Q4 2023 Simulations Plus Inc Earnings Call

Greetings and welcome to the simulations plus fourth quarter fiscal 2023 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.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference call is being recorded it is now my pleasure to introduce to marriage Gonzales from financial profiles. Thank you. Mr. <unk> you may now begin.

Good afternoon, everyone welcome to the simulations plus fourth quarter and fiscal 2023 financial results conference call.

With me today are Shawn O'connor, Chief Executive Officer, and Ralph Frederick Chief Financial Officer, and senior issues.

Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks, you can access the presentation on our Investor Relations website at Www simulations plus com.

After management's commentary, we will open the call for questions.

As a reminder, the information discussed today may include forward looking statements that involve risks and uncertainties.

Words like believe expect and anticipate refresh my best estimate.

There can be no assurances that these will actually take place.

Actual future results could differ significantly from these statements.

Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission.

With that said I'll turn the call over to Sean O'connor Shawn.

Thank you Tamara and good afternoon, everyone and thank you for joining us today to discuss our fourth quarter and fiscal 2023 results.

We delivered strong revenue and earnings results for fiscal 2023, and I'd, especially like to acknowledge our team's impressive execution on building strong customer relationships, our team's effort and dedication throughout the year, while navigating a challenging environment helped to drive growth and demonstrated the strength.

<unk> of our customer centric business model.

Conditions in our market remains similar to what we have spoken to over the past several quarters.

We continue to see a slowdown from small biotech customers, who have been impacted by funding scarcity that is in turn affected renewal rates in this segment.

Purchasing from large pharmaceuticals also remains delay.

Driven by macroeconomic uncertainties and conservatism.

That said these challenges were offset by our ability to upsell and to pass on price increases throughout the course of fiscal 2023, helping us to achieve our guidance targets for both revenue and adjusted diluted earnings per share for the fiscal year.

The underlying fundamentals of our market are resilient.

As such we believe the slow pace of investing and modeling and simulation that we have seen over the past few quarters will eventually reserve reverse given tremendous needs in drug development.

And the essential need for pharmaceutical companies to find faster more efficacious ways to bring drugs to market.

We anticipated these challenges last year, when we provided our fiscal 2023 guidance for revenues to grow 10%, 15% and we met that guidance delivering 11% revenue growth for fiscal 2023.

Based on early anecdotal customer feedback we have been receiving we are cautiously optimistic as we enter fiscal 2024, as we have seen a slight uptick in biotech funding and budget cycle optimism that some large pharmaceutical companies.

Not to the levels, we've seen historically.

Against this backdrop, our revenues and earnings were in line with our expectations fourth quarter revenues of $15 6 million were up 33% over this time last year driven by a 59% increase in software revenues with services up 8%.

For the year total revenues were $59 6 million up 11% driven by software growth of 12% and services at 8%.

Turning to profitability gross margins and adjusted EBITDA remains solid.

This quarter gross margins were 78% and for the year, we're 80%.

I like being a favorable mix of higher margin software sales and our ability to pass along price increases.

Adjusted EBITDA was 31% of revenue for the fourth quarter and 35% of revenue for the year.

Net income in the fourth quarter was 534.

Alison or <unk> <unk> per share.

Adjusted net income for the quarter was $3 7 million or <unk> 18 per share.

For the fiscal year net income was 10 million or <unk> 49 per diluted share and adjusted net income for the fiscal year was $13 8 million or <unk> 67 cents per diluted share.

This is at the high end of our 63% to 67.

Fiscal 2023 guidance I'm very proud of the results our team delivered for both the quarter ANV.

Moving onto our software segments performance software.

Software revenue increased 59% for the quarter and 12% year over year.

Our renewal harmonization initiatives to simplify and align contract renewals played out as expected and is essentially complete.

And we do not anticipate future occurrences to have the same impact on quarterly revenue flow in fiscal 2024.

We now have greater visibility into our revenues and with contract harmonization now embedded in the normal course of our business process process, we expect that both simulations plus and our customers will see the benefits going forward.

There will however, always be accounts that become candidates for harmonization during any year as we up sell additional licenses.

Our software revenue renewal rate in the fourth quarter was negatively impacted by several non renewals as a result of M&A activity in our client base and lower purchasing and pharma biotech and see our end markets.

Currently a couple of Qs P model license were not renewed due to drug program cancellations.

Gastro plus in our PDP business had a strong quarter.

Revenues increased 76% for the fourth quarter and 11% for the year.

Our strong growth in the quarter was largely due to the shift in contract renewals through the fourth quarter.

Castro plus was referenced 22 peer reviewed journal articles and added 10 new customers.

Team also booked 11 commercial client upsells.

I've met predictor, our AI powered solution in Canada, <unk> business saw revenues increase 46% in the quarter due to the shift in contract renewals.

The pain, but five of sales during the quarter and added six new customers.

The year admin predictor revenues grew 6%.

Revenues for model X suite, one of the most user friendly tools and farm income metrics modeling increased 18% in the quarter. Thanks to five customer Upsells and the addition of seven new customers in the quarter for.

For the year monolithic suite revenues grew 15%.

During the fourth quarter, our software team held a highly successful PK analytics Summer school.

This program educated over 450 scientists from 40 countries and served to increase community awareness of the benefits and features of this user friendly validated tool for non kamarck mental and compartmental analysis and bioequivalence evaluations.

Advent has supported growing attention and leads for modeling suite in the NCA scientific community.

Looking at our services segment revenues grew 8% both for the fourth quarter and for the year, representing 40% of total revenues and.

And completed 201 projects.

Services is entering the new fiscal year with a healthy backlog of $20 million, 25% higher than this time last year.

The backlog increase is primarily due to the investments we've made in sales and marketing the ambition.

Tricks in the exemplary efforts of this team.

PK PD services revenue was down 1% in the fourth quarter and increased 10% for the year.

During the quarter P. J P. D saw excellent bookings contributed to overall growth.

During the fourth quarter fixed price projects versus time and materials garnered the majority of billable hours and has some effect on revenue growth.

The exception of this quarter.

<unk> for higher time and materials as a percentage of projects would appear to likely continue into fiscal 2024.

This is based upon the nature of the backlog as we enter the year.

The revenue benefit as time and materials as compared to fixed price projects is that these projects typically bring higher margins and that's contributed to the growth services margins to reach the mid sixty's and above.

U S. P. S. T revenue grew 60% for the fourth quarter and 1% for the year benefiting from our acquisition of metrics in terms of revenue contribution.

PV PK services revenue was down 1% in the quarter, but up 22% for the year.

Although the fourth quarter was impacted by lower billable hours related to temporary staffing availability related to life events. The team saw excellent growth for the year.

Our outlook for PV PK services growth remains strong.

Staffing hours are expected to return to normal as we start the new fiscal year.

Services had a good year.

We've recruited top talent.

14, new scientists for the year and saw strong retention amongst our talent pool.

We also added 13 nvme networks acquisition.

We also had some notable highlights in the quarter.

U S. P. Liver study safety tool was cited in a public key public document this summer.

FTA sided daily some results in their public medical review documents as part of identification and justification of the proper dose range for a subsequent two successful phase three study that led to approval of a lightweight blockbuster drugs.

Our Q S. P team also completed some very important and large projects with large pharma partners in multiple myeloma and pulmonary fibrosis that are already leading to follow on work and license requests with the same clients.

These projects it projects emphasize the compelling value we provide our clients when we pair our software solutions with the expertise provided by our services consultants.

We supported our clients submission of new dissolution specifications, which were accepted by the EMA.

Hey, Gastro plus model was developed across multiple dose strengths of our commercial formulation and apply it to support the development of a bio predicted dissolution.

With this dissolution data in hand, a safe space was established can use to justify their solution acceptance criteria, which was wider than allowed specifications in the regulatory guidance documents.

The EMA accepted the gastro plus modeling results.

Estimated return on investment from the regulatory flexibility using a gastro plus P. B b.

Approach a range ranged from 12% to 45 times greater than the alternatives, which included running a clinical bio equivalence trial are doing nothing and wasting 10% to produce batches due to out of scope specification.

We supported a first in human dosing recommendation for a client that resulted in an investigation investigational new drug or IND approval.

And this project animal PK data was utilized to build P. B PK models to predict predict systematic and gastrointestinal concentrations for a new Gi disease therapy the.

The validated PD PK model was then translated to humans to stimulate local and systemic exposure and optimize the dosing recommendations needed to achieve target therapeutically levels in the colon and blood.

The results were incorporated into the company's I N E filing with the FDA and played a critical role in its regulatory acceptance to proceed with the phase one trials.

As an example is the critical benefit our team of expert consultants provides our client utilize the gastro plus software to build and submit a model and supportive of bio waiver requests for a bioequivalence trial.

The Global Agency review was harsh and that request was rejected.

