Q2 2024 Simulations Plus Inc Earnings Call

Operator: Greetings and welcome to the Simulations Plus second quarter fiscal 2024 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 Lisa Fortuna from Financial Profiles. Ms. Fortuna, you may now begin.

Greetings and welcome to the simulations plus second quarter fiscal 2024 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.

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.

It is now my pleasure to introduce Lisa Fortuna from financial profiles. This Fortuna you may now begin.

Lisa Fortuna: Good afternoon, everyone. Welcome to the Simulations Plus second quarter fiscal 2024 Financial Results Conference. With me today are Sean O'Connor, Chief Executive Officer, and Will Frederick, Chief Financial Officer and Chief Operating Officer, Simulations Plus. Please note that we have 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.simulationsplus.com.

Lisa Fortuna: Good afternoon, everyone welcome to the simulations plus second quarter fiscal 2024 financial results Conference call.

Lisa Fortuna: With me today are Shawn O'connor, Chief Executive Officer, and will Frederick Chief Financial Officer, and Chief operating officer of simulations plus.

Lisa Fortuna: Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks.

Lisa Fortuna: You can access the presentation on our Investor Relations website at Www Dot simulations plus dot com.

Lisa Fortuna: 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 uncertainty. Words like believe, expect, and anticipate refer to our best estimates as of this call, and 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.

Lisa Fortuna: After management's commentary, we will open the call for questions. As a reminder, the information discussed today may include forward looking statements that include and involve risks and uncertainties.

Lisa Fortuna: Words like believe expect anticipates refer to our best estimates as of this call. There can be no assurances that these will actually take place or actual future results could differ significantly from these statements.

Lisa Fortuna: 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.

Lisa Fortuna: With that said, I'll now turn the call over to Sean O'Connor. Okay, Sean?

Shawn O'Connor: With that said I'll now turn the call over to Shawn O'connor Shawn.

Sean O'Connor: Thank you. Good afternoon, everyone, and thank you for joining our second quarter fiscal 2024 conference call. Results for the second quarter of fiscal 2024 played out as expected. Our team delivered solid revenue growth of 16%, with strong performance in both our software and services segments, and reported diluted earnings per share of $0.20. Given our strong first-half results, we are confident we will meet our full-year goal. Our market continues to show encouraging signs of strength. In the first calendar quarter of 2024, biotech funding has been strong, especially for companies that have drug candidates in the clinic. Biotech companies of this profile can benefit from our full portfolio of modeling and simulation capabilities. For large pharmaceutical companies, funding continues to vary depending on their near-term direction, drug program stability, and business outlook. But the overall market is healthier compared to a year ago.

Shawn O'Connor: Thank you Lisa good.

Shawn O'Connor: Good afternoon, everyone and thank you for joining our second quarter fiscal 2024 conference call.

Shawn O'Connor: Result results for the second quarter of fiscal 2024. It played out as expected our team delivered solid revenue growth of 16% with.

Shawn O'Connor: With strong performance in both our software and services segments.

Shawn O'Connor: Our reported diluted earnings per share of <unk> 20.

Shawn O'Connor: Given our strong first half results. We are confident we will meet our full year guidance.

Shawn O'Connor: Our market continues to show encouraging signs of strength.

In the first calendar quarter of 2024 biotech funding has been strong, especially for companies that have drug candidates in the clinic.

Shawn O'Connor: Biotech companies have this profile can benefit from our full portfolio of modeling and simulation capabilities.

Shawn O'Connor: For large pharmaceutical companies funding continues to vary depending on their near term direction.

Shawn O'Connor: Doug program stability and business outlook.

Shawn O'Connor: The overall market is healthier compared to a year ago.

Sean O'Connor: For the balance of 2024, we remain cautiously optimistic that demand for our comprehensive suite of modeling and simulation software products and services will continue to gain momentum as market conditions improve. Before turning to our segment performance, I want to spend a few minutes on our topic of artificial intelligence as it relates to drug discovery and development. As I've noted previously, Simulations Plus was an early developer of AI technology and tools to optimize our predictive technology. As AI technologies continue to develop, we keep pace by improving our use of AI technology to enhance our modeling and simulation solutions.

Shawn O'Connor: For the balance of 'twenty 'twenty four we remain cautiously optimistic that demand for our comprehensive suite of modeling and simulation software products and services will continue to gain momentum as market conditions improve.

Shawn O'Connor: Before turning to our segment performance I want to spend a few minutes on our topic of artificial intelligence as it relates to drug discovery and development.

As I've noted previously simulations plus wasn't earlier developer they technology and tools to optimize our predictive technologies.

Shawn O'Connor: As AI technologies continued to develop we keep pace by improving our use of AI technology to enhance our modeling and simulation solutions.

Sean O'Connor: Additionally, AI accuracy is only as good as the data sets used for training, and our access to accurate public and private data is a true competitive edge and a barrier to entry in our business. Our longstanding partnerships and collaborations with both industry leaders and regulatory agencies have granted us significant access to both private and public data essential for perfecting and refining predictive algorithms. This access to key data is critical to advancing our capabilities in AI-enabled biosimulation well into the future.

Shawn O'Connor: Additionally, AI accuracy is only as good as the datasets used for training and our access to accurate public and private data.

Shawn O'Connor: Is a true competitive edge and a barrier to entry in our business.

Shawn O'Connor: Our long standing partnerships and collaborations with both industry leaders and regulatory agencies have granted us significant access to both private and public data essential for protecting and refining predictive algorithms.

Shawn O'Connor: This access to key data is critical to advancing our capabilities in AI enabled biosimilar <unk> well into the future.

Sean O'Connor: When you look broadly at the digital economy, our business, rooted in science and data, stands to meaningfully benefit from evolving AI applications. Moving on to our soft course. Software revenues increased 11% in the second quarter, and we're up 16% for the six-month period with good renewals, upsells, and new logo activity. Overall, we are seeing solid demand in our key markets except for Asia, which continued to lag the overall market. Our Cheminformatics business unit delivered 14% revenue growth in the second quarter and 10% for the fiscal year to date. This quarter's growth was due to higher revenues from ADMET predicted, which continued to gain adoption and added another new AI biotech. Additionally, there were eight new customers and 18 upsells during the quarter. Additionally, the physiologically based pharmacokinetics or PBPK business unit had a modest 2% revenue increase in the second quarter and 11% for the fiscal year to date.

Shawn O'Connor: When you look broadly at the digital economy, our business rooted in science and data stands to meaningfully benefit from an evolving AI applications.

Shawn O'Connor: Moving onto our software segment.

Shawn O'Connor: Software revenues increased 11% in the second quarter and were up 16% for the six month period.

Shawn O'Connor: Good renewals upsells and new logo activity.

Shawn O'Connor: Overall, we are seeing solid demand in our key markets, except for Asia, which continued to lag overall market growth.

Shawn O'Connor: Kim Informatics business unit delivered 14% revenue growth in the second quarter and 10% for the fiscal year to date.

Shawn O'Connor: This quarters growth was due to higher revenues from Avnet predictor.

Shawn O'Connor: Which continued to gain adoption and added another new AI biotech customer. Additionally.

