on bookings here in the back half of the year you mentioned on a consolidated basis bookings are expected to be down low single digits. This year can you just help us think through what that incorporates our bookings within each segment and then more importantly.
Maybe a little early for next year, but what does bookings being down low single digits. This year portend for revenue growth next year should we expect kind of more low single digits or could you actually see that may be step back up to the low teens range that you've outlined as kind of a target moving forward. Thank you.
Yes.
Max is the way to think about.
Bookings for the second half is.
Do you do see some deceleration there and that is.
Mainly centered on the regulatory business and the lower bookings that we're experiencing so we do we do think as I just mentioned the software business should continue on pace.
We would anticipate that <unk> services, we begin to get some recovery moving it.
On the performance moving into Q4.
And the and the Reg.
Business is where we where we've got some softness.
And we're expecting that to continue into the back half as far as what does that mean for 2024.
We're not we're not able to guide 2024, but the way to think about it is the strength in the software business.
Is.
We would anticipate will continue and that's what we expect for that to continue I think to to get back to.
<unk>.
Where we'd want to be on higher growth in 2024.
Need some help from the biotech funding environment, we need the tier threes to returned to spending and then.
What we mentioned on some of the slowness in R&D spend in the tier ones for that to alleviate and then you end up in a higher growth scenario. There one thing I'd mention is that we do we do believe that over the long term.
<unk> would return to a mid teens grower.
And that and.
And we believe that because of what we're saying earlier.
On the adoption and the runway for adoption for Biosimilars ship, and so thats certainly not a comment around 2024, but.
But we think that the over the long term than Biosimilar <unk>, that's a process in the products and services associated with it.
Who have had the opportunity the market is there we are a leader in that market and our ability to grow within that market certainly remains intact.
Understood. Thank you and maybe just a quick cleanup wonderful next item one on the split between Biosimilar and regulatory I think in the past you've said about 70% simulation wondering if theres any update to just how to think about the mix and the services perspective as well as the mix within each individual segment in terms of software versus.
Services would be really helpful.
Yes, So we've said that the <unk> business.
Well, we've said historically, it's about 2025% of the business.
And actually even in 2023, we still expect it to be in that range it might be at the lower end of that range.
And the mix between software and services at least in recent history has been 65%, 35% on a revenue achievement basis services software and that.
That mix will shift a bit based on this current guidance think of it in the range of about 200 basis points or so towards software.
Got it Okay and then maybe just a quick one for me just anything you can provide around the type of work that's being held up in regulatory.
We've heard a lot this quarter about a shift towards later stage trials and it seems like that would actually kind of play into your regulatory business. So I guess just anything you can help us to provide to help us understand.
Why those programs are just not moving forward I guess I'm just struggling to understand the rationale for a small biotech in particular, maybe hold off on filing for regulatory approval.
Understanding again.
Process behind that actual decision.
Yes, I mean.
It's a competitive space too so.
What we're doing is.
And we mentioned the pipeline visibility for Reg and we do have we do see some some larger sized deals that are in the pipeline and I think with the management team is focused on it.
Converting those to bookings, but it is a competitive space.
And.
Whether it be <unk>.
Small biotechs are some of the larger customers. There we have had a track record of being able to to get some of those larger deals in but we haven't seen that yet in 2023. So we're we're very very focused on on the pipeline as we see it right now so kind of to your point, it's not like the business, yes has the business.
And as a whole slowed yes.
We do think Thats the case, but it's not a complete lack of business and I think that's to your point and we're competing for it.
Great. Thank you.
Okay. Thank you one moment our next question.
Your next question comes.
Goodbye to Brendan very capital markets. Please go ahead.
Hey, guys just two quick ones for me.
Additions from larger Biopharma software users looking year over year and as software this quarter being driven largely by those tier one customers expanding software yes.
It's not entirely driven by I mean big.
Big pharma as is.
The piece of it but not entirely.
I'd point you to.
New logos. So that's a that's a metric that we sometimes talk about in our.
R R.
Our new logos on the quarter were 100.
<unk> 34, which is which is.
Is.
Sequentially is a good spot, but I think overall the way to the way to.
Think about it is we're seeing strength in tier one on software.
Our Biosimilar nation.
And we see a little bit of slowness in the tier three there, but overall a lot of that business is centered on our top customers as we've said before.
Got it and then just one more for me what software solutions have you seen larger existing customers typically expanding their software into are there any in particular that youre seeing trends then.
Yes, we've seen.
Expansion and clinical 'twenty one in particular.
We are still having very good.
No.
Uptake.
Our Phoenix.
<unk> as well.
And in the core bias stimulation since if theres also been some additions as well so.
It was pretty healthy in kind of the core offerings. Those are those are the three biggest product lines that we have as a company and so we saw expenses on all three of them.