After Resubmission re submission following the expert guidance from our scientific experts. The agency responded with minimal questions, which were quickly address resulting in the model being accepted and then bio waiver cranes.

These are just a few examples of the value creating work our team delivers and it's testament to the significant value of our business model.

Our customer centric culture of innovation is driving results both for our customers and for our results.

Looking ahead, we remain committed to our strategy that combines organic growth operating leverage and inorganic growth to create long term value for our shareholders. This includes internal investments and product R&D employee recruitment and retention and enterprise technology.

Unknown Attendee: Greetings and welcome to the Simulations Plus fourth quarter fiscal 2023 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.

From a corporate development perspective, we will continue to evaluate M&A and strategic investments that are in line with our criteria.

Unknown Attendee: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded.

While we have seen some positive signs circus in our market. We are setting guidance based upon a status quo outlook.

Tamara Gonzalez: It is now my pleasure to introduce Tamara Gonzalez from Financial Profiles. Thank you, Ms. Gonzalez. You may now begin.

For fiscal 2024, we expect revenues to increase in the range of 10% to 15% or 66% to $69 million.

Tamara Gonzalez: Good afternoon, everyone. Welcome to the Simulations Plus fourth quarter and fiscal 2023 Financial Results Conference Call.

Tamara Gonzalez: With me today, our Sean O'Connor, Chief Executive Officers and Will Sredrick, Chief Financial Officer of Simulations Plus. Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks. You can access the presentation on our Invest relations website at www.simulations-plus.com. After management's commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties, words like believe, expect, and anticipate, refer to our best estimates as of this call.

From a mix perspective, we expect software to contribute 55% to 60% of revenues and services to contribute 40% to 45%.

Reflecting the increased services revenue from any metrics.

Further we are guiding to diluted earnings per share in the range of 66 to 68.

Or an annual increase of 35% to 39%.

And with that I'll turn the call to well.

Thank you Sean.

We had another strong quarter with total revenue, increasing 33% to $15 $6 million with software revenue up 59%.

Tamara Gonzalez: There can be no assurances that these will actually take place. So our actual future results could differ significantly from these statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission.

And services revenue up 8%.

Software revenue represented 60% of total revenue for the quarter.

For the fiscal year total revenue increased 11% to $59 $6 million comprised of a 12% increase in software revenue and 8% increase in services revenue.

Tamara Gonzalez: With that said, I'll turn the call over to Sean O'Connor. Sean? Thank you, Tamara.

Software revenue represented 61% of total revenue for the year.

Sean O'Connor: Good afternoon, everyone, and thank you for joining us today to discuss our fourth quarter in fiscal 2023 results. We delivered strong revenue and earnings results for fiscal 2023, and I'd especially like to acknowledge our team's impressive execution on building strong customer relationships. Our team's effort and dedication throughout the year, while navigating a challenging environment, helped to drive growth and demonstrated the strength of our customer-centric business model. Conditions in our market remain similar to what we have spoken to over the past several quarters.

Total gross margin for the quarter improved slightly to 78% benefiting from strength in the software segment.

Software gross margin increased to 89% from 86% last year, well services margin decreased to 62% primarily due to the addition of any metrics.

Total gross margin for the fiscal year was flat at 80% with software gross margin at 90% and services margin at 65%.

With the addition of immune metrics. Our overall gross margin may be impacted for fiscal 'twenty 'twenty four compared to fiscal 2023.

Sean O'Connor: We continue to see a slowdown from small biotech customers who have been impacted by funding scarcity that has in turn affected renewal rates in this segment, purchasing from large pharmaceuticals also remains the way driven by macroeconomic uncertainties and conservativeness. That said, these challenges were offset by our ability to upsell and to pass on price increases throughout the course of fiscal 2023, helping us to achieve our guidance targets for both revenue and adjusted deluded earnings per share for the fiscal year.

Now turning to software for the quarter.

Gastro, plus representing 54% of software revenue.

Model X suite was 15%.

<unk> was 21% and other software was 10%.

For the fiscal year Gastro plus represented 54% of software revenue monolithic suite was 19% admin predictor was 19% and other software was 8%.

For the quarter, our customer renewal rate declined to 85% based on fees and to 80% based on accounts.

Sean O'Connor: The underlying fundamentals of our market are resilient. As such, we believe the slow pace of investing and modeling and simulation that we have seen over the past few quarters will eventually reverse given tremendous needs in drug development and the essential need for pharmaceutical companies to find faster, more efficacious ways to bring drugs to market. We anticipated these challenges last year when we provided our fiscal 2023 guidance for revenues to grow 10 to 15 percent and we met that guidance, delivering 11 percent revenue growth for fiscal 2022, based on early antidotal customer feedback we have been receiving.

Also for the quarter average revenue per customer increased to $88000 from $65000.

For the fiscal year, our customer renewal rate declined to 92% based on fees and to 82% based on accounts.

Average revenue per customer for the fiscal year increased to $126000 up from $110000 last fiscal year.

While the lower renewal rates are primarily driven by non renewals from smaller biotech customers. One resulting benefit we are experiencing is an increase in average revenue per customer.

Sean O'Connor: We are cautiously optimistic as we enter fiscal 2024 as we have seen a slight uptick in biotype funding and budget cycle optimism at some large pharmaceutical companies, but still not to the levels we've seen historically. Against this backdrop, our revenues and earnings were in line with our expectations. Fourth quarter revenues of 15.6 million were up 33% over this time last year driven by a 59% increase in software revenues with services at 8%. For the year, total revenues were 59.6 million up 11%, driven by software growth of 12% in services of 8%.

Shifting to our services business the services revenue breakdown for the quarter was 39% from PK PD services, 37% from Q S Peak U S T services.

20% from PV, PK services and 4% from other services.

The services revenue breakdowns for the fiscal year was 45% from PK PD services, 25% from Q S. P. Qs T services.

93% from P B PK services and 7% from other services.

As a reminder, other services consist primarily of the regulatory services, we provide customers to help them meet global regulatory compliance and quality requirements.

Sean O'Connor: Turning to profitability, gross margins and adjusted EBITDA remain solid. Fourth quarter gross margins were 78% and for the year were 80%. Reflecting a favorable mix of higher margin software sales and our ability to pass along price increases. Adjusted EBITDA was 31% of revenue for the fourth quarter and 35% of revenue for the year. Net income in the fourth quarter was 534 thousand or three cents per share. Adjusted net income for the quarter was 3.7 million or 18 cents per share.

We also provide comprehensive learning services focused on modeling and simulation training with a variety of options to help our customers succeed.

Total services projects worked on during the quarter increased to 201 compared to 196 last year and year end backlog increased to $20 million compared to $16 million last year.

Anticipated revenue from backlog within 12 months remains around 70% to 80%.

Turning to our consolidated income statement for the quarter, we saw an increase in total R&D costs, primarily due to the increased investment in the development of our software products the increased cost of immune Netflix for the quarter and from a general increase in personnel costs.

Sean O'Connor: For the fiscal year, net income was 10 million or 49 cents per deluded share and adjusted net income for the fiscal year was 13.8 million or 67 cents per deluded share. This is at the high end of our 63 to 67 cents fiscal 2023 guidance. I'm very proud of the results our team delivered for both the quarter and the year.

Total R&D costs in the quarter increased to $1 $8 million compared to $1 $7 million last year.

R&D expenses were $1 $1 million compared to $8 million in capitalized R&D was <unk> $7 million compared to $29 million.

Sean O'Connor: Moving on to our software segments performance. Software revenue increased 59% for the quarter and 12% year over year. Our renewal harmonization initiative to simplify and align contract renewals played out as expected and is essentially complete. And we do not anticipate future occurrences to have the same impact on quarterly revenue flow in fiscal 2024. We now have greater visibility into our revenues and with contract harmonization now embedded in the normal course of our business process.

SG&A expense for the quarter increased by 51% to $11 $5 million or 73% of revenue compared to $7 $6 million or 65% of revenue last year.

This increase includes $1 million of M&A costs of $1 6 million dollar compensation expense for any metrics related to its acquisition.

An impairment charge of $5 million for discontinuing a trade name.

And $1.3 million increase in personnel costs related to increased headcount and higher compensation costs.

Sean O'Connor: We expect that those simulations plus and our customers will see the benefits going full. There will, however, always be accounts that become candidates for harmonization during any year as we upsell traditional licenses. Our software revenue renewal rate in the fourth quarter was negatively impacted by several non-remuels as a result of M&A activity in our client base and lower purchasing in pharma biotech in CRO markets. Additionally, a couple of QSP model licenses were not renewed due to drug program cancellation.

Excluding these expenses SG&A expense would have been $8 $4 million or 54% of revenue for the quarter.

Income from operations resulted in a loss of $3 million for the quarter.