Shawn O'Connor: Additionally, there were eight new customers and 18 upsells during the quarter.

Shawn O'Connor: Our physiologically based pharmacokinetics or PK business unit had a modest 2% revenue increase in the second quarter and 11% for the fiscal year to date.

Sean O'Connor: The PBPK Business Unit added six new customers and booked nine upsells for existing customers. Momentum is strong for Gastro Plus, and our expectations for full-year growth are high. Clinical Pharmacology and Pharmacometrics, or CPP, business unit delivered the strongest performance with revenue growth of 38% for the quarter and 21% for the fiscal year today. Monoliths continues to take market share from its primary competitor and saw another large pharma client commit to transition to the platform.

Shawn O'Connor: P. B PK business unit added six new customers and book nine Upsells for existing customers.

Shawn O'Connor: Momentum is strong for gastro, plus and our expectations for full year growth are strong.

Shawn O'Connor: Our clinical pharmacology, and pharmacokinetics or CPP business unit delivered the strongest performance with revenue growth of 38% for the quarter and 21% for the fiscal year to date.

Shawn O'Connor: <unk> continues to take market share from its primary competitor and saw another large pharma client commit to transition to the platform.

Sean O'Connor: During the quarter, we added seven new customers and had 10 customer ups. Revenue in our Quantitative Systems Pharmacology, or QSP, business decreased 6% for the quarter and increased 77% for the fiscal year to date. As a reminder, quarterly results can be lumpy for QSP based on the high price per license and a small pool of end-users. Turning to our services segment, revenues increased 27% during the second quarter and 22% for the six-month period, with solid bookings and a healthy pipeline of active opportunities. Clients are being cautious about spending, but we're seeing a pickup in RFPs, which is a positive sign. However, there's still lingering volatility associated with start and stop decisions on drug programs and data delivery disruptions related to the completion of clinical trials.

Shawn O'Connor: During the quarter, we added seven new customers and had 10 customer upsells.

Shawn O'Connor: Revenue in our quantitative systems pharmacology or USP business unit decreased 6% for the quarter and increased 77% for the fiscal year to date as a reminder, quarterly results can be lumpy for Q S. P based.

Shawn O'Connor: <unk>.

The high price per license and a small pool of end users.

Shawn O'Connor: Turning to our services segment.

Shawn O'Connor: Revenues increased 27% during the second quarter and 22% for the six month period with solid bookings and a healthy pipeline of active opportunities.

Shawn O'Connor: Clients are being cautious about spending, but we're seeing a pickup in rfps, which is a positive sign.

Shawn O'Connor: Theres still lingering volatility associated with start and stop decisions on drug programs and data delivery disruptions related to the completion of clinical trials.

Sean O'Connor: But we are managing through this volatility quite well to maintain a steady flow of projects, activities, and utilization of our scientific staff. Total backlog at the end of the second quarter was $18 million, which is strong as we enter the second half of our fiscal year. Services revenue in our CPP business unit was solid, up 10% in the second quarter and 11% for the full fiscal year, despite the impact of volatility. In our QSP business unit, service revenues grew 78% in the second quarter and 89% for the full fiscal year, benefiting from immunology and cancer model projects. Services revenue in our PBPK business unit increased 39% for the second quarter and 11% for the full fiscal year, delivering strong growth after a sluggish first quarter performance. And with that, I'll turn the call over to Will.

Shawn O'Connor: But we are managing through this volatility quite well to maintain a steady flow of projects activities and utilization of our scientific staff.

Shawn O'Connor: Total backlog at the end of the second quarter was $18 million, which is strong as we enter the second half of our fiscal year.

Shawn O'Connor: Services revenue in our CPP business unit were solid up 10% in the second quarter and 11% for the full fiscal year, despite the impact of volatile volatility.

Shawn O'Connor: And our Q S. P business unit service revenues grew 78% in the second quarter and 89% for the full fiscal year benefiting from immunology and cancer model projects.

Shawn O'Connor: Services revenue in our P. B PK business unit increased 39% for the second quarter and 11% for the full fiscal year delivering strong growth after a sluggish first quarter performance.

Shawn O'Connor: And with that I'll turn the call over to will.

William Frederick: Thank you, Sean. To recap our strong second quarter performance, total revenue increased 16% to $18.3 million. Software revenue increased 11%, representing 63% of total revenue, and services revenue increased 27%. On a trailing 12-month basis, software revenue increased 22%, and services revenue increased 14%. As we communicated last quarter, the business unit reorganization we implemented in the first quarter to improve our focus on customers also allowed us to evaluate our departmental structure with a focus on continuing to improve operational performance and profitability, while providing our investors improved visibility into our progress. As a result, we moved all services personnel into the Costs of Revenue Department.

William Frederick: Thank you Sean.

William Frederick: To recap our strong second quarter performance total revenue increased 16% to $18 $3 million.

William Frederick: Software revenue increased 11%, representing 63% of total revenue.

William Frederick: Services revenue increased 27%.

On a trailing 12 months basis software revenue increased 22% and services revenue increased 14%.

William Frederick: As we communicated last quarter the business unit reorganization, we implemented in the first quarter to improve our focus on customers also allowed us to evaluate our departmental structure with a focus on continuing to improve operational performance and profitability, while providing our investors improved visibility to our.

William Frederick: Yes.

As a result.

William Frederick: Moved all services personnel into cost of revenue departments.

William Frederick: This has no impact on our total costs or net income but does impact the services gross margin trend compared to prior periods. Accordingly, Q2 total gross margin was 72% compared to 83% last year, with software gross margin at 88% versus 92% and services gross margin at 44% versus 66%. Approximately $1.3 million of the increase in cost of revenues corresponds to a $1.3 million decrease in G&A expenses. Turning to software revenue contribution by business unit for the quarter, PVPK was 54%, CPP was 24%, CHEM Informatics was 18%, and QSP was 4%. For the trailing 12 months, PVPK's contribution was 55%, CPP was 20%, Cheminformatics was 19%, and QSP was 6%. For the trailing 12 months, our customer renewal rate increased to 93% based on fees and increased to 84% based on account.

William Frederick: This has no impact on our total costs or net income, but does impact the services gross margin trend compared to prior periods.

William Frederick: Accordingly, Q2 total gross margin was 72% compared to 83% last year with software gross margin at 88% versus 92% and services margin at 44% versus 66%.

William Frederick: Approximately $1.3 million of the increase in cost of revenues corresponds to a $1.3 million decrease in G&A expenses.

William Frederick: Turning to software revenue contribution by business unit for the quarter PV PK was 54% C. P. P was 24% Kim Informatics was 18% in Q S. P was 4%.

William Frederick: For the trailing 12 months P. B P. K contribution was 55% C. P. P was 20% Chem informatics was 19% in Q S. P was 6%.

William Frederick: For the trailing 12 months, our customer renewal rate increased to 93% based on fees and increased to 84% based on accounts.

William Frederick: For the trailing 12 months, average revenue per customer increased to $95,000. Shifting to our services revenue contribution by business unit for the quarter, CPP was 43%, QSP was 27%, PBPK was 25%, and REG was 5%. For the trailing 12 months, CPP's revenue contribution was 43%, QSP was 30%, PVPK was 22%, and REG was 5%.