And on <unk> discovery have you seen any uptake since its been relatively recently released storage that tier three weakness.
Impacting that pick up.
Well, we have yes, it's relatively recent we have.
Seen some nice pick up in that.
Probably it has also been affected by the tier three weakness in terms of I think.
We probably would see more of it is hard to it's hard to.
To estimate that.
But it is off to a good start.
To expand.
They expanded the reach of <unk> to a different audience, which is important.
And.
I think there'll be more to see is there will be.
More to come as we go forward in the next couple of quarters.
Awesome. Thanks, guys.
Thank you last question.
Your last question comes from Joe <unk> of Baird. Please go ahead.
Great. Thanks for squeezing me in just signed was started.
On the topic of AI.
Wondering.
The opportunity not just from an application standpoint, but also the integration of data different data sources that it would seem like <unk>.
Given some of the foundational elements you have would maybe be in a unique position commercialize.
Data modeling data offering of what the industry is going to need I Wonder how you think about kind of the product roadmap and what might be first out of the gates as you look to address the AI opportunity.
Yeah, Thanks, Joe Youre right. So like a lot of companies we have been.
Rapidly assessing what AI can do but we were fortunate in that we acquired the assets exactly the right time, we got a good team and we got it in their layer product, we have a very interesting opportunity for data integration exactly like what youre talking <unk> talking about.
So just keep in mind.
Owned them for.
Just a few months and so we've had the opportunity to go through our product portfolio.
First step was to look at what can we add in our existing product portfolio and.
In a few months, we've we've added to a couple of our products <unk> hundred 60, <unk> and our codex database. That's a good good early indication, but certainly not our full ambition or really what we've got in the pipeline.
As you look forward, though it's exactly what you're talking about there is an opportunity to look across the vast amounts of.
Data that.
Not only exist publicly but that many of our clients.
Have internal internally, they're proprietary databases and integrate them.
And either train the models or use that in.
In AI products. So we're very much focused on that.
Really quite energized R.
Our software development team here is we're as we're.
At the forefront of figuring this out and I think as you go forward you.
Youll see more and more of that in that in what we talk about and then our products.
Okay.
And then just a question on kind of the connection.
Between <unk> services and software and I guess this is more directed at some of the changes you saw timber the tier one customer segment, but.
Is there ever a leading indicator between the two where services utilization and CN.
Downward adjustments there.
As a precursor for changing and software demand.
Or maybe a different spin on the question Ken Your software it get to a point and obviously you invested in.
User interface, and making things more user friendly Ken it ever get so self serve that may be the need for services is ultimately lessor.
Yes, great question Budd.
I think the situation is that software is pretty complex, obviously, we want to make it.
Easier to use with better user interfaces like Youre talking about so we can expand the number of people, but what we see is that as the software expands its user base, we actually kick up many more services projects.
It gets used to answer a lot of different questions people want to extend the software they want to change the models.
A lot of times it goes back the other way as well in terms of the services projects give us good ideas for features that would extend the software. So there's the sort of interesting.
Ecosystem between the two.
It won't be I mean.
It would be great for pharma and we wouldn't say no. If we if our software got so good that we can just eliminate services altogether, but the reality is that pharma is working on so many drugs.
So much different.
The complexities in terms of the sites that's going into them that there is always opportunities there to add on services and I think our clients really value not just that we're software providers, but we've got a.
Pretty impressive group of people who have.
No.
Numerous drug development successful drugs under their belt.
From before they came to <unk> and answer Tara Theyre seeing hundreds of drug development projects.
Every month and so that's valuable to our clients as well as they bring our services.
So I think what we saw in the quarter as you know.
I would be more alarmed that the software drop because that would probably indicate a more of a permanent shift in the amount of money going into <unk>.
Into pharma development.
Services can go up and down a little bit based on.
How.
Our funding comes in and how.
Cautious people are spending and how distracted they are but as long as we have that software base. There. We've got a good a good opportunity to continue to grow the services group as well.
Okay. Thank you very much.
Thank you I would now like to turn it over to Williams for closing remarks.
Thank you very much everybody.
So we.
We obviously are not.
Happy with the performance fee, we turned in in the second quarter on bookings.
We still feel.
With a lot of data that there is plenty more growth.
I had four sentara to bring biosimilars into the pharmaceutical industry.
We are.
Investing heavily not slowing down at all because of this and the further development of our software. We're very excited about the potential to incorporate AI in Biosimilars <unk>, what that's going to do to expand.
And we believe that as we come out over the next couple of quarters the softness in service.
We will.
Will reverse itself.
So I look forward to talking to you in the next quarter and hopefully giving you.
A better update in terms of where we stand in terms of bookings. Thank you very much and good evening.
Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Okay.
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