Due to the M&A costs any of that.

Compensation expense and impairment charge previously mentioned.

Excluding these expenses income from operations would have been $3 $4 million or 22% of revenue for the quarter.

Other income was <unk> $4 million this quarter versus $2 million last year due.

Future returns from higher interest rates on our investment portfolio.

Sean O'Connor: Gastro Plus in our TVPK business had a strong quarter, revenues increased 76% for the fourth quarter, and 11% for the year. A strong growth in the quarter was largely due to the shift in contract renewals to the fourth quarter. Gastro Plus was referenced in 22 peer-reviewed journal articles and added 10 new customers, the team also booked 11 commercial client upsells. Admet predictor, our AI-powered solution in cheminformatics business, saw revenues increase 46% in the quarter due to the shift in contract renewals.

Other income also included a point 7 million dollar accounting charge for the change in fair value of contingent consideration for the you mean Netflix earn out.

For the quarter income tax benefit was <unk> $5 million compared to expense of $1 million last year.

Net income for the quarter decreased 44% to <unk> $5 million and diluted earnings per share decreased two three cents.

Adjusted EBITDA increased to $4 $9 million and adjusted EBITDA margin was 31% compared to adjusted EBITDA of $2 $5 million or 22% margin last year.

Sean O'Connor: The team booked five upsells during the quarter and added six new customers. For the year, Admet predictor revenues grew 6%. Revenues for monolithic suite, one of the most user friendly tools and pharmacometrics modeling increased 18% in the quarter thanks to five customer upsells in the addition of seven new customers in the quarter. For the year, monolithic suite revenues grew 15%. During the fourth quarter, our software team held a highly successful PK analytics summer school.

Adjusted diluted earnings per share for the quarter was 18 cents compared to six cents last year.

We calculate adjusted EBITDA and adjusted diluted earnings per share by adding back interest taxes, depreciation and amortization stock based compensation.

Gain or loss on currency exchange any acquisition or financial transaction related expenses.

Any asset impairment charges, and any tax provisions or benefits related to these items.

Sean O'Connor: This program educated over 450 scientists from 40 countries and served to increase community awareness of the benefits and features of this user friendly validated tool for non-comartmental and compartmental analysis and bio equivalent evaluations. This event has supported growing attention and leads for monolithic suite in the NCA scientific community.

We've provided a reconciliation of these non-GAAP metrics to net income and diluted earnings per share the relevant GAAP metrics in our earnings release and on our website.

Turning to our consolidated income statement for the fiscal year, our total R&D costs were $7 $8 million or 13% of revenue compared to $6 $4 million or 12% of revenue last year.

Sean O'Connor: Looking at our services segment, revenues grew 8% both for the fourth quarter and for the year, representing 40% of total revenues and completed 201 projects. Services is entering the new fiscal year with a healthy backlog of 20 million dollars, 25% higher than this time last year. The backlog increase is primarily due the investments we've made in sales and marketing, the addition of immunetics and the exemplary efforts of this team. PK PD services revenue was down 1% in the fourth quarter and increased 10% for the year during the quarter.

R&D expenses were $4 $5 million compared to $3 $2 million last year.

Capitalized R&D was $3 $3 million compared to $3 $2 million last year.

This reflects the increased investment in personnel costs for the newest version of a monolithic suite product version 2023, or one which was released on February 28 2023.

The development of the next version of our Gastro plus product Gtx.

And the development of the next version of our Admin Predictor version 11, which includes significant enhancements to the artificial intelligent drug design or AI D D module.

Sean O'Connor: PK PD saw excellent bookings that contributed to overall growth. During the fourth quarter, fixed price projects versus time and materials garnered the majority of billable hours and had some effect on revenue growth. With the exception of this quarter, the trend for higher time and materials as a percentage of projects would appear to lightly continue into fiscal 2024. This is based upon the nature of the backlog as we enter the year. The revenue benefit of time and materials as compared to fixed price projects is that these projects typically bring higher margins and have contributed to the growth of services margins to reach the mid 60s and above.

For the fiscal year, SG&A expense increased by 39% to $34 $7 million or 58% of revenue compared to $25 million or 46% of revenue last year.

This increase was primarily due to a $5 $4 million increase in employee and labor related expenses.

Additionally, the overall increase in SG&A expenses was due to an increase in merger and acquisition costs and the trade name write off previously mentioned.

Absent these costs SG&A expense would've been $21 $2 million for the year were 36% of revenue.

Sean O'Connor: QSP, QST revenue grew 60% for the fourth quarter and 1% for the year, benefiting from our acquisition of immunetics in terms of revenue. PPPK services revenue was down 1% in the quarter, but up 22% for the year. Although the fourth quarter was impacted by lower billable hours related to temporary staffing availability related to life events, the team saw excellent growth for the year. Our outlook for PPPK services growth remains strong and staffing hours are expected to return to normal as we start the new fiscal year.

Income from operations decreased 39% to $8 $7 million, while operating margin was 15% due to the M&A costs any metrics compensation expense and impairment charge previously mentioned.

Excluding these expenses income from operations would have been $12 $4 million or 21% of revenue.

Interest and other income was $3 million versus <unk> $2 million last year due to interest income was $3 $4 million driven by the rise in interest rates this year.

As previously mentioned other income included point 7 million dollar expense related to the Indian Netflix acquisition.

Sean O'Connor: Services had a good year. We recruited top talent, hired 14 new scientists for the year and saw strong retention amongst our talent pool. We also added 13 in the immunetics acquisition. We also had some notable highlights in the course. Our QSP liver study safety tool was cited in a public key public document this summer. The FDA cited daily some results in their public medical review documents as part of identification and justification of the proper dose range for a subsequent and successful phase 3 study that led to approval of a likely blockbuster drive.

Income tax expense was $1 $7 million compared to $2 $6 million last year, reflecting an effective tax rate of 15% this year versus 17% last year.

Our effective tax rate decreased mainly due to favorable foreign income tax rates for the fiscal year.

We expect our effective tax rate for fiscal 2024 to be in the range of 20% to 22% without the tax benefit we saw in fiscal 2023.

Of note our fiscal 'twenty 'twenty four EPS guidance of 66 to 68 cents reflects the higher estimated effective tax rate.

Sean O'Connor: Our QSP team also completed some very important and large projects with large farm of partners in multiple myeloma and pulmonary fibrosis that are already leading to follow on work in license requests with the same clients. These project projects emphasize the compelling value we provide our clients when we pair our software solutions with the expertise provided by our services consultants. We supported a client submission of new dissolution specifications, which were accepted by the EMA.

If we were to realize the same effective tax rate as fiscal 2023.

Our guidance would be in the range of 72 to 75 cents.

Net income for the fiscal year decreased 20% to $10 million and diluted earnings per share decreased to 49 cents.

Adjusted diluted earnings per share was <unk> 67 cents.

The revenue impact for the fiscal year from foreign currency exchange was <unk> $6 million.

Fiscal year, adjusted EBITA was $26 million and adjusted EBITDA margin was 35% comp.

Sean O'Connor: A gastroplus model was developed across multiple dose strengths of a commercial formulation and applied to support the development of a biopredictive dissolution method. With this dissolution data in hand, a safe space was established and used to justify dissolution acceptance criteria, which was wider than that allowed specifications in the regulatory guidance documents. The EMA accepted the gastroplus modeling results, the estimated return on investment from the regulatory flexibility using a gastroplus PBBM approach.

Compared to adjusted EBITDA of $21 $5 million or 40% margin last year.

Now turning to our balance sheet.

We ended the year with $115 $5 million in cash and short term investments.

The change for the fiscal year was primarily driven by the addition of $21 $7 million in free cash flow less $4 $8 million in dividend payments.

$20 million for our accelerated share repurchase and $9 $7 billion net cash paid for the immune networks acquisition.

Sean O'Connor: A range from 12 to 45 times greater than the alternatives, which included running a clinical bio equivalent trial or doing nothing and wasting 10% to produce batches due to out of scope specifications. We supported a first in human dosing recommendation for a client that resulted in an investigational new drug or IND approval. In this project, animal PK data was utilized to build PBPK models to predict systematic and gastrointestinal concentrations for a new GI disease therapy.

We continue to be well capitalized have strong free cash flow and seek opportunities for strategic acquisitions investments and partnerships.

I'll now turn the call back to Sean.

Thank you will.

I'm pleased with the results we delivered in fiscal 2023, while navigating a challenging backdrop.

I'm proud of our team's accomplishments this year.

We successfully implemented our contract harmonization program, which is leading to greater visibility into revenues.

We grew software double digits and so a good performance from our services business.