William Frederick: Trailing 12 months average revenue per customer increased to $95000.

William Frederick: Shifting to our services revenue contribution by business unit for the quarter.

William Frederick: C. P. P was 43% Q S P was 27%.

William Frederick: B P K was 25% and Reg was 5%.

William Frederick: For the trailing 12 months C. P. P contribution was 43% U S. P was 30%.

William Frederick: D P K was 22% and rig was 5%.

William Frederick: Total services projects worked on during the quarter were 176, a slight decrease from 183 last year, and quarter end backlog increased to $18 million compared to $15.4 million last year. Anticipated revenue from backlog within 12 months increased to approximately 90%. Turning to our consolidated income statement for the quarter, R&D expense was 7% of revenue, compared to 8% last year. Sales and marketing expense were 11% of revenue, the same as last year. And G&A expense was 30% of revenue compared to 38% last year. Total operating expenses were 48% of revenue compared to 58% last year. Income from operations was 24% of revenue compared to 26% last year. Income before income taxes was 29% of revenue compared to 32% last year. Year-over-year expenses increases were primarily due to the acquisition of Immunitrics, compensation-related increases due to headcount additions, increases in stock compensation, and general annual salary adjustments for existing employees.

William Frederick: Total services projects worked on during the quarter was 176, a slight decrease from 183 last year.

William Frederick: And quarter end backlog increased to $18 million compared to $15.4 million last year.

William Frederick: Anticipated revenue from backlog within 12 months increased to approximately 90%.

William Frederick: Turning to our consolidated income statement for the quarter R&D expense was 7% of revenue compared to 8% last year sales and marketing expense was 11% of revenue same as last year.

William Frederick: G&A expense was 30% of revenue compared to 38% last year.

William Frederick: Total operating expenses were 48% of revenue compared to 58% last year.

William Frederick: Income from operations was 24% of revenue compared to 26% last year.

William Frederick: And income before income taxes was 29% of revenue compared to 32% last year.

William Frederick: Year over year expenses increases were primarily due to the acquisition of immuno tricks.

William Frederick: Compensation related increases due to head count additions and increases in stock compensation and general annual salary adjustments for existing employees.

William Frederick: Other income was $0.8 million this quarter compared to $1 million last year, primarily due to an increase in interest income of $0.4 million, partially offset by an increase in the fair value adjustment of the immunetrics earn-out liability of $0.4 million. Net income for the second quarter was $4 million, or 22% of revenue, compared to $4.2 million, or 27% of revenue last year. Diluted earnings per share was the same as last year at $0.20, reflecting a decrease in diluted shares outstanding as a result of last year's share repurchase. Second quarter adjusted EBITDA increased to $7.1 million compared to $6.2 million last year, both of which were 39% of revenue. We calculated adjusted EBITDA 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.

William Frederick: Other income was $28 million this quarter compared to $1 million last year, primarily due to an increase in interest income of point $4 million, partially offset by an increase in the fair value adjustment of the immune networks earn out liability of 0.4.

William Frederick: <unk>.

William Frederick: Net income for the second quarter was $4 million or 22% of revenue compared to $4 $2 million or 27% of revenue last year.

Diluted earnings per share was the same as last year at 20 cents, reflecting a decrease in diluted shares outstanding as a result of last year's share repurchase.

William Frederick: Second quarter, adjusted EBITDA increased to $7 $1 million compared to $6 $2 million last year and both were 39% of revenue.

William Frederick: We calculate adjusted EBITDA by adding back interest taxes, depreciation and amortization stock based compensation.

William Frederick: Dinner 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.

William Frederick: The reconciliation of this non-GAAP metric to net income, the relevant GAAP metric, is in our earnings release and on our website. Income tax expense for the second quarter was $1.2 million compared to $0.9 million last year. And our effective tax rate increased to 23% from 18% last year. The increased tax rate was primarily the result of changes in prior year estimated taxes and foreign tax-related differences we benefited from last year. Now that we're halfway through our fiscal year, our current effective tax rate estimate for the full fiscal year is 20 to 23%. Finally, turning to our balance sheet, we ended the quarter with $117.5 million in cash and investments. We remain committed to our capital allocation strategy and corporate development initiative as we continue to seek opportunities for strategic acquisitions, investments, and partnerships. I'll now turn the call back to Sean.

William Frederick: The reconciliation of this non-GAAP metric to net income the relevant GAAP metric is in our earnings release and on our website.

William Frederick: Yeah.

William Frederick: Income tax expense for the second quarter was $1.2 million compared to point $9 million last year.

William Frederick: Our effective tax rate increased to 23% from 18% last year.

William Frederick: The increased tax rate was primarily the result of changes in prior year estimated taxes and foreign tax related differences, we benefited from last year.

William Frederick: Now that we're halfway through our fiscal year, our current effective tax rate estimate for the full fiscal year is 20% to 23%.

William Frederick: Finally, turning to our balance sheet, we ended the quarter with $117 $5 million in cash and investments we.

William Frederick: We remain committed to our capital allocation strategy and corporate development initiative as we continue to seek opportunities for strategic acquisitions investments and partnerships.

William Frederick: Now I'll turn the call back to Sean.

Sean O'Connor: Thank you all. Our second quarter results reflected strong performance in both our software and services segments. Market conditions have improved, but these changes require time before they translate into actual bookings and revenue. We remain cautiously optimistic.

Sean: Thank you will.

Sean: Our second quarter results reflected strong performance in both our software and services segments.

Sean: Market conditions have improved but these changes require time before they translate into actual bookings and revenue we remain cautiously optimistic.

Operator: With our strong first half performance, combined with market improvement, we're well positioned to meet our stated fiscal 2024 guidance targets, which include total revenue between $66 and $69 million, year over year revenue growth in the range of 10 to 15%, software mix between 55 and 60, services mix between 40 and 45%, diluted earnings per share of 66 to 68 cents, and year over year diluted earnings per share growth of 35 to 39%. Before turning to the Q&A, I'd like to take the opportunity to reinforce the key differentiators of our story. We're a clear leader in software and consulting services in a large and growing biosimulation market. Simulations Plus is a leader in biosimulation technology, leveraging AI tools since the company's inception to optimize drug discovery and clinical development through to and beyond regulatory approval.

Sean: With our strong first half performance combined with market improvement, we're well positioned to meet our stated fiscal 'twenty 'twenty four guidance targets, which include <unk>.

Sean: Total revenue between 66 and $69 million.

Sean: Year over year revenue growth in the range of 10% to 15%.

Sean: Software and mix between 55 and 60%.

Sean: Services mix between 40 and 45%.

Sean: Diluted earnings per share of 66 to 68 cents.

Sean: Year over year diluted earnings per share growth of 35% to 39%.

None: Before turning to the Q&A I'd like to take the opportunity to reinforce key differentiators of our story.

We're a clear leader in software and consulting services in a large and growing biosimilar <unk> market.

None: Simulations plus is a leader in Biosimilars <unk> technology, leveraging AI tools since the company's inception to optimize drug discovery and clinical development through two and beyond regulatory approval.

Operator: We have a compelling customer value proposition and a strong competitive position with high barriers to entry. We have an attractive financial profile with a strong balance sheet and no debt. And finally, we have a seasoned management team with scientific leadership and significant expertise in modeling and simulation. Thank you for your time today. And with that, I'll turn the call over to the operator for questions.

None: We have a compelling customer value proposition and strong competitive position with high barriers to entry.

None: We have an attractive financial profile with a strong balance sheet and no debt.

None: And finally, we have a seasoned seasoned management team with scientific leadership and significant expertise in modeling and simulation.

None: Thank you for your time today and with that I'll turn the call over to the operator for questions.

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 key. Our first question comes from the line of Matthew Hewitt with Craig Hallam. Please proceed with your question.

None: Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.

None: To ask a question you May press star one on your telephone keypad.

None: A confirmation tone will indicate your line is in the question queue.

None: You May press Star two.

Operator: Your question from the queue.

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

Operator: Our first question comes from the line of Matt Hewitt with Craig Hallum. Please proceed with your question.

Matthew Gregory Hewitt: Good afternoon, congratulations on the second huh good quarter here in a row, maybe first stop.

Matthew Gregory Hewitt: To follow up a little bit on the macro environment.

Matthew Gregory Hewitt: Obviously, you're starting to see some improvement on the biotech side you commented on that I'm wondering on the large pharma side.

Matthew Gregory Hewitt: How much of that as a funding versus kind of some of the re prioritization and some of the other items that have kind of hit that market over the past few quarters is it more just that or is there maybe some funding on.

Matthew Gregory Hewitt: Good afternoon. Congratulations on the second good quarter here in a row. Maybe first up, to follow up a little bit on the macro environment. Obviously, you're starting to see some improvement on the biotech side. You commented on that.

Matthew Gregory Hewitt: On the large pharma side as well.

I think that yeah.

Sean O'Connor: I'm wondering on the large pharma side, how much of that is funding versus kind of some of the re-prioritization and some of the other items that have kind of hit that market over the past few quarters? Is it more just... That, or is there maybe some funding on the large pharma side as well?

Matthew Gregory Hewitt: Yeah.

Matthew Gregory Hewitt: During the last couple of years, the environment biotech versus pharma has been a little different certainly funding issue on the biotech side.

Pharma side, that's been the less funding as it has been.

Circumstances related to the individual company are their outlook in terms of patent.

Sean O'Connor: I think that, yeah, you know, through the last few years.

Sean O'Connor: In the environment, biotech versus pharma has been a little different, certainly a funding issue on the biotech side. On the pharma side, it's been less funding as it has been circumstances related to the individual company, their outlook in terms of patent exposure on revenue streams, sorting their drug programs and investments there, their access or acquisition, I should say, of new programs have created a turn there. You've got a wide range of scenarios from Novo Nordisk at one extreme to other companies. Pfizer is an example that has announced significant cutbacks this year. So most everyone is obviously in between those two extremes, but there's still a lot of churn and cautiousness and sorting out of drug programs that are going to be invested in or not invested in. The actual funding of those companies has been less of an issue in terms of their situation.

Matthew Gregory Hewitt: Those are on revenue streams.

Matthew Gregory Hewitt: We're sorting their drug programs.

Matthew Gregory Hewitt: And the investments there are there access or acquisition I should say of new programs.

Great.

Matthew Gregory Hewitt: There you've got a wide range of scenarios from.

Matthew Gregory Hewitt: Novo Nordisk.

Matthew Gregory Hewitt: One extreme and other companies are Pfizer as an example, that's announced.

Matthew Gregory Hewitt: We can cut backs this year.

Matthew Gregory Hewitt: So most everyone is obviously in between those two extremes.

Matthew Gregory Hewitt: But there's still a lot of churn and cautiousness.

Matthew Gregory Hewitt: And the sorting out of drug programs, where they're gonna be invested in or the best of them.

Matthew Gregory Hewitt: So funding of those companies has been less of a less of an issue in terms of their situations.

Sean O'Connor: Got it. And then regarding the biotech funding, obviously, it has been, I think everyone's kind of seen the strong start to the year, but how quickly do you start to see that from a bookings perspective? I mean, is it pretty quickly, or is there a little bit of a lag? So when we're seeing the IPOs and the secondaries hit, is there a quarter or two lag historically, or does that, you know, show up in your revenues right away?

None: Got it and then regarding the biotech funding obviously it.

None: It has been I think everyone's kind of seen the strong start to the year, but how quickly do you start to see that from a bookings perspective, I mean is it pretty quickly or is there a little bit of a lag. So when we're seeing the ipos in the secondaries hit is there a quarter or two lag historically or does that you know.

None: Show up in your revenues right away.

Sean O'Connor: Yeah, we'll see. I mean, it's anecdotal, depending on where their drug candidates are when they get the funding. Where are those candidates in terms of the cycle of drug development?

None: Yeah, we'll see I mean, it's anecdotal depending on where their drug candidates are when they get the funding.

None: Where are those candidates in terms of the.

None: The cycle of drug to drug development.

Sean O'Connor: You know, typical sales cycles in our industry can, you know, range from, I need a new seat, and I need it tomorrow. I just hired somebody to prolong budgetary activities. So, I know I'm dancing around and answering your question because I can't give you a two month, it's a three month sort of lag. It's across, you know, runs across the spectrum in terms of timing. But certainly, within the first quarter or thereabouts of funding activity, you're not going to see a quick turn in terms of market volume. But, you know, in the six to nine month range, I would anticipate many of these companies that are getting funded are going to be advancing their candidates, especially those that are getting funding with drugs in the clinic, looking to go to the next level, and close their protocols on the next clinical trial. Those are the decision points that drive purchasing decisions.

None: The typical sales cycles in our industry can you know range too I need a new seat and I need it tomorrow I just hired somebody to.

None: The girl on the budgetary activity, so I know I'm dancing around and answer to your question because I can't give you a two months. It's a three month, that's sort of a sort of blogs.

None: It's across the world runs across the spectrum in terms of timing, but certainly with them within the first quarter or thereabouts of the funding activity.

None: A quick term in terms of the Mark Mark with volume.

But you know in the six to nine months ago intelligence as a bait to many of these companies that are getting funded.

None: To be advancing their candidates, especially those that are getting funding with the drugs in the clinic I'm looking to go to the next level.

None: Closed their protocol on the next clinical trial those those are decision points will drive the purchasing decisions.

None: Got it and then maybe one more for me and I'll hop back in the queue, but obviously a big pop in admit I think he quadruple the number of customers versus last quarter are the new wins I should say your upsells were up three X versus last quarter.

Matthew Gregory Hewitt: And then maybe one more from me and I'll hop back in the queue, but obviously, a big pop in ADMET. I think you quadrupled the number of customers versus last quarter. The new wins, I should say, your upsells were a lot higher.

None: Maybe a little bit more color on what drove the strong pop there.

None: Yeah.

None: Technology is getting.

Sean O'Connor: Yeah, you know, the technology is getting more acceptance in the marketplace in terms of

None: More acceptance of it.