Sean O'Connor: The validated PBPK model was then translated to humans to simulate local and systemic exposure and optimize the dosing recommendations needed to achieve target therapeutic levels in the colon and blood. The results were incorporated into the company's IND filing with the FDA and played a critical role in its regulatory acceptance to proceed with the Phase I trials. As an example of the critical benefit our team of expert consultants provides, the client utilized its gastroplastophore to build and submit a model in support of a bio-waver request for a bio-equivalence trial.

With that theme, finishing the year with a 25% increase in our backlog.

We completed our accelerated share repurchase program as planned as part of our overall capital allocation plan.

We completed the acquisition of electrics and are very pleased with how the integration is going.

<unk> has a strong reputation in the immunology and oncology markets and has a healthy pipeline of activity, including new accounts sourced from our simulations plus customer base.

Importantly, we achieved the guidance, we provided last year by building stronger client relationships.

In maintaining our scientific leadership in model informed drug development.

Sean O'Connor: The global agency review was harsh and the request was rejected. After resubmissions following the expert's guidance from our scientific experts, the agency responded with minimal questions which were quickly addressed, resulting in the model being accepted in the bio-waver granted.

This achievement was made possible by our team.

We made critical investments in talent and added to our scientific resources to meet customer demand while at the same time, we have maintained good retention and strong recruiting.

I'd like to thank all of our colleagues at simulations plus for their effort and dedication throughout the year.

Sean O'Connor: These are just a few examples of the value creating work our team delivers and its testament to the significant value of our business model. Our customer-centered culture of innovation is driving results both for our customers and for our results.

But I would especially like to honor to be the.

Luca Cobra Chief.

Keep science officer at the PB PK business for being named in a a PFS seller.

Richly rewarded for leadership in the development and advancement of P. B PK.

Sean O'Connor: Looking ahead, we remain committed to our strategy that combines organic growth, operating leverage, and inorganic growth to create long-term value for our shareholders. This includes internal investments in product R&D, employee recruitment and retention and enterprise technologies. From a corporate development perspective, we will continue to evaluate M&A and strategic investments that are in line with our criteria. While we have seen some positive signs surfaced in our market, we are setting guidance based upon a status quo outlook.

We thank her for her 18 years of service at simulations plus.

And Empire Eau de La Pena.

<unk> pharma co metric services, who was recently elected to the International Society of farm income metrics, our ISR board of directors.

Our talented <unk> team here at simulations plus create value for our clients every day.

Help develop safer and more effective drug solutions.

Spirit of innovation and energy to do more is strong.

To conclude the underlying fundamentals of our market our resilient we are.

Sean O'Connor: For fiscal 2024, we expect revenues to increase in the range of 10 to 15 percent or 66 to 69 million dollars. From a mixed perspective, we expect upward to contribute 55 to 60 percent of revenues, and services to contribute 40 to 45 percent, reflecting the increased services revenue from an immunetrics. Further, we are guiding to diluted earnings per share in the range of 66 to 68 cents, or an annual increase of 35 to 39 percent.

Growing revenues delivering profitable growth and generating cash.

We're well positioned to meet our goals for fiscal 2024.

Thank you for your time today and with that I'll turn the call over to the operator for questions.

Thank you we will now be conducting a question and answer session.

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 keys, one moment, please while we poll for questions.

Will Sredrick: And with that, I'll turn the call to Will. Thank you, Sean. We had another strong quarter with total revenue increasing 33 percent to 15.6 million dollars with software revenue up 59 percent and services revenue up 8 percent. Software revenue represented 60 percent of total revenue for the quarter.

Okay.

Thank you. Our first question is from Francois <unk> with Oppenheimer. Please.

Please proceed with your question.

Alright. Thanks for the question. So I'm just wondering in terms of the challenging environment, obviously biotech funding as you know.

Will Sredrick: For the fiscal year, total revenue increased 11 percent to 59.6 million dollars, comprised of a 12 percent increase in software revenue and 8 percent increase in services revenue. Software revenue represented 61 percent of total revenue for the year. Total gross margin for the quarter improved slightly to 78 percent, benefiting from strength in the software segment. Software gross margin increased to 89 percent from 86 percent last year, while services margin decreased to 62 percent, primarily due to the addition of immunetrics.

Going to you know to be difficult I was just wondering when you talk about your guidance for next year, you mentioned that it would be status you know that's with the idea that it's status quo of what's going on maybe the 10% to 15% can you just remind us maybe off the internet tricks in Canada.

<unk> milestones or revenues that you're hoping to get there why it keeps the guidance in the 10% to 15% range on the revenue side for next year. Thank you.

Sure Frank.

Yeah, the marketplace itself.

Will Sredrick: Total Gross Margin for the fiscal year was flat at 80% with software gross margin at 90% and services margin at 65%. With the addition of immunetics our overall gross margin may be impacted for fiscal 2024 compared to fiscal 2023.

They tend to be very good.

The data flow at this time of the year as our clients are in their budgetary cycle running towards the end of the calendar year budgets for next year, when we put together.

Always get a good lumpiness test in terms of the market are twofold, one in terms of those.

Those calls that we get there in terms of the budget.

Will Sredrick: Now turning to software for the quarter. Atma predictor was 21% and other software was 10%. For the fiscal year, Gaster Plus represented 54% of software revenue, monolithic suite was 19%. Atma predictor was 19% and other software was 8%.

Yeah, that's been before the end of the year.

And that as well.

Quoting processes for inclusion in budgets next year.

In both regards lets say no we've gotten some good input positive.

Frequency of those.

<unk> is taking place certainly when you look back and compare to last year, it's more active more.

Positive than it was last year.

Will Sredrick: For the quarter, our customer renewal rate declined to 85% based on fees and to 80% based on accounts. Also for the quarter average revenue per customer increased to $88,000 from $65,000.

But not enough.

To you know kind of look forward and say that.

The market has changed so status quo comments in the context of our guidance.

You know, we kind of looked out to 'twenty four and built our guidance based upon.

Will Sredrick: For the fiscal year, our customer renewal rate declined to 92% based on fees and to 82% based on accounts. Average revenue per customer for the fiscal year increased to $126,000 up from $110,000 last fiscal year. While the lower renewal rates are primarily driven by non-renewals from smaller biotech customers, one resulting benefit we are experiencing is an increase in average revenue per customer.

Status quo, a similar sort of market environment with.

Biotech funding being where it is a it has been the last number of quarters.

And cautiousness in terms of the.

Large pharma.

Budgets are into 2024.

And then Netflix has been a great addition.

And no.

But certainly in the short window of time, but they've been on board.

Our biggest impact in terms of the pipeline.

Will Sredrick: Shifting to our services business, the services revenue breakdown for the quarter was 39% from PKPD services, 37% from QSP, QSP services, 20% from PVPK services, and 4% from other services. The services revenue breakdown for the fiscal year was 45% from PKPD services, 25% from QSP, QST services, 23% from PVPK services, and 7% from other services. As a reminder, other services consist primarily of the regulatory services we provide customers to help them meet global regulatory compliance and quality requirements. We also provide comprehensive learning services focused on modeling and simulation training with a variety of options to help our customers succeed.

Being able to take their expertise there our customer base.

In immunology oncology models.

Bringing them onboard certainly brought some.

Backlog into the picture.

The most positive has been the embrace our out of our customer base.

In terms of presenting the new capabilities in those therapeutic areas to them.

And that's still the pipeline disproportionate nobody in our Q S. P business at this point in time.

So that provides good good momentum going into next year minimal contribution to our revenue given the timing of the acquisition.

Quarter.

We look for contribution next year.

So I think the guidance of 10% to 15% for next year.

Will Sredrick: Total services projects worked on during the quarter increased to 201 compared to 196 last year, and year end backlog increased to $20 million compared to $16 million last year. Anticipated revenue from backlog within 12 months remains around 70 to 80%.

Gives us the opportunity to increase our growth rate next year by 50%.

And that certainly.

It would be contributed to by.

That tricks.

They've got and are part of the acquisition agreement was an earn out outlook and earn out there that.

Will Sredrick: Turning to our consolidated income statement for the quarter, we saw an increase in total R&D costs primarily due to the increased investment in the development of our software products, the increased cost of immunetics for the quarter, and from a general increase in personnel costs. Total R&D costs in the quarter increased to $1.8 million compared to $1.7 million last year. R&D expenses were $1.1 million compared to $8 million and capitalized R&D was $0.7 million compared to $0.9 million.

Would be achieved if they get.

Revenue targets of the five 6 million in the 2023 time frame.

And the $8 million in the calendar year 'twenty four time, so they could contribute significantly.

At this point in time in terms of that market.

We're being cautious in terms of their contribution going forward, but they certainly provide a boost to our outlook.

Next year. So overall wanted to go into the year with guidance that was.

But not based upon any sort of uptick in the overall market.