None: The marketplace in terms of what we're doing the questions and that's the companies were focused on new generative AI.

Sean O'Connor: A.I. solutions, the recognition that that which is in ADMET Predictor and the contributions we make there are not displaced by many of the new technologies that are being brought to the market. I am extremely pleased yet another A.I. startup, a biotech company, has licensed our ADMET Predictor tool to supplement what they are building separately. I think that endorses that we're not being displaced or replaced in terms of many of these technology builds, A.I. technology builds, and the value of what we've built and brought to the market for many years here and continue to enhance and improve has its place and value in the lead optimization process.

None: Our solutions are the recognition that that which is and I've met predictor and the contributions we make there.

None: Are not displace many of the new technologies that are being brought to the parts of the market.

None: Extremely pleased yet another.

None: AI start up biotech company.

None: Licensed or asthma predictor tool to supplement to what they are building.

None: Separately I think that endorses that are you know, we're not being displaced or replaced a in terms of many of these technology built technology builds.

And the value of what we built and brought to the market for many years here and continue to enhance and improve the has its place and value in the lead optimization process.

Matthew Gregory Hewitt: Got it. Well, congratulations again on a strong quarter. Thanks, fam.

None: Got it well congratulations again on the strong quarter.

None: Thanks, Matt.

None: Yeah.

David Michael Larsen: Our next question comes from the line of David Larsen with BTIG. Please proceed with your question.

None: Our next question comes from the line of David Larsen.

David Michael Larsen: Please proceed with your question.

David Michael Larsen: Hey, congrats on a very good quarter. Can you talk a little bit about the sequential increase in gastro plus revenue? I mean, it looked very good to me, especially given that you had the harmonization process.

David Michael Larsen: Hey, congrats on a very good quarter can you talk a little bit about the sequential increase in gastro plus revenue I mean, it looked very good to me I'm, especially given that you had the harmonization process last year, just any more color or thoughts around that would be great.

Sean O'Connor: Growth in the specific quarter here, year-over-year comparison, was not tremendous, but this was our step-up quarter, as the harmonization process that completed last year set in motion a little bit different seasonality pattern for the year. The first quarter to second quarter jump was an even larger jump sequentially for us, and the test was performing quite well. The harmonization process complete doesn't mean that there aren't licenses that slip from one quarter to another quarter based upon their closure at the end of any given quarter and whatnot. So, we had some impact from that referenced in the prepared comments with regard to softness in the Asian market, where we're seeing, especially in China, some pullback in terms of spending related to well-known issues taking place there. So, momentum is very good on GastroPlus. We're performing to our expectations for the year and look for that to continue to grow at a steady pace and continue to draw revenues.

None: Yeah, you know growth in the specific quarter here year over year comparison was not a it's not tremendous but this was our step up quarter.

None: The harmonization process that completed last year set in motion a little bit different seasonality pattern through the year.

None: First quarter to second quarter jump was it wasn't even larger jump sequentially for us and the task was performed quite well the harmonization process complete it doesn't mean that there arent a licenses that slipped from one quarter to another quarter.

None: Based upon their their closure at the end of the window of any given quarter and what Hudson. So now we have some some impact from that.

None: Referenced in the prepared comments with regard to softness in the Asian.

None: Asian market, where we're saying, especially in China.

None: Some pullback in terms of spending related to a well known issues taking place there.

So momentum is very good on guests' requests, we're performing to our expectations for the year.

None: Look for that to continue to grow.

None: I think when people look to.

None: So those are all weapons.

Sean O'Connor: Okay, and then IQVIA in their research business, they showed tremendous growth. It was, I think, one of their best quarters they've ever printed.

Okay, and then I cubie are in their research business. They showed tremendous growth. It was I think one of their one of their best quarters, they've ever printed like I think it was second or maybe third best for Ikea and I'm seeing a very good increase year over year in model X. I mean is there any correlation to that I mean, how tied is monolithic suite.

David Michael Larsen: I think it was second or maybe third best for IQVIA. And I'm seeing a very good increase year over year in monolix. Is there any correlation to that? I mean, how tied is the monolix suite to clinical trial activity? Can't it create, like, virtual clinical trials, or is that, I guess, what drove that huge increase there, over 30% year over year, 38% year over year growth? Yeah, monolix.

None: To clinical trial activity cant take create like virtual clinical trials or is there I guess, what drove that huge increase there over 30% year over year of 38% year on year growth.

Sean O'Connor: Monolith is doing quite well. It made it through its urbanization process last year.

None: Among them, which is doing quite well.

<unk> made it through its urbanization process last year since our acquisition of that product line.

Sean O'Connor: Since our acquisition of that product line in 2020, it has been a fast grower, our fastest growing software platform these last few years, and continues to perform well in the marketplace, displacing the incumbent, the leading market share product there. This past quarter, we had yet another large pharma company that made the commitment to displace entirely the competitive product and go 100% to the use of Monolith for their needs there. So, its momentum and progress continue quite strong into the future. It's tied to clinical trial activity. Yes, not quite so direct that, hey, we've got 10 clinical trials this quarter; we need an extra copy of Monolith. But generally, there's a strong indirect correlation between development programs, clinical trials, and the amount of modeling and simulation work that is being performed, and therefore, it leads to growing staff and our clients that need Monolith on their desktops. But it's not quite so immediate quarter to quarter.

None: In 2020 has been aimed at fast grower, our fastest growing software platform.

None: These last few years.

None: Continues to perform nicely in the market place displacing.

The incumbent of the.

None: Leading market share product this past quarter, we had yet another large pharma company.

None: They've made the commitment to displace entirely or the competitive product and go 100% to a user.

None: So the model works for their needs. There. So it's it's a momentum and progress continues quite strong.

None: Into the future.

None: It's tied to clinical trial activity.

None: Yes, not not quite so direct at the Hague.

Got.

10 clinical trials this quarter, we need an extra copy of mono legs, but but generally there is a.

None: Drawing and direct a correlation between development programs clinical trials and the amounts of modeling and simulation work that is being performed and therefore leads to.

None: Growing staff and our clients that our model.

None: All the lights on or on their desktop, but it's it's it's not quite so immediately.

None: Quarter to quarter.

David Michael Larsen: Okay, and then the pricing, the average revenue per customer, I think it came in at like $113,000. That's up from $79,000 in one case. I mean, that looked very good to me. The fee retention, though, 94%. I mean, you had a great quarter, but it was down from 100% in one case. Anything going on there? What's it?

None: Okay, and then the pricing the average revenue per customer I think it came in at like 113000, that's up from 79 in <unk>.

That looked very good to me.

None: See retention.

None: So 94% I mean, you had a great quarter, but it was down from 100% in one can you just.

None: Anything going on there, what's what's sort of driving that.

Sean O'Connor: Yeah, you know, we've more typically operated at a mid-90s level, 95, 96% in terms of fees. Our performance last quarter was quite extraordinary, and not to be complaining, not that I'm complaining about it, but it created a peak for which we will always be compared, no doubt. So, you know, the revenue renewal rate, I should say, this quarter was kind of the norm, even though, as I mentioned, there were a couple of renewals that slipped out of Q2. So, you know, I think we're in good shape. We're in good shape here. The components of the rule, the number of accounts that are renewing, the stickiness of our price increase as implemented, all those seem to be performing well at this point.