Will Sredrick: SG&A expense for the quarter increased by 51% to $11.5 million or 73% of revenue compared to $7.6 million or 65% of revenue last year. This increase includes $1 million and M&A costs, a $1.6 million compensation expense for immunetics related to its acquisition, an impairment charge of $0.5 million for discontinuing a trade name, and $1.3 million increase in personnel costs related to increased headcount and higher compensation costs. Excluding these expenses, SG&A expense would have been $8.4 million or 54% of revenue for the quarter.

Give us.

And some benefit from the momentum that we seem to be carrying into the next year gives us some momentum in terms of the contribution I mean, that's what will make them for the business next year and embedding it in the 10% to 15% with 11% performance this year.

That gives us.

Our perspective is that we likely will do better.

Within that range.

Okay, great. Thank you and then just maybe to remind everyone that the harmonization of the contracts and renewals can you just remind us what that process was and and you know how we're coming to the end of it and why that helps get clarity on revenues going forward. Thanks.

Sure sure no. The harmonization process was a process that mutually our clients and from our perspective, we saw benefits from taking.

Will Sredrick: Income from operations resulted in a loss of $0.3 million for the quarter due to the M&A costs, immunetics compensation expense, and impairment charge previously mentioned. Excluding these expenses, income from operations would have been $3.4 million or 22% of revenue for the quarter.

Taking those clients that over the years of accumulated multiple licenses are within a single platform or multiple licenses across multiple platforms.

Primary set of software products, such as surplus admin predictor and.

Will Sredrick: Other income was $0.4 million this quarter versus $0.2 million last year due to returns from higher interest rates on our investment portfolio. Other income also included a $0.7 million accounting charge for the change and fair value of contingent consideration for the immunetics earn out.

Monolith.

And working with them to consolidate those are deferring.

The license renewal dates across the entire year in some cases.

And identify a cold cold day to bring them together, so that all of the renewal activity would be more than one timeframe.

Will Sredrick: For the quarter income tax benefit was $0.5 million compared to expense of $0.1 million last year. That income for the quarter decreased 44% to $0.5 million and diluted earnings per share decreased to three cents.

Mostly larger accounts, obviously those that have multiple licenses.

That had an impact last year and impact the Cushing.

<unk> dates around our seasonality, which typically been no low first and fourth quarter revenues and ice second and third quarter revenues as you look back over this past year that are resorted itself into.

Will Sredrick: Adjusted EBITDA increased to $4.9 million and adjusted EBITDA margin was 31% compared to adjusted EBITDA of $2.5 million or 22% margin last year. Adjusted diluted earnings for share for the quarter was 18 cents compared to 6 cents last year. We calculated adjusted EBITDA and adjusted diluted earnings per share by adding back interest taxes depreciation and amortization stock based compensation gain or loss on currency exchange any acquisition or financial transaction related expenses any asset impairment charges and any tax provisions or benefits related to these items. We provide reconciliation of these non-gap metrics to net income and diluted earnings per share the relevant gap metrics in our earnings release and on our website.

And even lower first quarter, but then even more.

Even though we disbursed on an absolute dollar basis second through fourth quarter.

And so through one year's cycle time of renewals.

We achieved that harmonization across most of our large accounts.

So there'll be more of those events.

Take place next year.

Other accounts may reach that threshold, where can we harmonize yet, but it won't be the number of the accounts that disrupted the seasonality in <unk> great.

In the future in 2004, so I think we've reset ourselves into a new seasonality pattern that we hold in 'twenty four and beyond.

Thank you that's it for me.

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

Will Sredrick: Turning to our consolidated income statement for the fiscal year our total R&D costs were $7.8 million or 13% of revenue compared to $6.4 million or 12% of revenue last year. R&D expenses were 4.5 million dollars compared to 3.2 million dollars last year. Capitalized R&D was 3.3 million dollars compared to 3.2 million dollars last year. This reflects increased investment and personal costs for the newest version of our monolith suite product version 2023 R1 which was released on February 28, 2023.

Good afternoon, and thank you for taking the questions maybe.

Maybe first up and maybe it touches a little bit on the harmonization, how should we be thinking about cadence in fiscal 'twenty four.

Should we anticipate.

Chesapeake, maybe a little bit of a step down here in Q1, just with some of the holidays and whatnot, maybe the services revenues are a little bit lower but then kind of bouncing back up in more of a flattish the remainder of the year in line with your revenue guidance for the year, how should we be thinking about the cadence.

Yeah, I mean, I think that's fair Matt.

Matt the first quarter.

No it wasn't lower lower quarter.

Last year.

Will Sredrick: The development of the next version of our gastro plus product GPX and the development of the next version of our admet predictor version 11, which includes significant enhancements to the artificial intelligent drug design or AIDD module.

Historically before that.

Eaton has made more dramatic but the harmonization process last year.

So yeah, our revenues in the first quarter of 'twenty or like would it be.

In comparison to the second third and fourth quarter is the lowest quarter.

Will Sredrick: For the fiscal year SGNA expense increased by 39% to 34.7 million dollars or 58% of revenue compared to 25 million dollars or 46% of revenue last year. This increase was primarily due to a 5.4 million dollar increase in employee and labor related expenses. Additionally, the overall increase in SGNA expenses is due to an increase in merger and acquisition costs and the trade name right off previously mentioned. Ascent these costs SGNA expense would have been 21.2 million dollars for the year or 36% of revenue.

And third and fourth quarter should be relatively comparable level in terms of the absolute dollars on a year over year comparison basis, I mean, we're comparing need one.

The analogy in 'twenty core to a seasonality in 'twenty three so.

On a revenue growth percentage basis.

That cadence should be.

No a little bit more consistent.

We work our way through next year.

We focus on software and that is 60% of the revenue flow on the service side.

The.

Slowest of quarters is usually our fourth quarter impact.

Will Sredrick: Income from operations decreased 39% to 8.7 million dollars while operating margin was 15% due to the M&A costs, immunetics compensation expense and impairment charge previously mentioned. Excluding these expenses income from operations would have been 12.4 million dollars or 21% of revenue.

Impacted tremendously but.

The holiday and that holiday, but the summer season.

Oh in the context of our own.

Staff, taking some time off but our client staff, taking time off which is the tendency that.

The slow projects there.

<unk> activities.

That's why in this last fourth quarter the percentage of projects, we're mostly fixed price projects and the materials are a more interactive.

Will Sredrick: Interest in other income was 3 million dollars versus 0.2 million dollars last year due to interest income was 3.4 million dollars driven by the rise and interest rates this year. As previously mentioned, other income included 0.7 million dollar expense related to the immunetics acquisition.

Deliberate and if the clients on vacation and he's not calling up for time and material support.

First quarter is usually a little slower on the consulting side too that's driven.

Holidays.

Piece of that but.

Will Sredrick: Income tax expense was 1.7 million dollars compared to 2.6 million dollars last year reflecting an effective tax rate of 15% this year versus 17% last year. Our effective tax rate decreased mainly due to favorable foreign income tax rates for the fiscal year.

But it's also driven by first quarter is pretty steep.

Our industry conferences, most significant ones.

Place Theres, one taking place right now in the Orlando there's another.

A couple of weeks.

First week of November so.

Will Sredrick: We expect our effective tax rate for fiscal 2024 to be in the range of 20 to 22% without the tax benefit we saw in fiscal 2023. Of note, our fiscal 2024 EPS guidance of 66 to 68 cents reflects the higher estimated effective tax rate. If we were to realize the same effective tax rate as fiscal 2023, our guidance would be in the range of 72 to 75 cents.

Service revenue was a little bit more a bell shaped curve. If you will in terms of the first and fourth quarter.

Typically being a little bit lower.

Got it that's Super helpful. And then maybe looking at the backlog.

There was a nice pop there some of that was the contribution from in immune metrics versus it sounds like the rest of that was just.

Solid effort from your sales and marketing team is there any way to break out the contribution from immune metrics into your backlog.

Yeah, we've not broken out.

Will Sredrick: Net income for the fiscal year decreased 20% to 10 million dollars and diluted earnings per share decreased to 49 cents, adjusted deluded earnings per share with 67 cents. The revenue impact for the fiscal year from foreign currency exchange was $0.6 million.

Metrics aside we've not broken out the backlog historically.

The business unit in terms of the disciplines of PK, PD and <unk> and.

In USB and PV PK. It was I can tell you that yes, I mean, netflix they contribute a bit but.

Bear we're dealing with a handful of accounts.

Will Sredrick: Fiscal year adjusted EBITDA was $20.6 million and adjusted EBITDA margin was 35% compared to adjusted EBITDA of $21.5 million or 40% margin last year.

<unk> so well.

In addition, it's not the most significant I'd say the most significant either there was a record quarter in terms of the bookings on the <unk> side.

I think it was the largest in our history, although we didn't go back all the way.

Will Sredrick: Now, turning to our balance sheet. We ended the year with $115.5 million in cash and short-term investments.

Early records there.