None: Yeah, you know we.

None: Weak more typically operated at a mid nineties level 90, 596% in terms of fees.

None: Our performance.

None: Last quarter was quite extraordinary and so ought to be complaint.

None: Anything about it but.

None: It created a peak for which we will always be compared to them. So you know the revenue renewal rates I should say.

None: This quarter was kind of the kind of the norm even though.

None: As I mentioned.

None: Sure.

None: A couple of the renewals that slipped out of Q2.

So oh I see.

None: We're in good shape very good shape, there are the components that drove the number of accounts.

None: Ah renewing the stickiness of our.

None: Our price increase is implemented at all of those are seem to be performing well at this point.

David Michael Larsen: Okay, great. And then you recently announced a new corporate development effort. Can I maybe just talk a little bit about what that is?

None: Okay, Great and then you recently announced a new corporate development effort can you maybe just talk a little bit about what that is have you actually made any investments yet and it's my understanding that this may enable you to capture.

Sean O'Connor: Have you actually made any investments yet? And it's my understanding that this may enable you to capture some of the upside. If you work with a pharma client and you help them launch a successful drug, you could potentially capture some of that very significant revenue stream long-term.

None: Some of the upside if you if you work with a pharma client and you help them launch a successful drug you could potentially capture some of that very significant revenue stream long term is that how it works just any color there would be great. Thanks.

Sean O'Connor: Is that how it works? Any color there would be great. Thanks.

Sean O'Connor: Yeah, Dave, yeah, announced the program this year, and we're certainly looking at a number of opportunities as we speak here. It was really born out of our acquisition strategy, which remains, first and foremost, our number one priority in terms of the use of our capital in terms of identifying additional acquisitions to add to the simulation.

None: Yeah.

None: Yeah down some program this year and certainly looking at a number of opportunities.

None: We speak here.

He was really born out of the you know our acquisition.

None: <unk> strategy of good screen names person caused most number one priority in terms of the use of our capital in terms of identifying.

None: Additional acquisitions to add to the simulations plus our product and service portfolio.

Sean O'Connor: [inaudible] technological linkage, integration into our existing technology, all things that we could get benefit from more quickly as we move forward, rather than waiting for them to mature and become an acquisition target down the road. So a number of those opportunities are being assessed as we speak, and we hope to find some candidates to make our first investments of this nature. Yeah, I mean, one profile of investment in these companies may be companies that, through their use of our technology, their mission may include drug development processes by which our investment in them would allow us to participate in the success of their drug programs as well. Our first and foremost sort of filter, though, will be their technology and its value in terms of our business model, which would be software license revenue and or service revenue. But it does present an interesting scenario where we might be able to benefit from their drug development program success in the long term.

None: But in that effort, we encounter a number of situations with companies that have good technology capabilities.

None: But for a whole host of reasons, we may not be acquisition candidates.

None: At this stage of the game and yet their technology that they do might have a.

None: So very positive go to market strategies.

None: Technological linkage integration into our existing technology.

None: Technology all of the things that we could get benefit from more quickly as oppose to waiting for them to mature and become an acquisition target down the road.

So a number of those opportunities are being assessed.

None: As we speak and hope to claim some candidates to make a personal investments of this nature, Yeah, I mean, one one profile.

The other investment.

None: And these companies may be companies that are.

None: Their use of our technology there.

None: The charge you mentioned may be include a drug development processes by which are our investment in them, where the wallets to.

Sean O'Connor: Okay, great. Congratulations on a good quarter. I'll hop back in the queue.

None: A play in the success of their drug programs as well.

None: First and foremost our sort of filter, though will be the their technology and its value in terms of our business model, which would be.

Jay: Jay, please stand up.

Francois Brisebois: Our next question comes from the line of Francois Brisebois with Oppenheimer. Please proceed with your question.

None: Where license revenue or service revenue.

Francois Brisebois: Hi, thanks for the question. I was just wondering if there might have been a little bit of a misunderstanding maybe of, you know, what differentiates you from these newer AI drug development plays? And in terms of data, you know, you guys have been around for a while, and you have very strong data to build the algorithms on, and that data has evolved. But is that something that anyone else could kind of shorten or accelerate the path to getting to product, or is that always going to be an edge for you guys just based on the time that you guys have been in business?

None: But it does present, an interesting scenario, where we might be able to benefit from.

None: Their drug development programs, especially in the long term.

None: Okay, great Congrats on a good quarter I'll hop back in the queue.

None: Thanks, Dan.

None: Yeah.

None: Our next question comes from the line of Francois.

Francois: With Oppenheimer. Please proceed with your question.

Francois: Hi, Thanks for the question I was just wondering has there been a little bit of a misunderstanding maybe.

Francois: What differentiates you from these newer AI drug development plays in and in terms of data is you know this.

Francois: They've been around for a while and you have very strong data to build the algorithms on and that data is involved but is that something that anyone else could kind of shorten or accelerate the path to getting to product or is that always going to be an edge for you guys just based on.

Time that you guys have been in business.

Sean O'Connor: Good question, Frank. Good one.

None: A good question Frank.

Sean O'Connor: We always get questioned in terms of the impact of some of the new AI technology ventures in the marketplace that have garnered great attention and funding. So the questions abound and our perspective here is one in which we've participated in the development of AI technology for some time ourselves, very focused with our AdMob and think that we've got, you know, best-of-class product out there for that purpose. The technology ventures that have received this spotlight and funding are typically focused in other areas, biomarker identification, lead generation of some nature, and as I mentioned before, I'm quite pleased, you know, endorsing our perspective that we are best at breeding what we're doing and not being displaced by these other investments in technology development is the fact that yet another one of them became a customer this quarter and are using our best-in-class property prediction tool to supplement what they're developing.

None: We always get questions in terms of the impact.

Some of the new AI technology ventures in the marketplace that are.

None: Garner great attention.

None: And funding them and.

None: So the questions are bound.

None: And.

None: Perspective here is one in which we participate.

None: Dissipated in the development of AI technology for some time or ourselves very focused with our admin predictor product and its use in terms of property prediction and think that we've got a you know.

None: Best of class product out there for that purpose.

None: The technology ventures that have received this spotlight and funding.

None: Are typically focused in other areas of the biomarker identification.

None: Lead generation of some some nature.

None: And as I mentioned before I'm quite pleased to endorsing our perspective that we are best of breed in overdue doing end up.

None: Being displaced by these other investments in technology development that is the fact that yet another one of them.

None: The customer this quarter and are using our best in class a property production tool.

None: The supplement are what they're what they're developing.

Sean O'Connor: So you know, yeah, in the context of AI, you know, certainly feel comfortable with our position and the success we have and will have in our focus on the use of that technology. In terms of data, the second part of your question, yeah, we've obviously been in the game for an extended period of time.

None: So yeah in the context of a V I certainly.

None: Certainly feel comfortable with our position and the success, we have and will have.

None: In our in our focus to the use of that technology.

None: Yeah.

None: In terms of data as far as second part of your question. Yeah. We we obviously have done they have to keep in the game for an extended period of time.

Sean O'Connor: Public and private data are obvious sources. Public data has improved tremendously, both in terms of its volume and accessibility, but its curation is still a challenge. So we've got a leading edge in terms of years of developing a means to curate that data into a meaningful format that can be used in terms of the work that we do. On the private data side, we've got years of working with collaborative clients and or partnerships with regulatory agencies that allow this access to data that is not readily available out there to anyone. Others can make partnerships; others can improve in curation. There is always a need on our part to keep running hard in terms of keeping our advantage in this regard. And I believe we have the capability to do that. And again, I come back to where we apply that data in terms of our predictive capability and have that predictor as ongoing evidence of our ability to stay ahead of the curve there.

None: The public and private data are the obvious sources.

The public data.

None: It has improved tremendously both in terms of its volume and accessibility.

None: But it's curation.

None: It's still a challenge so we've got a leading edge in terms of years of developing a means to curate that data.

So a meaningful format that can be reused in terms of the work that we do.

None: On the private data side, we've got some years of working with collaborative clients indoor partnerships with the regulatory agencies that are.

None: It allows us access to data that is not readily available out there to anyone.

None: Others can make partnerships others can improving curation.

None: There is always a need on our part to stay.

None: Running hard in terms of keeping our advantage in this regard and believe we have the capability to do that and again I come back to where we apply that data in terms of the predictive capability of that about predictors.

None: Ongoing evidence of our ability to just stay at the head of the curve there.

None: Yeah.

Francois Brisebois: And then maybe lastly, in terms of, it's been talked about a little bit in previous questions here, but in terms of large pharma versus biotech, do you ever get help kind of selling the program to biotech from large pharma, just because a lot of these patent cliffs are coming and so much of the revenue generation, you know, and so much of the growth of large pharma comes from acquisitions of these biotechs? I'm just wondering if, for them, when they're looking at biotechs, if it would help them if the biotech was actually using this software as well to compare notes. So, has that ever happened where large pharma helps out with biotech clients, or are they really, really separate?

None: And then maybe lastly in terms of it's been talked about a little bit by the previous questions here, but in terms of large pharma versus biotech do you ever get them help.

None: Selling the program to biotech from large pharma just because a lot of these patent cliffs coming and so much of the revenue generation of it.

None: Their growth with large pharma comes from acquisitions of these biotechs.

Just wondering if for them when they're looking at biotechs, if it would help them at the biotech was actually using the software as well.

None: No. So has that ever happened, where large pharma helps out with biotech clients or are they really really separate pieces here.

Sean O'Connor: I'm searching for an example where it's not a separate piece, Frank. You know, we've never been introduced to and strong-armed into a biotech as a result of a large pharma relationship. Our tools may be being used internally at large pharma in assessing some of the—in their due diligence process and assessment of their acquisition targets that could be happening out there. We occasionally get involved in evaluating investment opportunities, but it's not a frequent occurrence. But, you know, I don't know that there's a lot of leverage.

None: I'm searching for an example, where it's not a separate piece right.

None: We've never been introduced and the strong armed into a biotech as a result of the large pharma relationship.

None: Our tools may be being used internally at large pharma.

None: Assessing some of it in their due diligence process and an assessment of their acquisition.

That's that could be happening out there, we occasionally get involved in.

None: Evaluating investment opportunities, but it's not a great frequency.

But no I I don't know that there's a lot of leverage probably the biggest impact is as funding goes into the a biotech companies as they look to hire people they hire people from large pharma.

Sean O'Connor: Probably the biggest impact is that as funding goes into the biotech companies, they look to hire people. They hire people from large pharma that are, you know, pre-existing SLP product users, and that creates an opportunity to grow more quickly in terms of the sales cycles we were talking about earlier. In terms of sales cycles as to funding leading to an acquisition, probably in between, there is their hiring of an individual, and then that hiring leads to a knock on our door in terms of filling this toolkit to undertake the efforts internally at the new biotech—a newly funded biotech.

None: That are.

None: Creating this thing S. L P product users.

None: And that creates an opportunity to more quickly in terms of sales cycles. We were talking about earlier in terms of sales cycles as to funding leading to an acquisition.

None: Probably in between there is their hiring of the size.

None: Of an individual and they're not hiring.

None: And it leads to a knock on our door in terms of the prelim guess toolkit to undertake the yogurts are internally.

Francois Brisebois: That makes sense. If I could just squeeze the last one in, do you see? Funding was tough for a long time with biotech, and it's starting to turn, definitely with the start of this year. But do you ever see, ultimately, if your guys' one of the big advantages with your software is to cut costs and, you know, let go of programs that don't necessarily have a good chance of success? Ultimately, do you expect lower funding if this was to happen in the future to not really impact you at all because the thesis is to actually cut costs, or is this, you know..., too far, you know, further?

None: Newly funded okay.

None: Yeah, no that makes sense and if I can just squeeze a last one and you see the funding was tough for a long time with biotech and it's starting to turn them definitely with the start of this year, but do you ever see ultimately if if your guys is one of the big advantages with your software is to cut costs and you know.

None: Like go programs that don't necessarily have a good chance of success.

None: Ultimately you know do you expect lower funding if this was to happen in the future.

None: Not really impact you at all because the thesis is to actually cut costs or is this you know and too far further distant future here I guess.

Sean O'Connor: Yeah, you're getting pretty far out in the columns on the spreadsheet of predicting, predicting the future there a little bit. You know, I don't know that.

Yeah, Youre getting pretty far out in the columns on the spreadsheet are predicting.

None: In the future there is a little bit.

None: I think I don't know that I I don't know that the efficiency will lead to less funding them you know the funding ratio.

Sean O'Connor: I don't know that efficiency will lead to less funding. You know, the funding ratio between funding and successful drug programs, I think it's still remaining somewhat, somewhat static there, hopefully improving them in the long run and will certainly take any leap that you can provide, or we can help those biotechs be more efficient in their programs. But I think it's a couple steps removed in terms of the linkage that you're describing.

None: Funding and successful drug programs I think it's still remaining.

None: Somewhat somewhat static the hopefully improves in the long run and we'll certainly take any leap. The leap that you can provide a weekend we can help those biotech.

None: More efficient and.

None: And in their programs, but.

None: I think it's a couple of steps removed in terms of the linkage with okay, what you're describing.

Francois Brisebois: Yeah, I just meant less dependent on the funding environment sort of thing for future maybe downturns or whatnot.

None: Yeah, I just meant like less dependent on the funding environment sort of thing for future, maybe downtown or whatnot.

Sean O'Connor: Yeah, we certainly have an impact in terms of a more efficient spend on the funding that takes place, more efficient spend of that, but the drug program, depending on the circumstances of that entity, may or may not require, even efficient spend may lead to more funding for further development.

None: Now we can we certainly have impact in terms of a more efficient spend on the funding that takes place more cushion some of that but.

None: Drug program, depending on the circumstances.

None: That entity.

May not require even even efficient spend may lead to more funding for further development.