Very good quarter in terms of that plan a number of projects.

Will Sredrick: The change for the fiscal year was primarily driven by the addition of $21.7 million in free cash flow, less $4.8 million in dividend payments, $20 million for our accelerated share repurchase, and $9.7 million net cash paid for the immunetics acquisition. We continue to be well capitalized, have strong free cash flow, and seek opportunities for strategic acquisitions, investments, and partnerships.

There are teed up.

Beginning in the first quarter here, but certainly in the early part early half of the fiscal 'twenty four.

So the largest contributors to that backlog increase was out of the.

The PK PD business.

Got it and then maybe last one and then I'll hop back into queue.

Regarding the cross selling opportunities it sounds like there's been a very positive reception and it goes both ways. It sounds like a bulk of your installed base as well as with the immune metrics.

Sean O'Connor: I will now turn the call back to Sean. Thank you, Will.

Customers, but are.

Are you having some early success on the actual cross sales or is this more about building those relationships and kind of introducing them to the.

Sean O'Connor: I'm pleased with the results we delivered in fiscal 2023 while navigating a challenging backdrop. I'm proud of our team's accomplishments this year. We successfully implemented our contract harmonization program, which is leading to greater visibility in the revenues. We grew software double digits and thought good performance from our services business with that team finishing the year with a 25% increase in our backlog. We completed our accelerated share repurchase program as planned as part of our overall capital allocation plan.

The full product offering thank you.

Yeah, I'd say a map there the biggest activity is within the <unk> space.

In terms of the disciplined for therapeutic areas I should say on the metrics side.

Abiding visibility to our customers that don't overlap with theirs.

The capabilities that we now have and adding.

Sean O'Connor: We completed the acquisition of immunetics and are very pleased with how the integration is going. Immunetics has a strong reputation in the immunology and oncology markets and has a healthy pipeline of activity, including new accounts sourced from our simulations plus customer base. Importantly, we achieved the guidance we provided last year by building stronger client relationships and maintaining our scientific leadership in model informed drug development. This achievement was made possible by our team. We made critical investments and talent and added to our scientific resources to meet customer demand. All at the same time, we maintained good retention and strong recruiting.

Names and opportunities to the pipeline metrics.

You mean metrics and models into that.

That client base.

In the other direction <unk> comes to us with.

A small number of clients.

Less than one.

One digit in terms of total clients.

And many of those are large pharma.

Our.

Customers of our other.

Platform software products.

Etc. So cross selling into their installed base is.

Benefit but not.

A big contributor the biggest contributor is in the direction of bringing human metrics models into our much larger.

Base and creating opportunities to sell.

Sean O'Connor: I'd like to thank all of our colleagues at Simulations Plus for their effort and dedication throughout the year. But I'd especially like to honor two people, Vera Lucacova, chief science officer at the PVPK business unit for being named an AAPS fellow, richly rewarded for her leadership in the development and advancement of PVPK. We thank her for her 18 years of service at Simulations Plus. And in Parodaila Payne, VP Pharmacometric Services, who was recently elected to the International Society of Pharmacometrics, or I thought Board of Direction. I've talented in esteemed team here at Simulations Plus create value for our clients every day to help develop safer and more effective drug solutions. The spirit of innovation and energy to do more is strong.

Those models true to that commitment.

Got it alright, thank you.

Yeah.

Thank you. Our next question is from David Larsen with BTG. Please proceed with your question.

Hi.

Can you talk a little bit about like Gastro, plus I think you had 10 new customers.

Very good I think that compares to like four in the previous quarter and it was the highest quarter I think of the year, maybe in the past two years, and then 11, Upsells, which which also looks good.

But the but I think your revenue actually for gastro, plus maybe declined sequentially.

Despite the large number of new customers and Upsells.

Can you just talk a little bit about what drove that and is it the renewal.

Great.

Just on both fees and accounts.

Sean O'Connor: To conclude the underlying fundamentals of our market of resilience with our growing revenues, delivering profitable growth and generating cash. We're well positioned to meet our goals for fiscal 2020.

Yes, it's a couple of things there Dave.

One yeah.

Sequential quarters keep in mind that the revenue for software revenue for a given product.

Unknown Attendee: Thank you for your time today, and with that I'll turn the call over to the operator for questions. Thank you.

Software revenues from quarter to quarter because of it.

Unknown Attendee: We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation talk 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 and may be necessary to pick up your hands up before pressing the star keys. One moment please, while we pull for questions. Thank you.

It's not a.

It's a recognition entirely upfront.

12 months license revenue was taken on day one.

So it doesn't build upon itself and from third quarter to fourth quarter, you're really dealing with what's the population renewals in that quarter driving that number and so I think well the harmonization props process left us in absolute dollar revenue level equivalency in second third and fourth quarter.

Francois Brisebois: Our first question is from Francois Bruce Ball with Oppenheimer. Please proceed with your question. All right, thanks for the question. So I'm just wondering in terms of the challenging environment, obviously biotech funding is continuing to, you know, to be difficult. I was just wondering when you talk about your guidance for next year, you mentioned that it would be status. You know, that's with the idea that it's status quo of what's going on.

I think there is a little high can be a little higher than fourth quarter.

And that contributed there as well.

As well in the fourth quarter, we saw a couple of the nonrenewals that impacted the renewal rate numbers that you saw.

Were lost opportunities through M&A activity.

And.

So that brought a fourth quarter down from where it could have been anchors to Mac was acquisitions not contributed to the mix.

Francois Brisebois: Maybe that 10 to 15%. Can you just remind us maybe off the immunetics and kind of a targeted milestones or reviews that you're hoping to get there. Why it keeps the guidance in the 10 to 15% range on the revenue side for next year. Thank you. Yeah, sure, Frank. Yeah, the marketplace itself, you know, we always have a very good data flow at this time of the year as our clients are in that budgetary cycle running towards the calendar year budgets for next year and put together.

Biotech nonrenewals in a couple of CRO non renewals.

There were a couple of U S P license.

Relatively small dollar amounts, but the programs for which they were being used or just keeping it so.

Francois Brisebois: Always get a good alertness test in terms of the market twofold one in terms of those calls that we get in terms of budget spend before the end of the year and as well, quoting processes for inclusion and budgets next year. In both regards, they say, you know, we've got some good input positive frequency of those conversations taking place, certainly when you look back and compare it to last year. It's more active, more positive than it was last year, but not enough to, you know, kind of look forward and say that the market has changed.

So we had a few non renewals in the fourth quarter.

Yeah.

<unk> contributed to.

To those renewal rates coming down.

Our typical experience here and often those M&A.

The events that lead to ultimately when the two companies sort themselves out fully.

Discussions reinvigorate.

Come back to us.

So they are now in our pipeline if you will.

And some of that to come back to its down the line, but oftentimes the immediate.

Reaction once the combined organizations are coming together.

In an environment right now, but what's not renew and then we'll look at it down the road.

So a few impacts from non renewals in the fourth quarter or those numbers could have been higher.

Francois Brisebois: So status quo comments in the context of our guidance is that, you know, we kind of looked out to 24 and builds our guidance based upon status quo, a similar sort of market environment with biotech funding being where it is answered in the last number of quarters and cautiousness in terms of large farmer budgets into 2024. Amy Netflix has been a great addition. And, you know, it's certainly in the short window of time, but they've been on board.

Thanks, very much that's very helpful. If you had to guess how much the M&A impacted revenue in the quarter is there any sort of gas or ballpark figure could it have been half a million Bucks a million box just any sense for that.

Oh I didn't know that that's what that's the level of sort of.

Estimations I wanted to get into.

You could go back and you could say geez, you know our historical Norwalk key ratios.

And it was why in the fourth quarter and probably come to an estimate there.

That.

Francois Brisebois: Biggest impact in terms of the pipeline, being able to take their expertise, their customer base in immunology, oncology models, bringing them on board, certainly brought some backlog into the picture. Their most positive has been the embrace out of our customer base, in terms of presenting the new capabilities and those therapeutic areas to them. And that's still the pipeline, just the portion of the QSP business of this point. So that provides a good, good momentum going into the next year, minimal contribution to revenue given timing of the acquisition here in the fourth quarter.

Magnitude.

Impactful.

And like I say, we look forward to.

24, playing out then we might see some of that revenue come back for us.

Okay, and then in terms of price increases.

Just any color on what you would expect to see in fiscal 'twenty four and what you were able to realize in fiscal 'twenty three.

And then a long sort of related to that would be sort of wage inflation for your own science tests.

Like do you have to increase prices in order to cover more wage inflation or is that a more tampered environment heading into next year.

Any thoughts there would be very helpful.

Yes, no good question.

Topline first in terms of our price increases as.

As we've stated before we were more aggressive.

Francois Brisebois: We look for contribution next year, setting the guidance at 10 to 15% for next year gives us the opportunity of buying to increase our growth rate next year by 50%. And that certainly would be contributed to by Amy Netflix. They've gotten the part of the acquisition agreement was an urn out outlook, an urn out that would be achieved. They hit revenue targets of the five six million in the 2023 timeframe and the eight million in the calendar year 24 times.

During.

Fiscal year 'twenty three than we hadn't been in the past.

And certainly.

Certainly it was an environment with.

Macroeconomic inflation down.

Down to specific market.

Compensation increases in the industry and the scientific community.

A question here.

<unk> made that increase price increase at least understandable as to it's a starting point.

Not that it didn't come with.

No negotiation.

Pushback, but we.

Yoga.

Very well.

That environment.

And.

I think it speaks to the capabilities of our team that we put together in terms of our client base.

Francois Brisebois: So they could contribute significant. At this point in time, in terms of that market, you know, we're being cautious in terms of their contribution going forward, but they certainly provide a boost to our outlook into next year. So overall, I wanted to go into the year with gadgets that were not based upon any sort of uptick in the overall market, give us some benefit from the momentum that we seem to be carrying into the next year.

The organization.

As long as the partnership we have with our clients.

There.

Accepting okay. This is those those increases come back in a returned back to them in terms of the continuing to fund very robust dill.

Delivery out of our R&D organization with higher quality functionality.

Yeah.

So our yield.

Francois Brisebois: Give us a momentum in terms of the contribution and that's what we'll make for the business next year. And in terms of 10 to 15% with 11% from this year, that gives us, you know, a perspective of, yeah, we likely will do better within that range. Okay, great. Thank you. And then just maybe to remind everyone that the harmonization of the contracts and renewals can just remind us what that process was and, you know, how we're coming to the end of it and why that helps get clarity on revenues going forward.

Was doubled in 24 versus 20 Creek.

That price increase which was twice as much as it typically has been in the past as we turn to <unk>.

Four.

Little bit different market in places still presence out there.

Still though with an environment in which.

Our clients are pretty you know Budd.

Budget constrained.

And.

The biggest differences isn't that are on the other side the expense side, there's been a settling down of the marketplace in terms of the constant.

Francois Brisebois: Thanks. Sure, sure. No, the harmonization process was a process that mutually our clients and from our perspective, we saw benefits from taking those clients that over the years that accumulated multiple licenses within a single platform, or multiple licenses across the multiple platforms of our three primary software products, the gesture plus admin predictor and model it, and working with them to consolidate those differing, licensed renewal dates across an entire year in some cases and identify a focal date to bring them together so that all of the renewal activity would be within one time frame.

Scientists in this field.

And the job hopping that's there.

What contributes to inflated compensation offers out there that has settled down.

And so certainly that momentum goes away.

Our expectations and 24.

Returned back somewhere between 22 and 'twenty three.

In terms of the anticipated.

Price increases as we go forward into <unk>.

Into next year.

So.

Good yield in 'twenty three in terms of price the price increase.

More significant than in the past still.

We still expect a contribution from price increases as we go into 'twenty four but.

Not not to the level of 23.

Francois Brisebois: Mostly larger accounts obviously, those that have multiple licenses. And that had an impact last year, an impact of pushing renewal dates around our seasonality, which had typically been, you know, low, first and fourth quarter revenues, and I second and third quarter revenues as you look back over the past year, that resorted itself into an even lower first quarter, but then even more. Evenly dispersed on an absolute dollar basis, second to fourth quarter.

Expense side I've kind of said the story.

Francois Brisebois: And so through one year's cycle time of renewals, we've achieved that harmonization across most of our large accounts. You know, there'll still be more of those events that take place next year. Another account may reach that threshold where can we harmonize, but it won't be the number of accounts that disrupted the seasonality in 23 in the future in 24. So I think we've reset ourselves into a new seasonality pattern that will hold in 24 in the end. Thank you.

Compensation in a in this community has settled down.

And while there is naturally some.

The merit increase.

That take place in them from year to year, it's not a stagnant.

Salaried environment, but it's not.

Nothing compared to a.

Brian.

Okay. Thanks, very much that's very helpful.

Okay.

Yeah.

Thank you. Our next question is from Dave Windley with Jefferies. Please proceed with your question.

Yeah. Good evening. Thanks for taking my question just a couple of quick ones and I think bigger picture.

Sean I'm wondering if.

The.

I R E and the changing incentives from that and the potential to kind of re stack pipeline priorities presents an opportunity for biosimilars to help.

And that restocking or reevaluating of opportunities that are in our pipeline priorities that might change because of no differential incentives large or small molecule.

Matthew Hewitt: Our next question is from Matt Hewitt with Craig Hallum. Please proceed with your question.

Well the modeling and simulation participate on both sides.

Matthew Hewitt: Good afternoon. And thank you for taking the questions. Maybe first up and maybe it touches a little bit on the harmonization. How should we be thinking about cadence in fiscal 24? Should we anticipate maybe a little bit of a step down here in Q1, just with some of the holidays and whatnot, maybe the services revenues are a little bit lower, but then kind of bouncing back up and more of a flatish, the remainder of the year in line with your revenue guidance for the year.

Actually the sort of development of the modeling applications.

Matthew Hewitt: How should we be thinking about the cadence? Yeah, I mean, I think that's their math. The first quarter is always a whether lower quarter last year in the season B, you know, historically before that, it's made more dramatic by the harmonization process last year. So yeah, revenues in the first quarter of 24 are likely to be in comparison to the second, third and fourth quarter, the lowest quarter. Second, third and fourth quarter should be relatively comparable level in terms of absolute dollars.

<unk> molecule or a biologic side.

Sort of second in line in terms of most of our work was in small molecule and historically.

And.

So it's.

It's.

A smaller base.

The activity that is growing quite rapidly quite frankly, just the.

The investment in <unk>.

Programs volume of programs.

In biologics molecules.

Molecules since that has increased.

So I think as.

As we move forward in the year, we continued to meet the demands of <unk>.

Providing technology and capability and pet scientific support on the biologics side.

And they're doing so.

I see that.

<unk> contributor too.

Our growth going forward.

Got it. Thank you for that and then in your prepared remarks, you talked about I think it was a P V. PK client example.

At the R&D stage.

Matthew Hewitt: On a year over year comparison basis, I mean, we're comparing a wide seasonality in 24 to a seasonality in 23. So on a revenue growth percentage basis, that cadence should be, you know, a little bit more consistent as we work our way through next year. We focus on software and that is 60% of the revenue flow on the service side. The, you know, slowest of quarters is usually our fourth quarter, the impacted tremendously by the holiday or not holiday, but the summer season, both in the context of our own staff taking some time off, but our client staff taking time off, which has a tendency to slow projects, project activities.

And I know that I've seen parts of your company.

Present or are.

Market at at Society of Toxicology. So I know you have a have a role to play in that in that earlier stage and I'm wondering if.

The difficulties for biotechs, particularly large molecule to get access to.

Nonhuman primates in that safety assessment stage, if that has percolated to opportunities for your business and in simulation to try to get around that bottleneck in the supply chain.

Yes, it certainly is.

Our capability and issued a weakened perhaps you know our.

Ability in the <unk>.

Precept models in terms of species will then gastro plus for example.

Matthew Hewitt: That's why in the last fourth quarter, the percentage of projects were mostly fixed price projects. Time of materials are more interactive, delivery, and if the client's on vacation, he's not calling up for time of material support. First quarter is usually a little slower on the consulting side too. That's driven holidays of the piece of that, but it's also driven by first quarter is conference season. Our industry conference is most significant ones take place.

So a tremendous impact in terms of.

Situations, where animal studies are looking to be.

Reduced.

In terms of population size and the ability to turnaround.

Predict.

Smaller populations into human.

So yeah, no, it's certainly something that.

I'm, having a positive impact in terms of our communications with clients pipeline opportunity.

Super. Thank you again for taking my questions I have a great night.

Yeah, you too.

Matthew Hewitt: There's one taking place right now in Orlando. There's another thing in a couple of weeks, the first week of November. So service revenue is a little bit more bell shaped curve if you will in terms of first and fourth quarter, particularly a little bit more.

At this time there are no further questions I would like to hand, the floor back over to Mr. Sean O'connor for any closing comments.

Well, thanks, everyone for your attention.

Good year.

On our part a so very cautiously.

Cautiously optimistic I guess is the buzzword as we enter two.

Sean O'Connor: God, that's super helpful. And then maybe looking at the backlog, obviously there was a nice pop there. Some of that was contribution from immunetrics versus sounds like the rest of that was just solid effort from your sales and marketing team. Is there any way to break out the contribution from immunetrics into your backlog? Yeah, we've not broken out immunetrics aside, we've not broken out the backlog historically by business unit in terms of the disciplines of PKPV and QSP and PVPK.