Francois Brisebois: Thank you.

David Michael Larsen: Thanks, Greg.

None: Thank you.

None: Thanks, Mike.

David Michael Larsen: Our next question is a follow-up question from David Larsen. Please proceed with your question.

Our next question is a follow up question from the line of David Larsen. Please proceed with your question.

David Michael Larsen: I wanted to ask Will a question about his new sort of expanded role, I think, of Chief Operating Officer. Just, Will, what are you seeing from that perspective? And maybe can you talk a little bit about the reclassification of some G&A costs up into COGS?

David Michael Larsen: I wanted to ask will have a question about his his new sort of expanded role I think of Chief operating officer, just well what are you seeing from from that perspective, and maybe can you talk a little bit about the reclassification of some G&A costs up into Cogs why did you do that just any color would be very helpful. Thank you.

William Frederick: Why did you do that? Just any color would be very helpful. Thank you. Sure. Happy, happy to

None: Sure happy happy to do that.

William Frederick: I think one of the things it definitely allowed us to do as a company is look across the entire organization at the way that we're running our operations, both services operations and software operations. As we've progressed, since we've done the acquisitions, we've always tried to have a one company focus, I'll call it, that drives further synergies, leverages best practices throughout the organization. And this was one more step in addition to the most recent ones were, you know, sales and marketing consolidation. Uh, certainly the reclass, that we did this year. As I mentioned, no impact on our total costs in the way that we've reported them, but give a little bit more clarity, and we've tried to incorporate that into the script on our cost as a percentage of revenue, and really looking at what's our services organization costing us, where can we improve in utilization rates or allocations of effort to development, sales and marketing, what's our sales and marketing spend as a percentage of revenue, what's our GNA spend, so really helping to

None: I think one of the things it definitely allowed us to do as a company is look across the entire organization.

None: At the way that we're running our operations both services operations in software operations. So.

None: It's as we've progressed since we've done the acquisitions, we've always tried to have a one company focus I'll call it that drives.

None: Drives further synergies Leverages best practices throughout the organization and this was one more step in addition to the most recent ones where sales and marketing consolidation.

None: Certainly the re class.

None: That we did this year as I mentioned no no impact on our total costs in the way that we've.

None: Reported them, but getting a little bit more clarity.

None: And we've tried to incorporate that into the script on.

Our our cost as a percentage of revenue and really looking at.

None: What's what's our services organization costing us where can we improve in our utilization rates or allocations of effort to development sales and marketing.

None: Our sales and marketing spend as a percentage of revenue, what's our G&A spend so really really helping the company focus on areas that we can drive future profitability get the leverage out of the business.

William Frederick: And, and most importantly, I mean, we continue to have a focus on future M&A. So having this infrastructure in place that allows us to bring in new companies and keep layering on that infrastructure should hopefully allow us to see some nice synergies in the future.

None: And most importantly, we continued to have a focus on future M&A. So having this infrastructure in place that allows us to bring in new companies and keep layering on that infrastructure should hopefully allow us to see some nice synergies in the future.

David Michael Larsen: Fantastic, what I just heard you say was you had a better look at the earnings per individual in each department in the organization, and that's exactly what I like to hear, quite frankly. And then, just last one, can you just talk a little bit about your sales organization? How many, you know, FTEs do you have in sales? How many are quota carrying?

None: Fantastic what I just heard you say was you got a better look at the earnings per individual in each department in the organization and that's exactly what I liked to hear quite frankly, and then just last one.

None: Just talk a little bit about your sales organization. How many you know ftes do you have in sales how many are quota carrying and then you mentioned integration of sales force who was integrated into what was immune metrics are where there are other integrations that happened recently.

David Michael Larsen: And then you mentioned integration of Salesforce. Who is integrated into what? Was it Immunitrics, or were there other integrations that happened recently? Just any sort of color there would be helpful. Sales is obviously very important.

Any sort of color there would be helpful. Sales is obviously very important.

William Frederick: Sure, you want to

None: Sure you want to take that one shot a while let me keep going.

William Frederick: Do you want to take that one, Sean, or do you want me to keep going?

None: You go for it.

William Frederick: You go for it.

None: [laughter] alright, so certainly with the Internet tricks acquisition.

William Frederick: All right, so certainly with the immunetrics acquisition, we do have an earn out. So there are certain constraints on where we can fully integrate.

None:

None: Yeah, we do have that earn out so there are certain constraints within where we can fully integrate it but we've made strides in the direction to leverage our existing sales force.

William Frederick: made strides in the direction to leverage our existing sales force. You've heard us talk about cross-selling, where can we leverage customers that we have to sell services and software from the different business units, continue to work up that value chain within the organization, and hire decision makers. We still have about the same number of sales and marketing folks, so there's, I wanna say, about 12 salespeople who are quota-carrying, about six or seven folks that are in marketing, and certainly a great addition, just recently, this last quarter, with Dan Zott as our Chief Revenue Officer.

None: <unk> heard us talk about the cross selling where can we leverage our customers that we have to sell services software from the different business units continue to work up that value chain within the organization hire decision makers are we still got about the same amount of sale.

None: <unk> and marketing folks so there's let's see about 12 salespeople quota carrying about six or seven folks that are in marketing.

None: And certainly Great addition, Ah just recently this last quarter with Dan soft as our Chief revenue Officer.

Sean O'Connor: SHINE PANIST

None: Shine thing I missed.

Sean O'Connor: That sounds good. You know, the consolidation process really started a couple of years ago. And at that time, before Immunetrics was pulling resources from divisions at the time, the previous acquisitions and combining together into one sales and marketing organization internally created some efficiencies, but more importantly, it was a focus in terms of our go-to-market presentation to our clients as one company. All of that leads to support for upsells and cross-selling across platforms and across services to our existing customers, and I think that's been accruing benefits here for a while.

None: That sounds good.

None: The consolidation process are really started a couple of years ago and at that time before any metrics was pulling resources from the <unk> Division.

None: Divisions at the time the previous acquisition.

None: And consolidating them together into one Oregon, one on one sales and marketing organization with internally.

None: Create some efficiencies, but more importantly, it was a focus in terms of our go to market presentation to our clients as one company all of that leads to a support to Upsells and cross selling.

None: Across platforms and across services to our existing customers and I think that's so that's that's been accruing benefits here for a while.

David Michael Larsen: All right, fantastic. Thanks a lot. Congratulations on a good quarter. Thank you, Dave.

None: Alright fantastic. Thanks, a lot congrats on a good quarter.

Operator: Unknown Attendee

Operator: Thank you.

Sean O'Connor: There are no further questions in the queue. I'd like to hand the microphone back to Mr. O'Connor for closing remarks.

None: Thank you.

None: Thank you.

None: There are no further questions in the queue I'd like to hand, it back to you Mr. O'connor for closing remarks.

Operator: for Goodwill Live.

O'connor: Very good well I appreciate everyone's attention today and.

Sean O'Connor: I appreciate everyone's attention today and hope all goes well on your side and look forward to speaking again soon. Take care, all.

O'connor: Hope all is well on your side and look forward to speaking again soon take care all.

O'connor: Yeah.

Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

None: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.