2024, with some good momentum.

Income coming out of this past year.

And a great team on board.

Performed very well this past year and look forward to their continued contributions into next year.

Thanks for your attention and I look forward to talking to you again soon take care.

This.

Today's conference you may disconnect your lines at this time, thank you for your participation.

Sean O'Connor: It was, I can say this, it was, yeah, I mean, that tricks contributed to that. But, you know, there we're dealing with a handful of accounts and handful of projects. So, while it's an addition, it's not the most significant. I say the most significant, you can come either there was a record quarter in terms of the bookings on the PKPV site. I think it was the largest in our history, although we didn't go back all the way to early records there, very good quarter in terms of that discipline.

Sean O'Connor: Number of projects that are teed up beginning in the first quarter year, but certainly in the early part, early half of fiscal 24. So the largest contributed to that backlog increase without the PKPV business. Got it.

Sean O'Connor: And then maybe last one and then I'll hop back into queue. Regarding the cross selling opportunities, it sounds like there's been a very positive reception and it goes both ways. It sounds like both of your install base as well as with the immunetrics customers. But are you having some early success on the actual cross sales or is this more about building those relationships and kind of introducing them to you the full product offering?

Sean O'Connor: Thank you. Yeah, I say a method of the biggest activity is within the QST states. In terms of the discipline for therapeutic areas, I should say on the immunetrics side providing visibility to our customers that don't overlap with theirs. The capabilities that we now have and adding mains and opportunities to the pipeline to sell immunetrics, immunetrics models into that that client base in the other direction. And the immunetrics comes to us with a small number of clients, less than one digit in terms of total clients.

Sean O'Connor: And many of those are large farm that are customers of our other platform, software products, et cetera. So cross selling into their install base is a benefit, but not a big contributor, the biggest contributor is in the direction of bringing immunetrics models into our much larger client base and creating opportunities to sell those models through the community. Got it.

Matthew Hewitt: All right.

Unknown Attendee: Thank you.

David Larsen: Our next question is from David Larsen with BTIG. Please proceed with your question. Hi.

David Larsen: Can you talk a little bit about like gastro-plus? I think you had ten new customers which looked very good. I think that compares to like four in the previous quarter and it was the highest quarter I think of the year, maybe in the past two years. And then eleven upsells which also looked good. But I think your revenue actually for gastro-plus maybe decline sequentially despite the large number of new customers and upsells.

David Larsen: Can you just talk a little bit about what drove that and is it the renewal rates based on both fees and accounts? Yes, it's a couple of things there, Dave. One, yeah, sequential quarters keep in mind that the revenue for a software revenue for a given product or a total of software revenues from quarter to quarter. Because of, you know, it's not a, it's a recognition entirely upfront twelve month license written taken on day one.

David Larsen: So it doesn't build upon itself. And from third quarter to fourth quarter, you're really dealing with what's the population of renewals and back quarter driving that number. And so I think, you know, while, you know, the harmonization props process left us in absolute dollar revenue level equivalency in second, third and fourth quarter. I think there's a little high going to be a little higher than in fourth quarter. And that contributed there as well.

David Larsen: However, as well in the fourth quarter, we saw a couple of non renewals that impacted the renewal rate numbers that, which saw were lost opportunities through M&A activity. And so that brought the fourth quarter down from where it could have been at those two acquisitions not contributed to the mix. There are a little few biotech that none renewals and a couple of CRO non renewals. There were a couple of QSP licenses, relatively small dollar amounts, but the programs for which they were being used were just considered.

David Larsen: So we had a few non renewals in the fourth quarter that contributed to those renewal rates coming down. You know, our typical experience here, often those M&A events lead to ultimately when the two companies sort themselves out fully those discussions reinvigorate and can come back to us. So they are, you know, now in our pipeline, if you will, and some of that can come back to us down the line, but oftentimes the immediate reaction once the combined organizations come together in an environment right now, but what's not renewed.

David Larsen: And then we'll look at it down the road when the dust battle. A few impacts from non renewals in the fourth quarter or those numbers could have been high. Thanks very much, that's very helpful. If you had to guess how much the M&A impacted revenue in the quarter, is there any sort of gas or ballpark figure could it have been half a million bucks, a million bucks, just any sense for that?

David Larsen: Yeah, I didn't know that that's a level of sort of, you know, estimations I want to get into. You could go back and you could say, geez, you know, our historical, we know a lot of key raises, is X and it was Y in the quarter and probably, you know, come to an estimate there of that magnitude, impactful, you know, and like I said, would look forward to 24 playing out and we might see some of that revenue come back to us.

David Larsen: Okay, and then in terms of price increases, any, just any color on what you would expect to see in fiscal 24 and what you were able to realize in fiscal 23 and then a long sort of related to that would be sort of wage inflation for your own scientists. Like do you have to increase prices in order to cover more wage inflation or is it a more temperate environment heading into next year?

David Larsen: Any thoughts there would be very helpful. Yeah, I know a good question. Top line first in terms of price increases, you know, as we've stated before, we were more aggressive during fiscal year 23 than we have been in the past and you know, certainly was an environment with, you know, macroeconomic inflation down to specific market compensation increases in the industry for the scientific community in question here made that increase price increase at least understandable as to its starting point, not that it didn't come with, you know, negotiation and pushback, but we yielded, you know, very well in that environment.

David Larsen: And I think it speaks to the capabilities of our team that we put together in terms of our client-based organization as well as the, you know, partnership we have with our clients, you know, they're accepting of hey, this is those increases come back and are returned back to them in terms of they continuing to fund the very robust delivery out of our R&D organization with higher quality or functionality down the road. So our yield was doubled in 24 versus 23.

David Larsen: That price increase was twice as much as it typically has been in the past. As we turn to 24, a little bit different market inflation is still present out there. Still, though, with an environment in which our clients are pretty, you know, budget constrained. And the biggest difference is that on the other side, the expense side, there's been a settling down of the marketplace in terms of the cost of scientists who miss field and the job hopping that some would contribute to inflated compensation offers out there as settled down.

David Larsen: And so certainly that momentum goes away and our expectations in 24 return back somewhere between 22 and 23 in terms of the anticipated price increases as we go forward into into next year. So good yield in 23 in terms of price increase, more significant than in the past. Still expect contribution from price increases. We go into 24, but not to the level of 23. On the expense side, I've kind of said the story, compensation in this community has settled down. And while there is naturally some merit increase, that takes place from from year to year. It's not a stagnant salary environment, but it's nothing compared to the year Okay, thanks very much, it's very helpful.

David Windley: Thank you, Howard, next question is from Dave Windley with Geffries. Please proceed with your question. Good evening, thanks for taking my question.

Sean O'Connor: Just a couple of quick ones, and I think bigger picture, Sean, I'm wondering if the IRA and the changing incentives from that and the potential to kind of restack pipeline priorities present an opportunity for biosimulation to help in that restacking or re-evaluating of opportunities that are pipeline priorities that might change because of differential incentives on larger small molecule. You know, the world of modeling and simulation participate on both sides and actually the sort of development of modeling applications on the large molecule or biologic side sort of seconds in line in terms of most of our work was in small molecules historically.

Sean O'Connor: And so it's a smaller base of activity that is growing quite rapidly, quite frankly, just as the investment in the programs, volume of programs in biologics or more molecules has increased. So I think as we move forward in the year, we continue to meet the demands of providing technology and capability and that scientific support on the biologic side and are doing so. And I see that it is a good disproportionate contributor to our growth long forward.

Sean O'Connor: Got it, thank you for that. And then in your prepared remarks, you talked about, I think it was a PVPK client example at the IND stage. And I know that I've seen parts of your company present or market at society of toxicology. So I know you have a role to play in that earlier stage.

Sean O'Connor: And I'm wondering if the difficulties for biotech particularly large molecule to get access to nonhuman primates in that safety assessment stage, if that has percolated to opportunities for your business and simulation to try to get around that bottleneck in the supply chain. That certainly is a capability, an issue for weakening threats, our ability and the preset models in terms of CCs with them. Gas for plus, for example, provides tremendous impact in terms of situations where animal studies are looking to be reduced in terms of population size and the ability to turn around and predict off of smaller populations into human. So yeah, no, it's certainly something that having a positive impact in terms of our communications with clients and pipeline opportunities.

David Windley: Super. Thank you again for taking my questions. Have a great night. Yeah, you too. Thank you. At this time, there are no further questions.

Sean O'Connor: I would like to hand the floor back over to Mr. Sean O'Connor for any closing comments. It's some good momentum coming out of this past year and a great team on board that performed very well this past year and look forward to that continued contributions in the next year. Thanks for your attention. Of course, it's talking to you again soon. Take care.

Unknown Attendee: This concludes today's conference. You may disconnect your lines at this time. Thank you for your.